It is perhaps not widely understood (outside the specialized domains of risk modeling and property insurance) that the last twenty years have seen the relatively rapid growth of a new kind of financial instrument: the catastrophe bond. I aim in what follows to offer the reader a brief introduction to these innovative money-things, which sit at the precarious nexus of mathematical modeling, environmental instability, and vast sums of capital. Techno-legal creations of considerable complexity (and some genuine elegance), “cat bonds“ circulate in the Olympian air of global high finance, where they afford investors an opportunity to place large bets on the occurrence (and non-occurrence) of various mass disasters: earthquakes, hurricanes, plagues, suitcase nukes. The lengthy, turgid, and highly confidential specifications that make up the prospectuses of these investments might be said to represent a special and entirely overlooked subgenre of science fiction: what we discover, turning the pages of such deals, are fanatically extensive metrical descriptions of countless doomsday scenarios, each story told in lovingly legalistic and scientific detail. Unlike most dystopian fantasizing, however, the worst-case scenarios played out in the appendices of cat bond issues come with very real-world prospective paydays, precisely priced and proper to the consideration of an imaginative portfolio manager looking to diversify her investments.
Put your paranoia aside (at least temporarily). It is quite possible that cat bonds are basically a good thing, creating mechanisms as they do for hedging against the tremendously disruptive costs of low-probability, high-negative-impact natural and/or social events. It is also possible, of course, that they are simply another sophisticated exercise in plutocratic self-dealing. We will bracket that thorny problem for now, and focus here on conveying (1) a general understanding of how these instruments work, and (2) a specific appreciation of the way that they constitute perhaps the most elaborate and powerful social technology currently available for articulating just what we mean when we say “catastrophe.”
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