Mark to Mother Nature?

I love Thomas L. Friedman's articles on the environment, the economy, the world, and almost everything else that matters...

Here he simplifies to the reader the pricing of risk by financial institutions which led to the collapse of the credit markets:

Our biggest financial-services companies, some of which came to be seen as too big to fail, engaged in complex financial trading schemes that did not adequately price in the costs and risks of a market reversal. A.I.G., for instance, was selling insurance for all kinds of financial instruments and did not have anywhere near adequate reserves to cover claims if things went badly wrong, as they did. And our biggest energy companies, utilities and auto companies became dependent on cheap hydrocarbons that spin off climate-changing greenhouse gases, and we clearly have not forced them, through a carbon tax, to price in the true risks and costs to society from these climate-changing fuels.

“When the balance sheet of a company does not capture the true costs and risks of its business activities,” and when that company is too big to fail, “you end up with them privatizing their gains and socializing their losses,” Nandan Nilekani, the co-chairman of the Indian technology company Infosys, remarked to me. That is, everyone gets to rack up their private profits today and pay them out in current bonuses and dividends. But any catastrophic losses — if the company is too big to fail — “get socialized and paid off by taxpayers.”

In the article, he relates the economy to the environment, something most of us often take for granted as an omnius thing that's just there.

Found at: Nytimes