He’s a scientist, but nothing to do with climate sciences. He’s a Paleontologist.

Tim Flannery is not a scientist, he is a pseudo scientist. He believes in "Gaia", which is unscientific nonsense and also believes that "our intelligence is here for a pupose." (I have seen him say that on a TV program that he made.) No person that believes that "our intelligence is here for a pupose." can properly be called a scientist.

Now, with climate modeling, we know that we have a chaotic system. We also know that there is order in chaos, but that like markets they tend to be self correcting. Actually, more so, since climate isn’t effected by emotion nor leverage. The problem lies in that in addition to being chaotic, climate is vastly more complex and still poorly understood, at least in places.

Complexity and chaos are at the frontier of research in many disciplines, from physics to biology.

Unfortunately, contrary to expectations the knowledge of the chaotic nature of climate is given lip service in the IPCC used models. The GCM models themselves use numerical methods and boundary condition assumptions appropriate to solutions of well behaved equations in what in the end is a perturbative expansion method.

The lip service to chaos is given by the spaghetti graphs in the report plots: they vary the input/starting parameters so as to “simulate” chaos. It is not errors that those spaghetti graphs show, but the stability of the solutions. Considering the wrong premise used, that the solutions are expandable, it is not wonder that after a number of time steps, the models diverge: the higher order terms kick in.

This does also happens with weather predictions, which use the parent models of the climate CCMs , and we see that they cannot be given for more than a week. Climate, with larger time steps and broader assumptions diverges after a few years.

That the modelers are so arrogant as to assert confidence in prediction isn’t surprising. That smart people believe that they can reliably predict climate, however, is.

Unfortunately, modeling, like video games, tends to be addictive, and addiction does not look to intelligence.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ajs7BqG4_X8I

Michael Milken, the junk bond king, created the first CDO in 1987 at now-defunct Drexel Burnham Lambert Inc., says Das, author of `Credit Derivatives: CDOs & Structured Credit Products’ (John Wiley & Sons Inc., 850 pages, $120). Until the mid-1990s, CDOs were little known in the global debt market, with issues valued at less than $25 billion a year, according to Morgan Stanley.

Drexel and other investment banks realized that by bundling high-yield bonds and loans and slicing them into different layers of credit risk, they could make more money than they could from holding or selling the individual assets.

From the wiki: http://en.wikipedia.org/wiki/Michael_Milken

After he was sent to prison on finance-related charges, his detractors cited him as the epitome of Wall Street greed during the 1980s, and nicknamed him the Junk Bond King.

The wiki has an oddly defensive tone to it…

At any rate, we have a CDO device created by a (now) felon. We have a government that is shoving the banking industry kicking and screaming into making loans they KNOW are no good. It’s a match made in heaven.

In order to palm off the “junk” they turned to the trick invented by the “junk bond king” and packaged their sausage just like he did. Worked great until it didn’t…

Frankly, IMHO, the only place that computer models came into it was as a Financial Ponzi Scheme cover story. The FINANCE guys (not Economists) cooked up a computer model to show that the risk was dispersed, so was not relevant any more.

Other than the rocks tossed at Economists, that I think ought to be tossed at Finance peddlers, by Michael R. Smith, the article is generally good. But I might be biased… one Michael Smith to another 8-)

Per the ‘talking dirt’ about Economics being mostly mumbo jumbo: It isn’t. It does have soft edges as do most social sciences, but it has a numeric core.

I have an econ degree, so maybe I’m biased, but micro econ makes significant use of linear programming (algebra) and other sub fields use a modest amount of calculus. It’s not all supply and demand curves after you get past Econ 1 for non-majors…

On the housing bubble: The CDO’s and CDS’s were sold world wide. It was started in the US and caused by the broken notion that we could make houses affordable to all. We then packaged up the mortgages in sausage casings and sold slices world wide. When these became suspect, it impacted financial companies world wide.

When our financial institutions went bust, the value of their stock, bond, and preferred stock issues went bust. All the financial institutions world wide that had sucked up trillions of dollars of these other ‘assets’ suddenly had balance sheet issues. Fanny & Freddy preferred stock were some of the most widely held by banks world wide. This was the way our housing issue went global.

Also, the ‘mark to market‘ rule was adopted across much of the world. This was one of the key feedback loops on the path to destruction. Every stock trader knows the wise phrase: “The market can remain irrational longer than you can remain solvent’ as a warning about the way bear markets can price things to ‘crazy low’ prices. Accountants are now learning this with your money.

Mark to Market forced banks to take massive paper losses because no one wanted to buy a paper asset in huge dollar numbers Right Now. There was about a 5% default risk, but the security was marked down 50% to 80%. This then made the bank ‘insolvent’. Just bogus.

They could hold the mortgages to maturity and get the 90+%, except MtoM said they couldn’t. They had plenty of money in hand and plenty of securities making cash flow, but the accountants said they were broke via paper losses.

We institutionalized the irrationality of market panic pricing into determining the solvency of our banks. The EU is now reconsidering the lunacy of mandating a MtoM when no market exists…

The housing bubble started with the CRA of 1977, but was of manageable scale. The modifications of 1999, signed by Clinton, took it open loop. The ACORN et. al. political push to get everyone a home even if unqualified sent it over the edge. Freddy and Fanny pushed massive money at the (mostly Democratic) congress for political favors adding fuel to the heap. Then the Republicans decided to join in and let the Financial Reform Act of 1999 remove Glass Steagall and set the stage for the financial sausage making of CDOs and CDSs.

The Democrats lit the fire in the basement and started breaking up the furniture for kindling, then the Republicans ran around shutting off the fire sprinklers and smoke alarms. A pox on both their houses.

It took until now to blow up because so much foreign money was willing to fund the scheme. That caused the linkage to the rest of the world and drug them into the crisis.

The unfortunate side effect of all that global money filtered through CDO’s into our housing market was that prices went bubble high. Simple economics. More money chasing a single product drives the price ever higher. This made housing unaffordable for all the poor folk who the Democrats wanted to help via their silly housing Ponzi scheme of mortgage buy downs.

The root cause was (a mostly Democratic) political movement that thought houses could be made cheaper by increasing the demand and buggering prudent mortgage standards. The (mostly Republican) addition of gasoline to the fire was the deregulation mantra that let banks, insurance companies, and stock brokers play in each others pond; BUT kept the banks with access to The Fed discount window and limited to 12:1 leverage while it left brokers with no lender of last resort (no Fed window) and with functionally unlimited leverage.

Lehman or Bear Stearns with 40:1 leverage made more money just until the (inevitable) business cycle downturn came. Then they had no lender of last resort when various predatory short sellers started a run on the “bank” and started the cascade failure of other institutions holding Bear and Lehman securities and CDS’s.

The Republican administration has ownership of the removal of the “uptick” rule that let the shorts conduct old fashioned “Bear Raids” of a type not seen since the 1930′s. The argument that the uptick rule would not work in a world with penny prices is bogus. When stocks were priced in 1/4 or 1/8 dollar increments it worked, so just make the ‘new uptick rule’ based on a 25 cent or 12 cent “uptick”. The SEC is either incredibly stupid on this point or wants the bear raids to be done. Take your pick. Malice or stupidity.

Finally, the CDS is a kind of life insurance on a financial asset. That they were forbidden to be regulated is a crime. It lets anyone, even a predatory short seller, write ‘life insurance’ in unlimited quantities on their target backed up by no assets, then short their target into insolvency. Wouldn’t you like to be able to take out life insurance on anyone you didn’t like and then go shoot them?

Now roll this all together and you get what we have now. A free fire zone for hedge funds and shorts to take out life insurance on investment banks, then short them in classical bear raids until their stock drop and rising CDS rates caused rating agencies to downgrade their debt, then the run on the bank begins and they have no lender of last resort and the implosion is guaranteed. This then sets up the failed stock and bond collateral of the next target. Repeat until all investment banks are gone. Golly, come to think of it, the are all either gone or converted to ‘regular’ banks now…

And we owe it all to the CRA as amended in 1999 and the ‘financial reform’ of 1999, seasoned with the SEC removing the uptick rule and letting shorts run wild.

From start to end this problem was caused by stupid government behaviors. Period.

Yeah, one of the first “Computers Gone Wild” fantasies from the Club of Rome (via “Limits To Growth” by Meadows et.al.) My response to it (after kicking around in my head for a mere 30 years ;-)

http://chiefio.wordpress.com/2009/05/08/there-is-no-shortage-of-stuff/

http://chiefio.wordpress.com/2009/03/20/there-is-no-energy-shortage/

I have seen an assertion that The Club Of Rome is behind both AGW and the Limits To Growth computer fantasies. The style is the same. The method is the same. The outcome (centralized control and reduction of wealth in the hands of common folks) looks to be the same. (i.e. you get less “stuff” and less “energy” while AlGore and friends fly the private jets in peace…)

I have no idea of the veracity of the claim, but it looks plausible on the surface. Worth exploring sometime.

“Limits” is one of the other pillars of my “suspect all computer models” mantra… It was heavily promoted in the ’70s based on the notion that their computer predictions had to be right, they were computerized! It was also the start of the “It isn’t a prediction, it’s a “projection”… When, a few years later, all their “end of life as we know it” doom and gloom running out of everything computer predictions didn’t happen, they published “Limits the Sequel” or “Limits To Growth, the Rewrite” or whatever they titled it and have been squawking every since that they didn’t actually make any real predictions so they couldn’t be wrong. They were only “projections” of what would happen if nothing changed, and, well, something changed…

(Having read Limits too many times – Required in my Econ 136(?) class; I can tell you that when they said “we run out of natural gas in 10 years!” it was certainly presented as a prediction, complete with the dire consequences that would inevitably follow. Since we now have a glut of natural gas and likely will for 50 years to come, I think their computer prediction was broken… whatever you call it.)

At the end of the day, my take on it all is simple: If The Club Of Rome is involved in something, it is highly suspect and most likely both very wrong and very likely to move your wealth into the hands of the power elite. No, o proof. Just a “projection” ;-)

It wasn’t economists who made that prediction. Finance is the field that deals with individual securities and MBAs in Business are the ones who do the product creation and packaging. Economists are peripherally involved (mostly in broad market theory and long term economic forecasts along with interpretation of what any given government report means to the economy at large).

It took a fair bit of work for me to shake off my economics mindset and learn to think like a finance guy. They teach very little (nearly none) about securities markets and stock behaviour to economists, and that is largely restricted to the history of the various market crashes and a great deal about what the central banks and Treasury dept. do with bonds and interest rates. (I really wanted a “finance” degree, but my school only offered Economics or Ag. Econ. While the Ag. Econ. degree was closer to a business / finance major, I didn’t want to be explaining the “Ag.” part for the rest of my life…)

The bottom line was that I had to find creative ways (often outside of the classes I was taking) to learn the “Finance” part and stocks in particular.

In retrospect that was likely “a feature” in that “The Efficient Market Hypothesis” was all the rage then (and still is now, I think). I would have believed it and then been convinced that you can’t beat the market. (And I’d have not made my house payment this month… since it’s impossible for me to have done so ;-) I’d have had all the creativity and insight “educated out of me”…

In defense of the quote, however, I must add that “Econometric Modeling” was just taking hold then. It is possible that some finance guys took a class in Econometric Modeling or maybe even an Economic Modeling guy went over to the Finance side and brought his toys with him. But everyone on the Economist side of things that I’ve ever met has known from a deep visceral center that the models were just that: toy models to inform our ignorance. (Guess where I got the attitude about the models… Yup, in my Economics schooling… from the Profes. who were trying to get something, anything, useful out of them… and working out the giant Kinks and yawning gaps in them.)

So my guess is that someone here is trying to sidestep the blame by shoving it at an ill defined “economists”…

There had to be particular people who made the claim that a basket of mediocre mortgages were somehow transformed into AAA by putting them all in a basket together. THEY are the root cause, not econometric modeling. IIRC it was at Drexel (that later got pulled into Bear Stearns) that the original “leap” was made and it was not from an Economist. (I read the history of this about a year ago and could have Drexel wrong… I’ll research it some more a bit after dinner…) That then got put in computer models and cranked out endless error…

Any old-timer from the stock side of the business knows that those “rare, six sigma events” are almost an inevitability sooner or later. They just plan on it. That’s why you’ve not had a stock market related failure of a brokerage house in 70 years (give or take). Old timers in the bond and mortgage business were replaced by pointy headed MBA’s and modelers with little understanding of how markets really work.

Now, with climate modeling, we know that we have a chaotic system. We also know that there is order in chaos, but that like markets they tend to be self correcting. Actually, more so, since climate isn’t effected by emotion nor leverage. The problem lies in that in addition to being chaotic, climate is vastly more complex and still poorly understood, at least in places.

That the modelers are so arrogant as to assert confidence in prediction isn’t surprising. That smart people believe that they can reliably predict climate, however, is.

However, economic predictions have more to do with human interests which changes with factors, both within and outside the subject.

Tony Smith
http://www.aafter.com

REPLY: You can’t, but just port the complete URL and it will automatically generate a link. – Anthony

Joe Romm’s Climate Progress has a guest blogger talking about by 2050 he will be retiring underwater or on fire. When I called on this, all the other commenters agreed.

But there were dissenters taking this unusually harsh approach:

“Is should also be obvious that the worst environmental crime anyone can commit in the industrialized world is to have children, for those kids will almost certainly consume disproportionate amounts of available resources, and do disproportionate damage to the environment.”

“If you’re talking Marlow BUCKS, just off J4 on the M40, I know it well.

Cross motorway traffic from the M4 to the M40 can extend back to the A404 Marlow junction regularly. It’s truly horrendous!”

That’s the one!

The Scientific method – here are the 8 steps according to Wikipedia:
1. Why does the climate change?
2. Collect climate data and mathematical formulae that can be adapted. Thermodynamics is one very productive area.
3. Search for something that correlates with climate change over a human lifetime. Hypothesize that this is the cause. Note that it must seem to be controllable and be produced more by affluent humans. CO2 is ideal for this purpose.
4. Create a computer program with the formulae and run. Tweak parameters to make sure it correlates to the data you have collected. You can do anything here since you can block anyone else seeing what you did, see 7.
5. Does it correlate with data? If not, change parameters step 4.
6. Extend hypothesis into distant future. If no end of the world disasters change the parameters step 4 otherwise conclude that humans are causing it since we have chosen something humans produce. Demand more funding for research into this imminent danger.
7. Keep method and data secret, we don’t need criticism we are perfect.
8. Get others to create same computer program and see if they copied your program well enough. Here the opinions of politicians and economists will add to the correctness of your theory.

http://jennifermarohasy.com/blog/2009/06/agw-is-just-a-theory/?cp=2#comments