The politicians have been blaming the nation's huge economic problems on the private sector and claiming the solution is more government, meaning more regulation. The media have been quite effective in parroting this line and convincing the public this must be so. The problems of housing foreclosures, the banking crisis, the insurance giant AIG, Wall Street, the auto industry, and even the $50 billion swindle by Bernard Madoff are being blamed on insufficient regulation. If only the government had more money, more employees, and more regulations, we are told, these problems would have been avoided and that's what we need to prevent such disasters in the future.
We've discussed some of the problems before, pointing out the role of government in creating the problems in the first place, and we'll deal with some of the others in future writings. But for now, let's look at what really happened in the case of the largest Ponzi Scheme in history (if you don't count Social Security) and see whether the public's trust in regulation is justified. Was the problem really one of inadequate government funding, staff and regulations?
The Securities and Exchange Commission (SEC) is the agency that is supposed to protect the public from criminals like Madoff. His firm was heavily regulated, and the SEC investigated him in 1992 and failed to find anything wrong.
After the Enron scandal, there was clamor for more money, staff and stricter enforcement by the SEC to prevent such abuses in the future. Congress obliged. Since 2000, the SEC's annual budget ballooned to more than $900 million, from $377 million. It's full time examination and enforcement staff increased by nearly 500 people. It's percentage of full-time staff devoted to enforcement—33.5%—appears to be a modern record. And the lionizing by press corp and Congress of enforcers like Eliot Spitzer gave the SEC plenty of incentive to ferret out fraud.
In 1999, Harry Markopolos, a private trader, wrote a letter to the SEC saying that “Madoff Securities is the world's largest Ponzi Scheme.” The SEC ignored it.
On February 4, 2009 Markopolos testified before a House committee that he had issued “repeated and credible warnings” to the SEC about Bernard Madoff. In 2000, when Madoff's scheme was 3 to 7 billion dollars, Markopolos provided enough “red flags and mathematical proof” so that the SEC “should have been able to shut him down right then and there.”
Markopolos' testimony continued: “In 2005, when Mr. Madoff was at $30 billion, 29 red flags were handed to the SEC. And yet again they failed to properly investigate and shut down Mr. Madoff's operations. I told the SEC exactly where to look, providing them with a long series of clear warnings that any trained investment professional would have immediately understood. Inexplicably, the SEC never acted upon those repeated multiple warnings...I gift-wrapped and delivered the largest Ponzi scheme in history to them.”
Even more surprising, Markopolos stated: “Everything that my team and I investigated was a matter of public record....We never had the access the SEC had. We couldn't walk into his offices, collect his documents. We never saw his smoking-gun e-mails. We never talked to any of his staff.”
He also testified, “The SEC was never capable of catching Mr. Madoff. He could have gone to $100 billion” without ever being discovered.
According to the Wall Street Journal, it was private citizen Markopolos and private research shops like Aksia LLC, a hedge fund and financial advisor, who did the real work of figuring out what Madoff was doing. Likewise, it was the short sellers who first blew the whistle on Enron while the SEC was clueless. Isn't it ironic—and significant—that the hedge funds and short sellers have been portrayed as villains by the politicians, the media and the public, who call for greater regulation of them? And regulation by whom?—the SEC? That's the agency that couldn't catch Madoff even though, in Markopolos' words, “I drew them pictures. I gave them a road map. I told them what questions to ask and who to phone.”
(Incidentally, Madoff did not have a hedge fund. He was a registered investment advisor and registered broker dealer.)
It wasn't just the federal government that failed here, but state government as well. Under New York law, Madoff had to register with the Investor Protection Bureau of the office of the New York Attorney General, one of the most powerful state securities regulators in the country. Yet current Attorney General Andrew Cuomo and his predecessor Eliot Spitzer were apparently clueless about Madoff's operations. So what good was the Investor Protection Bureau?
When government cannot even protect people from fraud, why should we believe it is competent to take on far more complicated tasks, such as running the banking industry or dictating how the automobile companies should be run? Protecting the public from fraud is an appropriate function of government. But economic functions—as opposed to police functions—are best left to free markets and the exercise of individual rights, not to the command and control of the police power of government. That power destroys economic efficiency as well as the liberty and individual rights that are the foundations of economic progress.
Here's another short example of government incompetence. This month was to be the deadline for TV broadcast stations to discontinue analog transmissions and switch their broadcast signals to digital. That deadline was set five years ago by Congress. So the government had five years to prepare its citizens for the switch. People with old analog TVs would not be able to get the new digital broadcasts without a converter box. The government said it would provide all applicants with special coupons that would allow them to purchase converter boxes at discount prices. But though it had five years to do so, the government did not have enough coupons in time for people to meet the deadline. So it postponed the deadline of digital broadcasting for another four months, until June 2009—which cost the stations millions of dollars because of lease arrangements and other contractual obligations they had made to comply with the original deadline. If government could not perform this relatively simple task in five years, why should anyone believe it is competent to manage such complex economic functions as the nation's health care system and, indeed, the entire economy?
As Ronald Reagan said, “Government is the problem, not the solution.”
Thursday, February 26, 2009
Friday, January 30, 2009
NASA Rigs Data, Reports False Global Warming
James Hansen is the NASA climatologist who started the global warming hysteria in 1988 when he told a Senate committee he was 99 percent sure global warming was already underway. The news media seized upon his unsupported testimony and parlayed it into an impending planetary crisis. A new industry was born. Billions of dollars were spent, and tens of thousands of jobs were created, giving rise to growing numbers of people with vested interests in promoting the specter of global warming. James Hansen gave them ammunition. For years, as head of NASA's Goddard Institute for Space Studies (GISS), he has “repeatedly been caught providing erroneous temperature reports that always err on the side of claiming more warming than has occurred,” says James Taylor in the February 2009 issue of Environment & Climate News.
In 2007 it was revealed that GISS had been artificially inflating U.S. temperatures by 0.15 degrees Celsius since the year 2000. NASA had claimed that six of the ten hottest years in U.S. history had occurred since 1995. When the erroneous data was corrected, 1998 (an unusually warm year due to El Nino—not carbon dioxide) was no longer the warmest year of the past century in the U.S. It fell to second place, with 1934 now being the warmest. And third place now belonged to 1921, not 2006. The formerly high-ranking years 2000, 2002, 2003 and 2004 fell well down the leader board—behind even 1900! Four of the top ten are now from the 1930s : 1934, 1931, 1938, 1939. Since more than 80 percent of the century's increase in atmospheric carbon dioxide occurred after 1940, the warmer temperatures of earlier years can't be explained by higher carbon dioxide levels.
In April 2008 Canadian statistician Steve McIntyre (http://www.climateaudit.org/) documented that NASA has been “rewriting history time and time again.” Still, NASA continued the process. It falsely reported that October 2008 was the warmest October on record. Statistical scientists jumped on this claim, leading even NASA to admit it was wrong. The month was actually quite normal.
Now meteorologist Anthony Watts has caught GISS and Hansen doctoring data records from Santa Rosa, California, and potentially other temperature stations. The charts below show how Hansen and his underlings turned a long-term decline into a long-term temperature increase.
The top chart shows actual readings reported by the U.S. Historical Climatology Network (USHCN). GISS arrives at its numbers by taking the USHCN data and applying secret adjustments. USHCN reports a temperature decline of nearly one-half degree Celsius during the twentieth century, while GISS reports an increase of one-half a degree. Hansen has refused to explain how and why he makes these adjustments.
Hansen's secrecy raises an ethical and perhaps legal question of whether the head of an agency federally funded by U.S. taxpayers can refuse to disclose how those funds are spent. It is reminiscent of a case a few years ago involving Michael Mann and his “hockey stick” graph purportedly illustrating global warming in recent decades. It showed centuries of temperature records as a basically horizontal line (the handle of the hockey stick), to which was added a sharply rising line (resembling the blade of the hockey stick) to denote global warming in recent decades. For a long time Mann refused to disclose his methodology. Finally, faced with pressure from a Congressional committee, he relented and revealed it. His study was shown to be based on an invalid statistical procedure. One must wonder if that was the reason he refused to disclose it sooner—and if Hansen has maintained his secrecy for the same reason. Robert Ferguson, president of the Science and Public Policy Institute, has stated: “Hansen's track record for presenting false data is undeniable, and yet neither the press nor the government holds him accountable for his self-serving errors and lack of objectivity.”
In 2007 it was revealed that GISS had been artificially inflating U.S. temperatures by 0.15 degrees Celsius since the year 2000. NASA had claimed that six of the ten hottest years in U.S. history had occurred since 1995. When the erroneous data was corrected, 1998 (an unusually warm year due to El Nino—not carbon dioxide) was no longer the warmest year of the past century in the U.S. It fell to second place, with 1934 now being the warmest. And third place now belonged to 1921, not 2006. The formerly high-ranking years 2000, 2002, 2003 and 2004 fell well down the leader board—behind even 1900! Four of the top ten are now from the 1930s : 1934, 1931, 1938, 1939. Since more than 80 percent of the century's increase in atmospheric carbon dioxide occurred after 1940, the warmer temperatures of earlier years can't be explained by higher carbon dioxide levels.
In April 2008 Canadian statistician Steve McIntyre (http://www.climateaudit.org/) documented that NASA has been “rewriting history time and time again.” Still, NASA continued the process. It falsely reported that October 2008 was the warmest October on record. Statistical scientists jumped on this claim, leading even NASA to admit it was wrong. The month was actually quite normal.
Now meteorologist Anthony Watts has caught GISS and Hansen doctoring data records from Santa Rosa, California, and potentially other temperature stations. The charts below show how Hansen and his underlings turned a long-term decline into a long-term temperature increase.
The top chart shows actual readings reported by the U.S. Historical Climatology Network (USHCN). GISS arrives at its numbers by taking the USHCN data and applying secret adjustments. USHCN reports a temperature decline of nearly one-half degree Celsius during the twentieth century, while GISS reports an increase of one-half a degree. Hansen has refused to explain how and why he makes these adjustments.
Hansen's secrecy raises an ethical and perhaps legal question of whether the head of an agency federally funded by U.S. taxpayers can refuse to disclose how those funds are spent. It is reminiscent of a case a few years ago involving Michael Mann and his “hockey stick” graph purportedly illustrating global warming in recent decades. It showed centuries of temperature records as a basically horizontal line (the handle of the hockey stick), to which was added a sharply rising line (resembling the blade of the hockey stick) to denote global warming in recent decades. For a long time Mann refused to disclose his methodology. Finally, faced with pressure from a Congressional committee, he relented and revealed it. His study was shown to be based on an invalid statistical procedure. One must wonder if that was the reason he refused to disclose it sooner—and if Hansen has maintained his secrecy for the same reason. Robert Ferguson, president of the Science and Public Policy Institute, has stated: “Hansen's track record for presenting false data is undeniable, and yet neither the press nor the government holds him accountable for his self-serving errors and lack of objectivity.”
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