2008 Global Financial Crisis

The anatomy of the GFC (2008)

From Thomas L. Friedman (Hot, flat and crowded) p 9 to 24. This is a summary of him. I've part quoted and part re-stated, (although not made it clear which is which!)

It all started with dodgy mortgages; they seem to come in two breeds:

Subprime (which is also used generically to describe both sorts)

The borrower has a blemished credit history and low scores on tests used to estimate credit quality.

Alt-A Loans

Mortgages that have low initial interest rates, but then go to higher rates in a year or two. They require no or low down payments. The borrower does not have to state their income or their stated income is not verified (wow!); hence they are sometimes called "liar loans". That said the borrower could have a good credit history...it seems these loans were used by "speculators" thus:

A speculator buys a house with an, initially, cheap Alt-A loan and then sells it on when the higher rate kicks in and takes the capital gain as profit. Of course, this only works when the housing market is good (rising prices and high demand).

Subprime (and Alt-A) mortgages historically represented only a small part of the mortgage market; they had always existed alongside the lower risk "Prime" mortgages (where the borrower has good credit history and proven, stable income to meet mortgage repayments). 

Default on prime mortgages was historically less than 4% in the US; during the crisis defaults on "subprime" loans was around 30%.

The growth in subprime mortgages was driven by several factors:

1. A key factor was the American governments desire to encourage home ownership. The government encouraged entities like Fannie Mae and Freddie Mac to make mortgages more available, speciaifally by using "flexible underwriting standards" (Friedman's quotes, he doesn't state his source though).

How widespread was it:

In September 2008 there were roughly twenty-five million of subprime and Alt-A  mortgages with unpaid principal totaling around $4.5 trillion (that would make the average unpaid principal $180,000). That's almost 45% of all single-family mortgages in the US in 2009.

How dodgy were the borrowers?

"people with incomes of $15,000 to $20,000, with no credit ratings, or in some cases without even a steady job or citisenship papers were granted mortgages to buy $300,00 and $400,000 homes"

How these mortgages were sold on

A bank or mortgage broker sold the mortgage to a borrower. The institution then sold the loan on to bigger financial firms (think Citibank, Merrill Lynch and the government sponsored bodies Fannie Mae and Freddie Mac). 

The big financial firms bundled the mortgages together and sold them as bonds. The idea being that the mortgage repayments could be used to pay interest and capital to the bond holders. The bonds appear to be asset-backed (meaning that they are guaranteed by the bricks and mortar of the house the original mortgage is on).

The bonds were popular; they were well rated by the ratings agencies and historically Americans had been good at repaying loans. Hence, the bonds were bought by fund managers all over the world.

What happened next...

The housing market collapsed. Prices went down and presumably demand did too. This meant people who were speculating with Alt-A mortgages couldn't repay the loans by selling. They also couldn't meet the higher interest payments that kick in after a year or two. Similarly, sub-prime borrowes

Greenhouse gasses

A way to visualise CO2 emmssions from your car

From Thomas L. Friedman, Hot, flat and crowded, p 71

A typical car emits 1 pound (they're Americans, that's about 450g to the rest of the world, about half a bag of flour) of carbon dioxide every mile (1.6 km). This is pollution. To help visualise it Freidman suggests thinking of it as a bag of rubbish (you know those McDonald's bags that mysteriously appear overnight); every time you drive a mile, imagine throwing a bag out of the window...now imagine every other driver on the road doing the same (if it's a SUV they get to throw out two bags). 

Hmmm...does that help?

Lighting the Way IAC report

Their conclusions are:


CONCLUSION 1. Meeting the basic energy needs of the poorest people on this planet is a moral and social imperative that can and must be pursued in concert with sustainability objectives.


CONCLUSION 2. Concerted efforts must be made to improve energy efficiency and reduce the carbon intensity of the world economy

CONCLUSION 3. Technologies for capturing and sequestering carbon from fossil fuels, particularly coal, can play a major role in the cost-effective 

management of global carbon dioxide emissions.


CONCLUSION 4. Competition for oil and natural gas supplies has the potential to become a source of growing geopolitical tension and economic vulnerability for many nations in the decades ahead. 


CONCLUSION 5. As a low-carbon resource, nuclear power can continue to make a significant contribution to the world’s energy portfolio in the future, but only if major concerns related to capital cost, safety, and weapons proliferation are addressed.


CONCLUSION 6. Renewable energy in its many forms offers immense opportunities for technological progress and innovation.


CONCLUSION 7. Biofuels hold great promise for simultaneously addressing climate-change and energy-security concerns.


CONCLUSION 8. The development of cost-effective energy storage technologies, new energy carriers, and improved transmission infrastructure could substantially reduce costs and expand the contribution from a variety of energy supply options.


CONCLUSION 9. The S&T community—together with the general public—has a critical role to play in advancing sustainable energy solutions and must be 
effectively engaged.

Energy research

Australian government energy pricing audit...possibly show that solar and wind outstrip coal as cheapest source by 2030...? http://www.bree.gov.au/publications/aeta.html

Energy use per person
From Thomas L. Friedman's Hot, flat and crowded, p 104

2000 to 3000 kcal/day - energy required simply be alive i.e. what our biology needs.

230,000 kcal/day - energy consumption of the average American, i.e. each person is consuming about 100 x what their body actually needs to live.

Apparently people in other developed nations use about half that, those in India and China 9 to 30 times less.

His source is a 2007 InterAcademy Council report "Lighting the Way". This report looks like a good source of info on energy...in 2007 anyway.

Effect of climate change on water

From the UN Global Compact.

Broadly speaking climate change will cause:

• Increased variability in climate with more "severe weather events". Hence, increased heavy rainfall, more flooding and longer droughts.
• Loss of snow and ice.
• Higher temperatures in the atmosphere and sea.

This will affect water quality, supply and demand. This post summarises a few general statements made in the UN report to business and provides an overview of what might happen, but not much in the way of detail.

This rather cheery picture shows how supplies of freshwater may change by the end of the century (it's from the IPCC...)

These changes will probably cause:

Supply

1. Water shortages due to changes in rainfall and hence the water table. Drier in the subtropics and mid-latitudes which are already poor.

2. Glaciers and snowcaps reduced. One-sixth of population live in river basins fed by glaciers and snow melt. Notably China, India, Pakistan and western USA.

3. Damaged ecosystems due to temp increases, changes in rainfall and longer droughts. Ecosystems filter water and buffer against floods, but not when they deteriorate.

4. Flooding, extreme weather and sea-level rise will mess with existing water infrastructure (treatment and distribution). e.g. The future climate is likely to be more variable with floods followed by drought. Capacity to store large volumes during flood to carry through a drought may not exist. E.g. sea level rise could compromise water treatement.

5. Non-consumptive activities may be affected by drought, flood or extreme events. E.g.

Tourism that depends on snow or water;

Freight by river (e.g. Rhine in Europe, Mississippi in US);

Freshwater fisheries.

Quality

1. Extreme rainfall and floods increase erosion and contaminate water. Also wash soil based pollutants and toxins into fresh water.

2. Sea level rise can contaminate coastal surface and groundwater supplies (rivers, deltas and aquifers)

3. Increased algal and bacterial blooms due to higher temperatures.

4. Greater health risks e.g. flooding mobilises pathogens and contaminants.

Demand

1. Prolonged dry spells and drought increase irrigation demand. e.g. estimate is 40% increase in land needing irrigation by 2080.

2. Higher temps mean farm animals need more to drink.

3. More cooling water needed in industrial applications due to higher atmospheric and water temps.

Disasters

1. There's likely to be flooding and inundation of coastal areas, flood plains etc. due to sea level rise and heavier rainfall in certain places.

Food crisis of 2007-2008

"The 2007 - 2008 food crisis was primarily one of supply and demand imbalance, although world food stocks did reach alarmingly low levels. While many people don't realise it, the are direct relationships between food crisis and water scarcity that were manifest initially through drought in various regions." (source)

<What is the anatomy of a food crisis?>

Agriculture uses 70% of the world's water...UN

Water research

Random stuff about water...

The World Water Council publications list.

Book: Out of Water
Includes a chart of water usage from 2005 which shows Australians were the world's second heaviest users of water. Assuming there's been no dramatic improvement since then (seems unlikely), it suggests that we have a lot of scope to adapt to probable water shortages in WA metropolitan areas by 2030. 

Selected quotes:
To feed the World's population in 2050 will require about twice as much water as was used for agriculture in 2000. p. xvii

"...a metric ton of rice requires upto 3780 ML (mega litres) of water for its growth. A kilo of grain fed beef requires about 10,000 litres (10,000 ML per ton)." In other words beef requires about 3 times as much water as rice. p 7

"On average, every calorie consumed in our food requires a litre of water for its production, and this does not count water used by food processing industries...Consequently, each person on the planet, if consuming a diet of 2500 calories per day, accounts for at least 2500 litres of water requirement....this totals 912,500 litres" per year. p7-8

"...global population growth...is predicted to climb from about 6.7 billion in 2008 to about 9 billion in 2050...the future water requirement...is approx. 14,000 km2..." To meet the needs of the extra 2 billion people will require "25-50 enourmous dams of the capacity of the High Aswan Dam on the River Nile...These vast amounts of water are not available...in the areas where we need them..." p 8-9

"half the world's population will be affected by water shortages in just 20 years' time (2030), with millions dying and increasing conflicts over dwindling resources"...and... "During the 20th century the world population increased fourfold, but the amount of freshwater that it used increased nine times over. "...and ..."water scarcity could cut world harvests by 30 per cent – equivalent to all the grain grown in the US and India (by 2030)". ..and... "(The UN expects)...water conflicts to break out in the Middle East, Haiti, Sri Lanka, Colombia and other countries." Independent

Other sources? The World Water Development Report, world water forum 2013, United Nations Food and Agriculture Organization

Good summary of the future of water by the UN Global Compact

SW WA water supplies in 2030

The future of water in SW WA...

Overview (from CSIRO report)
It's going to get hotter and drier (big surprise there!).

Rainfall will decrease by up to 18%, resulting in around 25 to 50% less run-off into stream and rivers.

Groundwater (in aquifers) won't be affected much by climate change.

The region currently takes about 75% of its water from ground water.

If the climate doesn't get too hot and demand doesn't grow too quickly, then there will enough water in 2030.

If either the climate gets hot, or demand grows rapidly, then there won't be enough water in 2030.

Either way, there will be localised issues. The two statements above ignore water quality and transportation. Taking these two factors into account means there are likely to be water deficits in horticulture (Harvey), coal mining (Collie) and urban supply (Perth). 

"Under current per-capita water consumption levels, rapid population and economic growth, along with the reductions in water yields, are expected to result in appreciable water deficits developing near Perth and some regional cities in south-western Australia by 2030." (Source)

As a result... 

"Seawater desalination is expected to become the main drinking water supply in the next few years" (source)

In the worst case scenario (high demand and a hot climate), the shortfall in available water across the region would be about 250 Giga Litres (GL) per year. Perth metropolitan area currently consumes about 250 GL/year...ouch...looks like a limit to growth...or an incentive to consume less*

*One estimate is that current per capita use needs to fall by about 10%, from 149 KL/year to 134 KL/year

Brief description of methodology
Forecast out to 2030, using three possible future climates: "wet extreme, median and dry extreme future climate". These were compared to "historical" (1975 - 2007) and "recent" (1997 - 2007) climate models. They also considered a "future development" model, that assumes growth in demand.

Where water comes from

There appear to be two sources of water: groundwater (aquifers) and surface water (rainfall and it's subsequent run-off). This map shows how they are distributed.


Where the rainfalls
It rains the most in the SW (about 1200mm/year) and least in the NE (less than 350mm/year) of the area. (These are, of course, averages!)

There's a lot of water loss to evaporation in the NE (about 1650mm/year) and less in the SW (about 1180mm/year).

So overall there is a deficit of rainfall in the NE (350 - 1650 = -1300 mm/year) and a bit to spare in the SW (1200 - 1180 = 20 mm/year). That's the averages. Extremes appear to be a deficit of about 1350 mm/year in the NE and a surplus of 150mm/year in the wettest bits of the SW).


It's going to rain less

It's going to rain less

As the climate warms up, it will rain less. Depending on the climate model used and the forecast of how much the climate will change, the predicted fall in rainfall by 2030 varies from about 1% less to about 18% less. The diagram shows the data.

The reports translates this to "water yields" from rainfall, which seems to be the water available from streams and rivers. These will decline by an average of 24% in the "median" scenario; and range from 4% to 49% lower. Presumably 49% comes from the "hot" scenario.

And this also translates into less flow in rivers which could affect ecosystems dependent on high flows.

And, regions that depend on surface water will be in deficit by 2020, assuming continued increase in demand. In English this means that areas like Harvey (horticultural irrigation) and Collie (coal mining) won't have enough water to meet demand. Bad news for those who like to eat, good news for those who would like to see fewer fossil fuels in use?

Groundwater seems OK
Groundwater supplies are more resilient to climate change. Yields are likely to be between only 2% lower by 2030 and may actually have increased. However, certain ecosystems (such as wetlands) are sensitive to changes in groundwater levels and may be affected by climate change.

About three-quarters of the regions water demands come from groundwater (as opposed to rainwater).

Demand for ground water is forecast to increase by between 10 and 57% by 2030. The median is about 35%. The range depends on predictions for population and industrial growth. This will result in deficits in groundwater availability in the Perth, Collie and Albany regions.

What it all means
Putting together groundwater and surface water supply and the projected demand for the various "future climate" scenarios, suggests the region has enough water in most cases. The main problem arises if there is high growth in demand linked to full belt climate change. The diagram below summarises the data. 

However, these numbers ignore water quality and transportation issues...so in actual fact, this isn't as good as it first seems! So, for example, Perth is expected to have significant gaps between yield and demand for groundwater by 2030. At it's worst, the deficit could be 250 Giga Litres (GL)/year. To put that in context, Perth currently uses about 700 mega litres (ML) of water a day (http://www.watercorporation.com.au/s/supply.cfm). So, a deficit of 250 GL/year over the whole region would mean Perth city would have no water for 357 days each year...ouch!

Population

SW WA
Population of SW WA (from Geraldton to Albany) is 1.9 million in 2010; 89% of the population of WA. The land area of SW WA is 62,500 km2 (source: SWSY-Summary-Groundwater.pdf, from http://www.clw.csiro.au/publications/waterforahealthycountry/swsy/)

World forecast
From Out of Water book p9...holy shit!
fggf

From Hot, flat and crowded:


Year UnD Dev'd Total
2007 1.3 5.4 6.7
2050 1.3 7.9 9.2

UnD = undeveloped countries
Dev'd = developed countries

Developed nations actually decline, but populations maintained by migration from developing nations (2.3 million per year).
His source is the United Nations Population Division, report March 13th, 2007).

By 2030 5bn people will live in cities. (same source)

SW WA water part 1 - surface water (rainfall)

Project to provide "robust estimates of current and future water yields for Western Australia’s south-west."

http://www.clw.csiro.au/publications/waterforahealthycountry/swsy/

Reported in 2010. Presentations and reports at the link above. There are three reports:
1. A summary that highlights possible shortfalls in 2030
2. A report on surface water supplies (rainfall and run-off from rain fall)
3. A report on ground water supplies (e.g. aquifers)

This post is a summary of the summary on surface water (rainfall)
It's going to rain less. The warmer it gets the less it rains. On average there will be 8% less rainfall and 25% less run-off. How bad it could get? Rainfall down 14% and runoff down 42% by 2030. Report does not go into what this will mean for agriculture, urban areas, policy etc.

Brief methodology
Forecast out to 2030, using three possible future climates: "wet extreme, median and dry extreme future climate". These were compared to "historical" (1975 - 2007) and "recent" (1997 - 2007) climate models. 

Graphs of changes from SWSY-Summary-SurfaceWater.pdf

Main findings

It's going to get drier and the more the climate warms the drier it will be.

Rainfall declines in all three futures vs historical and recent. E.g. in "median" future "rainfall declines by an average of 8 percent and runoff by 25 percent relative to the historical climate.


In the future "streamflow" will decline by 800 gigalitres (GL) (for the median future) and by over 1400 GL under the dry extreme future climate. <How significant is that?>


Historically "the probability of rainfall exceeding 900 mm and runoff exceeding 130 mm in any one year is 20 percent. This probability reduces to 5 percent under the median future climate and to less than 3 percent in the dry"

Variability will increase substantially.

Days of low or no flow will increase.

Some numbers
Top section of table from the pdf. (Other rows, not copied, broke down results by geographical areas.) This table may be useful comparing for different scenarios and identifying just how bad it could get...rainfall down 14% and runoff down 42% by 2030.