Happy new year. January 15 is Martin Luther King’s birthday. It is also the birthday of my son Morgan who was born on January 15, 1967 which is also the date of the first Super Bowl. As I have gotten older I have read the history of the civil rights movement. Having lived through it I have come to realize that I have been myopic and what was going on around me was only one piece of the elephant (hopefully not the rear). So I have read books such as Taylor Branch’s Parting the Waters and Pillar of Fire; David Halberstam’s The Children. I have given my children copies of Calvin Trillin’s An Education in Georgia in which my experiences I as one of the four first black freshmen (and first male) at the University of Georgia are documented. However, it is interesting to recall the reflections of a white southerner from a small north Georgia town, who may have been the first person to sit next to me in a classroom at Georgia. Previously during my first two years, when I sat down on a row, everyone got up and moved. That white student was Bob McTeer who went on to get a Phd in economics, became the president of the Federal Reserve Bank of Dallas and the president of the Texas A & M system. It seems only appropriate that I reprint from his blog a celebration of Martin Luther King.
From Bob McTeer’s blog
http://taxesandbudget-blog.ncpa.org/?s=martin
Martin Luther King
January 16, 2006
Sulphur Springs, Texas
It's an honor to be invited to talk about Martin Luther King on Martin Luther King Day. But, frankly, I don't know why you invited me, of all people. But I accepted your invitation because it is an honor. And it just seemed like the right thing to do.
I greatly admired Martin Luther King, especially in the early years of the civil rights movement, but I've never mentioned that publicly. My invitation must be based on the fact that Dr. McFarland was a previous speaker and did a good job. So, if the president of A&M-Commerce did a good job, then maybe the chancellor would too.
Maybe, but that logic is suspect since university presidents are probably more scholarly than chancellors. That's certainly true in this case. You may not know what a chancellor's job is. I didn't until Mark Yudof, the chancellor of the University of Texas System, explained it to me. He said being chancellor is like managing a cemetery: There are lots of people under you, but most of them aren't listening.
I admired Dr. King, both the man and his work. But I never marched with him, or against him. I was on his side: for desegregation, for an end to discrimination based on race, and for equal rights. I was against separate public bathrooms, separate water fountains, and separate and unequal schools-the most visible signs of discrimination at the time.
I was a supporter, but I watched the civil rights movement on television, as a spectator.
There were no marches or sit-ins in my little town in the foothills of north Georgia. This part of the state had never been plantation country, so we didn't have rich whites and poor blacks. In my little town of Ranger, we only had poor whites. And no blacks at all.
I attended grade school-it was called grammar school back then-in a three-room schoolhouse in Ranger, Georgia, population about 100, maybe a few more. As I said, there were no black families in Ranger. I went to high school five miles south in Fairmount, which, I believe, had three black families. I remember that because my school bus passed their houses on the way to school. I don't know if they had school-aged kids, but, if they did, they went to the black school in the county seat of Calhoun, 18 miles to the west. Both my grade school and my high school got consolidated away, so now everyone travels 20 miles to Calhoun's consolidated and integrated Calhoun schools.
I just used the term "blacks" and "black families." I trust that's not offensive to anyone. Back then the proper term-and the term Dr. King used-was "negroes." Today it's "African American." Since this is an historical account, I'm using the term that emerged during the civil rights movement.
Martin Luther King Jr. was born in Atlanta, about 75 miles south of Ranger, on this day in 1929-77 years ago. He attended Morehouse College in Atlanta and studied theology at Boston University. Like his father and grandfather before him, he became a Baptist preacher.
On December 1, 1955, Rosa Parks-who died last October at age 92-refused to give up her seat on a Montgomery, Alabama, bus to whites. (For perspective, this was just over a year after Brown vs. the Board of Education.) 26-year-old Martin Luther King, a local pastor and member of the Montgomery Improvement Association, was drawn into the ensuing bus boycott and, as they say, the rest is history. I was barely 13 at the time, and had been baptized as a Baptist four months earlier in a muddy creek behind Liberty Church outside Ranger. A deep-water Baptist!
I mention my Baptist credentials so I can tell a Baptist joke, hopefully, without getting into trouble:
They say being Baptist doesn't keep you from sinning; it just keeps you from enjoying it. That's why you can probably classify me now as a backsliding Baptist.
On occasion, one might have classified MLK the same way, but that doesn't take away from the greatness of the man, in my opinion. If we set the bar for our role models and heroes too high, I'm afraid we won't have any. You don't have to be perfect to be great.
In an interview years later, they asked Rosa Parks if she kept her seat on the bus because she was tired. She said no, she was just tired of giving in.
MLK emerged from the successful Montgomery bus boycott, which lasted over a year, as a civil rights leader.
He became the founding president of the Southern Christian Leadership Conference (SCLC) in 1957.
His belief in nonviolent tactics was based in part on Gandhi's teaching, and a trip to India in 1959 strengthened that commitment.
He didn't initiate or lead the sit-in movement (at lunch counters and the like), but he got drawn into it by activists in SNCC, the Student Nonviolent Coordinating Committee.
He was arrested in October 1960, during an Atlanta sit-in, just before the presidential election. John Kennedy called King's wife, Coretta, to express his concern. This attention reportedly helped get King released, and probably helped Kennedy get elected president.
By then, I was a freshman at the University of Georgia and voted for Kennedy in that, my first election-partly because he seemed stronger on civil rights and partly because my Dad had always voted for the Democrat, whoever he was, because, in his words, "Democrats are for the little man." My Dad dropped out of school in the seventh grade to work in the sawmill. He always considered himself a little man. He was a very smart man who was borderline illiterate, and I'm here today because of him.
(But I still don't think it was smart for him to allow his vote to become automatic-to be taken for granted. Especially if it's based on the slogan of a past era.)
That January-on January 9, 1961-the University of Georgia was integrated by two black students: Hamilton Holmes and Charlayne Hunter. He later became a doctor in Atlanta, and she made it big in journalism as Charlayne Hunter-Gault on The NewsHour with Jim Lehrer.
Hamilton Holmes registered for the psychology class I was taking. As I recall, he sat apart from the other students, and they (that is, we) pretty much ignored him. I wish I could report to you that I went out of my way to make him welcome, but honestly, I felt like I was just barely hanging on myself as a freshman from a tiny rural town in a big university. I didn't do anything ugly. I just didn't do anything, and I was typical. If I was feeling overwhelmed, think how he must have felt.
Looking ahead two years, I sat next to Harold Black in an international trade class. Harold told me he had been the third black student at UGA, and we became classroom friends of sorts.
I stayed at Georgia and got a Ph.D. in economics. He left and got his Ph.D. in economics from Ohio State. He'd told me he'd been subjected to some minor harassment early in his freshman year-people banging on his dorm room door and so on-but it was not too bad. What I admire most about Harold is that he says he has fond memories of his Georgia days and he doesn't hold a grudge. I believe he sent his daughter to Georgia.
[As a footnote, so did Hamilton Holmes, who graduated Phi Beta Kappa, went on to Medical School at Emory in Atlanta, and latter became an ardent UGA supporter. He died in 1995 at age 54. Georgia named a professorship after him in 1999 and named the academic building after him and Charlayne Hunter in 2001, on the 40th anniversary of their arrival.]
Back to Harold Black. At one point, I thought I'd probably lost his friendship when he asked me to sign a petition to bar the ROTC from campus. I declined to do so, but he didn't take it personally. Following several important positions in government, Harold has been in recent years a professor of finance at the University of Tennessee, another one of those schools that wear those awful orange-colored football jerseys. In preparing these remarks, I googled Harold and his picture indicated that he has lost more of his hair than I have.
Harold's asking me to sign the ROTC petition created quite a moral dilemma for me. I wanted to support him as a friend, and, frankly, as a black student in a white school. But I didn't see the connection with ROTC, one way or another. Later on, of course, Martin Luther King presented the country with the same dilemma by bringing Vietnam into the Civil Rights Movement. More about that later.
Charlayne Hunter had a rougher start at the University of Georgia. One night during her first or second week, Georgia lost a basketball game, and as the upset fans piled out of the arena, someone yelled out, "Let's go to Center Myers"-which was her dormitory. A crowd of students and locals gathered there, threw some rocks, broke some windows and made news acting like the redneck idiots they were. My roommate and I were in our room, listening to it on my portable radio. He wanted to go over there and watch-just watch, he promised. I wouldn't go. So he called me a bad name that you can imagine.
After the first couple of weeks, I don't recall much fuss about race or desegregation on the Georgia campus. I graduated in 1963-the year James Meredith entered the University of Mississippi with the help of 5000 federal troops-and won a fellowship to stay at Georgia for graduate school.
When my fellowship ran out in 1966, I became a full-time instructor for two years and didn't leave Georgia until August 1968, about four months after King's assassination at age 39. So his remarkable civil rights career began when I was roughly 13 and ended just before I was 26. Where I was and what I was doing are, of course, not important, but it helps me keep track.
As a civil rights leader, Dr. King had his failures as well as his successes. Through it all, he adhered to a nonviolent approach, despite the urgings of more militant leaders like Malcolm X and Stokely Carmichael. He achieved a great victory in Birmingham in 1963 when his organization, the SCLC, orchestrated a series of clashes with the police. Remember Bull Connor? The use of police dogs and fire hoses on peaceful protestors attracted much media attention and national sympathy and prompted President Kennedy to introduce major civil rights legislation in June 1963. Kennedy was assassinated that November, and it was left to Lyndon Johnson to get the legislation through Congress the following year.
King's most famous and most-quoted writing was his letter from the Birmingham jail in 1963, in which he defended the use of civil disobedience to unjust laws.
His most famous speech also came in 1963-his "I Have a Dream" speech, following the march on Washington.
Time magazine, fittingly, named him "Man of the Year" for 1963.
1964 wasn't a bad year either: He became the youngest person to win the Nobel Peace Prize, at age 35.
Voting rights protests and the march from Selma to Montgomery, Alabama, came in 1965. That August, President Johnson signed the Voting Rights Act.
King took a major turn in 1966, moving into a Chicago ghetto and launching a campaign against poverty.
He also became increasingly vocal against U.S. involvement in Vietnam and delivered a strong antiwar speech at Riverside Church in New York on April 4, 1967.
His antiwar stance attracted more attention from J. Edgar Hoover's FBI, which used bugs and wiretaps to find something damaging.
Dr. King became involved in a Memphis sanitation workers' strike in April 1968. On the evening of April 3, he made the following familiar comments regarding his optimism for the future despite the obstacles that lay ahead.
He said . . .
". . . it really doesn't matter with me now, because I've been to the mountaintop . . . and I've seen the Promised Land. . . .
I may not get there with you. But I want you to know tonight, that we, as a people, will get to the Promised Land."
He was murdered the next day, on April 4, 1968, as he stood on the second-floor balcony of his room at the Lorraine Motel in Memphis, Tennessee.
He was only 39 years old.
Martin Luther King Day was first celebrated in 1986.
So far I've been summarizing facts that many of you remember, at least vaguely.
It goes without saying that I was, and still am, a great admirer of Martin Luther King.
He was a great man, a great leader, a great orator-right up there with Winston Churchill.
When I taught a weekend mini-course on public speaking at Johns Hopkins University in the 1980s, I assigned his speeches because I considered them some of the most eloquent ever written.
Earlier I said I admired Martin Luther King, especially in the early years of the civil rights movement.
What I meant by that qualification was that in the early years, he was trying to right clear wrongs, to end racial discrimination and demeaning treatment, and promote equal opportunity and respect for all.
His philosophy was to turn the other cheek, despite attacks by thugs with badges and their dogs.
He avoided returning violence that would likely have caused many more casualties and polarized the nation rather than won its support, as he did.
His message was accepted not only because it was right, but also because it was pure and unencumbered by extraneous issues. He fought clear and plain evil in those early years.
I personally thought it was a mistake for him to mix his messages in his later years and put our Vietnam efforts and fighting poverty on the same plane with ending racial discrimination.
Many others and I believed at the time that our cause was noble in Vietnam-that what we were trying to do was right, even if we weren't doing it very well. I think King's position on Vietnam muddied his message on civil rights.
Public opinion on Vietnam after all these years has moved in King's direction. History will probably declare him right on the war, but I still think our cause was noble and that millions of people would have been better off had we won. But in the context of tonight, I just want to offer the opinion that Vietnam diluted King's main message, which was a purer and more righteous message.
Similarly, I also thought it was a mistake for him to take on some of the economic issues that he made part of his movement.
Make no mistake about it: We are all against poverty and unemployment, which were especially severe among his people, and still are to a lesser extent. His goals were and are shared by all people of goodwill.
The problem comes not with the goals of ending poverty and unemployment but with the means of doing so-with the economics.
Good people disagree on that-especially economists, even good economists.
You've all heard the economist jokes.
One is that if you laid all the economists end to end they would never reach a conclusion
My point here is that those who care the most don't necessarily have the best answers. Some well-intentioned remedies end up doing more harm than good.
I would even define economics as the study of unintended consequences.
President Kennedy's assassination left it to President Johnson to get most of the civil rights program through Congress.
Having been Senate majority leader, Johnson was good at that, perhaps too good.
The Civil Rights Act was needed. The Voting Rights Act was needed.
My Dad, in his Truck Stop, needed the Civil Rights Act as an excuse to do the right thing.
But laws have their limits.
You can't eliminate poverty by making it illegal, and you can't achieve prosperity by voting for it.
Attempts to do so generally run afoul of the law of unintended consequences.
Economists generally agree, for example, that legislating higher minimum wages can raise wages for a few while contributing to the unemployment of many.
Getting the incentives right can create a needed safety net for the poor. But getting the incentives wrong can lead to welfare dependency for generations of the poor.
I don't mean to turn this into a polemic on economics.
My point is simply that the drive for freedom and the end to discrimination is probably more successful if it doesn't become part of a larger ideology with unrelated features that weaken the total message.
I don't know what Martin Luther King would say about some of the major issues of today.
But because he was a very intelligent man, I believe his thinking would have evolved with the times, with changing facts and circumstances, and with our better understanding of economic issues.
If he were here today, I think he would say the job is not finished, that more needs to be done.
But I think he would also recognize the enormous progress that has been made.
I think he would caution his people against thinking of themselves as victims-even though they have been victims-and urge them to take responsibility for their progress and prosperity.
It takes time. Usually generations.
I'm relatively prosperous. I have a good job.
But I can't take much of credit for that. Most of the credit goes to my Dad, the seventh grade dropout who quit school to work at the sawmill.
From the time I can remember, he told me I had to go to college so I wouldn't have to work as hard as he did.
I assumed I had no choice in the matter.
He saved enough money to start a gas station and saved enough there to build a truck stop, which is where I grew up-raised by my folks and long-haired waitresses.
The truck stop was successful enough to send me to college before Interstate 95 bypassed it and drained off its business.
We are all poor until someone steps up and, with sheer will, decides to break the cycle of poverty.
Government safety nets are needed to catch us if we fall, but we can't depend on them to help us soar.
That depends on us, with the help of our family and friends.
Martin Luther King was a great man. A great leader.
He gave his people freedom and dignity and a more level playing field.
He gave his people a beginning toward the good life.
I'm not sure what a 77-year-old Martin Luther King would say if he were here tonight.
But with more eloquence than I could ever muster, I think he would say something like the following to his people:
Don't forget the past, but don't dwell on it.
Continue to seek justice, but look inward and to God for the strength to move onward and upward.
Don't use the past as an excuse for failure in the future.
Use the past as an incentive to break the cycle of poverty through education, dedication and hard work.
Take responsibility for your own progress and success.
What I will leave you with tonight is that I hope we in the Texas A&M University System can help in the noble quest.
We have nine universities-not as many flavors as Baskin- Robbins, but enough to meet diverse needs.
The closest is Texas A&M Commerce, but they are all in Texas.
We have Texas covered.
We are proud that a high percentage of our students are first-generation college students, just as I was.
We want to help.
I can't think of a better way to celebrate Martin Luther King's birthday than to be here with you tonight.
Saturday, January 2, 2010
Wednesday, December 9, 2009
So why do you want intrusive government?
When you look at this administration's major actions, it is difficult to find one that is targeted at the problem it alleges to address. TARP was supposed to buy the underwater assets of banks but has instead turned out to be a gigantic slush fund. Cap and trade was intended to save the earth from global warming. But most experts agree that it will do little if anything to reduce global temperatures. Rather it will also be a gigantic slush fund where the government choses who to tax and who to subsidize. Financial reform has nothing to do with the mortgage problem and asset bubbles. Rather it creates an all powerful single federal czar to oversee consumer laws and regulates hedge funds which had nothing to do with the crises. Health care reform was based on accessibility, the uninsured and costs. The legislation before the congress addresses none of these issues. Rather it allows the government to seize one sixth of the economy. The stimulus package was to stop the rise in unemployment. However, again it was nothing but a big slush fund that had no impact on unemployment. Get the picture? Its like Orwell's 1984 in which the government agencies are mislabeled, e. g., the Ministry of Peace conducts war and the Ministry of Information is the propaganda arm of the government. All of the efforts of the Obama administration are likewise mislabeled. The only thing that is consistent is that each is intended to expand the reach and power of the federal government. Personally I do not understand how anyone could endorse such an approach that has only demonstrated failure throughout history. The government is neither efficient, compassionate, understanding or even remotely consumer-friendly. Its one-size-fits-most rules are the opposite of what is produced by the market. From what I can gather, there are two types who favor the expansion of government. The first are those who think that they will be the rule makers and can impose their superiorness upon the great unwashed. The second is the group that benefits from the government's largesse. Those who receive more in transfer payments than they pay in taxes. However, the vast majority of us are not in either group. We are the ones who are imposed on, who pay for all of this, and who find our standards of living declining. The majority of the American people understand this and are opposed to the government increasing its reach. The result of the government imposing itself on us raises the bottom by pushing down the top. Yet by discouraging productivity and innovation, the economy as a whole becomes worse off with less growth and ultimately less revenues. Lastly what all the pro-government people don't seem to realize that one day those in the government may not be sympathetic to the liberal causes and start sending the favors over to those who are currently being punished by the liberals. Remember "what goes around comes around."
Friday, December 4, 2009
Vindication?
I am not a climate scientist. However, I do know models since that is what I do for a living. In my profession, models are proffered and explored and criticized. I know of no "settled science". Constantly, we read of the consensus of economists predicting what inevitably turns out to be wrong. Yet economists are not vilified and go on to mis-predict the next event. One of the pieces of research commonly cited as evidence of mortgage pricing discrimination is so replete with errors that I use it in my doctoral seminar as an example of how to lie with statistics. Yet somehow, with global warming there is supposed to be "settled science". Well as I have written often, that alone made me a skeptic. The more I read, the more skeptical I became. This was before the email blowup at East Anglia. Now comes the following piece from Prof. Richard Lindzen of MIT who is an expert. So I ask you true believers again: Do you still believe in global warming?
OPINIONNOVEMBER 30, 2009, 7:44 P.M. ET
The Climate Science Isn't Settled
Confident predictions of catastrophe are unwarranted.
By RICHARD S. LINDZEN
Is there a reason to be alarmed by the prospect of global warming? Consider that the measurement used, the globally averaged temperature anomaly (GATA), is always changing. Sometimes it goes up, sometimes down, and occasionally—such as for the last dozen years or so—it does little that can be discerned.
Claims that climate change is accelerating are bizarre. There is general support for the assertion that GATA has increased about 1.5 degrees Fahrenheit since the middle of the 19th century. The quality of the data is poor, though, and because the changes are small, it is easy to nudge such data a few tenths of a degree in any direction. Several of the emails from the University of East Anglia's Climate Research Unit (CRU) that have caused such a public ruckus dealt with how to do this so as to maximize apparent changes.
The general support for warming is based not so much on the quality of the data, but rather on the fact that there was a little ice age from about the 15th to the 19th century. Thus it is not surprising that temperatures should increase as we emerged from this episode. At the same time that we were emerging from the little ice age, the industrial era began, and this was accompanied by increasing emissions of greenhouse gases such as CO2, methane and nitrous oxide. CO2 is the most prominent of these, and it is again generally accepted that it has increased by about 30%.
The defining characteristic of a greenhouse gas is that it is relatively transparent to visible light from the sun but can absorb portions of thermal radiation. In general, the earth balances the incoming solar radiation by emitting thermal radiation, and the presence of greenhouse substances inhibits cooling by thermal radiation and leads to some warming.
That said, the main greenhouse substances in the earth's atmosphere are water vapor and high clouds. Let's refer to these as major greenhouse substances to distinguish them from the anthropogenic minor substances. Even a doubling of CO2 would only upset the original balance between incoming and outgoing radiation by about 2%. This is essentially what is called "climate forcing."
There is general agreement on the above findings. At this point there is no basis for alarm regardless of whether any relation between the observed warming and the observed increase in minor greenhouse gases can be established. Nevertheless, the most publicized claims of the U.N.'s Intergovernmental Panel on Climate Change (IPCC) deal exactly with whether any relation can be discerned. The failure of the attempts to link the two over the past 20 years bespeaks the weakness of any case for concern.
The IPCC's Scientific Assessments generally consist of about 1,000 pages of text. The Summary for Policymakers is 20 pages. It is, of course, impossible to accurately summarize the 1,000-page assessment in just 20 pages; at the very least, nuances and caveats have to be omitted. However, it has been my experience that even the summary is hardly ever looked at. Rather, the whole report tends to be characterized by a single iconic claim.
The main statement publicized after the last IPCC Scientific Assessment two years ago was that it was likely that most of the warming since 1957 (a point of anomalous cold) was due to man. This claim was based on the weak argument that the current models used by the IPCC couldn't reproduce the warming from about 1978 to 1998 without some forcing, and that the only forcing that they could think of was man. Even this argument assumes that these models adequately deal with natural internal variability—that is, such naturally occurring cycles as El Nino, the Pacific Decadal Oscillation, the Atlantic Multidecadal Oscillation, etc.
Yet articles from major modeling centers acknowledged that the failure of these models to anticipate the absence of warming for the past dozen years was due to the failure of these models to account for this natural internal variability. Thus even the basis for the weak IPCC argument for anthropogenic climate change was shown to be false.
Of course, none of the articles stressed this. Rather they emphasized that according to models modified to account for the natural internal variability, warming would resume—in 2009, 2013 and 2030, respectively.
But even if the IPCC's iconic statement were correct, it still would not be cause for alarm. After all we are still talking about tenths of a degree for over 75% of the climate forcing associated with a doubling of CO2. The potential (and only the potential) for alarm enters with the issue of climate sensitivity—which refers to the change that a doubling of CO2 will produce in GATA. It is generally accepted that a doubling of CO2 will only produce a change of about two degrees Fahrenheit if all else is held constant. This is unlikely to be much to worry about.
Yet current climate models predict much higher sensitivities. They do so because in these models, the main greenhouse substances (water vapor and clouds) act to amplify anything that CO2 does. This is referred to as positive feedback. But as the IPCC notes, clouds continue to be a source of major uncertainty in current models. Since clouds and water vapor are intimately related, the IPCC claim that they are more confident about water vapor is quite implausible.
There is some evidence of a positive feedback effect for water vapor in cloud-free regions, but a major part of any water-vapor feedback would have to acknowledge that cloud-free areas are always changing, and this remains an unknown. At this point, few scientists would argue that the science is settled. In particular, the question remains as to whether water vapor and clouds have positive or negative feedbacks.
The notion that the earth's climate is dominated by positive feedbacks is intuitively implausible, and the history of the earth's climate offers some guidance on this matter. About 2.5 billion years ago, the sun was 20%-30% less bright than now (compare this with the 2% perturbation that a doubling of CO2 would produce), and yet the evidence is that the oceans were unfrozen at the time, and that temperatures might not have been very different from today's. Carl Sagan in the 1970s referred to this as the "Early Faint Sun Paradox."
For more than 30 years there have been attempts to resolve the paradox with greenhouse gases. Some have suggested CO2—but the amount needed was thousands of times greater than present levels and incompatible with geological evidence. Methane also proved unlikely. It turns out that increased thin cirrus cloud coverage in the tropics readily resolves the paradox—but only if the clouds constitute a negative feedback. In present terms this means that they would diminish rather than enhance the impact of CO2.
There are quite a few papers in the literature that also point to the absence of positive feedbacks. The implied low sensitivity is entirely compatible with the small warming that has been observed. So how do models with high sensitivity manage to simulate the currently small response to a forcing that is almost as large as a doubling of CO2? Jeff Kiehl notes in a 2007 article from the National Center for Atmospheric Research, the models use another quantity that the IPCC lists as poorly known (namely aerosols) to arbitrarily cancel as much greenhouse warming as needed to match the data, with each model choosing a different degree of cancellation according to the sensitivity of that model.
What does all this have to do with climate catastrophe? The answer brings us to a scandal that is, in my opinion, considerably greater than that implied in the hacked emails from the Climate Research Unit (though perhaps not as bad as their destruction of raw data): namely the suggestion that the very existence of warming or of the greenhouse effect is tantamount to catastrophe. This is the grossest of "bait and switch" scams. It is only such a scam that lends importance to the machinations in the emails designed to nudge temperatures a few tenths of a degree.
The notion that complex climate "catastrophes" are simply a matter of the response of a single number, GATA, to a single forcing, CO2 (or solar forcing for that matter), represents a gigantic step backward in the science of climate. Many disasters associated with warming are simply normal occurrences whose existence is falsely claimed to be evidence of warming. And all these examples involve phenomena that are dependent on the confluence of many factors.
Our perceptions of nature are similarly dragged back centuries so that the normal occasional occurrences of open water in summer over the North Pole, droughts, floods, hurricanes, sea-level variations, etc. are all taken as omens, portending doom due to our sinful ways (as epitomized by our carbon footprint). All of these phenomena depend on the confluence of multiple factors as well.
Consider the following example. Suppose that I leave a box on the floor, and my wife trips on it, falling against my son, who is carrying a carton of eggs, which then fall and break. Our present approach to emissions would be analogous to deciding that the best way to prevent the breakage of eggs would be to outlaw leaving boxes on the floor. The chief difference is that in the case of atmospheric CO2 and climate catastrophe, the chain of inference is longer and less plausible than in my example.
Mr. Lindzen is professor of meteorology at the Massachusetts Institute of Technology.
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OPINIONNOVEMBER 30, 2009, 7:44 P.M. ET
The Climate Science Isn't Settled
Confident predictions of catastrophe are unwarranted.
By RICHARD S. LINDZEN
Is there a reason to be alarmed by the prospect of global warming? Consider that the measurement used, the globally averaged temperature anomaly (GATA), is always changing. Sometimes it goes up, sometimes down, and occasionally—such as for the last dozen years or so—it does little that can be discerned.
Claims that climate change is accelerating are bizarre. There is general support for the assertion that GATA has increased about 1.5 degrees Fahrenheit since the middle of the 19th century. The quality of the data is poor, though, and because the changes are small, it is easy to nudge such data a few tenths of a degree in any direction. Several of the emails from the University of East Anglia's Climate Research Unit (CRU) that have caused such a public ruckus dealt with how to do this so as to maximize apparent changes.
The general support for warming is based not so much on the quality of the data, but rather on the fact that there was a little ice age from about the 15th to the 19th century. Thus it is not surprising that temperatures should increase as we emerged from this episode. At the same time that we were emerging from the little ice age, the industrial era began, and this was accompanied by increasing emissions of greenhouse gases such as CO2, methane and nitrous oxide. CO2 is the most prominent of these, and it is again generally accepted that it has increased by about 30%.
The defining characteristic of a greenhouse gas is that it is relatively transparent to visible light from the sun but can absorb portions of thermal radiation. In general, the earth balances the incoming solar radiation by emitting thermal radiation, and the presence of greenhouse substances inhibits cooling by thermal radiation and leads to some warming.
That said, the main greenhouse substances in the earth's atmosphere are water vapor and high clouds. Let's refer to these as major greenhouse substances to distinguish them from the anthropogenic minor substances. Even a doubling of CO2 would only upset the original balance between incoming and outgoing radiation by about 2%. This is essentially what is called "climate forcing."
There is general agreement on the above findings. At this point there is no basis for alarm regardless of whether any relation between the observed warming and the observed increase in minor greenhouse gases can be established. Nevertheless, the most publicized claims of the U.N.'s Intergovernmental Panel on Climate Change (IPCC) deal exactly with whether any relation can be discerned. The failure of the attempts to link the two over the past 20 years bespeaks the weakness of any case for concern.
The IPCC's Scientific Assessments generally consist of about 1,000 pages of text. The Summary for Policymakers is 20 pages. It is, of course, impossible to accurately summarize the 1,000-page assessment in just 20 pages; at the very least, nuances and caveats have to be omitted. However, it has been my experience that even the summary is hardly ever looked at. Rather, the whole report tends to be characterized by a single iconic claim.
The main statement publicized after the last IPCC Scientific Assessment two years ago was that it was likely that most of the warming since 1957 (a point of anomalous cold) was due to man. This claim was based on the weak argument that the current models used by the IPCC couldn't reproduce the warming from about 1978 to 1998 without some forcing, and that the only forcing that they could think of was man. Even this argument assumes that these models adequately deal with natural internal variability—that is, such naturally occurring cycles as El Nino, the Pacific Decadal Oscillation, the Atlantic Multidecadal Oscillation, etc.
Yet articles from major modeling centers acknowledged that the failure of these models to anticipate the absence of warming for the past dozen years was due to the failure of these models to account for this natural internal variability. Thus even the basis for the weak IPCC argument for anthropogenic climate change was shown to be false.
Of course, none of the articles stressed this. Rather they emphasized that according to models modified to account for the natural internal variability, warming would resume—in 2009, 2013 and 2030, respectively.
But even if the IPCC's iconic statement were correct, it still would not be cause for alarm. After all we are still talking about tenths of a degree for over 75% of the climate forcing associated with a doubling of CO2. The potential (and only the potential) for alarm enters with the issue of climate sensitivity—which refers to the change that a doubling of CO2 will produce in GATA. It is generally accepted that a doubling of CO2 will only produce a change of about two degrees Fahrenheit if all else is held constant. This is unlikely to be much to worry about.
Yet current climate models predict much higher sensitivities. They do so because in these models, the main greenhouse substances (water vapor and clouds) act to amplify anything that CO2 does. This is referred to as positive feedback. But as the IPCC notes, clouds continue to be a source of major uncertainty in current models. Since clouds and water vapor are intimately related, the IPCC claim that they are more confident about water vapor is quite implausible.
There is some evidence of a positive feedback effect for water vapor in cloud-free regions, but a major part of any water-vapor feedback would have to acknowledge that cloud-free areas are always changing, and this remains an unknown. At this point, few scientists would argue that the science is settled. In particular, the question remains as to whether water vapor and clouds have positive or negative feedbacks.
The notion that the earth's climate is dominated by positive feedbacks is intuitively implausible, and the history of the earth's climate offers some guidance on this matter. About 2.5 billion years ago, the sun was 20%-30% less bright than now (compare this with the 2% perturbation that a doubling of CO2 would produce), and yet the evidence is that the oceans were unfrozen at the time, and that temperatures might not have been very different from today's. Carl Sagan in the 1970s referred to this as the "Early Faint Sun Paradox."
For more than 30 years there have been attempts to resolve the paradox with greenhouse gases. Some have suggested CO2—but the amount needed was thousands of times greater than present levels and incompatible with geological evidence. Methane also proved unlikely. It turns out that increased thin cirrus cloud coverage in the tropics readily resolves the paradox—but only if the clouds constitute a negative feedback. In present terms this means that they would diminish rather than enhance the impact of CO2.
There are quite a few papers in the literature that also point to the absence of positive feedbacks. The implied low sensitivity is entirely compatible with the small warming that has been observed. So how do models with high sensitivity manage to simulate the currently small response to a forcing that is almost as large as a doubling of CO2? Jeff Kiehl notes in a 2007 article from the National Center for Atmospheric Research, the models use another quantity that the IPCC lists as poorly known (namely aerosols) to arbitrarily cancel as much greenhouse warming as needed to match the data, with each model choosing a different degree of cancellation according to the sensitivity of that model.
What does all this have to do with climate catastrophe? The answer brings us to a scandal that is, in my opinion, considerably greater than that implied in the hacked emails from the Climate Research Unit (though perhaps not as bad as their destruction of raw data): namely the suggestion that the very existence of warming or of the greenhouse effect is tantamount to catastrophe. This is the grossest of "bait and switch" scams. It is only such a scam that lends importance to the machinations in the emails designed to nudge temperatures a few tenths of a degree.
The notion that complex climate "catastrophes" are simply a matter of the response of a single number, GATA, to a single forcing, CO2 (or solar forcing for that matter), represents a gigantic step backward in the science of climate. Many disasters associated with warming are simply normal occurrences whose existence is falsely claimed to be evidence of warming. And all these examples involve phenomena that are dependent on the confluence of many factors.
Our perceptions of nature are similarly dragged back centuries so that the normal occasional occurrences of open water in summer over the North Pole, droughts, floods, hurricanes, sea-level variations, etc. are all taken as omens, portending doom due to our sinful ways (as epitomized by our carbon footprint). All of these phenomena depend on the confluence of multiple factors as well.
Consider the following example. Suppose that I leave a box on the floor, and my wife trips on it, falling against my son, who is carrying a carton of eggs, which then fall and break. Our present approach to emissions would be analogous to deciding that the best way to prevent the breakage of eggs would be to outlaw leaving boxes on the floor. The chief difference is that in the case of atmospheric CO2 and climate catastrophe, the chain of inference is longer and less plausible than in my example.
Mr. Lindzen is professor of meteorology at the Massachusetts Institute of Technology.
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Thursday, December 3, 2009
Spread the wealth?
Remember when Joe Biden said that we needed to "spread the wealth?" My reaction was don't we do enough of that already with over $4 trillion going into poverty programs since LBJ? What Biden and his ilk actually mean is that they want to further confiscate more of the wealth of Americans and reallocate it, thereby increasing the power of politicians. I have always considered the measure of a society in how well off were its poor. That wealth is a combination of income, possessions, and income transfers. By any measure, America is a success for its poor would be considered middle class in most of the world. Mark Perry documents this in his blog (http://mjperry.blogspot.com/2008/02/rich-getting-richer-and-poor-are.html) when he shows not only are the rich getting richer but so are the poor. The liberals envision s fixed pie where in order to gain, one has to take from another. This is contrary to the pie growing lifting all boats.
Consider the findings of Robert Rector (http://www.heritage.org/Research/welfare/bg2064.cfm).
The following are facts about the 12 million persons defined as "poor" by the Census Bureau, taken from various gov¬ernment reports:
• Forty-three percent of all poor households actu¬ally own their own homes. The average home owned by persons classified as poor by the Census Bureau is a three-bedroom house with one-and-a-half baths, a garage, and a porch or patio.
• Eighty percent of poor households have air conditioning. By contrast, in 1970, only 36 percent of the entire U.S. population enjoyed air conditioning.
• Only 6 percent of poor households are over¬crowded. More than two-thirds have more than two rooms per person.
• The average poor American has more living space than the average individual living in Paris, London, Vienna, Athens, and other cities throughout Europe. (These comparisons are to the average citizens in foreign countries, not to those classified as poor.)
• Nearly three-quarters of poor households own a car; 31 percent own two or more cars.
• Ninety-seven percent of poor households have a color television; over half own two or more color televisions.
• Seventy-eight percent have a VCR or DVD player; 62 percent have cable or satellite TV reception.
• Eighty-nine percent own microwave ovens, more than half have a stereo, and more than a third have an automatic dishwasher.
As a group, America's poor are far from being chronically undernourished. The average consump¬tion of protein, vitamins, and minerals is virtually the same for poor and middle-class children and, in most cases, is well above recommended norms. Poor children actually consume more meat than do higher-income children and have average protein intakes 100 percent above recommended levels. Most poor children today are, in fact, supernour¬ished and grow up to be, on average, one inch taller and 10 pounds heavier than the GIs who stormed the beaches of Normandy in World War II.
Consider the findings of Robert Rector (http://www.heritage.org/Research/welfare/bg2064.cfm).
The following are facts about the 12 million persons defined as "poor" by the Census Bureau, taken from various gov¬ernment reports:
• Forty-three percent of all poor households actu¬ally own their own homes. The average home owned by persons classified as poor by the Census Bureau is a three-bedroom house with one-and-a-half baths, a garage, and a porch or patio.
• Eighty percent of poor households have air conditioning. By contrast, in 1970, only 36 percent of the entire U.S. population enjoyed air conditioning.
• Only 6 percent of poor households are over¬crowded. More than two-thirds have more than two rooms per person.
• The average poor American has more living space than the average individual living in Paris, London, Vienna, Athens, and other cities throughout Europe. (These comparisons are to the average citizens in foreign countries, not to those classified as poor.)
• Nearly three-quarters of poor households own a car; 31 percent own two or more cars.
• Ninety-seven percent of poor households have a color television; over half own two or more color televisions.
• Seventy-eight percent have a VCR or DVD player; 62 percent have cable or satellite TV reception.
• Eighty-nine percent own microwave ovens, more than half have a stereo, and more than a third have an automatic dishwasher.
As a group, America's poor are far from being chronically undernourished. The average consump¬tion of protein, vitamins, and minerals is virtually the same for poor and middle-class children and, in most cases, is well above recommended norms. Poor children actually consume more meat than do higher-income children and have average protein intakes 100 percent above recommended levels. Most poor children today are, in fact, supernour¬ished and grow up to be, on average, one inch taller and 10 pounds heavier than the GIs who stormed the beaches of Normandy in World War II.
Tuesday, December 1, 2009
Still believe in global "warming"? Redux
REVIEW & OUTLOOK
Wall Street Journal
NOVEMBER 27, 2009, 7:02 P.M. ET
Rigging a Climate 'Consensus'
About those emails and 'peer review.'
The climatologists at the center of the leaked email and document scandal have taken the line that it is all much ado about nothing. Yes, the wording of their messages was unfortunate, but they insist this in no way undermines the underlying science. They're ignoring the damage they've done to public confidence in the arbiters of climate science.
"What they've done is search through stolen personal emails—confidential between colleagues who often speak in a language they understand and is often foreign to the outside world," Penn State's Michael Mann told Reuters Wednesday. Mr. Mann added that this has made "something innocent into something nefarious."
Phil Jones, director of the University of East Anglia's Climate Research Unit, from which the emails were lifted, is singing from the same climate hymnal. "My colleagues and I accept that some of the published emails do not read well. I regret any upset or confusion caused as a result. Some were clearly written in the heat of the moment, others use colloquialisms frequently used between close colleagues," he said this week.
We don't doubt that Mr. Jones would have phrased his emails differently if he expected them to end up in the newspaper. He's right that it doesn't look good that his May 2008 email to Mr. Mann regarding the U.N.'s Fourth Assessment Report said "Mike, Can you delete any emails you may have had with Keith re AR4?" Mr. Mann says he didn't delete any such emails, but the point is that Mr. Jones wanted them hidden.
The furor over these documents is not about tone, colloquialisms or whether climatologists are nice people. The real issue is what the messages say about the way the much-ballyhooed scientific consensus on global warming was arrived at, and how a single view of warming and its causes is being enforced. The impression left by the correspondence among Messrs. Mann and Jones and others is that the climate-tracking game has been rigged from the start.
According to this privileged group, only those whose work has been published in select scientific journals, after having gone through the "peer-review" process, can be relied on to critique the science. And sure enough, any challenges from critics outside this clique are dismissed and disparaged.
This September, Mr. Mann told a New York Times reporter in one of the leaked emails that: "Those such as [Stephen] McIntyre who operate almost entirely outside of this system are not to be trusted." Mr. McIntyre is a retired Canadian businessman who checks the findings of climate scientists and often publishes the mistakes he finds on his Web site, Climateaudit.org. He holds the rare distinction of having forced Mr. Mann to publish a correction to one of his more famous papers.
As anonymous reviewers of choice for certain journals, Mr. Mann & Co. had considerable power to enforce the consensus, but it was not absolute, as they discovered in 2003. Mr. Mann noted in a March 2003 email, after the journal "Climate Research" published a paper not to Mr. Mann's liking, that "This was the danger of always criticising the skeptics for not publishing in the 'peer-reviewed literature'. Obviously, they found a solution to that—take over a journal!"
Mr. Mann went on to suggest that the journal itself be blackballed: "Perhaps we should encourage our colleagues in the climate research community to no longer submit to, or cite papers in, this journal. We would also need to consider what we tell or request of our more reasonable colleagues who currently sit on the editorial board." In other words, keep dissent out of the respected journals. When that fails, redefine what constitutes a respected journal to exclude any that publish inconvenient views.
A more thoughtful response to the emails comes from Mike Hulme, another climate scientist at the University of East Anglia, as reported by a New York Times blogger:
"This event might signal a crack that allows for processes of re-structuring scientific knowledge about climate change. It is possible that some areas of climate science has become sclerotic. It is possible that climate science has become too partisan, too centralized. The tribalism that some of the leaked emails display is something more usually associated with social organization within primitive cultures; it is not attractive when we find it at work inside science."
The response from the defenders of Mr. Mann and his circle has been that even if they did disparage doubters and exclude contrary points of view, theirs is still the best climate science. The proof for this is circular. It's the best, we're told, because it's the most-published and most-cited—in that same peer-reviewed literature. The public has every reason to ask why they felt the need to rig the game if their science is as indisputable as they claim.
Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved
This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit
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Monday, November 30, 2009
Obama isn't the only one who has lost his way
In an article in the Financial Times (www.ft.com/cms/s/0/15c18868-ce2f-11de-a1ea-00144feabdc0.html), economist Jeffrey Sachs of Columbia University says that "Obama has lost his way on jobs". Sachs states that the Obama solution is a Keynesian approach which focuses on consumer spending. He notes that consumer and investment demands are too low for full employment. As he states, the administration has "gone about this with a combination of near-zero interest rates, massive Fed financing of mortgages and various consumption incentives, such as rebates for new home buyers and cash for clunkers." I presume he means federal financing of mortgages since the Fed hasn't stooped to that yet. Sachs must think that these are permanent states and he may be right since the administration's policies have been job and investment killers. He also finds the Republican solution of lower taxes to be lacking. The reason is interesting. It is that the amount of money that the federal government collects in taxes only covers the outlays on social security, medicare, medicaid, veterans benefits, defense and interest on the debt. All the other expenditures are financed on borrowed money. He contends that this results in critical areas (all the rest of the budget) being critically underfunded. Therefore a tax cut is impractical. Note that it is reasonable to assume that an increase in taxes would mean that his critical areas would be better funded but the increase in taxation would discourage investment rather than encourage it as he contends. His solution calls for three parts. First, promote greater exports through dollar depreciation. This is astounding since it is precisely what the Bush administration and the Obama administration have been doing. This has led to capital flight from the United States and slowed business investment domestically. Sachs should know this but apparently doesn't. Second, is a "massive expansion of education spending and job training." Well this country has done exactly that over the past three decades. What Sachs wants is even more spending. Instead he should insist that what is spent is spent to achieve the objectives of increasing education and increasing skill levels. We spend enough now. We don't spend it wisely. If the money were spend on schools that work like charter schools or Catholic schools rather than public schools, then we could achieve better results. Third, he favors a spurring of investment in "areas of high social return that are currently blocked by the lack of clear policies. The conversion to a low-carbon economy would create jobs in the short run, a more productive economy in the medium run and US technological leadership in the longer run." Where to begin? One, most studies have shown that "green" jobs are not sustainable and do not provide a long run boost in employment. Two, there is absolutely no evidence that conversion to low-carbon technology is more productive. Rather, most studies show just the opposite - that low carbon technology is higher cost and less productive. Three, US technological superiority stems from the US economic system being profit based rather than government subsidized. Sachs has obviously bought the global warming kool aid and his solutions follow from that. However, when viewed from my perspective, Obama is not the only one who has lost his way.
Monday, November 23, 2009
So what was left out?
Washington Wire
Political Insight and Analysis From The Wall Street Journal's Capital Bureau
President Barack Obama on Wednesday described his proposals as a “sweeping overhaul of the financial regulatory system” on a scale not seen since the Great Depression. The official White House document, titled “A New Foundation: Rebuilding Financial Supervision and Regulation,” runs 89 pages in length. Washington Wire condensed the full proposal to a more manageable series of bullet points.
For the regulation of financial firms, the proposal:
Creates Financial Services Oversight Council, which would coordinate activities among regulators, replacing the President’s Working Group.
Ensures that any financial firm big enough to pose a risk to the financial system would be heavily regulated by the Federal Reserve, including regular stress tests.
Says the Fed will have to “fundamentally adjust” its current supervision to more closely watch for systemic risks.
Allows the Fed to collect reports from all U.S. financial firms that meet “certain minimum size thresholds.”
Gives the Fed oversight over parent companies and all subsidiaries, including unregulated units and those based overseas.
Says the Treasury will re-examine capital standards for banks and bank-holding companies.
Tells regulators to issue guidelines on executive compensation, with the goal of aligning pay with long-term shareholder value, including a re-examination of the utility of golden parachutes.
Creates a new bank agency, the National Bank Supervisor, and kills the Office of Thrift Supervision. The new agency will look over national banks, including federal branches and agencies of foreign banks.
Forces industrial banks, non-bank financial firms and credit-card banks to become more traditional bank holding companies subject to federal oversight.
Kills the SEC program that supervised Wall Street investment banks.
Requires hedge funds, private-equity funds and venture-capital funds to register with the SEC, allowing the agency to collect data from the firms.
Subjects hedge funds to new requirements in areas such as record keeping, disclosure and reporting. The oversight would include assets under management, borrowings, off-balance sheet exposures.
Urges the SEC to give directors of money-market mutual funds the power to suspend redemptions, and take other action to strengthen regulation of money-market mutual funds to prevent runs.
Beefs up oversight of insurance by creating an office within the Treasury to coordinate information and policy.
Kicks off a process by which the Treasury and the Department of Housing and Urban Development will figure out the future of mortgage giants Fannie Mae, Freddie Mac and the federal home-loan banks, which could include winding them down, returning them to the private sector or refashioning them as public utilities.
For the regulation of financial markets, the proposal:
Brings the markets for over-the-counter derivatives and asset-backed securities into a regulatory framework, strengthens regulation of derivatives dealers and forces trades to be executed through public counterparties, such as exchanges
Toughens the regulatory regime, including more conservative capital requirements and tougher rules on counterparty credit exposure.
Strengthens laws designed to protect “unsophisticated parties” from trading derivatives “inappropriately.”
Gives the Fed more power over the infrastructure that governs these markets, such as payment and settlement systems.
Harmonizes the powers and authority of the SEC and CFTC to avoid conflicting rules relating to the same products or time-wasting turf battles over who should regulate what.
Tells the SEC and the CFTC to deliver a progress report by September.
Requires that originators, for example, mortgage brokers, should retain some economic interest in securitized products.
Directs regulators to “align” participants’ compensation with the long-term performance of underlying loans.
Urges the SEC to continue its efforts to improve the transparency and standardization of securitization markets and recommends the SEC have clear authority to require reporting from issuers of asset-back securities.
Urges the SEC to strengthen its regulation of credit-rating firms, including disclosing conflicts of interest, better differentiating between structured and unstructured debt and more clearly stating the risks of financial products.
Tells regulators to reduce their reliance on credit-rating firms.
For regulations protecting consumers and investors, the proposal:
Creates a new agency, the Consumer Financial Protection Agency, with broad authority over consumer-oriented financial products, such as mortgages and credit cards. The new agency would work with state regulators.
Gives the new agency power to write rules and levy fines based on a wide range of existing statutes.
Proposes new authority for the Federal Trade Commission over the banking sector, in areas such as data security.
Creates an outside advisory panel to keep an eye on emerging industry practices.
Says the new agency should play “a leading role” in educating consumers about finance.
Gives the new agency authority to ban or restrict mandatory arbitration clauses.
Improves transparency of consumer products and services disclosures.
Says the new regulator should have authority to define standards for simple “plain vanilla” products, such as mortgages, which would have to be offered “prominently” by companies.
Proposes the government “do more” to promote these simple products.
Beefs up the agency’s power to regulate unfair, deceptive or abusive practices.
Imposes “duties of care” that will have to be followed by financial intermediaries, such as stock brokers and financial advisers.
Regulates overdraft protection plans, treating them more like credit credit-card cash advances.
Promotes access to credit in line with community investment objectives.
Strengthens SEC’s framework for investor protection by expanding the agency’s powers to beef up disclosures to investors, establish a fiduciary duty for broker-dealers who offer advice and expand protection for whistleblowers, including a fund that would pay for certain information.
Requires non-binding shareholder votes on executive compensation packages.
Requires certain employers to offer an “automatic IRA plan” for employee retirement, with investment choices prescribed by regulation or statute.
Urges exploration of ways to improve participation in 401(k) retirement plans
To give the government more tools to manage crises, the proposal:
Creates a mechanism that allows the government to take over and unwind large, failing financial institutions.
Creates a formal process for deciding when to invoke this power, which could be initiated by the Treasury, Fed, FDIC or SEC.
Gives authority to make the final decision to the Treasury, with the backing of other regulators.
Gives the Treasury the authority to decide how to fix such a failing firm, whether through a conservatorship, receivership or some other method.
Taps the FDIC to act as conservator or receiver, except in the case of broker dealers or securities firms, in which case the SEC would take over.
Amends the Fed’s emergency lending powers to require prior written approval by the Treasury Secretary.
In the international sphere, the proposal:
Recommends international regulators strengthen their definition of regulatory capital to improve the quality, quantity, and international consistency of capital.
Recommends that various international bodies implement the Group of 20 recommendations, including requiring banks to hold more capital in good times to protect against downturns.
Urges that national authorities standardize oversight of credit derivatives and markets.
Recommends national authorities improve cooperation on supervision of globally interconnected financial firms.
Recommends regulators improve the way firms are unwound when they straddle borders.
Recommends strengthening the Financial Stability Board.
Urges other countries to follow the U.S. lead and: subject systemically significant companies to stricter oversight; expand regulation of hedge funds; review compensation practices; tighten rules governing credit-rating firms.
Political Insight and Analysis From The Wall Street Journal's Capital Bureau
President Barack Obama on Wednesday described his proposals as a “sweeping overhaul of the financial regulatory system” on a scale not seen since the Great Depression. The official White House document, titled “A New Foundation: Rebuilding Financial Supervision and Regulation,” runs 89 pages in length. Washington Wire condensed the full proposal to a more manageable series of bullet points.
For the regulation of financial firms, the proposal:
Creates Financial Services Oversight Council, which would coordinate activities among regulators, replacing the President’s Working Group.
Ensures that any financial firm big enough to pose a risk to the financial system would be heavily regulated by the Federal Reserve, including regular stress tests.
Says the Fed will have to “fundamentally adjust” its current supervision to more closely watch for systemic risks.
Allows the Fed to collect reports from all U.S. financial firms that meet “certain minimum size thresholds.”
Gives the Fed oversight over parent companies and all subsidiaries, including unregulated units and those based overseas.
Says the Treasury will re-examine capital standards for banks and bank-holding companies.
Tells regulators to issue guidelines on executive compensation, with the goal of aligning pay with long-term shareholder value, including a re-examination of the utility of golden parachutes.
Creates a new bank agency, the National Bank Supervisor, and kills the Office of Thrift Supervision. The new agency will look over national banks, including federal branches and agencies of foreign banks.
Forces industrial banks, non-bank financial firms and credit-card banks to become more traditional bank holding companies subject to federal oversight.
Kills the SEC program that supervised Wall Street investment banks.
Requires hedge funds, private-equity funds and venture-capital funds to register with the SEC, allowing the agency to collect data from the firms.
Subjects hedge funds to new requirements in areas such as record keeping, disclosure and reporting. The oversight would include assets under management, borrowings, off-balance sheet exposures.
Urges the SEC to give directors of money-market mutual funds the power to suspend redemptions, and take other action to strengthen regulation of money-market mutual funds to prevent runs.
Beefs up oversight of insurance by creating an office within the Treasury to coordinate information and policy.
Kicks off a process by which the Treasury and the Department of Housing and Urban Development will figure out the future of mortgage giants Fannie Mae, Freddie Mac and the federal home-loan banks, which could include winding them down, returning them to the private sector or refashioning them as public utilities.
For the regulation of financial markets, the proposal:
Brings the markets for over-the-counter derivatives and asset-backed securities into a regulatory framework, strengthens regulation of derivatives dealers and forces trades to be executed through public counterparties, such as exchanges
Toughens the regulatory regime, including more conservative capital requirements and tougher rules on counterparty credit exposure.
Strengthens laws designed to protect “unsophisticated parties” from trading derivatives “inappropriately.”
Gives the Fed more power over the infrastructure that governs these markets, such as payment and settlement systems.
Harmonizes the powers and authority of the SEC and CFTC to avoid conflicting rules relating to the same products or time-wasting turf battles over who should regulate what.
Tells the SEC and the CFTC to deliver a progress report by September.
Requires that originators, for example, mortgage brokers, should retain some economic interest in securitized products.
Directs regulators to “align” participants’ compensation with the long-term performance of underlying loans.
Urges the SEC to continue its efforts to improve the transparency and standardization of securitization markets and recommends the SEC have clear authority to require reporting from issuers of asset-back securities.
Urges the SEC to strengthen its regulation of credit-rating firms, including disclosing conflicts of interest, better differentiating between structured and unstructured debt and more clearly stating the risks of financial products.
Tells regulators to reduce their reliance on credit-rating firms.
For regulations protecting consumers and investors, the proposal:
Creates a new agency, the Consumer Financial Protection Agency, with broad authority over consumer-oriented financial products, such as mortgages and credit cards. The new agency would work with state regulators.
Gives the new agency power to write rules and levy fines based on a wide range of existing statutes.
Proposes new authority for the Federal Trade Commission over the banking sector, in areas such as data security.
Creates an outside advisory panel to keep an eye on emerging industry practices.
Says the new agency should play “a leading role” in educating consumers about finance.
Gives the new agency authority to ban or restrict mandatory arbitration clauses.
Improves transparency of consumer products and services disclosures.
Says the new regulator should have authority to define standards for simple “plain vanilla” products, such as mortgages, which would have to be offered “prominently” by companies.
Proposes the government “do more” to promote these simple products.
Beefs up the agency’s power to regulate unfair, deceptive or abusive practices.
Imposes “duties of care” that will have to be followed by financial intermediaries, such as stock brokers and financial advisers.
Regulates overdraft protection plans, treating them more like credit credit-card cash advances.
Promotes access to credit in line with community investment objectives.
Strengthens SEC’s framework for investor protection by expanding the agency’s powers to beef up disclosures to investors, establish a fiduciary duty for broker-dealers who offer advice and expand protection for whistleblowers, including a fund that would pay for certain information.
Requires non-binding shareholder votes on executive compensation packages.
Requires certain employers to offer an “automatic IRA plan” for employee retirement, with investment choices prescribed by regulation or statute.
Urges exploration of ways to improve participation in 401(k) retirement plans
To give the government more tools to manage crises, the proposal:
Creates a mechanism that allows the government to take over and unwind large, failing financial institutions.
Creates a formal process for deciding when to invoke this power, which could be initiated by the Treasury, Fed, FDIC or SEC.
Gives authority to make the final decision to the Treasury, with the backing of other regulators.
Gives the Treasury the authority to decide how to fix such a failing firm, whether through a conservatorship, receivership or some other method.
Taps the FDIC to act as conservator or receiver, except in the case of broker dealers or securities firms, in which case the SEC would take over.
Amends the Fed’s emergency lending powers to require prior written approval by the Treasury Secretary.
In the international sphere, the proposal:
Recommends international regulators strengthen their definition of regulatory capital to improve the quality, quantity, and international consistency of capital.
Recommends that various international bodies implement the Group of 20 recommendations, including requiring banks to hold more capital in good times to protect against downturns.
Urges that national authorities standardize oversight of credit derivatives and markets.
Recommends national authorities improve cooperation on supervision of globally interconnected financial firms.
Recommends regulators improve the way firms are unwound when they straddle borders.
Recommends strengthening the Financial Stability Board.
Urges other countries to follow the U.S. lead and: subject systemically significant companies to stricter oversight; expand regulation of hedge funds; review compensation practices; tighten rules governing credit-rating firms.
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