The Fed has just doled out over $300 billion in loans to bail out Bear Stearns and other bad actors in the subprime mortgage mess. It’s hard to say what fraction of that capital is really at risk, but let’s say 10%. That’s a pretty big transfer to shareholders, especially considering that there’s nothing in it for the general public other than avoidance of financial contagion effects. If this were an environmental or public health issue, skeptics would be lined up to question whether contagion in fact exists, whether fixing it does more harm than good (e.g., by creating future moral hazard), and whether there’s a better way to spend the money. Contagion would have to be proven with models, subject to infinite scrutiny and delay. Yet here, billions are doled out with no visible analysis or public process, based on policies invented ad hoc. Perhaps a little feedback control is needed here: let’s create a bailout fund, supported by taxes on firms that are deemed too big to fail by some objective criteria. Then two negative feedbacks will operate: firms that get too large will be encouraged to split themselves into manageable chunks, and the potential beneficiaries of bailouts will have to ask themselves how badly they really want insurance. Let’s try it, and see how long the precautionary principle lasts in the financial sector.
Update: Paul Krugman has a nice editorial on the problem.
And if financial players like Bear are going to receive the kind of rescue previously limited to deposit-taking banks, the implication seems obvious: they should be regulated like banks, too.
Last Year, Kesten Green and Scott Armstrong published a critique of climate science, arguing that there are no valid scientific forecasts of climate. RealClimate mocked the paper, but didn’t really refute it. The paper came to my attention recently when Green & Armstrong attacked John Sterman and Linda Booth Sweeney’s paper on mental models of climate change.
I reviewed Green & Armstrong’s paper and concluded that their claims were overstated. I responded as follows: Continue reading “Evidence on Climate Predictions”
A colleague recently pointed me to a debate on an MIT email list over Lorne Gunter’s National Post article, Forget Global Warming: Welcome to the New Ice Age.
The article starts off with anecdotal evidence that this has been an unusually cold winter. If it had stopped where it said, “OK, so one winter does not a climate make. It would be premature to claim an Ice Age is looming just because we have had one of our most brutal winters in decades,” I wouldn’t have faulted it. It’s useful as a general principle to realize that weather has high variance, so it’s silly to make decisions on the basis of short term events. (Similarly, science is a process of refinement, so it’s silly to make decisions on the basis of a single paper.)
But it didn’t stop. It went on to assemble a set of scientific results of varying quality and relevance, purporting to show that, “It’s way too early to claim the same is about to happen again, but then it’s way too early for the hysteria of the global warmers, too.” That sounds to me like a claim that the evidence for anthropogenic global warming is of the same quality as the evidence that we’re about to enter an ice age, which is ridiculous. It fails to inform the layman either by giving a useful summary of accurately characterized evidence or by demonstrating proper application of logic.
Some further digging reveals that the article is full of holes: Continue reading “Confused at the National Post”