Disgusting. Horrid. And all-too revealing of what is likely to be the motivations behind an otherwise 'peaceful' movement... A link to the "10:10" video can be found here. Don't be shocked at the gore (pun intended) in the video. Sadly, no matter how you try to dress the pig in something pretty this climate alarmist message ultimately leads to one result (desire?): Death.
It will be difficult - if not impossible - to kick this trash under the rug and hope nobody smells the stench. IMHO, this is the carefully crafted message from a substantial portion (no, not all) of the individuals at very heart of the global green movement: If you stand in the way of our plans, we will eliminate you.
Even good ol' non-violent Greenpeace tip-toes around condemning this pile of putrid refuse. Their response (and most others in the environmental movement who can dig up the courage to comment at all) can be summed up as implying 'things will settle down, if the sinister forces of well-funded corporate climate-change skepticism would just get out of the way'. Hogwash.
The AGW religion suffers from an inability to rationally deal with opposing ideas. They can’t even allow for the possibility of honest dissent. And - considering the panic at the numerous attempts to get rid of this offensive video - they can’t even handle their own words being repeated back to them. This film reveals that a significant portion of the AGW proponents support the concept of implementing a world-wide totalitarian regime to enforce their viewpoint. They demand “voluntary” involvement to pledge one's support of their cause. And a failure to “volunteer” will be appreciated in an appropriate (negative) way. Tyranny, by another name, is still what it is.
I'm sorry - I don't care HOW many honest and concerned people accept the AGW dogma: this production in an attempt to generate support for AGW and other environmental concerns is a *huge* PR problem if you want to be taken seriously. IMHO, this propaganda-driven trash is on the same level as Islamic Terrorism... if these jokers "don't speak for everyone" - then why aren't environmental organizations falling all over themselves to condemn and totally reject this garbage? Don't just 'gently rebuke' it: De-fund them. Make them go away. Then, PROVE that disagreement with the canon of AGW brotherhood is not a path to Death and Destruction raining down at the hands of True Believers.
The clock is ticking.
- Steve
Showing posts with label Unintended Consequences. Show all posts
Showing posts with label Unintended Consequences. Show all posts
Thursday, October 7, 2010
Friday, May 21, 2010
Smith vs. Keynes (again)
It can be argued - and I won't disagree (too much) - that capitalism without some reasonable legal restraints, would eventually devolve to a point where the most common activity would be the buying and selling of (sometimes willing) slaves. And while I am a capitalist at heart, I recognize that moderation is all things is better than a society surrounded by unbridled chaos. I just prefer a system which allows individuals to enjoy the freedom to achieve and succeed to the extent of their drive and ability with minimal intrusion by government. We lost that a long time ago. It is sorely missed.
The truly self-sufficient doesn't need 'protection' from the mistakes he *might* make. Just keep the playing field level and make sure the appropriate information if disclosed accurately and in a timely manner. BTW - Those whose day-to-day existence is provided from the efforts of others should not be in charge of holding the reins.
All that said... I am concerned (again) that our well-meaning bureaucrats are marching down the wrong road (again) with these so-called 'financial reforms' trying to sneak in the backdoor. There seems to be a complete lack of understanding that the chase for immediate (and unsustainable) profits in the derivatives market was a key component to the meltdown (maybe THE key). The *extreme* all-blinders-on pursuit to capture the high returns promised by the derivatives drove the financial community into a feeding frenzy. This frenzy continued unabated until common sense and all rational thought had been cast aside. Too much focus is being made on the results of that process instead of the Real Causes. And, yes, both the private and public sector must jointly share the blame for their excesses. To lay the blame (and new regulations) at the feet of the private sector alone is a mistake. The explosion of the derivative market was driven - and arguably caused - by government intervention in the marketplace, predominately for social engineering (which is *not* a legitimate purpose of government, IMHO).
My point: Any 'reform' legislation that does NOT apply a critical examination and *increased* accountability on the bureaucracy (e.g. Freddie and Fannie) is doomed to failure in the long run. At this point, I see our benevolent pseudo-masters in Washington gleefully assuming a stance not unlike the man selling lots in Hell: eventually, he'll be so successful, it won't be long before everyone will be going there.
* sigh*
- Steve
The truly self-sufficient doesn't need 'protection' from the mistakes he *might* make. Just keep the playing field level and make sure the appropriate information if disclosed accurately and in a timely manner. BTW - Those whose day-to-day existence is provided from the efforts of others should not be in charge of holding the reins.
All that said... I am concerned (again) that our well-meaning bureaucrats are marching down the wrong road (again) with these so-called 'financial reforms' trying to sneak in the backdoor. There seems to be a complete lack of understanding that the chase for immediate (and unsustainable) profits in the derivatives market was a key component to the meltdown (maybe THE key). The *extreme* all-blinders-on pursuit to capture the high returns promised by the derivatives drove the financial community into a feeding frenzy. This frenzy continued unabated until common sense and all rational thought had been cast aside. Too much focus is being made on the results of that process instead of the Real Causes. And, yes, both the private and public sector must jointly share the blame for their excesses. To lay the blame (and new regulations) at the feet of the private sector alone is a mistake. The explosion of the derivative market was driven - and arguably caused - by government intervention in the marketplace, predominately for social engineering (which is *not* a legitimate purpose of government, IMHO).
My point: Any 'reform' legislation that does NOT apply a critical examination and *increased* accountability on the bureaucracy (e.g. Freddie and Fannie) is doomed to failure in the long run. At this point, I see our benevolent pseudo-masters in Washington gleefully assuming a stance not unlike the man selling lots in Hell: eventually, he'll be so successful, it won't be long before everyone will be going there.
* sigh*
- Steve
Wednesday, April 28, 2010
CRA and the Meltdown Timeline
Ok... Let's start with a historical timeline before commenting, so we can make sure we're starting from (mostly) the same set of data (from several sources, including Wikipedia, which is hardly 'non-partisan'). Please correct me where I'm wrong or missed something hugely significant. Yeah, I highlighted a couple of entries - emphasis is mine (only the issues really that pushed my puttons). And, yes, there's a LOT more, I left many details out: Mea Culpa. And quite a few notes benefit from 20-20 hindsight (which means nothing, ultimately).
Note there are individuals and groups of all political stripes referenced.
* * *
- 1977 - The Commuity Reinvestment Act (CRA) was enacted (Thank you Jimmy Carter!) The intent was to address historical discrimination in lending, driven (in part) by the practice of “Redlining”. The Act encourages commercial banks and savings associations to meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods.
- 1980 - The Depository Institutions and Deregulation and Monetary Control Act (DIDMCA) grants thrifts, including savings and loan associations, the power to make consumer and commercial loans and to issue transaction accounts and exempted federally chartered savings banks, installment plan sellers and chartered loan companies from state unlimited interest rates limits.
- 1981 - Each of the 12 Federal reserve banks establishes a Community Affairs Office to offer public and private guidance in accordance with the CRA.
- 1982 - the Alternative Mortgage Transaction Parity Act (AMTPA) preempts state laws and allows lenders to originate mortgages with features such as adjustable-rate mortgages, balloon payments, and negative amortization all of which contribue to "allowing lenders to make loans with terms that may obscure the total cost of a loan".
- 1986 - The Tax Reform Act (TRA) denied taxpayers to deduct interest on consumer loans, such as credit cards and auto loans, while allowing them to deduct interest paid on mortgage loans, providing an incentive for homeowners to take out home equity loans to pay off consumer debt.
- 1985-1989 - The effects of the TRA, and imprudent lending during the late 1970's along with other causes, led to massive insolvency (e.g., the Savings and Loan Crisis). This caused the failure and/or closure of half of all federally insured savings and loans. The Resolution Trust Corporation (RTC) was created to handle the problem and the U.S. government ultimately appropriated 105 billion dollars to resolve the crisis. After banks repaid loans through various procedures, there was a net loss to taxpayers of 40 billion dollars by the end of 1999.
- 1990 - The 1990 ACORN convention in Chicago featured a squatting demonstration at an RTC location. Later, ACORN members demanded cooperation from banks about providing loan data on low- and moderate-income communities and compliance with the CRA.
- 1991 - ACORN fought legal moves to weaken the CRA, staging a two-day takeover of the House Banking Committee hearing room. It also established ACORN Housing Corporation to service people moving into homes under the housing campaign, rehabilitated hundreds of houses addressed by CRA.
- 1992 - The Federal Housing Enterprises Financial Safety and Soundness Act required Fannie Mae and Freddie Mac to devote a percentage of their lending to support affordable housing increasing their pooling and selling of such loans as securities; the Office of Federal Housing Enterprise Oversight (OFHEO) created to oversee them. The ACORN convention in New York, called the “ACORN-Bank Summit”, was organized to make deals with giant banks. When Citibank, the nation’s largest bank, did not participate conventioneers protested at its downtown Manhattan headquarters, and won a meeting to negotiate for similar programs. BTW, I haven't confirmed the precise time period, but it might be relevant to note that President Barak Obama was a community organizer and part of the legal counsel team for ACORN in both Chicago and New York during the 1990's (but *perhaps* not on this specific issue).
-1995 - New Community Reinvestment Act regulations break down home-loan data by neighborhood, income, and race, enabling community groups to complain to banks and regulators about CRA compliance. Regulations also allows community groups that market loans to collect a broker's fee. Fannie Mae allowed to receive affordable housing credit for buying subprime securities. These changes were driven by a directive from President Clinton to revise the CRA regulations to make them more performance-based, and to make examinations more consistent, clarify performance standards, and reduce cost and compliance burden. This directive addressed criticisms that the regulations, and the agencies’ implementation of them through the examination process, were too process-oriented, burdensome, and not sufficiently focused on actual results. The agencies also changed the CRA examination process to incorporate these revisions. (All in the name of “Good Intentions”.) Also, Janet Reno and HUD used the force of law to pressure banks to make bad loans. President Clinton publicly touted the increase in the number of home loans to “the poor”.
- 1997 - Mortgage denial rate of 29 percent for conventional home purchase loans. Investors purchased more than $60 billion of sub-prime mortgage backed securities, six times more than 1991’s volume of $10 billion. (private label securities, not GSE backed) The Taxpayer Relief Act of 1997 expanded the capital-gains exclusion to $500,000 (per couple) from $125,000, encouraging people to invest in second homes and investment properties. In November, Freddie Mac helped First Union Capital Markets and Bear Stearns & Co launch the first publicly available securitization of CRA loans, issuing $384.6 million of such securities. All these securities carried a Freddie Mac guarantee as to timely interest and principal.
- 1998 - Housing bubble appears as inflation-adjusted home price appreciation exceeds 10% per year in most West Coast metropolitan areas. In May: Brooksley Born and the Commodity Futures Trading Commission release a report calling for regulation of Over the Counter Derivatives. Born says that non-transparent trading could severely harm the economy. Alan Greenspan, Robert Rubin, and Arthur Levitt of president Clinton's Working Group on Financial Markets, and Larry Summers, fight against her plan and convince congress and others to take no action. In July, it was revealed (Washington Post) that Rep. Barney Frank, D-Mass, who is openly gay, had a personal relationship with Herb Moses, a high-level executive for Fannie Mae. While the relationship had reportedly ended, Frank was serving on the House Banking Committee - charged with oversight of Fannie Mae and Freddie Mac - for the entire 10 years they were together. When questioned, Rep Frank assured everyone there was no conflict interest. In October: "Financial Services Modernization Act" was killed in the Senate, primarily because of no restrictions on CRA-related community groups. Federal Reserve Bank of New York rescues Long-Term Capital Management hedge fund in 1998, which a GAO critic said encouraged risky loans on assumption government will bail out "too big to fail" banks and companies.
- 1998-2008 - With increase in sales of mortgage-backed securities, companies buy more credit default swaps, unregulated insurance contracts used to protect debt holders; these increased 100-fold, with estimates of the debt covered by such contracts, as of November 2008, ranging from $33 to $47 trillion.
- 1999 - Fannie Mae eases the credit requirements to encourage banks to extend home mortgages to individuals whose credit is not good enough to qualify for conventional loans. In November, The Gramm-Leach-Bliley Act is signed by president Bill Clinton, repealing the Glass-Steagall Act of 1933. It deregulates banking, insurance, securities, and the financial services industry, allowing financial institutions to grow very large. It also limits Community Reinvestment Coverage of smaller banks and makes community groups report certain financial relationships with banks. Congressmen key to the effort include Phil Gramm, Jim Leach, Thomas J. Bliley, Jr., Chuck Schumer, and Chris Dodd.
- 2000 - Lenders originate $160 billion worth of sub-prime, up from $40 billion in 1994. Fannie Mae buys $600 million of sub-prime mortgages, primarily on a flow basis. Freddie Mac, in that same year, purchases $18.6 billion worth of sub-prime loans, mostly Alt A and A- mortgages. Freddie Mac guarantees another $7.7 billion worth of sub-prime mortgages in structured transactions. In October, Fannie Mae commits to purchase and securitize $2 billion of CRA eligible loans. In November, Fannie Mae announces HUD will soon require it to dedicate 50% of its business to low- and moderate-income families" and its goal is to finance over $500 billion in CRA related business by 2010. In December, the Commodity Futures Modernization Act of 2000 defines interest rates, currency prices, and stock indexes as "excluded commodities," allowing trade of credit-default swaps by hedge funds, investment banks or insurance companies with minimal oversight, and contributing to 2008 crisis in Bear Stearns & Co, Lehman Brothers, and AIG.
- 2000–2001 - US Federal Reserve lowers Federal funds rate 11 times, from 6.5% (May 2000) to 1.75% (December 2001),creating an easy-credit environment that fueled the growth of US sub-prime mortgages.
- 2002-2006: Fannie Mae and Freddie Mac combined purchases of incorrectly rated AAA sub-prime mortgage-backed securities rise from $38 billion to $90 billion per year. Lenders are aggressively “encouraged” by Fannie Mae and Freddie Mac to offer loans to higher-risk borrowers, including illegal immigrants. Sub-prime mortgages amounted to $600 billion (20%) by 2006. Speculation in residential real estate rose. During 2005, 28% of homes purchased were for investment purposes, with an additional 12% purchased as vacation homes. During 2006, these figures were 22% and 14%, respectively. As many as 85% of condominium properties purchased in Miami were for investment purposes which the owners resold ("flipped") without the seller ever having lived in them.
- 2002–2003 - Mortgage denial rate of 14 percent for conventional home purchase loans, half the rate of denials in 1997.
- 2002 - Annual home price appreciation of 10% or more in California, Florida, and most Northeastern states. In June, President G.W. Bush sets goal of increasing minority home owners by at least 5.5 million by 2010 through billions of dollars in tax credits, subsidies and a Fannie Mae commitment of $440 billion to establish NeighborWorks America with faith based organizations.
- 2003 - Federal Reserve Chair Alan Greenspan lowers federal reserve’s key interest rate to 1%, the lowest in 45 years. In August: Borio and White of Bank of International Settlements speak at the Jackson Hole Economic Symposium, referencing BIS's "Credit Risk Transfer" 2003 report which warned about problems with collateralized debt obligations and rating agencies. Their arguments are rejected or ignored by attendees, including Alan Greenspan. IN September: Bush administration recommends moving governmental supervision of Fannie Mae and Freddie Mac under a new agency created within the Department of the Treasury. The changes are blocked by Congress.
- 2003-2007 - U.S. sub-prime mortgages increased 292%, from $332 billion to $1.3 trillion, due primarily to the private sector entering the mortgage bond market, once an almost exclusive domain of government sponsored enterprises like Freddie Mac. The Federal Reserve fails to use its supervisory and regulatory authority over banks, mortgage underwriters and other lenders, who abandoned loan standards (employment history, income, down payments, credit rating, assets, property loan-to-value ratio and debt-servicing ability), emphasizing instead lender's ability to securitize and repackage sub-prime loans.
- 2004-2007 - Many financial institutions issued large amounts of debt and invested in mortgage-backed securities (MBS), believing that house prices would continue to rise and that households would keep up on mortgage payments.
- 2004 - U.S. homeownership rate peaks with an all time high of 69.2 percent. Following example of Countrywide Financial, the largest U.S. mortgage lender, many lenders adopt automated loan approvals that critics argued were not subjected to appropriate review and documentation according to good mortgage underwriting standards. In 2007, 40% of all subprime loans resulted from automated underwriting. Mortgage fraud by borrowers increases, in many cases as supported by CRA-related community groups. HUD ratchets up Fannie Mae and Freddie Mac affordable-housing goals for next four years, from 50 percent to 56 percent, stating they lagged behind the private market; they purchased $175 billion in 2004—44 percent of the market; from 2004 to 2006, they purchased $434 billion in securities backed by sub-prime loans. In October, SEC effectively suspends net capital rule for five firms—Goldman Sachs, Merrill Lynch, Lehman Brothers, Bear Stearns and Morgan Stanley. Freed from government imposed limits on the debt they can assume, they leveraged up 20, 30 and even 40 to 1, buying massive amounts of mortgage-backed securities and other risky investments.
- 2005 - The SEC halts an investigation of Bear Stearns "pricing, valuation, and analysis" of mortgage-backed collateralized debt obligations. No action is taken against Bear. Robert Shiller gives talks warning about a housing bubble to the Office of the Comptroller of the Currency and the FDIC. He is ignored, and would later call it an incidence of Groupthink. That same year, his second edition of "Irrational Exhuberance" warns that the housing bubble might lead to a worldwide recession. In January, Federal Reserve Governor Edward Gramlich raises concerns over sub-prime lending practices, says mortgage brokers might not have incentives for careful underwriting and that that portion of the sub-prime industry was veering close to a breakdown, that it's possible that it is a bubble but that the housing market did not qualify for specific monetary policy treatment at this point. The Bank of International Settlements warns about the problems with structured financial products, and points out the conflict of interest of credit rating agencies - that they are being payed by the same companies they are supposed to be objectively evaluating. In February, the Office of Thrift Supervision implements new rules that allow savings and loans with over $1 billion in assets to meet their CRA obligations without investing in local communities, cutting availability of sub-prime loans. In June: The International Swaps and Derivatives Association enables credit default swaps (quasi-insurance contracts) to be taken out against asset-backed-security collateralized debt obligations (including ones backed by sub-prime mortgages). In August: Raghuram Rajan warns about credit default swaps, at the Jackson Hole Economic Symposium. His arguments are rejected by attendees, including Alan Greenspan, Donald Kohn, and Lawrence Summers. In September, the Mortgage Insurance Companies of America send a letter to the Federal Reserve, warning about 'risky lending practices' in US real estate. In the Fall 2005, the booming housing market halts abruptly; from the fourth quarter of 2005 to the first quarter of 2006, median prices nationwide drop 3.3 percent.
- 2006 - In May: The sub-prime lender Ameriquest announces it will cut 3,800 Jobs, close its 229 retail branches and rely instead on the Web. Merit Financial Inc, based in Kirkland, Washington, files for bankruptcy and closes its doors, firing all but 80 of its 410 employees; Merit’s marketplace decline about 40% and sales are not bringing in enough revenue to support overhead. In August: U.S. Home Construction Index is down over 40% as of mid-August 2006 compared to a year earlier. In September, Nouriel Roubini warns the IMF about a coming US housing bust, mortgage-backed securities failures, bank failures, and a recession. His work was based partly on his study of recent economic crises in Russia (1998), Argentina (2000), Mexico (1994), and Asia (1997).
- 2007 - Home sales continue to fall. The plunge in existing-home sales is the steepest since 1989. In Q1/2007, S&P/Case-Shiller house price index records first year-over-year decline in nationwide house prices since 1991. The sub-prime mortgage industry collapses, and a surge of foreclosure activity with rising interest rates threaten to depress prices further as problems in the sub-prime markets spread to the near-prime and prime mortgage markets. In January, Ownit Mortgage Solutions Inc. files for Chapter 11. Records show that Ownit Mortgage Solutions owed Merrill Lynch around $93 million at the time of filing. In February, Mortgage Lenders Network USA Inc., the country's 15th largest sub-prime lender with $3.3 billion in loans funded in third quarter 2006, files for Chapter 11. Several sub-prime lenders declare bankruptcy, announcing significant losses, or putting themselves up for sale.These include Accredited Home Lenders Holding, New Century Financial, DR Horton and Countrywide Financial. In March, the value of USA sub-prime mortgages was estimated at $1.3 trillion as of March 2007. Ben Bernanke, quoting Alan Greenspan, warns that the Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac, were a source of "systemic risk" and suggest legislation to head off a possible crisis. In April, New Century Financial, largest U.S. sub-prime lender, files for chapter 11 bankruptcy. Business sources report lenders made $640 billion in sub-prime loans in 2006, nearly twice the level 3 years earlier; sub-prime loans amounted to about 20 percent of the nation's mortgage lending and about 17 percent of home purchases; financial firms and hedge funds likely own more than $1 trillion in securities backed by sub-prime mortgage; about 13 percent of sub-prime loans are now delinquent, more than five times the delinquency rate for home loans to borrowers with top credit; more than 2 percent of sub-prime loans had foreclosure proceedings start in the fourth quarter. Freddie Mac is fined $3.8 million by the Federal Election Commission as a result of illegal campaign contributions, much of it to members of the United States House Committee on Financial Services which oversees Freddie Mac. In June, FDIC Chair Shelia Bair cautioned against the more flexible risk management standards of the Basel II international accord and lowering bank capital requirements generally: "There are strong reasons for believing that banks left to their own devices would maintain less capital -- not more -- than would be prudent. The fact is, banks do benefit from implicit and explicit government safety nets...In short, regulators can't leave capital decisions totally to the banks.". In August, worldwide "credit crunch" as sub-prime mortgage backed securities are discovered in portfolios of banks and hedge funds around the world, from BNP Paribas to Bank of China. Many lenders stop offering home equity loans and "stated income" loans. Numerous quantitative long/short equity hedge funds suddenly begin experiencing unprecedented losses as a result of what is believed to be liquidations by some managers eager to access cash during the liquidity crisis. It highlights one of the first examples of the contagion effect of the sub-prime crisis spilling over into a radically different business area. Central banks coordinate efforts to increase liquidity for first time since the aftermath of the September 11, 2001 terrorist attacks. The United States Federal Reserve (Fed) injects a combined 43 billion USD, the European Central Bank (ECB) 156 billion euros (214.6 billion USD), and the Bank of Japan 1 trillion Yen (8.4 billion USD). Smaller amounts come from the central banks of Australia, and Canada. The stock of Countrywide Financial, which is the largest mortgage lender in the United States, falls around 13% on the NYSE after Countrywide says foreclosures and mortgage delinquencies have risen to their highest levels since early 2002. Countrywide narrowly avoids bankruptcy by taking out an emergency loan of $11 billion from a group of banks. In September, TV finance personality Jim Cramer warns Americans on The Today Show, "don't you dare buy a home—you'll lose money," causing a furor among Realtors (one of the few times he actually gave good advice, IMHO). In October, a consortium of U.S. banks backed by the U.S. government announces a "super fund" of $100 billion to purchase mortgage-backed securities whose mark-to-market value plummeted in the sub-prime collapse. Both Fed chairman Ben Bernanke and Treasury Secretary Hank Paulson express alarm about the dangers posed by the bursting housing bubble. In December, President Bush announces a plan to voluntarily and temporarily freeze the mortgages of a limited number of mortgage debtors holding adjustable rate mortgages. He also asked Members Of Congress to: 1. pass legislation to modernize the FHA. 2. temporarily reform the tax code to help homeowners refinance during this time of housing market stress. 3. pass funding to support mortgage counseling. 4. pass legislation to reform Government Sponsored Enterprises (GSEs) like Freddie Mac and Fannie Mae. A consortium of banks officially abandons the U.S. government-supported "super-SIV" mortgage crisis bail-out plan announced in mid-October, citing a lack of demand for the risky mortgage products on which the plan was based, and widespread criticism that the fund was a flawed idea that would have been difficult to execute.
- 2007-2008 - Starting in late 2007, and throughout 2008, the 'monoline' municipal bond insurance companies, such as AMBAC, MBIA, and ACA, have their credit ratings downgraded by the credit rating agencies because they had also gotten 'insurance' policies (via credit default swaps) on mortgage-based CDOs. Since the entire 'municipal bond insurance' business model depends on the insurer having a very high credit rating, these companies begin to collapse, and the value of many of the bonds they insured also falls. Financial crisis escalates with collapse of major lenders and investors.
- 2008 - In March, Bear Stearns is acquired for $2 a share by JPMorgan Chase in a fire sale avoiding bankruptcy. The deal is backed by the Federal Reserve, providing up to $30B to cover possible Bear Stearn losses. In June, the chairman of the Senate Banking Committee Connecticut's Christopher Dodd proposes a housing bailout to the Senate floor that would assist troubled sub-prime mortgage lenders such as Countrywide Bank, Dodd admitted that he received special treatment, perks, and campaign donations from Countrywide, who regarded Dodd as a "special" customer and a "Friend of Angelo." Dodd received a $75,000 reduction in mortgage payments from Countrywide. The Chairman of the Senate Finance Committee Kent Conrad and the head of head of Fannie Mae Jim Johnson also received mortgages on favorable terms due to their association with Countrywide CEO Angelo R. Mozilo. In July, major banks and financial institutions had borrowed and invested heavily in mortgage backed securities and reported losses of approximately $435 billion as of 17 July 2008. President Bush signs into law the Housing and Economic Recovery Act of 2008, which authorizes the Federal Housing Administration to guarantee up to $300 billion in new 30-year fixed rate mortgages for sub-prime borrowers if lenders write-down principal loan balances to 90 percent of current appraisal value. In September, there is a Federal takeover of Fannie Mae and Freddie Mac, which at that point owned or guaranteed about half of the U.S.'s $12 trillion mortgage market, effectively nationalizing them. This causes panic because almost every home mortgage lender and Wall Street bank relied on them to facilitate the mortgage market and investors worldwide owned $5.2 trillion of debt securities backed by them. The US Federal Reserve lends $85 billion to American International Group (AIG) to avoid bankruptcy. Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke meet with key legislators to propose a $700 billion emergency bailout through the purchase of toxic assets. Bernanke tells them: "If we don't do this, we may not have an economy on Monday." The FBI discloses that it had been investigating the possibility of fraud by mortgage financing companies Fannie Mae and Freddie Mac, Lehman Brothers, and insurer American International Group, bringing to 26 the number of corporate lenders under investigation. The Emergency Economic Stabilization Act is defeated 228-205 in the United States House of Representatives. US Treasury changes tax law to allow a bank acquiring another to write off all of the acquired bank's losses for tax purposes. In October, the U.S. Senate passes HR1424, their version of the $700 billion bailout bill. President Bush signs the Emergency Economic Stabilization Act, creating a $700 billion Troubled Assets Relief Program (TARP) to purchase failing bank assets. It contains easing of the accounting rules that forced companies to collapse because of the existence of toxic mortgage-related investments. Key to winning GOP support was a decision by the Securities and Exchange Commission to ease mark-to-market accounting rules that require financial institutions to show the deflated value of assets on their balance sheets." The US taps into the $700 billion available from TARP and announces the injection of $250 billion of public money into the US banking system. The form of the rescue will include the US government taking an equity position in banks that choose to participate in the program in exchange for certain restrictions such as executive compensation. Nine banks agreed to participate in the program and will receive half of the total funds: 1) Bank of America, 2) JPMorgan Chase, 3) Wells Fargo, 4) Citigroup, 5) Merrill Lynch, 6) Goldman Sachs, 7) Morgan Stanley, 8) Bank of New York Mellon and 9) State Street. In November, Treasury Secretary Paulson abandons plan to buy toxic assets under the $700 billion TARP, saying the remaining $410 billion in the fund would be better spent on recapitalizing financial companies. The US Federal Reserve pledges $800 billion more to help revive the financial system. $600 billion will be used to buy mortgage bonds issued or guaranteed by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.
- 2009 - In April, the SEC sues Goldman Sachs for fraud, for allegedly having failed to disclose vital information to investors in one of it's "Abacus" mortgage-backed CDOs in 2007. The CDO was allegedly 'designed to fail' by the hedge fund of John Paulson, so that Paulson could make large profits by betting against it. Allegedly this was not disclosed to investors by Goldman, and they lost roughly a billion dollars, while Paulson & Co profited.
* * *
Whew... that's enough: my blood pressure will take long enough to come down...
Can we at least agree this covers a bit more than just the basics, with a LOT of the details (not *all*, but a LOT) concerning who did what, to whom, and what the end results were at least up until the early part of 2009?
- Steve
P.S. I'm not pointing fingers (yet); and its clear there's plenty of blame to go around, if that is what we wish to focus on - I don't, at least not too far beyond understanding how all those Good Intentions got us into this mess. Complicating matters is both sides of the aisle are currently playing spin games and appear more concerned with scoring political points instead of trying to solve the problem. That said, finding a practical (and workable) solution to this mess will be much more difficult, especially since it appears the principals currently involved are predominately the same folks that got us to where we are. I have a vision in which they are nothing but ticks who demand we feed the dog more.
P.P.S. I must say this - I find it curious that *no one* is talking about the actions of the CREDIT RATING AGENCIES during this process. They were obviously a key player in this whole mess. Where was *their* oversight? Or were they just doing as instructed? Inquiring minds want to know...
- SG
Note there are individuals and groups of all political stripes referenced.
* * *
- 1977 - The Commuity Reinvestment Act (CRA) was enacted (Thank you Jimmy Carter!) The intent was to address historical discrimination in lending, driven (in part) by the practice of “Redlining”. The Act encourages commercial banks and savings associations to meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods.
- 1980 - The Depository Institutions and Deregulation and Monetary Control Act (DIDMCA) grants thrifts, including savings and loan associations, the power to make consumer and commercial loans and to issue transaction accounts and exempted federally chartered savings banks, installment plan sellers and chartered loan companies from state unlimited interest rates limits.
- 1981 - Each of the 12 Federal reserve banks establishes a Community Affairs Office to offer public and private guidance in accordance with the CRA.
- 1982 - the Alternative Mortgage Transaction Parity Act (AMTPA) preempts state laws and allows lenders to originate mortgages with features such as adjustable-rate mortgages, balloon payments, and negative amortization all of which contribue to "allowing lenders to make loans with terms that may obscure the total cost of a loan".
- 1986 - The Tax Reform Act (TRA) denied taxpayers to deduct interest on consumer loans, such as credit cards and auto loans, while allowing them to deduct interest paid on mortgage loans, providing an incentive for homeowners to take out home equity loans to pay off consumer debt.
- 1985-1989 - The effects of the TRA, and imprudent lending during the late 1970's along with other causes, led to massive insolvency (e.g., the Savings and Loan Crisis). This caused the failure and/or closure of half of all federally insured savings and loans. The Resolution Trust Corporation (RTC) was created to handle the problem and the U.S. government ultimately appropriated 105 billion dollars to resolve the crisis. After banks repaid loans through various procedures, there was a net loss to taxpayers of 40 billion dollars by the end of 1999.
- 1990 - The 1990 ACORN convention in Chicago featured a squatting demonstration at an RTC location. Later, ACORN members demanded cooperation from banks about providing loan data on low- and moderate-income communities and compliance with the CRA.
- 1991 - ACORN fought legal moves to weaken the CRA, staging a two-day takeover of the House Banking Committee hearing room. It also established ACORN Housing Corporation to service people moving into homes under the housing campaign, rehabilitated hundreds of houses addressed by CRA.
- 1992 - The Federal Housing Enterprises Financial Safety and Soundness Act required Fannie Mae and Freddie Mac to devote a percentage of their lending to support affordable housing increasing their pooling and selling of such loans as securities; the Office of Federal Housing Enterprise Oversight (OFHEO) created to oversee them. The ACORN convention in New York, called the “ACORN-Bank Summit”, was organized to make deals with giant banks. When Citibank, the nation’s largest bank, did not participate conventioneers protested at its downtown Manhattan headquarters, and won a meeting to negotiate for similar programs. BTW, I haven't confirmed the precise time period, but it might be relevant to note that President Barak Obama was a community organizer and part of the legal counsel team for ACORN in both Chicago and New York during the 1990's (but *perhaps* not on this specific issue).
-1995 - New Community Reinvestment Act regulations break down home-loan data by neighborhood, income, and race, enabling community groups to complain to banks and regulators about CRA compliance. Regulations also allows community groups that market loans to collect a broker's fee. Fannie Mae allowed to receive affordable housing credit for buying subprime securities. These changes were driven by a directive from President Clinton to revise the CRA regulations to make them more performance-based, and to make examinations more consistent, clarify performance standards, and reduce cost and compliance burden. This directive addressed criticisms that the regulations, and the agencies’ implementation of them through the examination process, were too process-oriented, burdensome, and not sufficiently focused on actual results. The agencies also changed the CRA examination process to incorporate these revisions. (All in the name of “Good Intentions”.) Also, Janet Reno and HUD used the force of law to pressure banks to make bad loans. President Clinton publicly touted the increase in the number of home loans to “the poor”.
- 1997 - Mortgage denial rate of 29 percent for conventional home purchase loans. Investors purchased more than $60 billion of sub-prime mortgage backed securities, six times more than 1991’s volume of $10 billion. (private label securities, not GSE backed) The Taxpayer Relief Act of 1997 expanded the capital-gains exclusion to $500,000 (per couple) from $125,000, encouraging people to invest in second homes and investment properties. In November, Freddie Mac helped First Union Capital Markets and Bear Stearns & Co launch the first publicly available securitization of CRA loans, issuing $384.6 million of such securities. All these securities carried a Freddie Mac guarantee as to timely interest and principal.
- 1998 - Housing bubble appears as inflation-adjusted home price appreciation exceeds 10% per year in most West Coast metropolitan areas. In May: Brooksley Born and the Commodity Futures Trading Commission release a report calling for regulation of Over the Counter Derivatives. Born says that non-transparent trading could severely harm the economy. Alan Greenspan, Robert Rubin, and Arthur Levitt of president Clinton's Working Group on Financial Markets, and Larry Summers, fight against her plan and convince congress and others to take no action. In July, it was revealed (Washington Post) that Rep. Barney Frank, D-Mass, who is openly gay, had a personal relationship with Herb Moses, a high-level executive for Fannie Mae. While the relationship had reportedly ended, Frank was serving on the House Banking Committee - charged with oversight of Fannie Mae and Freddie Mac - for the entire 10 years they were together. When questioned, Rep Frank assured everyone there was no conflict interest. In October: "Financial Services Modernization Act" was killed in the Senate, primarily because of no restrictions on CRA-related community groups. Federal Reserve Bank of New York rescues Long-Term Capital Management hedge fund in 1998, which a GAO critic said encouraged risky loans on assumption government will bail out "too big to fail" banks and companies.
- 1998-2008 - With increase in sales of mortgage-backed securities, companies buy more credit default swaps, unregulated insurance contracts used to protect debt holders; these increased 100-fold, with estimates of the debt covered by such contracts, as of November 2008, ranging from $33 to $47 trillion.
- 1999 - Fannie Mae eases the credit requirements to encourage banks to extend home mortgages to individuals whose credit is not good enough to qualify for conventional loans. In November, The Gramm-Leach-Bliley Act is signed by president Bill Clinton, repealing the Glass-Steagall Act of 1933. It deregulates banking, insurance, securities, and the financial services industry, allowing financial institutions to grow very large. It also limits Community Reinvestment Coverage of smaller banks and makes community groups report certain financial relationships with banks. Congressmen key to the effort include Phil Gramm, Jim Leach, Thomas J. Bliley, Jr., Chuck Schumer, and Chris Dodd.
- 2000 - Lenders originate $160 billion worth of sub-prime, up from $40 billion in 1994. Fannie Mae buys $600 million of sub-prime mortgages, primarily on a flow basis. Freddie Mac, in that same year, purchases $18.6 billion worth of sub-prime loans, mostly Alt A and A- mortgages. Freddie Mac guarantees another $7.7 billion worth of sub-prime mortgages in structured transactions. In October, Fannie Mae commits to purchase and securitize $2 billion of CRA eligible loans. In November, Fannie Mae announces HUD will soon require it to dedicate 50% of its business to low- and moderate-income families" and its goal is to finance over $500 billion in CRA related business by 2010. In December, the Commodity Futures Modernization Act of 2000 defines interest rates, currency prices, and stock indexes as "excluded commodities," allowing trade of credit-default swaps by hedge funds, investment banks or insurance companies with minimal oversight, and contributing to 2008 crisis in Bear Stearns & Co, Lehman Brothers, and AIG.
- 2000–2001 - US Federal Reserve lowers Federal funds rate 11 times, from 6.5% (May 2000) to 1.75% (December 2001),creating an easy-credit environment that fueled the growth of US sub-prime mortgages.
- 2002-2006: Fannie Mae and Freddie Mac combined purchases of incorrectly rated AAA sub-prime mortgage-backed securities rise from $38 billion to $90 billion per year. Lenders are aggressively “encouraged” by Fannie Mae and Freddie Mac to offer loans to higher-risk borrowers, including illegal immigrants. Sub-prime mortgages amounted to $600 billion (20%) by 2006. Speculation in residential real estate rose. During 2005, 28% of homes purchased were for investment purposes, with an additional 12% purchased as vacation homes. During 2006, these figures were 22% and 14%, respectively. As many as 85% of condominium properties purchased in Miami were for investment purposes which the owners resold ("flipped") without the seller ever having lived in them.
- 2002–2003 - Mortgage denial rate of 14 percent for conventional home purchase loans, half the rate of denials in 1997.
- 2002 - Annual home price appreciation of 10% or more in California, Florida, and most Northeastern states. In June, President G.W. Bush sets goal of increasing minority home owners by at least 5.5 million by 2010 through billions of dollars in tax credits, subsidies and a Fannie Mae commitment of $440 billion to establish NeighborWorks America with faith based organizations.
- 2003 - Federal Reserve Chair Alan Greenspan lowers federal reserve’s key interest rate to 1%, the lowest in 45 years. In August: Borio and White of Bank of International Settlements speak at the Jackson Hole Economic Symposium, referencing BIS's "Credit Risk Transfer" 2003 report which warned about problems with collateralized debt obligations and rating agencies. Their arguments are rejected or ignored by attendees, including Alan Greenspan. IN September: Bush administration recommends moving governmental supervision of Fannie Mae and Freddie Mac under a new agency created within the Department of the Treasury. The changes are blocked by Congress.
- 2003-2007 - U.S. sub-prime mortgages increased 292%, from $332 billion to $1.3 trillion, due primarily to the private sector entering the mortgage bond market, once an almost exclusive domain of government sponsored enterprises like Freddie Mac. The Federal Reserve fails to use its supervisory and regulatory authority over banks, mortgage underwriters and other lenders, who abandoned loan standards (employment history, income, down payments, credit rating, assets, property loan-to-value ratio and debt-servicing ability), emphasizing instead lender's ability to securitize and repackage sub-prime loans.
- 2004-2007 - Many financial institutions issued large amounts of debt and invested in mortgage-backed securities (MBS), believing that house prices would continue to rise and that households would keep up on mortgage payments.
- 2004 - U.S. homeownership rate peaks with an all time high of 69.2 percent. Following example of Countrywide Financial, the largest U.S. mortgage lender, many lenders adopt automated loan approvals that critics argued were not subjected to appropriate review and documentation according to good mortgage underwriting standards. In 2007, 40% of all subprime loans resulted from automated underwriting. Mortgage fraud by borrowers increases, in many cases as supported by CRA-related community groups. HUD ratchets up Fannie Mae and Freddie Mac affordable-housing goals for next four years, from 50 percent to 56 percent, stating they lagged behind the private market; they purchased $175 billion in 2004—44 percent of the market; from 2004 to 2006, they purchased $434 billion in securities backed by sub-prime loans. In October, SEC effectively suspends net capital rule for five firms—Goldman Sachs, Merrill Lynch, Lehman Brothers, Bear Stearns and Morgan Stanley. Freed from government imposed limits on the debt they can assume, they leveraged up 20, 30 and even 40 to 1, buying massive amounts of mortgage-backed securities and other risky investments.
- 2005 - The SEC halts an investigation of Bear Stearns "pricing, valuation, and analysis" of mortgage-backed collateralized debt obligations. No action is taken against Bear. Robert Shiller gives talks warning about a housing bubble to the Office of the Comptroller of the Currency and the FDIC. He is ignored, and would later call it an incidence of Groupthink. That same year, his second edition of "Irrational Exhuberance" warns that the housing bubble might lead to a worldwide recession. In January, Federal Reserve Governor Edward Gramlich raises concerns over sub-prime lending practices, says mortgage brokers might not have incentives for careful underwriting and that that portion of the sub-prime industry was veering close to a breakdown, that it's possible that it is a bubble but that the housing market did not qualify for specific monetary policy treatment at this point. The Bank of International Settlements warns about the problems with structured financial products, and points out the conflict of interest of credit rating agencies - that they are being payed by the same companies they are supposed to be objectively evaluating. In February, the Office of Thrift Supervision implements new rules that allow savings and loans with over $1 billion in assets to meet their CRA obligations without investing in local communities, cutting availability of sub-prime loans. In June: The International Swaps and Derivatives Association enables credit default swaps (quasi-insurance contracts) to be taken out against asset-backed-security collateralized debt obligations (including ones backed by sub-prime mortgages). In August: Raghuram Rajan warns about credit default swaps, at the Jackson Hole Economic Symposium. His arguments are rejected by attendees, including Alan Greenspan, Donald Kohn, and Lawrence Summers. In September, the Mortgage Insurance Companies of America send a letter to the Federal Reserve, warning about 'risky lending practices' in US real estate. In the Fall 2005, the booming housing market halts abruptly; from the fourth quarter of 2005 to the first quarter of 2006, median prices nationwide drop 3.3 percent.
- 2006 - In May: The sub-prime lender Ameriquest announces it will cut 3,800 Jobs, close its 229 retail branches and rely instead on the Web. Merit Financial Inc, based in Kirkland, Washington, files for bankruptcy and closes its doors, firing all but 80 of its 410 employees; Merit’s marketplace decline about 40% and sales are not bringing in enough revenue to support overhead. In August: U.S. Home Construction Index is down over 40% as of mid-August 2006 compared to a year earlier. In September, Nouriel Roubini warns the IMF about a coming US housing bust, mortgage-backed securities failures, bank failures, and a recession. His work was based partly on his study of recent economic crises in Russia (1998), Argentina (2000), Mexico (1994), and Asia (1997).
- 2007 - Home sales continue to fall. The plunge in existing-home sales is the steepest since 1989. In Q1/2007, S&P/Case-Shiller house price index records first year-over-year decline in nationwide house prices since 1991. The sub-prime mortgage industry collapses, and a surge of foreclosure activity with rising interest rates threaten to depress prices further as problems in the sub-prime markets spread to the near-prime and prime mortgage markets. In January, Ownit Mortgage Solutions Inc. files for Chapter 11. Records show that Ownit Mortgage Solutions owed Merrill Lynch around $93 million at the time of filing. In February, Mortgage Lenders Network USA Inc., the country's 15th largest sub-prime lender with $3.3 billion in loans funded in third quarter 2006, files for Chapter 11. Several sub-prime lenders declare bankruptcy, announcing significant losses, or putting themselves up for sale.These include Accredited Home Lenders Holding, New Century Financial, DR Horton and Countrywide Financial. In March, the value of USA sub-prime mortgages was estimated at $1.3 trillion as of March 2007. Ben Bernanke, quoting Alan Greenspan, warns that the Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac, were a source of "systemic risk" and suggest legislation to head off a possible crisis. In April, New Century Financial, largest U.S. sub-prime lender, files for chapter 11 bankruptcy. Business sources report lenders made $640 billion in sub-prime loans in 2006, nearly twice the level 3 years earlier; sub-prime loans amounted to about 20 percent of the nation's mortgage lending and about 17 percent of home purchases; financial firms and hedge funds likely own more than $1 trillion in securities backed by sub-prime mortgage; about 13 percent of sub-prime loans are now delinquent, more than five times the delinquency rate for home loans to borrowers with top credit; more than 2 percent of sub-prime loans had foreclosure proceedings start in the fourth quarter. Freddie Mac is fined $3.8 million by the Federal Election Commission as a result of illegal campaign contributions, much of it to members of the United States House Committee on Financial Services which oversees Freddie Mac. In June, FDIC Chair Shelia Bair cautioned against the more flexible risk management standards of the Basel II international accord and lowering bank capital requirements generally: "There are strong reasons for believing that banks left to their own devices would maintain less capital -- not more -- than would be prudent. The fact is, banks do benefit from implicit and explicit government safety nets...In short, regulators can't leave capital decisions totally to the banks.". In August, worldwide "credit crunch" as sub-prime mortgage backed securities are discovered in portfolios of banks and hedge funds around the world, from BNP Paribas to Bank of China. Many lenders stop offering home equity loans and "stated income" loans. Numerous quantitative long/short equity hedge funds suddenly begin experiencing unprecedented losses as a result of what is believed to be liquidations by some managers eager to access cash during the liquidity crisis. It highlights one of the first examples of the contagion effect of the sub-prime crisis spilling over into a radically different business area. Central banks coordinate efforts to increase liquidity for first time since the aftermath of the September 11, 2001 terrorist attacks. The United States Federal Reserve (Fed) injects a combined 43 billion USD, the European Central Bank (ECB) 156 billion euros (214.6 billion USD), and the Bank of Japan 1 trillion Yen (8.4 billion USD). Smaller amounts come from the central banks of Australia, and Canada. The stock of Countrywide Financial, which is the largest mortgage lender in the United States, falls around 13% on the NYSE after Countrywide says foreclosures and mortgage delinquencies have risen to their highest levels since early 2002. Countrywide narrowly avoids bankruptcy by taking out an emergency loan of $11 billion from a group of banks. In September, TV finance personality Jim Cramer warns Americans on The Today Show, "don't you dare buy a home—you'll lose money," causing a furor among Realtors (one of the few times he actually gave good advice, IMHO). In October, a consortium of U.S. banks backed by the U.S. government announces a "super fund" of $100 billion to purchase mortgage-backed securities whose mark-to-market value plummeted in the sub-prime collapse. Both Fed chairman Ben Bernanke and Treasury Secretary Hank Paulson express alarm about the dangers posed by the bursting housing bubble. In December, President Bush announces a plan to voluntarily and temporarily freeze the mortgages of a limited number of mortgage debtors holding adjustable rate mortgages. He also asked Members Of Congress to: 1. pass legislation to modernize the FHA. 2. temporarily reform the tax code to help homeowners refinance during this time of housing market stress. 3. pass funding to support mortgage counseling. 4. pass legislation to reform Government Sponsored Enterprises (GSEs) like Freddie Mac and Fannie Mae. A consortium of banks officially abandons the U.S. government-supported "super-SIV" mortgage crisis bail-out plan announced in mid-October, citing a lack of demand for the risky mortgage products on which the plan was based, and widespread criticism that the fund was a flawed idea that would have been difficult to execute.
- 2007-2008 - Starting in late 2007, and throughout 2008, the 'monoline' municipal bond insurance companies, such as AMBAC, MBIA, and ACA, have their credit ratings downgraded by the credit rating agencies because they had also gotten 'insurance' policies (via credit default swaps) on mortgage-based CDOs. Since the entire 'municipal bond insurance' business model depends on the insurer having a very high credit rating, these companies begin to collapse, and the value of many of the bonds they insured also falls. Financial crisis escalates with collapse of major lenders and investors.
- 2008 - In March, Bear Stearns is acquired for $2 a share by JPMorgan Chase in a fire sale avoiding bankruptcy. The deal is backed by the Federal Reserve, providing up to $30B to cover possible Bear Stearn losses. In June, the chairman of the Senate Banking Committee Connecticut's Christopher Dodd proposes a housing bailout to the Senate floor that would assist troubled sub-prime mortgage lenders such as Countrywide Bank, Dodd admitted that he received special treatment, perks, and campaign donations from Countrywide, who regarded Dodd as a "special" customer and a "Friend of Angelo." Dodd received a $75,000 reduction in mortgage payments from Countrywide. The Chairman of the Senate Finance Committee Kent Conrad and the head of head of Fannie Mae Jim Johnson also received mortgages on favorable terms due to their association with Countrywide CEO Angelo R. Mozilo. In July, major banks and financial institutions had borrowed and invested heavily in mortgage backed securities and reported losses of approximately $435 billion as of 17 July 2008. President Bush signs into law the Housing and Economic Recovery Act of 2008, which authorizes the Federal Housing Administration to guarantee up to $300 billion in new 30-year fixed rate mortgages for sub-prime borrowers if lenders write-down principal loan balances to 90 percent of current appraisal value. In September, there is a Federal takeover of Fannie Mae and Freddie Mac, which at that point owned or guaranteed about half of the U.S.'s $12 trillion mortgage market, effectively nationalizing them. This causes panic because almost every home mortgage lender and Wall Street bank relied on them to facilitate the mortgage market and investors worldwide owned $5.2 trillion of debt securities backed by them. The US Federal Reserve lends $85 billion to American International Group (AIG) to avoid bankruptcy. Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke meet with key legislators to propose a $700 billion emergency bailout through the purchase of toxic assets. Bernanke tells them: "If we don't do this, we may not have an economy on Monday." The FBI discloses that it had been investigating the possibility of fraud by mortgage financing companies Fannie Mae and Freddie Mac, Lehman Brothers, and insurer American International Group, bringing to 26 the number of corporate lenders under investigation. The Emergency Economic Stabilization Act is defeated 228-205 in the United States House of Representatives. US Treasury changes tax law to allow a bank acquiring another to write off all of the acquired bank's losses for tax purposes. In October, the U.S. Senate passes HR1424, their version of the $700 billion bailout bill. President Bush signs the Emergency Economic Stabilization Act, creating a $700 billion Troubled Assets Relief Program (TARP) to purchase failing bank assets. It contains easing of the accounting rules that forced companies to collapse because of the existence of toxic mortgage-related investments. Key to winning GOP support was a decision by the Securities and Exchange Commission to ease mark-to-market accounting rules that require financial institutions to show the deflated value of assets on their balance sheets." The US taps into the $700 billion available from TARP and announces the injection of $250 billion of public money into the US banking system. The form of the rescue will include the US government taking an equity position in banks that choose to participate in the program in exchange for certain restrictions such as executive compensation. Nine banks agreed to participate in the program and will receive half of the total funds: 1) Bank of America, 2) JPMorgan Chase, 3) Wells Fargo, 4) Citigroup, 5) Merrill Lynch, 6) Goldman Sachs, 7) Morgan Stanley, 8) Bank of New York Mellon and 9) State Street. In November, Treasury Secretary Paulson abandons plan to buy toxic assets under the $700 billion TARP, saying the remaining $410 billion in the fund would be better spent on recapitalizing financial companies. The US Federal Reserve pledges $800 billion more to help revive the financial system. $600 billion will be used to buy mortgage bonds issued or guaranteed by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.
- 2009 - In April, the SEC sues Goldman Sachs for fraud, for allegedly having failed to disclose vital information to investors in one of it's "Abacus" mortgage-backed CDOs in 2007. The CDO was allegedly 'designed to fail' by the hedge fund of John Paulson, so that Paulson could make large profits by betting against it. Allegedly this was not disclosed to investors by Goldman, and they lost roughly a billion dollars, while Paulson & Co profited.
* * *
Whew... that's enough: my blood pressure will take long enough to come down...
Can we at least agree this covers a bit more than just the basics, with a LOT of the details (not *all*, but a LOT) concerning who did what, to whom, and what the end results were at least up until the early part of 2009?
- Steve
P.S. I'm not pointing fingers (yet); and its clear there's plenty of blame to go around, if that is what we wish to focus on - I don't, at least not too far beyond understanding how all those Good Intentions got us into this mess. Complicating matters is both sides of the aisle are currently playing spin games and appear more concerned with scoring political points instead of trying to solve the problem. That said, finding a practical (and workable) solution to this mess will be much more difficult, especially since it appears the principals currently involved are predominately the same folks that got us to where we are. I have a vision in which they are nothing but ticks who demand we feed the dog more.
P.P.S. I must say this - I find it curious that *no one* is talking about the actions of the CREDIT RATING AGENCIES during this process. They were obviously a key player in this whole mess. Where was *their* oversight? Or were they just doing as instructed? Inquiring minds want to know...
- SG
Wednesday, December 23, 2009
Science versus the Consensus
To begin, I was raised in an environment that considered Science and Politics to be completely different beasts. Of the two, politics is considered inferior: If you weren't bright enough to do science, you could always go into politics. I retain that prejudice today. I also subscribe to an older and tougher tradition that regards science as the business of developing theories to explain observable phenomena, then testing those theories against measured data from the Real World. Untestable hypotheses are not Science. Unproven theories may be based in science, but are still not (necessarily) Truth.
BTW - When did "skeptic" become a dirty word in science? When did the word require quotation marks around it? Just asking...
By example, and in what will be a surprise to some, I believe that environmental awareness and understanding is critically important. The environment is our shared life support system; it is what we pass on to the next generation. How we act today has consequences — potentially serious consequences, and especially in the financial and political realms — for future generations.
But I have also come to believe that the current 'conventional wisdom' (e.g., 'the consensus') with respect to the environment is unscientific, badly out of date, and ultimately damaging to the very environment it supposes to 'protect'. Example: Yellowstone National Park has raw sewage seeping out of the ground. A century of direct 'management' of Yellowstone has proven time and again to be disastrous in the extreme. We must be doing something wrong. We have been arrogantly ignorant with the best of intentions.
IMHO, the 'consensus' approach to man-made global warming (AGW) is a prime example of everything that is wrong with our approach to the environment. We are basing decisions on speculation, not evidence. (Do I have to repeat - again! - that models are not evidence?) AGW Proponents are pushing their views with more PR than with actual scientific data and conclusions derived directly therefrom. Indeed, we have allowed the whole issue to be politicized: red vs blue, Republican vs Democrat, etc.. This is absurd.
Data are not political: Data are data (or, as Aristotle said, “A is A”, a thing is itself). Politics, unlike science, leads you in the direction of a Belief, whereas data - if you follow where it leads - (eventually) uncovers truth. Yes, by that definition, Politics qualifies as a 'religion'.
Like many, I experienced my early and formative youth at the height of the Cold War. In school drills, I crawled under my desk as instructed just in case there was a nuclear attack. (Later, this practice declined for no stated reason, but with the unspoken acknowledgment that such actions were - in the Real World - quite useless: a waste of time and effort; but at that time, *everyone* knew it was the Right Thing To Do.)
Even at that young age, I recognized a world dominated by widespread fear and uncertainty, but held fast to a belief that Science represented the best and greatest hope for mankind. Politics is a world of hate and danger, of irrational beliefs and fears, of mass manipulation and disgraceful blots on human history. Intentions don't matter: A is A.
Science was represented by an international scope, forging friendships and working relationships across national boundaries and political systems, encouraging a dispassionate habit of thought, and ultimately leading to knowledge and new technologies that would benefit all mankind. Science is and has been THE great hope for our troubled and restless world. Beyond extending lifespan, feeding the hungry, curing and treating diseases, expanding communications and the distribution of information world-wide - I wanted science to be, as Carl Sagan said, "a candle in a demon haunted world."
However, I am increasingly disturbed that science has (apparently) been seduced by the lures of political power and easy publicity. Too many of the demons that haunt our world today are actually the invention of scientists. IMHO, the world has not benefited from permitting these demons to roam free. And demands to follow the consensus are at the root of that danger. (Am I the only one that remembers all those movies with a theme of "let the scientists run the world and we'll have Utopia?")
I believe a claim of consensus has been the first refuge of scoundrels; it is a way to avoid debate by claiming that the matter is already settled. Whenever you hear the phrase, “a consensus of scientists agrees” on something, hold on tight to your wallet.
The work of science has nothing whatsoever to do with 'consensus'. Consensus is really the business of politics. Science, on the contrary, requires only one researcher - whether proposing or challenging a theory - who happens to be Right, which means that he or she has results that are verifiable by reference to the real world. In science, consensus is irrelevant. What *is* relevant to science, is reproducible results. The greatest scientists in history are great precisely because they broke with the consensus.
Remember: if ONE PERSON (even a non-scientist!) can disprove a theory Wrong - or just a critical element of same - then the theory is FALSE (again: A is A). Personally, I do not consider the track record of 'consensus' as necessarily something to be proud of. ("That's a bold statement: where are your examples, Steve?") Consider:
1. For centuries, the greatest killer of women was fever following childbirth: one woman in six died, directly related to the fever. In 1795, Alexander Gordon of Aberdeen suggested the fevers were an infectious process, and further claimed he was able to cure them. The consensus said no. In 1843, Oliver Wendell Holmes stated puerperal fever was contagious, and presented compelling evidence. The consensus said no. In 1849, Semmelweiss demonstrated that simple sanitary techniques virtually eliminated puerperal fever in hospitals under his management. The consensus said he was a Jew, ignored him, and dismissed him from his post. In fact, there was no agreement on the causes of puerperal fever - despite the continuing deaths of women - until the start of the twentieth century. The consensus took 125 years to arrive at the right conclusion despite the efforts of the prominent "skeptics" around the world, skeptics who were demeaned and ignored.
2. In the 1920s, here in the U.S., tens of thousands - mostly poor - were dying of a disease called pellagra. The consensus of scientists said it was infectious, and what was necessary was to find the "pellagra germ." The US government asked Dr. Joseph Goldberger to find the cause. Goldberger concluded that diet was the crucial factor. The consensus remained wedded to the germ theory. Goldberger demonstrated that he could induce the disease through diet. He demonstrated that the disease was not infectious by injecting the blood of a pellagra patient into himself, and his assistant. He and other volunteers swabbed their noses with swabs from pellagra patients, and swallowed capsules containing scabs from pellagra rashes ("Goldberger's filth parties"). Nobody contracted pellagra. The consensus continued to disagree with him. There was, to be sure, a social (political) factor in the disagreement - southern States disliked the idea of poor diet as the cause, because it meant that social reform was required. The consensus continued to deny the evidence for years, for no better reason than it conflicted with the prevailing political agenda.
3. Every schoolchild notices that South America and Africa seem to fit together rather snugly, and Alfred Wegener proposed, in 1912, that the continents had in fact drifted apart. The consensus sneered at the suggestion of continental drift for fifty years. The theory was most vigorously denied by the great names of geology - until 1961, when measurements conclusively presented data suggesting the sea floors were spreading apart. It took the consensus 50 years to acknowledge what any schoolchild sees.
And pure politics is not exempt by an inept consensus - review the effect of Lysenko's policies in Russia (from which they still suffer today), Margret Thatcher's 1981 budget (which worked in spite of the review of a host of'experts', Reagan vs. the Evil Empire (which eventually collapsed under the weight of an economic attack, disguised as a military one) ...
A major media embarrassment of using science for advancing political agenda happened in 1991, when Carl Sagan predicted on Nightline that Kuwaiti oil fires (from the first Gulf War) would produce a nuclear winter effect, causing a "year without a summer," and endangering crops around the world. Sagan stressed this outcome was so likely that "it should affect the war plans." A 'consensus of concerned scientists' rapidly agreed and made many public statements in support of Sagan's position. None of it happened.
… You want more? - Galileo / Copernicus and their helio-centric observations, the Phlogiston theory, Jenner and smallpox, Pasteur and germ theory, saccharine, margarine, repressed memory, fiber and colon cancer, hormone replacement therapy... In each case, the consensus at that time clearly and vehemently came down on what was ultimately the Wrong Side. The list of errors by 'the consensus' goes on and on...
Now, when demanded to bow down to the opinions of 'the consensus' (or other 'appeals to authority'), I ask one to notice WHEN and WHERE the claim of consensus is typically used:
Consensus is invoked only in situations where the science (i.e., the Real World data) is not solid enough for close scrutiny.
Today, nobody says the consensus of scientists agrees that E=mc2. Nobody says the consensus is that the sun is 93 million miles away. Nobody says the consensus is that the world is not flat (at least they say that NOW)... It would never occur to anyone to speak that way. There is no such thing as consensus science. IMHO, "consensus science" is a modern oxymoron on the scale of "jumbo shrimp" and "fresh raisins".
If it's consensus, it isn't science. If it's science, it isn't consensus. Period.
… I'll stop here for now. In future posts, I'll try to address the question: “If you can't trust the consensus, who DO you trust?” Also, I'll post notes on the principles and positions for what I believe and support (some surprises there, to be sure). Stay tuned.
- Steve
BTW - When did "skeptic" become a dirty word in science? When did the word require quotation marks around it? Just asking...
By example, and in what will be a surprise to some, I believe that environmental awareness and understanding is critically important. The environment is our shared life support system; it is what we pass on to the next generation. How we act today has consequences — potentially serious consequences, and especially in the financial and political realms — for future generations.
But I have also come to believe that the current 'conventional wisdom' (e.g., 'the consensus') with respect to the environment is unscientific, badly out of date, and ultimately damaging to the very environment it supposes to 'protect'. Example: Yellowstone National Park has raw sewage seeping out of the ground. A century of direct 'management' of Yellowstone has proven time and again to be disastrous in the extreme. We must be doing something wrong. We have been arrogantly ignorant with the best of intentions.
IMHO, the 'consensus' approach to man-made global warming (AGW) is a prime example of everything that is wrong with our approach to the environment. We are basing decisions on speculation, not evidence. (Do I have to repeat - again! - that models are not evidence?) AGW Proponents are pushing their views with more PR than with actual scientific data and conclusions derived directly therefrom. Indeed, we have allowed the whole issue to be politicized: red vs blue, Republican vs Democrat, etc.. This is absurd.
Data are not political: Data are data (or, as Aristotle said, “A is A”, a thing is itself). Politics, unlike science, leads you in the direction of a Belief, whereas data - if you follow where it leads - (eventually) uncovers truth. Yes, by that definition, Politics qualifies as a 'religion'.
Like many, I experienced my early and formative youth at the height of the Cold War. In school drills, I crawled under my desk as instructed just in case there was a nuclear attack. (Later, this practice declined for no stated reason, but with the unspoken acknowledgment that such actions were - in the Real World - quite useless: a waste of time and effort; but at that time, *everyone* knew it was the Right Thing To Do.)
Even at that young age, I recognized a world dominated by widespread fear and uncertainty, but held fast to a belief that Science represented the best and greatest hope for mankind. Politics is a world of hate and danger, of irrational beliefs and fears, of mass manipulation and disgraceful blots on human history. Intentions don't matter: A is A.
Science was represented by an international scope, forging friendships and working relationships across national boundaries and political systems, encouraging a dispassionate habit of thought, and ultimately leading to knowledge and new technologies that would benefit all mankind. Science is and has been THE great hope for our troubled and restless world. Beyond extending lifespan, feeding the hungry, curing and treating diseases, expanding communications and the distribution of information world-wide - I wanted science to be, as Carl Sagan said, "a candle in a demon haunted world."
However, I am increasingly disturbed that science has (apparently) been seduced by the lures of political power and easy publicity. Too many of the demons that haunt our world today are actually the invention of scientists. IMHO, the world has not benefited from permitting these demons to roam free. And demands to follow the consensus are at the root of that danger. (Am I the only one that remembers all those movies with a theme of "let the scientists run the world and we'll have Utopia?")
I believe a claim of consensus has been the first refuge of scoundrels; it is a way to avoid debate by claiming that the matter is already settled. Whenever you hear the phrase, “a consensus of scientists agrees” on something, hold on tight to your wallet.
The work of science has nothing whatsoever to do with 'consensus'. Consensus is really the business of politics. Science, on the contrary, requires only one researcher - whether proposing or challenging a theory - who happens to be Right, which means that he or she has results that are verifiable by reference to the real world. In science, consensus is irrelevant. What *is* relevant to science, is reproducible results. The greatest scientists in history are great precisely because they broke with the consensus.
Remember: if ONE PERSON (even a non-scientist!) can disprove a theory Wrong - or just a critical element of same - then the theory is FALSE (again: A is A). Personally, I do not consider the track record of 'consensus' as necessarily something to be proud of. ("That's a bold statement: where are your examples, Steve?") Consider:
1. For centuries, the greatest killer of women was fever following childbirth: one woman in six died, directly related to the fever. In 1795, Alexander Gordon of Aberdeen suggested the fevers were an infectious process, and further claimed he was able to cure them. The consensus said no. In 1843, Oliver Wendell Holmes stated puerperal fever was contagious, and presented compelling evidence. The consensus said no. In 1849, Semmelweiss demonstrated that simple sanitary techniques virtually eliminated puerperal fever in hospitals under his management. The consensus said he was a Jew, ignored him, and dismissed him from his post. In fact, there was no agreement on the causes of puerperal fever - despite the continuing deaths of women - until the start of the twentieth century. The consensus took 125 years to arrive at the right conclusion despite the efforts of the prominent "skeptics" around the world, skeptics who were demeaned and ignored.
2. In the 1920s, here in the U.S., tens of thousands - mostly poor - were dying of a disease called pellagra. The consensus of scientists said it was infectious, and what was necessary was to find the "pellagra germ." The US government asked Dr. Joseph Goldberger to find the cause. Goldberger concluded that diet was the crucial factor. The consensus remained wedded to the germ theory. Goldberger demonstrated that he could induce the disease through diet. He demonstrated that the disease was not infectious by injecting the blood of a pellagra patient into himself, and his assistant. He and other volunteers swabbed their noses with swabs from pellagra patients, and swallowed capsules containing scabs from pellagra rashes ("Goldberger's filth parties"). Nobody contracted pellagra. The consensus continued to disagree with him. There was, to be sure, a social (political) factor in the disagreement - southern States disliked the idea of poor diet as the cause, because it meant that social reform was required. The consensus continued to deny the evidence for years, for no better reason than it conflicted with the prevailing political agenda.
3. Every schoolchild notices that South America and Africa seem to fit together rather snugly, and Alfred Wegener proposed, in 1912, that the continents had in fact drifted apart. The consensus sneered at the suggestion of continental drift for fifty years. The theory was most vigorously denied by the great names of geology - until 1961, when measurements conclusively presented data suggesting the sea floors were spreading apart. It took the consensus 50 years to acknowledge what any schoolchild sees.
And pure politics is not exempt by an inept consensus - review the effect of Lysenko's policies in Russia (from which they still suffer today), Margret Thatcher's 1981 budget (which worked in spite of the review of a host of'experts', Reagan vs. the Evil Empire (which eventually collapsed under the weight of an economic attack, disguised as a military one) ...
A major media embarrassment of using science for advancing political agenda happened in 1991, when Carl Sagan predicted on Nightline that Kuwaiti oil fires (from the first Gulf War) would produce a nuclear winter effect, causing a "year without a summer," and endangering crops around the world. Sagan stressed this outcome was so likely that "it should affect the war plans." A 'consensus of concerned scientists' rapidly agreed and made many public statements in support of Sagan's position. None of it happened.
… You want more? - Galileo / Copernicus and their helio-centric observations, the Phlogiston theory, Jenner and smallpox, Pasteur and germ theory, saccharine, margarine, repressed memory, fiber and colon cancer, hormone replacement therapy... In each case, the consensus at that time clearly and vehemently came down on what was ultimately the Wrong Side. The list of errors by 'the consensus' goes on and on...
Now, when demanded to bow down to the opinions of 'the consensus' (or other 'appeals to authority'), I ask one to notice WHEN and WHERE the claim of consensus is typically used:
Consensus is invoked only in situations where the science (i.e., the Real World data) is not solid enough for close scrutiny.
Today, nobody says the consensus of scientists agrees that E=mc2. Nobody says the consensus is that the sun is 93 million miles away. Nobody says the consensus is that the world is not flat (at least they say that NOW)... It would never occur to anyone to speak that way. There is no such thing as consensus science. IMHO, "consensus science" is a modern oxymoron on the scale of "jumbo shrimp" and "fresh raisins".
If it's consensus, it isn't science. If it's science, it isn't consensus. Period.
… I'll stop here for now. In future posts, I'll try to address the question: “If you can't trust the consensus, who DO you trust?” Also, I'll post notes on the principles and positions for what I believe and support (some surprises there, to be sure). Stay tuned.
- Steve
Tuesday, December 1, 2009
Climategate: Explaining Away 'Bad Science'
Sorry - I'm trying to contain myself, but I just can't seem to let this thing go...
Yes, I've downloaded the 61mb CRU dump myself (it expands to over 162mb). I'm skipping most of the e-mails and focusing on some of the technical notes in the computer programs and source code. What I've seen is NOT looking good. Just google “HARRY_READ_ME.TXT” or try http://www.neuralnetwriter.cylo42.com/node/2421
and see what some techies are saying. More about that in another post...
Some are now claiming the hack is bogus, or that the publication of 160MB of private data, with over 1000 emails, contains no evidence whatsoever of political interference or data falsification. In response, I submit the following definition:
Denial (also called abnegation) is a defense mechanism postulated by Sigmund Freud, in which a person is faced with a fact that is too uncomfortable to accept and rejects it instead, insisting that it is not true despite what may be overwhelming evidence. The subject may deny the reality of the unpleasant fact altogether (simple denial), admit the fact, but deny its seriousness (minimisation) or admit both the fact and seriousness, but deny responsibility (transference). http://en.wikipedia.org/wiki/Denial [snicker] But to move Onward...
During a lunch break, I looked around to see what was being said by the UEA about the hack itself. I found this very recent article: http://news.bbc.co.uk/2/hi/science/nature/8388485.stm. Listed as a primary author is Mike Hulme (http://mikehulme.org), professor of Climate Change at University of East Anglia (UEA). He is also the founding Director (2000-2007) of the Tyndall Centre for Climate Change Research, based in the School of Environmental Sciences at UEA, funded by the UK Research Councils. He's right in the middle of all this.
At one point, the article states:
“It is not the case that the science is somehow now "finished" and that we now should simply get on with implementing it.”
Funny. I have a distinct memory of phrases like “there is a consensus”, “the science is done”, “the results are in”, and “we MUST act now!” being tossed about with great fanfare and much gnashing of teeth. If the 'science' is not finished, why all the rush to Do Something? But I digress...
Instead - I direct your attention to this quote:
“The classic virtues of scientific objectivity, universality and disinterestedness can no longer be claimed to be automatically effective as the essential properties of scientific knowledge.
Instead, warranted knowledge - knowledge that is authoritative, reliable and guaranteed on the basis of how it has been acquired - has become more sought after than the ideal of some ultimately true and objective knowledge.”
After reading this, it was difficult for me to even read the remainder of the article, much less consider it seriously. Hulme is explicitly proposing that study & research & evaluating the data is not important: all we need (should) do is just... 'trust authority'. And, since the 'authority' behind AGW has now been proven to be corrupt, his answer is - let's create a new authority! Hogwash. Apparently, Hulme has forgotten that such 'reliable and guaranteed' Authorities once stated the Earth was the center of the Universe - yet Galileo, although beaten and broken into submission noted, “but it still moves.”
Science is not a debating sport. It is a review and genuine examination of FACT, not an argument between opposing points of view, because in the end, you are either Right, or you are Wrong. Yes, you can debate which parts are right, but at the end of the day, the one TRUTH wins. There is no gray. Sorry.
I also discovered that several years ago, Hulme wrote: “Self-evidently dangerous climate change will not emerge from a normal scientific process of truth seeking, although science will gain some insights into the question if it recognises the socially contingent dimensions of a post-normal science. But to proffer such insights, scientists – and politicians – must trade (normal) truth for influence. If scientists want to remain listened to, to bear influence on policy, they must recognise the social limits of their truth seeking and reveal fully the values and beliefs they bring to their scientific activity.”
What? Is he serious establishing SCIENCE as a professional realm where everyone has an opinion, and everyone is right? Are we supposed to play Family Feud? ... Let's welcome the Michael Mann family, and they are facing the Ed Wegman's! Who is right? … Let's see what the survey says!.... Absurd - such an approach doesn't work, and it cannot work.
One very interesting aspect of Climategate is that the AGW proponents, for the first time, are getting a dose of THEIR OWN MEDICINE - namely a direct appeal to the public and controlling the public opinion through the mass-media hysteria. The fact that planet temperatures are not rising for the last several years is not, in itself, an argument against some technical aspects of the AGW theory. But for a layman this becomes an unbeatable argument - The Powers Are Hiding The Truth! The CRU emails themselves do not contain anything extraordinary. To be sure, there are plenty of unethical moments, but little to nothing in the way of (provable) criminal activity. However now, thanks to journalists and bloggers, "Michael's tricks" will become a catch-phrase, and everyone starts to happily chant that "Global Warming is a myth!" Is this the way to continued Scientific Enlightenment, to find ANSWERS? I think not.
The only reason Climategate is in the news (and will not disappear) is because it has shown a particular ideologically-driven policy is being justified by being based on fraudulent science. Perhaps, more importantly, the 'facts' to support the theory were deliberately manipulated to match the requirements for the policy. What these 'scientists' did was change the 'inconvenient truth' of carefully selected historical facts to generate the result the policy needed. This is not science, it's creative writing.
Most scientists agree that global climate temperatures increased the last 150 years. The question is: “WHY?” After a review of *all* of the available data, it is more than reasonable to conclude the increase in global temperatures was part of a cycle seen before and effectively due to recovery from the Little Ice Age (LIA), and is unrelated to increases in CO2 in the air as generated by the Industrial Revolution. There are reams of data showing that the earth has been going though natural temperature cycles for millions of years. For nearly all global temperature cycles, greenhouse gases did not increase until hundreds or sometimes thousands of years AFTER the temperature increase, which completely destroys the claim that greenhouse gases CAUSED the temperature change. Also, the global temperatures have apparently stopped increasing in this last temperature cycle (as of about ten years ago), while greenhouse gases emissions continued increasing, once again showing that greenhouse gases - and specifically CO2 concentrations - are not solely responsible for global temperature changes.
The Man-Made Climate Change theory may or may not be total nonsense, but much of the political propaganda (ideology) it engenders *IS*. The corrupting influence of politics is the driving force behind the falsification of data. This is not the first instance of data manipulation we have seen nor is it likely to be the last. Even studies which fail to support the Climate Change hypothesis at least give lip service to it. You can't get funding if you don't. A cynical person might note the neat way the AGW theory fits with environmentalist ideology and how readily it translates into a scheme to give politicians more power.
And *THAT* is the Real Scandal behind Climate Gate.
Leaders take note: This is what happens when balanced debates are denied and the press is manipulated into suppressing a story. Also, when this DOES get into the mainstream, there will be a tidal wave of skeptics around - not just on this issue but on *all* issues. It is a part of the human condition to get angry when lied to. There WILL be consequences.
- Steve
Yes, I've downloaded the 61mb CRU dump myself (it expands to over 162mb). I'm skipping most of the e-mails and focusing on some of the technical notes in the computer programs and source code. What I've seen is NOT looking good. Just google “HARRY_READ_ME.TXT” or try http://www.neuralnetwriter.cylo42.com/node/2421
and see what some techies are saying. More about that in another post...
Some are now claiming the hack is bogus, or that the publication of 160MB of private data, with over 1000 emails, contains no evidence whatsoever of political interference or data falsification. In response, I submit the following definition:
Denial (also called abnegation) is a defense mechanism postulated by Sigmund Freud, in which a person is faced with a fact that is too uncomfortable to accept and rejects it instead, insisting that it is not true despite what may be overwhelming evidence. The subject may deny the reality of the unpleasant fact altogether (simple denial), admit the fact, but deny its seriousness (minimisation) or admit both the fact and seriousness, but deny responsibility (transference). http://en.wikipedia.org/wiki/Denial [snicker] But to move Onward...
During a lunch break, I looked around to see what was being said by the UEA about the hack itself. I found this very recent article: http://news.bbc.co.uk/2/hi/science/nature/8388485.stm. Listed as a primary author is Mike Hulme (http://mikehulme.org), professor of Climate Change at University of East Anglia (UEA). He is also the founding Director (2000-2007) of the Tyndall Centre for Climate Change Research, based in the School of Environmental Sciences at UEA, funded by the UK Research Councils. He's right in the middle of all this.
At one point, the article states:
“It is not the case that the science is somehow now "finished" and that we now should simply get on with implementing it.”
Funny. I have a distinct memory of phrases like “there is a consensus”, “the science is done”, “the results are in”, and “we MUST act now!” being tossed about with great fanfare and much gnashing of teeth. If the 'science' is not finished, why all the rush to Do Something? But I digress...
Instead - I direct your attention to this quote:
“The classic virtues of scientific objectivity, universality and disinterestedness can no longer be claimed to be automatically effective as the essential properties of scientific knowledge.
Instead, warranted knowledge - knowledge that is authoritative, reliable and guaranteed on the basis of how it has been acquired - has become more sought after than the ideal of some ultimately true and objective knowledge.”
After reading this, it was difficult for me to even read the remainder of the article, much less consider it seriously. Hulme is explicitly proposing that study & research & evaluating the data is not important: all we need (should) do is just... 'trust authority'. And, since the 'authority' behind AGW has now been proven to be corrupt, his answer is - let's create a new authority! Hogwash. Apparently, Hulme has forgotten that such 'reliable and guaranteed' Authorities once stated the Earth was the center of the Universe - yet Galileo, although beaten and broken into submission noted, “but it still moves.”
Science is not a debating sport. It is a review and genuine examination of FACT, not an argument between opposing points of view, because in the end, you are either Right, or you are Wrong. Yes, you can debate which parts are right, but at the end of the day, the one TRUTH wins. There is no gray. Sorry.
I also discovered that several years ago, Hulme wrote: “Self-evidently dangerous climate change will not emerge from a normal scientific process of truth seeking, although science will gain some insights into the question if it recognises the socially contingent dimensions of a post-normal science. But to proffer such insights, scientists – and politicians – must trade (normal) truth for influence. If scientists want to remain listened to, to bear influence on policy, they must recognise the social limits of their truth seeking and reveal fully the values and beliefs they bring to their scientific activity.”
What? Is he serious establishing SCIENCE as a professional realm where everyone has an opinion, and everyone is right? Are we supposed to play Family Feud? ... Let's welcome the Michael Mann family, and they are facing the Ed Wegman's! Who is right? … Let's see what the survey says!.... Absurd - such an approach doesn't work, and it cannot work.
One very interesting aspect of Climategate is that the AGW proponents, for the first time, are getting a dose of THEIR OWN MEDICINE - namely a direct appeal to the public and controlling the public opinion through the mass-media hysteria. The fact that planet temperatures are not rising for the last several years is not, in itself, an argument against some technical aspects of the AGW theory. But for a layman this becomes an unbeatable argument - The Powers Are Hiding The Truth! The CRU emails themselves do not contain anything extraordinary. To be sure, there are plenty of unethical moments, but little to nothing in the way of (provable) criminal activity. However now, thanks to journalists and bloggers, "Michael's tricks" will become a catch-phrase, and everyone starts to happily chant that "Global Warming is a myth!" Is this the way to continued Scientific Enlightenment, to find ANSWERS? I think not.
The only reason Climategate is in the news (and will not disappear) is because it has shown a particular ideologically-driven policy is being justified by being based on fraudulent science. Perhaps, more importantly, the 'facts' to support the theory were deliberately manipulated to match the requirements for the policy. What these 'scientists' did was change the 'inconvenient truth' of carefully selected historical facts to generate the result the policy needed. This is not science, it's creative writing.
Most scientists agree that global climate temperatures increased the last 150 years. The question is: “WHY?” After a review of *all* of the available data, it is more than reasonable to conclude the increase in global temperatures was part of a cycle seen before and effectively due to recovery from the Little Ice Age (LIA), and is unrelated to increases in CO2 in the air as generated by the Industrial Revolution. There are reams of data showing that the earth has been going though natural temperature cycles for millions of years. For nearly all global temperature cycles, greenhouse gases did not increase until hundreds or sometimes thousands of years AFTER the temperature increase, which completely destroys the claim that greenhouse gases CAUSED the temperature change. Also, the global temperatures have apparently stopped increasing in this last temperature cycle (as of about ten years ago), while greenhouse gases emissions continued increasing, once again showing that greenhouse gases - and specifically CO2 concentrations - are not solely responsible for global temperature changes.
The Man-Made Climate Change theory may or may not be total nonsense, but much of the political propaganda (ideology) it engenders *IS*. The corrupting influence of politics is the driving force behind the falsification of data. This is not the first instance of data manipulation we have seen nor is it likely to be the last. Even studies which fail to support the Climate Change hypothesis at least give lip service to it. You can't get funding if you don't. A cynical person might note the neat way the AGW theory fits with environmentalist ideology and how readily it translates into a scheme to give politicians more power.
And *THAT* is the Real Scandal behind Climate Gate.
Leaders take note: This is what happens when balanced debates are denied and the press is manipulated into suppressing a story. Also, when this DOES get into the mainstream, there will be a tidal wave of skeptics around - not just on this issue but on *all* issues. It is a part of the human condition to get angry when lied to. There WILL be consequences.
- Steve
Friday, November 27, 2009
More on 'Climategate'
For more than a decade, we've been told that there is a scientific "consensus" that humans are causing global warming, that "the debate is over" and all "legitimate" scientists acknowledge the truth of global warming. Now we know what this "consensus" really means. What it means is this: the fix is in.
For any looking at this blog that are new to the topic - AGW "skeptics" had posted a challenge on the ClimateAudit website (here) claiming scientists at the Hadley Climatic Research Unit (CRU) at Britain's University of East Anglia had cherry-picked data to manufacture the infamous "hockey stick" graph, the well-publicized chart showing a dramatic runaway warming trend in the late 20th century. After requests made under FOI for access to the CRU's data was rejected, a hacker (disillusioned researcher on the inside?) collected and published thousands of e-mails and data from the CRU computers onto the Web. Officials at the CRU have verified this and acknowledged the e-mails appear to be genuine. These e-mails show, among many other things, private admissions of doubt AND scientific weakness in the global warming theory by its very loudest proponents.
Back in the Good Old days, when science was all about develop-a-theory-then-report-the-facts-and see-where-it-takes-us, if your theory can't predict or explain the observed facts, then it's WRONG. apparently, we have returned to the Inquisition times he-who-shouts-the-loudest-must be-correct, either that or "don't let them kill the golden goose".
In science, you can’t change the rules in midstream. Set forth in advance the test that would falsify (not PROVE) your theory, perform the test, and accept the result if it does contradict your hypothesis. Then move on - either to the next test, or GO BACK and revise your theory. Anything else is word play... and not SCIENCE.
This is an enormous case of organized scientific fraud at the highest levels, but it is not just scientific fraud. It is also a criminal act. There have been billions of taxpayer dollars devoted to climate research, and dozens of prominent scientists have virtually established a criminal racket in which they seek government money to maintain a LIE.
Prof. Phil Jones at CRU has raked in a total of £13.7 million in grants from the British government which was used to falsify data and defraud the taxpayers. BTW - I'm still collecting totals on U.S. spending. (My last set of totals have the U.S. spending almost $80 BILLION Dollars on climate research over the last 20 years.) Oh - and those charges of skeptics and 'deniers' being in the pay of the oil companies? While the US was spending BILLIONS, Exxon-Mobil spent about 23 million during the same period. Worse, that's about 1/5000th of the amount spent on carbon trading in 2008 alone. Incredible.
This is an insidious kind of fraud: a fraud in which the culprits are cheered and feted by an adoring media as public heroes. The e-mails document their own pats-on-the-back as they boast of their manipulation of the data as being intended to 'protect a bigger truth' and prevent it from being "confused" by inconvenient facts and uncontrolled criticism.
The damage here goes far beyond the loss of Billions of taxpayer dollars on bogus scientific research. Civilization - and all forms of human progress - are founded upon the availability of cheap and abundant energy. The real cost of this fraud is the Trillions of dollars of wealth that will be destroyed if a fraudulent theory is used to justify legislation - Emissions-Trading, Cap-and-Trade, pick a buzzword - that starves the global economy of its cheapest and most abundant sources of energy.
If all this Government money (from the taxpayers!) was spent by the Defense Department for weapons systems, etc., and this money went unaudited, the Citizens Watch groups would be screaming so loudly it would probably bring down the Government. But those same groups seem to think you just can’t spend enough on “The Climate.” If you fund development of a fighter jet for $100 million and it winds up costing $1 Billion, at least you get a plane. But we need to keep spending and spending on The Climate, just to make sure The Climate is OK... Egad.
As we uncover the depth and details of this fiasco, remember that there is nothing that can change the mind of a true believer because his MIND is not involved with his true belief. He has FAITH and that faith is his proof. It is a staggering irony that many who deny the existence (or need) for a religious belief somehow line up like the very sheep they deride following their own type of religion.
It only takes about 10% of the population to make a revolution. The most consistent and persistent 10% will win. One side (let's call them "L") has spent several hundred years working to build their 10% and have been both consistent and persistent. The other side (call them "P") has been focused on other things: science, technology, and business - and they have been wildly successful. The L have been focused on taking the results of P's efforts and using those results for their ends. They have been wildly successful. They could not have done what they have done without P first creating the goods and values the L steal and consume.
The challenge is to figure out how to stop feeding L and to allow them to starve to death. (Which, incidentally, is the L plan for P but only after the L" have totally consumed all that the P are able to produce, that is, until all the P die... then the L, like all parasites, will look for a new host.)
You think their plan won’t work? The abject failure in any program they propose and follow and the consequent demise of modern technological civilization *IS* their plan working. You say “but that cannot be true because it's not reasonable.” Reason is not what they use to formulate their plans. They intend to keep everyone focused on the irrelevant minutia while they stay focused on their malignant goal.
This is the scandal of the century. It needs to be thoroughly investigated - and the culprits (not the whistle-blowers) need to be brought to justice.
- Steve
For any looking at this blog that are new to the topic - AGW "skeptics" had posted a challenge on the ClimateAudit website (here) claiming scientists at the Hadley Climatic Research Unit (CRU) at Britain's University of East Anglia had cherry-picked data to manufacture the infamous "hockey stick" graph, the well-publicized chart showing a dramatic runaway warming trend in the late 20th century. After requests made under FOI for access to the CRU's data was rejected, a hacker (disillusioned researcher on the inside?) collected and published thousands of e-mails and data from the CRU computers onto the Web. Officials at the CRU have verified this and acknowledged the e-mails appear to be genuine. These e-mails show, among many other things, private admissions of doubt AND scientific weakness in the global warming theory by its very loudest proponents.
Back in the Good Old days, when science was all about develop-a-theory-then-report-the-facts-and see-where-it-takes-us, if your theory can't predict or explain the observed facts, then it's WRONG. apparently, we have returned to the Inquisition times he-who-shouts-the-loudest-must be-correct, either that or "don't let them kill the golden goose".
In science, you can’t change the rules in midstream. Set forth in advance the test that would falsify (not PROVE) your theory, perform the test, and accept the result if it does contradict your hypothesis. Then move on - either to the next test, or GO BACK and revise your theory. Anything else is word play... and not SCIENCE.
This is an enormous case of organized scientific fraud at the highest levels, but it is not just scientific fraud. It is also a criminal act. There have been billions of taxpayer dollars devoted to climate research, and dozens of prominent scientists have virtually established a criminal racket in which they seek government money to maintain a LIE.
Prof. Phil Jones at CRU has raked in a total of £13.7 million in grants from the British government which was used to falsify data and defraud the taxpayers. BTW - I'm still collecting totals on U.S. spending. (My last set of totals have the U.S. spending almost $80 BILLION Dollars on climate research over the last 20 years.) Oh - and those charges of skeptics and 'deniers' being in the pay of the oil companies? While the US was spending BILLIONS, Exxon-Mobil spent about 23 million during the same period. Worse, that's about 1/5000th of the amount spent on carbon trading in 2008 alone. Incredible.
This is an insidious kind of fraud: a fraud in which the culprits are cheered and feted by an adoring media as public heroes. The e-mails document their own pats-on-the-back as they boast of their manipulation of the data as being intended to 'protect a bigger truth' and prevent it from being "confused" by inconvenient facts and uncontrolled criticism.
The damage here goes far beyond the loss of Billions of taxpayer dollars on bogus scientific research. Civilization - and all forms of human progress - are founded upon the availability of cheap and abundant energy. The real cost of this fraud is the Trillions of dollars of wealth that will be destroyed if a fraudulent theory is used to justify legislation - Emissions-Trading, Cap-and-Trade, pick a buzzword - that starves the global economy of its cheapest and most abundant sources of energy.
If all this Government money (from the taxpayers!) was spent by the Defense Department for weapons systems, etc., and this money went unaudited, the Citizens Watch groups would be screaming so loudly it would probably bring down the Government. But those same groups seem to think you just can’t spend enough on “The Climate.” If you fund development of a fighter jet for $100 million and it winds up costing $1 Billion, at least you get a plane. But we need to keep spending and spending on The Climate, just to make sure The Climate is OK... Egad.
As we uncover the depth and details of this fiasco, remember that there is nothing that can change the mind of a true believer because his MIND is not involved with his true belief. He has FAITH and that faith is his proof. It is a staggering irony that many who deny the existence (or need) for a religious belief somehow line up like the very sheep they deride following their own type of religion.
It only takes about 10% of the population to make a revolution. The most consistent and persistent 10% will win. One side (let's call them "L") has spent several hundred years working to build their 10% and have been both consistent and persistent. The other side (call them "P") has been focused on other things: science, technology, and business - and they have been wildly successful. The L have been focused on taking the results of P's efforts and using those results for their ends. They have been wildly successful. They could not have done what they have done without P first creating the goods and values the L steal and consume.
The challenge is to figure out how to stop feeding L and to allow them to starve to death. (Which, incidentally, is the L plan for P but only after the L" have totally consumed all that the P are able to produce, that is, until all the P die... then the L, like all parasites, will look for a new host.)
You think their plan won’t work? The abject failure in any program they propose and follow and the consequent demise of modern technological civilization *IS* their plan working. You say “but that cannot be true because it's not reasonable.” Reason is not what they use to formulate their plans. They intend to keep everyone focused on the irrelevant minutia while they stay focused on their malignant goal.
This is the scandal of the century. It needs to be thoroughly investigated - and the culprits (not the whistle-blowers) need to be brought to justice.
- Steve
Wednesday, November 25, 2009
The Integrity of the Scientific Method is in Question
First, I agree that there's WAY too much data for the Average Joe to sift though. Yes, both sides will resort to the analysis of proxies. That's both Good and Bad. There will be an effort to minimize or maximize the details of the situation for the gain of one side or the other. That said, I, for one, hereby refuse to examine an IPCC report or listen to *any* recommendation about AGW especially concerning 'steps that should/must be taken' until they verify the accuracy of the data used.
Chris, this is not simply about who's right and who's wrong. That's why I completely disagree with your statement "how little this has to do with the practice of science".
Huh? Excuse me? This has EVERYTHING to do with the "practice" of science!
You cannot escape that there appears to be legitimate documentation of a concerted effort and - yes, I'll use the word: CONSPIRACY - to MANIPULATE THE DATA! And it's clearly *not* an 'isolated' incident. This is a wide-spread, comprehensive, and DELIBERATE effort on the part of who knows how many self-proclaimed 'objective' and 'unbiased' researchers. They tried to limit discussion of conflicting views. They tried to control who or what qualified as peer-review. They tried to control what the results would show! They weren't just tweaking their own tests, there are charges they were manipulating the data to be used by everyone! This is no school-boy prank without consequences we're talking about - they CHEATED and they did it deliberately on the world stage with the economic foundation of our entire civilization used as a plaything!
Set aside, for a moment, that the issue of climate change itself is so complex, its hard for anyone, even 'professionals, to analyze in the first place. Set aside the simple fact that Climate Models are just estimates or "guesses" about what is going on (albeit that's all we can do). Set aside the fact that the results of MODELS are not REALITY. Set aside the very real complaints (prior to this hack being released) about the specific data which was used and which was not used in the calculations... Simply put, the results of the MODELS - on which the IPCC reports and many of those other studies critically require and base their conclusions upon - are called into question.
How can you have a legitimate "peer-review" process when you can't trust the accuracy of the DATA you started with? And for what? Funding? Political gain? Does following an agenda-driven ideology trump searching for TRUTH? Does this 'end' justify using such means and taking this kind of risk?
This fiasco goes *far* beyond the AGW debate. The science profession is headed for a 'nuclear winter' of its own making. These knuckleheads have potentially damaged the entire scientific establishment in ALL arenas. At the very least, they have severely raised the question: Can you trust any 'scientific' estimate? Has this happened in the past? How has the wool been pulled over our eyes countless times by those we have trusted? Everything I've seen or read from the dump, so far, holds up under an intense light and heavy scrutiny: This is necessary, but IT IS NOT GOOD.
We live in a society which is spoon-fed conspiracy theory after conspiracy theory - JFK, fake moon landings, UFOs, wars, weapons, intentions, etc., etc., etc. - on a Daily Basis. We have politicians and pundits who operate under the theory that if you say something often enough, it doesn't matter whether it is True or not, because if you continually repeat "what everyone *knows*...", eventually anything will become "True".
Now, the integrity of a profession that by its own definition of standards is supposed to be ABOVE such manipulations is at stake. I can understand bureaucrats and politicians pulling this kind of stunt (it's part of their SOP, after all), but for a scientist - a SCIENTIST, for heaven's sake! - to even suggest trying to 'put in a fix' is beyond comprehension. This impact of this situation goes beyond the ramifications of the AGW debate, and even beyond the political upheaval that is sure to follow.
Let me state that, for the record, IMHO - there is NO 'professional' punishment that can be applied by the scientific community with enough severity to right this wrong which allows these jokers to continue pursuing research under the banner of OBJECTIVE SCIENCE. This is too big to ignore or sweep under the rug. They have made a mockery of themselves and their profession. And most importantly, but hopefully not permanently, they have damaged the trust given to the cause of science itself by the public at large. Once proven beyond reasonable doubt - which is where things seem to be headed, albeit slowly - they should be held to the same standard applied by society to philandering televanglists, corrupt politicians, and criminal athletes... loudly and publicly discredited then cast aside, completely and utterly.
There are difficult times ahead. Egad, indeed.
- Steve
Chris, this is not simply about who's right and who's wrong. That's why I completely disagree with your statement "how little this has to do with the practice of science".
Huh? Excuse me? This has EVERYTHING to do with the "practice" of science!
You cannot escape that there appears to be legitimate documentation of a concerted effort and - yes, I'll use the word: CONSPIRACY - to MANIPULATE THE DATA! And it's clearly *not* an 'isolated' incident. This is a wide-spread, comprehensive, and DELIBERATE effort on the part of who knows how many self-proclaimed 'objective' and 'unbiased' researchers. They tried to limit discussion of conflicting views. They tried to control who or what qualified as peer-review. They tried to control what the results would show! They weren't just tweaking their own tests, there are charges they were manipulating the data to be used by everyone! This is no school-boy prank without consequences we're talking about - they CHEATED and they did it deliberately on the world stage with the economic foundation of our entire civilization used as a plaything!
Set aside, for a moment, that the issue of climate change itself is so complex, its hard for anyone, even 'professionals, to analyze in the first place. Set aside the simple fact that Climate Models are just estimates or "guesses" about what is going on (albeit that's all we can do). Set aside the fact that the results of MODELS are not REALITY. Set aside the very real complaints (prior to this hack being released) about the specific data which was used and which was not used in the calculations... Simply put, the results of the MODELS - on which the IPCC reports and many of those other studies critically require and base their conclusions upon - are called into question.
How can you have a legitimate "peer-review" process when you can't trust the accuracy of the DATA you started with? And for what? Funding? Political gain? Does following an agenda-driven ideology trump searching for TRUTH? Does this 'end' justify using such means and taking this kind of risk?
This fiasco goes *far* beyond the AGW debate. The science profession is headed for a 'nuclear winter' of its own making. These knuckleheads have potentially damaged the entire scientific establishment in ALL arenas. At the very least, they have severely raised the question: Can you trust any 'scientific' estimate? Has this happened in the past? How has the wool been pulled over our eyes countless times by those we have trusted? Everything I've seen or read from the dump, so far, holds up under an intense light and heavy scrutiny: This is necessary, but IT IS NOT GOOD.
We live in a society which is spoon-fed conspiracy theory after conspiracy theory - JFK, fake moon landings, UFOs, wars, weapons, intentions, etc., etc., etc. - on a Daily Basis. We have politicians and pundits who operate under the theory that if you say something often enough, it doesn't matter whether it is True or not, because if you continually repeat "what everyone *knows*...", eventually anything will become "True".
Now, the integrity of a profession that by its own definition of standards is supposed to be ABOVE such manipulations is at stake. I can understand bureaucrats and politicians pulling this kind of stunt (it's part of their SOP, after all), but for a scientist - a SCIENTIST, for heaven's sake! - to even suggest trying to 'put in a fix' is beyond comprehension. This impact of this situation goes beyond the ramifications of the AGW debate, and even beyond the political upheaval that is sure to follow.
Let me state that, for the record, IMHO - there is NO 'professional' punishment that can be applied by the scientific community with enough severity to right this wrong which allows these jokers to continue pursuing research under the banner of OBJECTIVE SCIENCE. This is too big to ignore or sweep under the rug. They have made a mockery of themselves and their profession. And most importantly, but hopefully not permanently, they have damaged the trust given to the cause of science itself by the public at large. Once proven beyond reasonable doubt - which is where things seem to be headed, albeit slowly - they should be held to the same standard applied by society to philandering televanglists, corrupt politicians, and criminal athletes... loudly and publicly discredited then cast aside, completely and utterly.
There are difficult times ahead. Egad, indeed.
- Steve
Thursday, September 17, 2009
If it looks, smells, and quacks like a monopoly...
To begin, I am not impressed by “coalitions” and “committees” - regardless of their membership on the left, right or middle – unless their reports contain objective verifiable FACTS and reasonable conclusions. I am much less concerned with the “who” and try to focus on the “what”. When I encounter a group which begins by touting “who” agrees or supports with their findings doesn't lend substance to their position – in fact, it tends to make me suspicious and encouraging looking for 'ulterior motives'. This is especially true of *any* group endorsed by Former President Jimmy Carter (It's an immediate, instinctive reaction on a primitive level – burned too many times. Sorry.) Also, a particular policy position, regardless of how desirable it may be, and how wonderful the potential results could be, is ultimately useless if the proposal does not consider the likely outcome of the application of that policy in the Real World.
I don't mean to rain on your parade. My diatribe above (and below) is not intended to single YOU out. Quite the contrary - your most recent posts have been thought-provoking and excellently presented. Many thanks. Like you, I am struggling with HOW to accomplish the goals - heck, I'm still trying to DEFINE the goals! - without making things worse. Yes, Our system can be improved, but the process of doing so will be painful and will require re-thinking some long-held assumptions by all sides...
OK. Enough. – Here is something to chew on...
There is an intense debate on how to provide affordable health care coverage for more Americans. Census Bureau statistics and other sources are used as the foundation of an argument for GREATER government intervention in health care as THE way to cover a larger percentage of Americans. What is often often overlooked, is the fact that government policy, particularly excessive regulatory intervention, may be the Real Reason so many Americans have been 'priced out of coverage' and therefore join the high numbers of uninsured.
To begin, Health Care Insurance is already heavily regulated at the state level. Some states require insurance plans to cover certain types of health care providers or to provide certain types of health benefits. Other state regulations affect the rating rules for insurance or the ability of insurance plans to exclude people from coverage. Still others limit the ability of insurance companies to select health care providers. Many of these regulatory initiatives, particularly in the area of health insurance underwriting, are designed to achieve specific policy goals (not actually providing Health Care). These goals include controlling escalating health care costs or expanding the availability of health coverage, particularly for high-risk individuals.
Achieving these policy goals invariably requires trade-offs, but bureaucratic policymakers rarely consider the impact of their regulations. For example, rating rules that enable high-risk, older, or sicker employees to get low-cost health insurance without exclusions for medical conditions can make health insurance affordable for those employees. However, those rules also make younger and healthier employees pay higher premiums than they would otherwise obtain in the marketplace. When younger persons do not or cannot participate in the health insurance market, their conspicuous absence increases the pressure on the premiums for those who remain in it. When they do participate, those 'higher premiums' contribute to the Lost Value for the Health Care services they receive. A Catch-22: someone is going to pay the price.
There are many rules and regulations, and the impact of bureaucratic 'meddling' to achieve policy goals varies from state to state. In some states, regulations make it impossible for individuals to purchase a low-cost plan that would provide only catastrophic coverage. In other cases, the benefit mandates and insurance rules raise premiums to the point that insurance is prohibitively expensive for many people.
The economic impact of state-level health insurance regulations has generally received little analytic attention from both the academy and the broader health policy community. For some reason, this aspect of the relationship between regulatory cost and impact on the market is frequently ignored. Consider individual health insurance plans (a small subset of the overall health insurance market). In 2000 and 2001, the Center for Studying Health System Change, Community Tracking Survey 2000–2001 indicated 67.2 percent of the U.S. non-elderly population was enrolled in employer group coverage, while only 3.6 percent was enrolled in non-group or individual coverage.
Even though only a (relatively) small number of individuals obtain insurance in the non-group market, insurance costs in the individual market can have a HUGE impact on the number of uninsured individuals. The individual market consists largely of those without access to employer-sponsored insurance. Workers who buy individual health insurance policies – as opposed to workers enrolled in employer-based group insurance - do not enjoy the generous tax breaks that accompany the purchase of employer group plans. Because non-group markets are a market of last resort for so many individuals, the cost of premiums in these markets clearly affects whether or not many of these Americans can afford to purchase health insurance for themselves and their families.
Also, current economic trends will likely increase the number of workers without access to employer-sponsored insurance. Beyond those who work in businesses where the employer does not offer health insurance, there will be increasing numbers of individuals operating as sole proprietors or independent contractors. Ensuring access to affordable non-employer-based group health insurance on a level playing field *must* be a priority.
Previously, there has been little academic and policy literature on the impact of state-level health insurance regulations on health insurance premiums. Part of the reason has been the lack of publicly available state data on individual health insurance costs. However, in January 2005, Mark Showalter, William Congdon, and Amanda Kowalski published a working paper entitled “State Health Insurance Regulation and the Price of High-Deductible Policies.” http://fhss.byu.edu/econ/faculty/showalter/insurance-regulations-1%2014%2005.pdf
The authors used two separate datasets in their analysis. Golden Rule insurance provided 2003 insurance premium data from a series of random ZIP codes in 37 states, and eHealthInsurance.com, a major Internet broker of health insurance, provided prmium data from insurance policies sold through its Web site. The authors focused on four types of regulations: (1) mandated health benefits, which require insurers to cover particular treatments or particular services; (2) “any willing provider” laws, which restrict insurers’ ability to exclude hospitals and doctors from their networks; (3) community rating laws, which require insurers to limit premium differences across individuals; and (4) guaranteed issue laws, which require insurers to sell insurance to all potential customers regardless of health or pre-existing conditions. The authors found that each of these four types of regulations results in statistically significant increases in health insurance premiums. The findings were consistent across both the eHealthInsurance.com and Golden Rule datasets. The authors estimated that eliminating all of these regulations could save individuals up to $2,000 per year in insurance premiums.
Also, the Congressional Budget Office (CBO) released a study that examines how insurance prices affect health care coverage in the non-group market. http://www.cbo.gov/ftpdocs/66xx/doc6620/08-24-HealthInsurance.pdf The CBO authors did not have direct access to state premium data, but they were able to impute premiums by examining the strength of various state community rating regulations. Community rating laws limit the extent to which insurers can charge different prices to individuals with varying medical conditions. Community rating laws are commonly thought to increase premiums because they require insurance companies to charge healthy and unhealthy people relatively similar premiums. Since low premiums will not generate enough revenue to cover higher-risk individuals, premiums eventually increase, and the cost of insurance goes up for both healthy and unhealthy individuals in the non-group market. In the CBO study, the authors found that, after holding a variety of other factors constant, more individuals choose to forgo coverage in states with strict community rating laws. This finding provides solid evidence that community rating laws (e.g., government intervention in the marketplace) INCREASES the cost of health insurance.
Caveats... Some policies compared across states are not 100% equivalent for many legitimate reasons. Also, the studies excluded some potentially relevant regulatory policies. There is missing analysis on both sides, but the conclusion remains functional.
There is a comparison of the costs of identical health insurance plans across a number of states with a wider range of insurance regulations. http://www.heritage.org/research/healthcare/cda06-04.cfm [Caveat: Partisan site]
This study includes data on the health insurance premiums for nine plans offered by Celtic, six Golden Rule plans, and seven Fortis plans as obtained from eHealthInsurance.com. The premium data come from September 2005 and September 2006 and cover 36 states. These plans have significant variance in terms of deductible, coinsurance, and coverage of doctors visits, focusing on four sets of regulations that affect health insurance premiums: Mandated benefits, Health plan liability, Direct-access-to-specialists, and Provider due process.
Without going into *all* the details, the study reports premiums tend to be higher in states that regulate more heavily. On average, states with health plan liability laws, direct-access-to-specialists laws, and provider due process mandates have higher health insurance premiums than states without these regulations. States with more than 26 mandated benefits have higher premiums than states with 26 or fewer benefits. The study includes additional regression analysis, which isolates the effects of each individual type of regulation by “holding constant” other factors. Three sets of regressions were run and the results provide solid evidence that the state-level regulations of health insurance are correlated with higher premiums. The regression model estimates that the presence of health plan liability laws increases monthly premiums by $21.84. Laws that give subscribers direct access to specialists increase monthly premiums by $31.15. Provider due process laws increase premiums by $16.62. Finally, each additional mandated benefit increases premiums by $0.75.
(Yes, some of the variation in health insurance premium costs could be due to regional differences in the underlying cost of health care, which includes prevailing wages and professional fees, the volume of medical services, or medical practice patterns. However, the premiums in high-cost states are routinely 50 percent to 100 percent higher than premiums in low-cost states; it's unlikely regional cost differences are a factor.)
All this goes to say that while it is a given that there are other limitations to the study, the point remains valid... there are distinct and legitimate costs associated with INCREASING the role of government involvement in Health Care. The argument that imposing government controls and regulations will bring costs down is unsupported in Reality... (at least not in a country that values freedom of choice and individual responsibility). Conversely, using the regulatory powers of government to provide highly favorable advantages in the marketplace to a select few companies or industry groups is equally wrong. We are a country founded on the concept of the Equalization of Opportunity, *not* on equalizing the Outcome.
Condense it to three points: A - Only use government power to keep the playing field level for all players (no favorites; not at either end of the spectrum); B - Take only those steps required to provide and maintain CHOICES for the consumer, and the bureaucracy is *not* in control of the options available or their costs; and C - Then, let the chips fall where they may, even if that means people who 'choose poorly' suffer personal hardship from their decisions. (Provide education and full disclosure, but if the horse won't drink, let him go thirsty)
Harsh? Perhaps. Do I *like* it? No. Reality trumps Theory - no matter how much we would like it to be otherwise. Is it better to centralize what (minimal) regulations are required at the Federal level (take this issue away from the States entirely)? Or do we assign FULL responsibility and control back to the States and have the Federal government take a backseat? There are advantages and disadvantages to either approach... if providing Health Care this is a proper function of government, we should do one or the other, since the hybrid mixture we have today is killing us.
Regardless, the only method historically proven mechanism which consistently reduces cost to the consumer over time is INCREASED COMPETITION. Eliminating regulatory obstructions is a critical step in this process. Simply choosing to replace what is now an effective insurance 'monopoly' – consisting , as you correctly pointed out, of a very few Very Large companies – with an undefined, unrestrained, and virtually unaccountable REAL Monopoly (total government control) is a cure that is worse than the disease.
- Steve
I don't mean to rain on your parade. My diatribe above (and below) is not intended to single YOU out. Quite the contrary - your most recent posts have been thought-provoking and excellently presented. Many thanks. Like you, I am struggling with HOW to accomplish the goals - heck, I'm still trying to DEFINE the goals! - without making things worse. Yes, Our system can be improved, but the process of doing so will be painful and will require re-thinking some long-held assumptions by all sides...
OK. Enough. – Here is something to chew on...
There is an intense debate on how to provide affordable health care coverage for more Americans. Census Bureau statistics and other sources are used as the foundation of an argument for GREATER government intervention in health care as THE way to cover a larger percentage of Americans. What is often often overlooked, is the fact that government policy, particularly excessive regulatory intervention, may be the Real Reason so many Americans have been 'priced out of coverage' and therefore join the high numbers of uninsured.
To begin, Health Care Insurance is already heavily regulated at the state level. Some states require insurance plans to cover certain types of health care providers or to provide certain types of health benefits. Other state regulations affect the rating rules for insurance or the ability of insurance plans to exclude people from coverage. Still others limit the ability of insurance companies to select health care providers. Many of these regulatory initiatives, particularly in the area of health insurance underwriting, are designed to achieve specific policy goals (not actually providing Health Care). These goals include controlling escalating health care costs or expanding the availability of health coverage, particularly for high-risk individuals.
Achieving these policy goals invariably requires trade-offs, but bureaucratic policymakers rarely consider the impact of their regulations. For example, rating rules that enable high-risk, older, or sicker employees to get low-cost health insurance without exclusions for medical conditions can make health insurance affordable for those employees. However, those rules also make younger and healthier employees pay higher premiums than they would otherwise obtain in the marketplace. When younger persons do not or cannot participate in the health insurance market, their conspicuous absence increases the pressure on the premiums for those who remain in it. When they do participate, those 'higher premiums' contribute to the Lost Value for the Health Care services they receive. A Catch-22: someone is going to pay the price.
There are many rules and regulations, and the impact of bureaucratic 'meddling' to achieve policy goals varies from state to state. In some states, regulations make it impossible for individuals to purchase a low-cost plan that would provide only catastrophic coverage. In other cases, the benefit mandates and insurance rules raise premiums to the point that insurance is prohibitively expensive for many people.
The economic impact of state-level health insurance regulations has generally received little analytic attention from both the academy and the broader health policy community. For some reason, this aspect of the relationship between regulatory cost and impact on the market is frequently ignored. Consider individual health insurance plans (a small subset of the overall health insurance market). In 2000 and 2001, the Center for Studying Health System Change, Community Tracking Survey 2000–2001 indicated 67.2 percent of the U.S. non-elderly population was enrolled in employer group coverage, while only 3.6 percent was enrolled in non-group or individual coverage.
Even though only a (relatively) small number of individuals obtain insurance in the non-group market, insurance costs in the individual market can have a HUGE impact on the number of uninsured individuals. The individual market consists largely of those without access to employer-sponsored insurance. Workers who buy individual health insurance policies – as opposed to workers enrolled in employer-based group insurance - do not enjoy the generous tax breaks that accompany the purchase of employer group plans. Because non-group markets are a market of last resort for so many individuals, the cost of premiums in these markets clearly affects whether or not many of these Americans can afford to purchase health insurance for themselves and their families.
Also, current economic trends will likely increase the number of workers without access to employer-sponsored insurance. Beyond those who work in businesses where the employer does not offer health insurance, there will be increasing numbers of individuals operating as sole proprietors or independent contractors. Ensuring access to affordable non-employer-based group health insurance on a level playing field *must* be a priority.
Previously, there has been little academic and policy literature on the impact of state-level health insurance regulations on health insurance premiums. Part of the reason has been the lack of publicly available state data on individual health insurance costs. However, in January 2005, Mark Showalter, William Congdon, and Amanda Kowalski published a working paper entitled “State Health Insurance Regulation and the Price of High-Deductible Policies.” http://fhss.byu.edu/econ/faculty/showalter/insurance-regulations-1%2014%2005.pdf
The authors used two separate datasets in their analysis. Golden Rule insurance provided 2003 insurance premium data from a series of random ZIP codes in 37 states, and eHealthInsurance.com, a major Internet broker of health insurance, provided prmium data from insurance policies sold through its Web site. The authors focused on four types of regulations: (1) mandated health benefits, which require insurers to cover particular treatments or particular services; (2) “any willing provider” laws, which restrict insurers’ ability to exclude hospitals and doctors from their networks; (3) community rating laws, which require insurers to limit premium differences across individuals; and (4) guaranteed issue laws, which require insurers to sell insurance to all potential customers regardless of health or pre-existing conditions. The authors found that each of these four types of regulations results in statistically significant increases in health insurance premiums. The findings were consistent across both the eHealthInsurance.com and Golden Rule datasets. The authors estimated that eliminating all of these regulations could save individuals up to $2,000 per year in insurance premiums.
Also, the Congressional Budget Office (CBO) released a study that examines how insurance prices affect health care coverage in the non-group market. http://www.cbo.gov/ftpdocs/66xx/doc6620/08-24-HealthInsurance.pdf The CBO authors did not have direct access to state premium data, but they were able to impute premiums by examining the strength of various state community rating regulations. Community rating laws limit the extent to which insurers can charge different prices to individuals with varying medical conditions. Community rating laws are commonly thought to increase premiums because they require insurance companies to charge healthy and unhealthy people relatively similar premiums. Since low premiums will not generate enough revenue to cover higher-risk individuals, premiums eventually increase, and the cost of insurance goes up for both healthy and unhealthy individuals in the non-group market. In the CBO study, the authors found that, after holding a variety of other factors constant, more individuals choose to forgo coverage in states with strict community rating laws. This finding provides solid evidence that community rating laws (e.g., government intervention in the marketplace) INCREASES the cost of health insurance.
Caveats... Some policies compared across states are not 100% equivalent for many legitimate reasons. Also, the studies excluded some potentially relevant regulatory policies. There is missing analysis on both sides, but the conclusion remains functional.
There is a comparison of the costs of identical health insurance plans across a number of states with a wider range of insurance regulations. http://www.heritage.org/research/healthcare/cda06-04.cfm [Caveat: Partisan site]
This study includes data on the health insurance premiums for nine plans offered by Celtic, six Golden Rule plans, and seven Fortis plans as obtained from eHealthInsurance.com. The premium data come from September 2005 and September 2006 and cover 36 states. These plans have significant variance in terms of deductible, coinsurance, and coverage of doctors visits, focusing on four sets of regulations that affect health insurance premiums: Mandated benefits, Health plan liability, Direct-access-to-specialists, and Provider due process.
Without going into *all* the details, the study reports premiums tend to be higher in states that regulate more heavily. On average, states with health plan liability laws, direct-access-to-specialists laws, and provider due process mandates have higher health insurance premiums than states without these regulations. States with more than 26 mandated benefits have higher premiums than states with 26 or fewer benefits. The study includes additional regression analysis, which isolates the effects of each individual type of regulation by “holding constant” other factors. Three sets of regressions were run and the results provide solid evidence that the state-level regulations of health insurance are correlated with higher premiums. The regression model estimates that the presence of health plan liability laws increases monthly premiums by $21.84. Laws that give subscribers direct access to specialists increase monthly premiums by $31.15. Provider due process laws increase premiums by $16.62. Finally, each additional mandated benefit increases premiums by $0.75.
(Yes, some of the variation in health insurance premium costs could be due to regional differences in the underlying cost of health care, which includes prevailing wages and professional fees, the volume of medical services, or medical practice patterns. However, the premiums in high-cost states are routinely 50 percent to 100 percent higher than premiums in low-cost states; it's unlikely regional cost differences are a factor.)
All this goes to say that while it is a given that there are other limitations to the study, the point remains valid... there are distinct and legitimate costs associated with INCREASING the role of government involvement in Health Care. The argument that imposing government controls and regulations will bring costs down is unsupported in Reality... (at least not in a country that values freedom of choice and individual responsibility). Conversely, using the regulatory powers of government to provide highly favorable advantages in the marketplace to a select few companies or industry groups is equally wrong. We are a country founded on the concept of the Equalization of Opportunity, *not* on equalizing the Outcome.
Condense it to three points: A - Only use government power to keep the playing field level for all players (no favorites; not at either end of the spectrum); B - Take only those steps required to provide and maintain CHOICES for the consumer, and the bureaucracy is *not* in control of the options available or their costs; and C - Then, let the chips fall where they may, even if that means people who 'choose poorly' suffer personal hardship from their decisions. (Provide education and full disclosure, but if the horse won't drink, let him go thirsty)
Harsh? Perhaps. Do I *like* it? No. Reality trumps Theory - no matter how much we would like it to be otherwise. Is it better to centralize what (minimal) regulations are required at the Federal level (take this issue away from the States entirely)? Or do we assign FULL responsibility and control back to the States and have the Federal government take a backseat? There are advantages and disadvantages to either approach... if providing Health Care this is a proper function of government, we should do one or the other, since the hybrid mixture we have today is killing us.
Regardless, the only method historically proven mechanism which consistently reduces cost to the consumer over time is INCREASED COMPETITION. Eliminating regulatory obstructions is a critical step in this process. Simply choosing to replace what is now an effective insurance 'monopoly' – consisting , as you correctly pointed out, of a very few Very Large companies – with an undefined, unrestrained, and virtually unaccountable REAL Monopoly (total government control) is a cure that is worse than the disease.
- Steve
Tuesday, September 1, 2009
Health Care Rationing
As we approach that point where we begin working on WHAT services will be provided, HOW they will be consumed, and by WHO - there is an aspect of the Health Care we must face called RATIONING.
It has been well-documented that (primarily to control costs) Canada, Great Britain and other socialized systems routinely restrict access to 'expensive' treatments and services. The critical nature or 'need' for the service is cast aside and a decision is rendered on purely economic considerations. The best interests of the patient - as defined by the care provider and patient - fall to the bottom of the list.
We do *not* want that to happen here...
First, we must recognize that rationing does *NOT* occur in the free market... Hold on there! Do Not succumb to the temptation and head down the road which claims the free market is just "another way to ration", only it uses Price instead of Government Decree. Many contend that "government must intervene" to guarantee a (supposedly) "fair" distribution of goods and services. Hogwash. Why do you think rationing happens in those other systems?
You don't think government controls in this country - because we're smarter - will lead to rationing? ... Remember sugar in WWII? How about gas in the 1970's?...
Let's consider this definition for Rationing: to distribute in a particular manner, by the decision of an absolute authority, with the recipients having no choice whatsoever considering what they are to receive. While it can be argued "everyone has an equal claim to whatever is being rationed" - this *claim* is meaningless since distribution is under control of an appointed 'master' who may choose to ignore any 'claim' without fear of retribution.
I don't have to personally experience being forced by law to 'stay down on the plantation' and be grateful for the largess bestowed upon me by my masters to recognize Slavery when I see it. Electing or appointing my 'master' doesn't change what I will have become.
We must remember that Health Care does not grow on trees. Effort is required. The effort of rational and learned thought. The effort of applied skill, experience, and hard work. THESE EFFORTS ARE NOT FREE! (TANSTAAFL!)
In a free society, it is the Producers - not the government - which create the good or service. It is morally correct and appropriate that they define the price they are willing to accept from a willing consumer. In a Free Society, there is no "just" or "fair" distribution of product apart from the voluntary exchange between Producer and Consumer in a free market.
I will not sugar-coat the obvious: Government programs which attempt to guarantee "universal health care" are, at best, state-sanctioned THEFT, or in some cases, outright SLAVERY. The free market is the antithesis of rationing. It respects individual rights, where rationing unjustly violates individual rights and restricts freedom.
This is a critical moral distinction that we ignore at our peril.
Now - I will concede that the current (American) system is not a true free market, either. (It's a hodge-podge mixture.) However, there *are* aspects of today's marketplace - which, not coincidentally, are the least-regulated - which enjoy the benefits of following the typical free-market pattern of falling prices and rising quality. This is not limited to cell phones and personal computers... you can see it in the Health Care arena with the marketplace evolution of services and procedures such as LASIK eye surgery.
The Free Market *can* work... if it is allowed to. It's a Win-Win scenario - the seller benefits by getting a price he will accept, the buyer gets the product/service he desires. The alternative, absolute government control of the entire process, is where (eventually) no one wins.
Free-market concepts can and should be an integral part - and should be the norm - for any Health Care system which has the intention of being a long-term success in providing Health Care.
Look at it this way... one day, we're going to need an MRI for a proper and accurate diagnosis (I have personally had several). Without a healthy respect for freedom, individual rights and the inherent property rights... we'll be waiting six months on that MRI - just like all those other socialism-based experiments - instead of only waiting six days, or maybe even six hours.
- Steve
It has been well-documented that (primarily to control costs) Canada, Great Britain and other socialized systems routinely restrict access to 'expensive' treatments and services. The critical nature or 'need' for the service is cast aside and a decision is rendered on purely economic considerations. The best interests of the patient - as defined by the care provider and patient - fall to the bottom of the list.
We do *not* want that to happen here...
First, we must recognize that rationing does *NOT* occur in the free market... Hold on there! Do Not succumb to the temptation and head down the road which claims the free market is just "another way to ration", only it uses Price instead of Government Decree. Many contend that "government must intervene" to guarantee a (supposedly) "fair" distribution of goods and services. Hogwash. Why do you think rationing happens in those other systems?
You don't think government controls in this country - because we're smarter - will lead to rationing? ... Remember sugar in WWII? How about gas in the 1970's?...
Let's consider this definition for Rationing: to distribute in a particular manner, by the decision of an absolute authority, with the recipients having no choice whatsoever considering what they are to receive. While it can be argued "everyone has an equal claim to whatever is being rationed" - this *claim* is meaningless since distribution is under control of an appointed 'master' who may choose to ignore any 'claim' without fear of retribution.
I don't have to personally experience being forced by law to 'stay down on the plantation' and be grateful for the largess bestowed upon me by my masters to recognize Slavery when I see it. Electing or appointing my 'master' doesn't change what I will have become.
We must remember that Health Care does not grow on trees. Effort is required. The effort of rational and learned thought. The effort of applied skill, experience, and hard work. THESE EFFORTS ARE NOT FREE! (TANSTAAFL!)
In a free society, it is the Producers - not the government - which create the good or service. It is morally correct and appropriate that they define the price they are willing to accept from a willing consumer. In a Free Society, there is no "just" or "fair" distribution of product apart from the voluntary exchange between Producer and Consumer in a free market.
I will not sugar-coat the obvious: Government programs which attempt to guarantee "universal health care" are, at best, state-sanctioned THEFT, or in some cases, outright SLAVERY. The free market is the antithesis of rationing. It respects individual rights, where rationing unjustly violates individual rights and restricts freedom.
This is a critical moral distinction that we ignore at our peril.
Now - I will concede that the current (American) system is not a true free market, either. (It's a hodge-podge mixture.) However, there *are* aspects of today's marketplace - which, not coincidentally, are the least-regulated - which enjoy the benefits of following the typical free-market pattern of falling prices and rising quality. This is not limited to cell phones and personal computers... you can see it in the Health Care arena with the marketplace evolution of services and procedures such as LASIK eye surgery.
The Free Market *can* work... if it is allowed to. It's a Win-Win scenario - the seller benefits by getting a price he will accept, the buyer gets the product/service he desires. The alternative, absolute government control of the entire process, is where (eventually) no one wins.
Free-market concepts can and should be an integral part - and should be the norm - for any Health Care system which has the intention of being a long-term success in providing Health Care.
Look at it this way... one day, we're going to need an MRI for a proper and accurate diagnosis (I have personally had several). Without a healthy respect for freedom, individual rights and the inherent property rights... we'll be waiting six months on that MRI - just like all those other socialism-based experiments - instead of only waiting six days, or maybe even six hours.
- Steve
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