Coyote Blog

I have gotten a lot of mail with moral support from readers as we try to deal with the fact that the White House has ordered privately-funded parks in the National Forest to close, flying in the face of all precedent and budget logic.

Many, many emails have encouraged me to disobey the order and keep the parks open for the public.  There are three reasons why I have chosen not to do so.

1.  Respect for Contract:  In my 25 or so lease contracts with the US Forest Service (the USFS insists on calling them "special use permits" but legally they are essentially commercial leases), the contract language gives the Forest Supervisor of each Forest the right to suspend or terminate the contract for virtually any reason.  Yeah, I know, this is a crappy lop-sided contract provision, but welcome to the world of working with the Federal government.  So each Forest Supervisor has the right to suspend our lease.  BUT....

The real question here is whether they have proper justification for doing so, or whether their suspension is arbitrary.  In another post I discuss why this action is arbitrary and unjustified:

Historically, the USFS has only rarely used this contract power, and its use has generally been in one of two situations:  a) an emergency, such as a forest fire, that threatens a particular recreation area or b) a situation where the recreation area cannot physically be used, such as when it has been destroyed by fire or when it is being refurbished.  Never, to my knowledge, has the USFS used this power to simultaneously close all concession operations, and in fact in past shutdowns like 1995 and 1996 most all concessionaires stayed open.

Budget considerations alone cannot justify the closure order, as USFS concessionaires do not use Federal funds and in fact pay money to the Treasury.  Closing us actually reduces the income to the Treasury as we pay our concession fees as a percentage of revenues.  Further, the USFS does not have any day-to-day administration responsibilities for these parks.  The only semi-regular duty is sometimes to provide law enforcement backup, but USFS law enforcement officers are still at work (we know this because they showed up to post our operations as closed).

The Administrative Procedure Act makes it illegal for a government agency to make a decision that is arbitrary, capricious or an abuse of discretion.  To this end, the USFS has not actually closed the Forests and still allows camping in the Forests.  Thus, the USFS considers it safe for people to be camping in the Forests and that doing so during the shutdown creates no risk of resource or property damage.  In contrast, the USFS has made the decision that it is not safe to allow camping in developed campsites run by private concessionaires.  The decision that developed campgrounds run by private companies must close, but undeveloped camping can continue, makes no sense and is arbitrary, capricious and an abuse of discretion.  If anything, closing developed areas but allowing dispersed camping increases risks to public safety and for resource damage as developed concession areas are staffed and trained to mitigate such risks (that's the whole point of having developed recreation in the first place).

While we feel good we have a winning argument, this is a complicated point that does not lend itself well to civil disobedience, but we are taking it to court and seeking an injunction to the closure.

2.  The wrong people would go to jail.  Civil disobedience has a long and honorable history in this country.  But the honor of such an act would quickly go out the window if I were to commit an act of defiance but others would have to go to jail.  We run over a hundred sites.  Telling my people to remain open would simply lead to getting my employees thrown in jail for trusting me and following my instructions.  That would be awful.  Just as bad, we can see from examples in the National Park Service that such disobedience would potentially subject my customers to legal harassment.  It's not brave or honorable for me to be defiant but to have others pay the cost.

3.  I could lose everything.  I don't want to seem weak-kneed here, but I would be dishonest not to also raise the small but critical point that I have almost every dollar I own tied up in this company, which does over half its business in the National Forest**.  My retirement and all my savings are in this one basket.   I would likely risk an arrest and a few hours in jail plus the price of bail and months of court appearances to make a point here.  I am not ready to go all-in with everything I own, not when there are other legal avenues still available.  If that makes me a wimp, so be it.

** you can be assured that the moment I have one minute of extra time we are going to be working on diversifying away from the US Forest Service as much as possible.

We are preparing to go to court to reopen privately-funded parks in the US Forest service that take no Federal money, yet have recently been closed due to budget shortfalls.

Our USFS contracts give the local Forest Supervisor the right to suspend the contract.  However, historically, the USFS has only rarely used this contract power, and its use has generally been in one of two situations:  a) an emergency, such as a forest fire, that threatens a particular recreation area or b) a situation where the recreation area cannot physically be used, such as when it has been destroyed by fire or when it is being refurbished.  Never, to my knowledge, has the USFS used this power to simultaneously close all concession operations, and in fact in past shutdowns like 1995 and 1996 most all concessionaires stayed open.

Budget considerations alone cannot justify the closure order, as USFS concessionaires do not use Federal funds and in fact pay money to the Treasury.  Closing us actually reduces the income to the Treasury as we pay our concession fees as a percentage of revenues.  Further, the USFS does not have any day-to-day administration responsibilities for these parks.  The only semi-regular duty is sometimes to provide law enforcement backup, but USFS law enforcement officers are still at work (we know this because they showed up to post our operations as closed).

The Administrative Procedure Act makes it illegal for a government agency to make a decision that is arbitrary, capricious or an abuse of discretion.  To this end, the USFS has not actually closed the Forests and still allows camping in the Forests.  Thus, the USFS considers it safe for people to be camping in the Forests and that doing so during the shutdown creates no risk of resource or property damage.  In contrast, the USFS has made the decision that it is not safe to allow camping in developed campsites run by private concessionaires.  The decision that developed campgrounds run by private companies must close, but undeveloped camping can continue, makes no sense and is arbitrary, capricious and an abuse of discretion.  If anything, closing developed areas but allowing dispersed camping increases risks to public safety and for resource damage as developed concession areas are staffed and trained to mitigate such risks (that's the whole point of having developed recreation in the first place).

The official report is out, and apparently absolutely no mistakes were made by anyone leading to the deaths of 19 in the Yarnell Hill fires.  Despite the fact that -- these 19 men were totally out of communication;  and no one knew where they were; and they entered a ridiculously dangerous patch of ground; and they were not pursuing any coherent goal anyone can name -- no one made any mistakes and there is nothing here to learn from.  Wow.

Here is my analysis of what is going on with this report:  Substantial mistakes were made by both the fire team and by their leaders.  Their leaders wrote the report, and certainly were not going to incriminate themselves, particularly given that they likely face years of litigation.  They could have perhaps outlined the mistakes the team made, but the families and supporters of the dead men would have raised a howl if the dead firefighters were blamed for mistakes while the leadership let themselves off the hook, and surely would have pushed back on the culpability of the firefighting effort's management.

So this report represents an implicit deal being offered to the families -- we will let your dead rest in peace by not highlighting the mistakes they made if you will lay off of us and the mistakes we made.   We will just blame it on God (I kid you not, see Prescott chief's statements here).  Most Arizonans I know seem willing to have these folks die as heroes who succumbed to the inherent risks of the profession, rather than stupid errors, so we may never have an honest assessment of what happened.  And yet again the opportunity to do a major housecleaning of wildland firefighting is missed.

From our paper this morning:

California regulators have launched an investigation into offshore hydraulic fracturing after revelations that the practice had quietly occurred off the coast for the past two decades.

The California Coastal Commission promised to look into the extent of so-called fracking in federal and state waters and any potential risks.

Hydraulic fracturing has been a standard tool for reinvigorating oil and gas wells for over 60 years.  While it gets headlines as something new, it decidedly is not.  What is new is its use in combination with horizontal drilling as a part of the initial well design, rather than as as a rework tool for an aging field.

What California regulators are really saying is that they have known about and been comfortable with this process for decades**, but what has changed is not the technology but public opinion.  A small group of environmentalists have tried to, without much scientific basis, demonize this procedure not because they oppose it per se but because they are opposed to an expansion of hydrocarbon availability, which they variously blame for either CO2 and global warming or more generally the over-industrialization of the world.

So given this new body of public opinion, rather than saying that "sure, fracking has existed for decades and we have always been comfortable with it", the regulators instead act astonished and surprised -- "we are shocked, shocked that fracking is going on in this establishment" -- and run around in circles demonstrating their care and concern.  Next step is their inevitable trip to the capital to tell legislators that they desperately need more money and people to deal with their new responsibility to carefully scrutinize this decades-old process.

**Postscript:  If regulators are not familiar with basic oil-field processes, then one has to wonder what the hell they are going with their time.  It's not like anyone in the oil business had any reason to hide fracking activity -- only a handful of people in the country would have known what it was or cared until about 5 years ago.

Via Zero Hedge and the WSJ:

The $604 million issue from consumer lender Springleaf Financial, the former American General Finance, will bundle together about $662 million of loans secured by assets such as cars, boats, furniture and jewelry into ABS, according to a term sheet. Some loans have no collateral.

Personal loans haven't been a part of the mainstream ABS market since securitizations from Conseco Finance Corp. in the late 1990s, according to Michael Dean, co-head of Fitch Ratings' ABS group. That market dried up as the recession hit and, under the weight of bad subprime loans, Conseco filed for bankruptcy in 2002.

Springleaf's issue comes as prices on traditional issues backed by auto loans, credit cards and student loans have soared as investors pile into debt with extra yield over Treasurys. As those yields fall, ABS investors have been giving unusual assets that were previously shunned a second look....

The 190,627 loans in the Springleaf deal have an average FICO credit score of 602, in line with many subprime auto ABS. But the average coupon of 25% on Springleaf's personal loans is above that on even "deep subprime" auto loans, probably because there is no collateral for 10% of the issue, an analyst said.

Bonus points for AIG's involvement in this offering  (btw, now that AIG has repaid obligations to taxpayer, expect a corporate name change in 3..2..1..)

We had a credit bubble in part where the market likely under-priced certain risks.  Bubble bursts and risks take their toll.   Economy floundered.  The Fed reduced interest rates to zero.  Frustrated with low interest rates, investors have begun seeking out risk, likely driving down the price of risky investment.  Repeat.

I am not sure I understand Kevin Drum's argument for capital controls.  He seems to be arguing that these controls are a sort of financial speed limit and making an awkward analogy to highway speed limits to justify them.

In a world where I as a taxpayer have to bail out banks, I don't have a huge problem with capital requirements for banks, though this seemingly simply topic is rife with unintended consequences -- I have seen it argued persuasively that the pre-2008 Basil capital requirements helped fuel the housing bubble by giving special preference to MBS in computing capital.  In fact, one might argue the same for the sovereign debt crisis, that by creating a huge demand for sovereign debt for bank balance sheets it fueled an unsustainable expansion in such debt.

Anyway, the point of this post was capital controls.  Drum quotes this from an IMF report:

19. Indeed, as the recent global financial crisis has shown, large and volatile capital flows can pose risks even for countries that have long been open and drawn benefits from capital flows and that have highly developed financial markets. For example, in several advanced economies, financial supervision and regulation failed to prevent unsustainable asset bubbles and booms in domestic demand from developing that were partly fueled by cheap external financing. Rather than favoring closed capital accounts, these experiences highlight the need for policymakers to remain vigilant to the risks. In particular, there is a constant need for sound prudential frameworks to manage the risks that capital inflows can give rise to, which may be exacerbated by financial innovation.

The logic, then, is that bubbles are exacerbated by inflows of foreign capital so capital controls can keep bubbles from getting worse.  I have very little knowledge of international finance, but let me test three thoughts I have on this:

1. Doesn't this cut both ways?  If bubbles can be inflated by capital inflows, can't they also be deflated by capital outflows?  Presumably, if people domestically see the bubble, they would logically look for other places to invest their money.  International investments outside of the overheated domestic market are a logical alternative, and such capital flows would act a s a safety valve to reduce pressure on the bubble.  So wouldn't capital controls just as likely make bubbles worse, by confining capital within the bubble, as make them better by preventing new capital from outside the country flowing in?
2. The implication here is that the controls would be dynamic.  In other words, some smart person in government would close the gates when a bubble starts to build and open them at other times.  But does that not presupposed the ability to see the bubble when one is in it?  Certainly there were a few who pointed out the housing bubble before 2008, but few in power did so.  And even if they had seen it, what is the likelihood that they would have pointed it out or taken action?  Who wants to be the politician who pops the bubble?  Remember the grief Greenspan got for pointing to an earlier bubble?
3. Controls on capital inflows tend to be anti-consumer.  Yeah, I know, no one in government ever seems to care when they pass protectionist laws that protect 100 tire workers at the cost of higher tires for 100 million drivers.  But limiting capital inflows would reduce the value of the dollar, and make anything imported (or made from imported parts or materials) more expensive.

I know, I know -- this is Wikipedia.  But there is a line there in the quantitative easing article that makes even less sense than other political topics at that site:

It should be noted that mortagage-backed securities such as are being purchased as part of the QE3 program are not based on liquid assets, and their purchase [by the Fed] does not entail inflation risks

This makes zero sense to me.  But maybe I am missing something.

First, I don't understand why the fact that the assets purchased with the printed money are liquid or not liquid.  If anything, I would have assumed that purchasing less liquid assets would have more inflation risk than the other way around.  If one puts more currency into the economy, the more currency-like the asset one pulls off the market, ie the more liquid, the less the inflation risk, I would have thought.

Second, while mortgages may not be liquid, mortgage-backed securities are very liquid.  If liquidity of the asset matters here, I am not sure why the underlying asset would matter as much as the asset itself being purchased.   I mean, by this metric, treasuries are based on a really, really illiquid asset, simply the full faith and credit of the US government.

Third, printing of money would seem to always have inflation risk, no matter what the government is purchasing with the still-wet dollars.  (yeah, I know, it's all digital).

I used to scoff at how Ayn Rand turned the word "humanitarian" in the Fountainhead into a term of derision.  I didn't think it was justified to assume anyone adopting the humanitarian title had to be evil.  Surely, for example, Andrew Carnegie with his philanthropy and opposition to war could be considered a positive humanitarian?

But maybe she was on to something.  At least as far as Greenpeace is concerned:

According to the World Health Organization between 250,000 to 500,000 children become blind every year due to vitamin A deficiency, half of whom die within a year of becoming blind. Millions of other people suffer from various debilitating conditions due to the lack of this essential nutrient.[2]

Golden Rice is a genetically modified form of rice that, unlike conventional rice, contains beta-Carotene in the rice kernel. Beta-Carotene is converted to vitamin A in humans and is important for eyesight, the immune system, and general good health.[3] Swiss scientist and humanitarian Dr. Ingo Potrykus and his colleagues developed Golden Rice in 1998. It has been demonstrated in numerous studies that golden rice can eliminate vitamin A deficiency.[4]

Greenpeace and its allies have successfully blocked the introduction of golden rice for over a decade, claiming it may have “environmental and health risks” without ever elaborating on what those risks might be. After years of effort the Golden Rice Humanitarian Project, led by Dr. Potrykus, The Rockefeller Foundation and others were unable to break through the political opposition to golden rice that was generated directly by Greenpeace and its followers.[5]

To their credit, Bill and Melinda Gates are giving it another try.

So far, I have mainly been concerned about inflationary risks from quantitative easing, which is effectively a fancy term for substituting printed money for government debt (I know there are folks out there that swear up and down that QE does not involve printing (electronically of course) money, but it simply has to.  Operation Twist, the more recent Fed action, is different, and does not involve printing money but essentially involves the Fed taking on longer-term debt in exchange for putting more shorter term debt on the market.

Scott Minder in the Financial Times highlights another potential problem:

In 2008, just before the first of two rounds of quantitative easing, the Federal Reserve had $41bn in capital and roughly $872bn in liabilities, resulting in a debt to equity ratio of roughly 21-to-one. The Federal Reserve’s portfolio had $480bn in Treasury securities with an asset duration of about 2.5 years. Therefore, a 100 basis point increase in interest rates would have caused the value of its portfolio to fall by 2.5 per cent, or $12bn. A loss of that magnitude would have been severe but not devastating.

By 2011, the Fed’s portfolio consisted of more than $2.6tn in Treasury and agency securities, mortgage bonds and other fixed income assets, and its debt-to-equity ratio had dramatically increased to 51-to-one. Under Operation Twist, the Fed swapped its short-term securities holdings for longer-term ones, thereby extending the duration of its portfolio to more than eight years. Now, a 100 basis point increase in interest rates would cause the market value of the Federal Reserve’s assets to fall by about 8 per cent, or $200bn, leaving it insolvent, with a capital deficit of about $150bn. Hypothetically, a 5 per cent rise in interest rates could cause a trillion dollar decline in the value of the Federal Reserve’s assets.

As the economy continues to expand, the Federal Reserve will eventually seek to normalise monetary policy, resulting in higher interest rates. In this scenario, the central bank could find that the market value of its portfolio has declined to the point where it no longer has enough sellable assets to adequately reduce the money supply and maintain the purchasing power of the dollar. Given US dependence on foreign capital flows, if the stability of the dollar is drawn into question, the ability of the US to finance its deficits may falter. The Federal Reserve could then find itself the buyer of last resort for Treasury securities. In doing so, the government would become hostage to its printing press, and a currency crisis or runaway inflation could take hold.

George Dorgan observes, on the pages of Zero Hedge, that European countries are taking even large balance sheet risks.  The most surprising is the Swiss.

Don't say I have not been warning you.  For years.  Philip Klein via Peter Suderman:

...Bloomberg highlighted a comment from a supporter of the [soda] ban, who wrote, "Anyone who pays taxes and thus bears the health care costs of obesity should support this."

In a free society, individuals are able to take risks and make decisions detrimental to their own well-being -- be it smoking, drinking, excessive eating or anything else -- because they'll bear the ultimate costs of their decisions. But when government assumes a greater role in the health care system, suddenly there's a societal cost to individual risks. This provides an opening for those who believe in a paternalistic role for government to make their regulations seem pragmatic. Bloomberg used the "health care costs to taxpayers" argument during his previous drives to ban smoking in bars and restaurants and to outlaw the use of trans fats.

This article from the Chicago Tribune on fire retardants has everything, from regulations that benefit a small industry group to tort lawyers effectively forcing the propagation of a bad standard to playing the race card and the "for the children" card in policy debates.   Here is a bit of history I did not know:

These chemicals are ubiquitous not because federal rules demand it. In fact, scientists at the U.S. Consumer Product Safety Commission have determined that the flame retardants in household furniture aren't effective, and some pose unnecessary health risks.

The chemicals are widely used because of an obscure rule adopted by California regulators in 1975. Back then, a state chemist devised an easy-to-replicate burn test that didn't require manufacturers to set furniture on fire, an expensive proposition.

The test calls for exposing raw foam to a candle-like flame for 12 seconds. The cheapest way to pass the test is to add flame retardants to the foam inside cushions.

But couches aren't made of foam alone. In a real fire, the upholstery fabric, typically not treated with flame retardants, burns first, and the flames grow big enough that they overwhelm even fire-retardant foam, scientists at two federal agencies have found.

Nevertheless, in the decades since that rule went into effect, lawyers have regularly argued that their burn-victim clients would have been spared if only their sofas had been made with California foam. Faced with the specter of these lawsuits — and the logistical challenge of producing separate products just for California — many manufacturers began using flame retardant foam across their product lines.

The "if only the manufacturer had used technology X, little Sarah would not be dead" argument should be very familiar to readers of Walter Olson's blog.  Part II of the story argues that the Tobacco industry helped reinforce this story to shift the blame for fires started by cigarettes to the furniture (can't any of this be, you know, the person's fault who dropped burning items onto flammable items?)

It also, by the way, has plenty of elements of environmental panic in it.  For example:

"When we're eating organic, we're avoiding very small amounts of pesticides," said Arlene Blum, a California chemist who has fought to limit flame retardants in household products. "Then we sit on our couch that can contain a pound of chemicals that's from the same family as banned pesticides like DDT."

I am open to believing that flame retardant chemicals pose some harm to humans, though one must posit some way for them to get out of the foam and into people for it to be harmful (just existing nearby is not enough).  Further, being from the "same family" as another chemical is meaningless, particularly as compared to DDT which was banned for suspected thinning of bird eggs and not for demonstrated harm to humans.

I finally read through all four parts  of the story, and its interesting to compare the approaches to science.  The authors make a really good case that the science of flame retardants effectiveness is deeply flawed and that lobbying pressure and actions in tort cases have led to their expanded use rather than any particular benefit.

But the authors' scientific standards change wildly when it comes to their own side's science (I write it this way because the authors clearly have  a horse in the race here, they want these chemicals banned). I kept waiting for their bombshell study that these chemicals posed a danger, but we never get it.  All we get is the typical journalistic scare quotes about trace quantities of these chemicals being found in house dust and in certain animals.

OK, but with improving detection technology, we are constantly finding traces of chemicals at tiny levels we did not know were there before.   How much risk do they pose?  We never find out.  It would be nice to know.  I'm convinced I would rather not have this crap in my couch, but there has to be a better standard for legislation than this.  Ironically, the whole point of their story is to highlight regulation pushed by small groups based on bad science, and their response is to ... mobilize a group to push different legislation based on bad science.    There is a heck of a lot of "OK for me but not for thee" here.

Here is what is really going to happen:  After years of being stampeded by tort lawyers into putting these chemicals into furniture as a defense against "you should have..." lawsuits based on bad science, these same furniture makers are now going to be sued by people claiming the chemicals make them sick based on bad science.   And yet another industry will find itself in a sued-if-you-do-sued-if-you-don't trap.

The one group never interviewed in all four parts were furniture makers.  It would have been fascinating to get an honest interview out of them.  I am sure they would say something like "legislatures just need to tell us what they freaking want, chemicals in or out, and then shield us in the courtroom when we follow the law."

Update:  The updates to the story are classic.  After describing how the race card was abused in what should have been a straight up fight over chemical effectiveness and safety, the authors then pen a story called "Higher Levels of Flame Retardants in Minority Children."  It's OK, I guess, to play the race card in a scientific debate if it is for your own side.

A guest blogger on Megan McArdle's blog writes:

Here's my first such idea:

Abolish Mortgage-Backed Securities (and Offspring)

CDOs and credit default swaps don't kill financial systems, mortgages kill financial systems. There has been altogether too much opproprium directed at CDOs, credit default swaps and other structuring techniques that spread financial contagion, and not enough directed at the underlying collateral. The record seems to be, however, that Dick Pratt was correct when he called the mortgage "the neutron bomb of financial products."

This makes no sense.  I don't have time for a comprehensive argument, so here are a few bullet points:

• His argument rests on the fact that mortgages have inherently hard-to-quantify risks.  I don't believe that, given how long the financial system worked just fine writing mortgages, but if this is really the case, shouldn't he be proposing to ban mortgages, not just mortgage-backed securities?
• Holding the higher-quality tranches of an MBS simply cannot, by any mechanism I can fathom, be more risky than holding a lot of individual mortgages.  In fact, for a given bank, it should spread the risk geographically and to a larger number of mortgages.
• The first actual problem with MBS's is that the default risks were under-estimated by those packaging the securities.  Basically, the top AAA tranches were too large (or too wide, I think the term is).  This is correctable, and likely already has been corrected (In fact it had more to do with the actions of the government-enforced credit rating oligopoly than with actions of bankers).
• The second actual problem with MBS's is that the default risks were under-estimated by government regulators world-wide when in Basil II and the equivalent US law changes c. 1991, MBS's were given very preferential capital requirement treatment.  Basically, MBS were treated, for capital requirements, as if they were nearly as risk-free as US treasuries, providing incentives for banks to over-weight in them.
• The largest problem was the reduction in credit requirements for mortgages.  Increasing LTV from 80% to 97% or 100% or even 100%+ hugely increased the risk of default, and no one really took that into account in MBS packaging or bank capital requirements.  Bank capital requirements for mortgages and MBS were set as if they were European style recourse loans with 80% LTV.  But the same regulations and requirements applied to MBS built on US-style non-recourse loans with 97% LTV, which is crazy.

Here is a better plan:

1. Narrow the AAA tranches of MBS
2. Fix bank capital requirements vis a vis mortgages and MBS
3. Stop encouraging high loan to values on mortgages

Most of you likely remember the state settlements with tobacco companies.  The settlements were set up to pay states a percentage of future tobacco company earnings and sales.  But just like a profligate homeowner borrowing against his paper equity in his home after housing prices increased, governments wanted to spend the money NOW, not over 20 years.  So they borrowed against future settlement payments.  Except that now, given lower smoking rates (incentives work) the settlement payments are less than they were forecast, and states must find a way to make up the difference and pay their creditors.

The tobacco settlement has created funky incentives for state governments form the very beginning.  Formerly adversaries, the settlement effectively made large tobacco companies partners with state governments, and states have had substantial incentives to promote the business of large tobacco companies and sit on their rivals

Big tobacco was supposed to come under harsh punishment for decades of deception when it acceded to a tort settlement seven years ago. Philip Morris, R.J.Reynolds, Lorillard and Brown & Williamson agreed to pay 46 states $206 billion over 25 years. This was their punishment for burying evidence of cigarettes' health risks.

But the much-maligned tobacco giants have subtly and shrewdly turned their penance into a windfall. Using that tort settlement, the big brands have hampered tiny cut-rate rivals and raised prices with near impunity. Since the case was settled, the big four have nearly doubled wholesale cigarette prices from a national average of $1.25 a pack (not counting excise taxes) in 1998 to $2.10 now. And they have a potent partner in this scheme: state governments, which have become addicted to tort-settlement payments, now running at $6 billion a year. A key feature of the Big Tobacco-and-state-government cartel: rules that levy tort-settlement costs on upstart cigarette companies, companies that were not even in existence when the tort was being committed.

I commented here:

The government has found over time that it is able to sell higher taxes to the voters on certain items if they can portray those items as representing some socially unwanted behavior. These are often called "sin" taxes. The justification for the tax in its beginning is as much about behavior control as revenue generation.  Taxes on cigarettes, alcoholic beverages and even gasoline and plastic grocery bags have all been justified in part by the logic that higher taxes will reduce consumption.

However, a funny thing happens on the way to the treasury.  Over time, government becomes dependent on the revenue from these taxes.  The government begins to suffer when the taxes have their original effect — ie reducing consumption — because then tax revenues drop.  The government ultimately finds itself in the odd position of resisting consumption drops or restructuring the tax so it no longer incentivizes reduced consumption so that it can protect its tax revenue collections.

After some noodling with 30 year term policies for 50-year olds fitting my wife and my descriptions, the Coyote think tank has unearthed this devastating chart:

This is based on quotes for $1,000,000 in term insurance on a 30-year policy as quoted at Quickquote.com for a fifty-year-old man and woman  (male: $2990, female $2020 or 48% more expensive for men).

What is your reaction to this?  If it is something like, "no sh*t, women live longer so their insurance is going to be cheaper," then you are a normal rational human being that understands that more expensive risks require higher premiums.

But the Obama administration does not see things this way at all.  More expensive premiums for more expensive risks are used by the administration to demagogue to favored constituency groups that they are somehow being hosed and only Obama can protect them.  I mean, why else would the Administration release this chart:

Just a few weeks ago a grad student from Georgetown became famous for talking about all the expensive and special needs that women have that need to be covered in health insurance.  So of course their insurance is more expensive.

Here is a perfectly accurate way to re-label this chart

So here is the Obama algorithm.  If men are more expensive to insure, men should pay the difference.  If women are more expensive to insure, men should pay the difference.

The old saying goes, "where there is smoke, there's fire."  I think we all are at least subconciously suceptible to thinking this way vis a vis the cancer risks in the media.  We hear so much about these risks that, even if the claims seem absurd, we worry if there isn't something there.  After all, if the media is concerned, surely the balance of evidence must be at least close - there is probably a small risk or increase in mortality.

Not so.  Take cell phones.  We have heard for decades concern about cancer risk from cell phones.  But they are not even close to dangerous, missing danger levels by something like 5 and a half orders of magnitude.

Cell phones do not cause cancer. They do not even theoretically cause cancer. Why? Because they simply do not produce the type of electromagnetic radiation that is capable of causing cancer. Michael Shermer explains, using basic physics:

...known carcinogens such as x-rays, gamma rays and UV rays have energies greater than 480 kilojoules per mole (kJ/mole), which is enough to break chemical bonds... A cell phone generates radiation of less than 0.001 kJ/mole. That is 480,000 times weaker than UV rays...

If the radiation from cell phones cannot break chemical bonds, then it is not possible for cell phones to cause cancer, no matter what the World Health Organization thinks. And just to put the "possible carcinogen" terminology into perspective, the WHO also considers coffee to be a possible carcinogen. Additionally, it appears that politics and ideology may have trumped science in the WHO's controversial decision.

Folks on the Left prefer public institutions over private ones because they percieve them as more "fair."  But the power of lawmaking and police and prisons allows public institutions to be far more abusive than private entities could ever be.  We spent months and years torturing ourselves about accounting abuses at Enron, but these are trivial compared the accounting shenanigans state institutions engage in every day.

Or consider this, from Europe, particularly the first bit

“In the event of default (i) any non-official bond holder is junior to all official creditors and (ii) the issuer reserves the right to change law as needed to negate any rights of the nonofficial bond holder.

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“We should not underestimate the damage these steps have inflicted on Europe’s €8.4 trillion sovereign bond markets. For example, the Italian government has issued bonds with a face value of over €1.6 trillion. The groups holding these bonds are banks, pension funds, insurance companies, and Italian households. These investors bought them as safe, low-return instruments that could be used to hedge liabilities and provide for future income needs. It was once hard to imagine these could ever be restructured or default.

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“Now, however, it is clear they are not safe. They have default risk, and their ultimate value is subject to the political constraint and subjective decisions by a collective of individuals in the Italian government and society, the ECB, the European Union, and the International Monetary Fund (IMF). An investor buying an Italian bond today needs to forecast an immediate, complex process that has been evolving in unpredictable ways. Investors naturally want a high return in order to bear these risks.

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“Investors must also weigh carefully the costs and benefits to them of official intervention. Each time official creditors provide loans or buy bonds, the nonofficial holders become more subordinated, because official creditors including the IMF, ECB, and now the European Union continue to claim preferential status.”

This is not to say that bondholders in private entities don't get crammed down in a refinancing or bankruptcy.  But here we are talking about differential treatment of holders of the exact same class, even issue, of securities.

From Edward Pinto at the American

Fannie and Freddie entered into agreements accepting responsibility for misleading conduct discovered by the SEC, including:

1.    As of June 30, 2008, Freddie had $244 billion in subprime loans, while investors were told it had only $6 billion in subprime exposure.

a.    Freddie knew it was inadequately compensated for the risks it was taking. For example, it was taking on “subprime-like loans to help achieve [its] HUD goals” that were similar to private fixed-rate subprime, but the latter typically received “returns five to six times as great,” says the complaint.

b.    Freddie had concerns about risk layering on loans with an LTV >90% and a FICO <680. (Yet, in Freddie’s disclosures it only noted risk layering concerns on loans with an LTV >90% and a FICO <620. This is a major difference since only 10 percent of its loans fell into the LTV >90% and a FICO <620 category, while nearly half fell into the LTV >90% and a FICO <680 one.)

2.    As of June 30, 2008, Fannie had $641 billion in Alt-A loans (23 percent of its single-family loan guaranty portfolio), while investors were told it had less than half that amount ($306 billion, or 11 percent of its single-family loan guaranty portfolio).

3.    The SEC complaint disclosed that Freddie had a coding system to track “subprime,” “other-wise subprime,” and “subprime-like” loans in its loan guaranty portfolio even as it denied having any significant subprime exposure.

These suits are important because they demonstrate that Fannie and Freddie “told the world their subprime exposure was substantially smaller than it really was … and mislead the market about the amount of risk on the companies’ books,” said Robert Khuzami, director of the SEC’s Enforcement Division.

It is interesting to study the contrast between the handling of the Toyota accelerator problems, which turned out to be pretty much all driver error, and the Chevy Volt fire issues.

In the case of the former, we had public hearings and government threats.  The government, without evidence at that point, demanded Toyota recall the vehicles and stop production.  Eventually, when the NHTSA determined that the panic and recall was in error and the issue was operator error and not with the car, the Obama Administration suppressed the results.

Now, Volts appear to have a fire problem with their batteries.  This time, the government is keeping things real quiet and, instead of exaggerating the safety issue, they are suppresing it

It now appears the fire hazard was first discovered back in June, when GM first heard about a fire in a Volt that occurred some three weeks after the vehicle had been crash tested.

Yet, almost five months went by before either GM or the US National Highway Traffic Safety Administration (NHTSA) told dealers and customers about the potential risks and urged them to drain the battery pack as soon as possible after an accident.

Part of the reason for delaying the disclosure was the “fragility of Volt sales” up until that point, according to Joan Claybrook, a former administrator at NHTSA.

Demagoguing a non-problem in the first case, covering up a real problem in the second.  Guess which one has a union that supported Obama's election and which does not.  Guess which one Obama bought equity in with taxpayer money?

I hinted at it in my last post, but have addressed it in more depth in my column this week at Forbes.  A brief excerpt:

The theme from all these failures is distorted signals and corrupted communication.  People, no matter how savvy, cannot possibly research every nook and cranny of the economy before making an investment.  They make decisions, therefore, based on signals – prices, interest rates, perceived risks, and the profit history of other similar investments.  If these signals are artificially altered or corrupted, bad decisions that destroy wealth and growth will result.

Which brings me back to education.    I will tell you something almost every business owner knows:  We business owners may whine from time to time that banks won’t lend us money, but what really is in short support are great people.  Nothing has more long-term impact on an economy than amount and types of skills that are sought by future workers.  That is why everyone accepts as a truism that education is critical to economic health.

Unfortunately, there is good evidence that our education policies have already done long-term harm.   The signals we send to kids making their higher education plans have disconnected them from reality in a number of fundamental ways, causing them to make bad decisions for themselves and the broader economy.

Examples follow.  Read it all.

Don Boudreaux asks:

Here’s a quick question for anyone who takes seriously politicians’ pronouncements about what particular industries are “vital” or are “of the future” or are “crucial to meeting consumers’ needs”: Why do virtually none of these politicians, when they leave office, found their own non-political firms? Why do virtually none of these politicians, when they leave office, found their own non-political firms – firms that specialize neither in granting clients access to incumbent politicians nor in projects that depend upon getting subsidies or other favors from those same politicians?

This question occurred to me a few days ago upon hearing that former president Bill Clinton was off somewhere talking about something to some group concerned about some issue.  His career now is to make lots of money as a sort of high-brow social healer – to emit platitudes, attend state funerals, and (pardon my switch of imagery) be a show-pony for politically correct causes.  The post-Oval Office careers of every other recent president – to the extent that they haven’t simply retired to the golf course or the study – have been largely the same, with the groups and causes served by their attentions differing only as one former president’s political affiliations differ from those of another former president.

One guy comes to mind who had a sniff of the White House and then went on to run his own business:  George McGovern.  And though its just a small Inn that will never be even a blip on the economic radar screen, it has driven McGovern dangerously close to being a libertarian.  Actually, that might be a misnomer.  He probably is still a liberal, but from the days when liberals actually cared about individual freedom and saw aggregations of power in the government to be at least as scary as those in the private world.  Take this for example:

Under the guise of protecting us from ourselves, the right and the left are becoming ever more aggressive in regulating behavior. Much paternalist scrutiny has recently centered on personal economics...

Since leaving office I've written about public policy from a new perspective: outside looking in. I've come to realize that protecting freedom of choice in our everyday lives is essential to maintaining a healthy civil society.

Why do we think we are helping adult consumers by taking away their options? We don't take away cars because we don't like some people speeding. We allow state lotteries despite knowing some people are betting their grocery money. Everyone is exposed to economic risks of some kind. But we don't operate mindlessly in trying to smooth out every theoretical wrinkle in life.

The nature of freedom of choice is that some people will misuse their responsibility and hurt themselves in the process. We should do our best to educate them, but without diminishing choice for everyone else.

The only other place I have heard this recently on the Left was, perhaps not coincidentally, from that other child of 60's liberal politics, Jerry Brown

To the Members of the California State Senate:

I am returning Senate Bill 105 without my signature.

This measure would impose criminal penalties on a child under the age of 18 and his or her parents if the child skis or snowboards without a helmet.

While I appreciate the value of wearing a ski helmet, I am concerned about the continuing and seemingly inexorable transfer of authority from parents to the state. Not every human problem deserves a law.

I believe parents have the ability and responsibility to make good choices for their children.

Sincerely,
Edmund J. Brown

Postscript:  The answer to Don's question is one of two.  Either a)  They are not up to it.  And/or b) There is a hell of a lot more wealth that can be captured through the exercise of government power than through private enterprise.

SB7 has some good observations about risk:

I was listening to the WSJ radio podcast while getting some dinner ready, and one of their reporters said, in the context of discussing Fukushima, that some of the engineers at the plant "knew there was a risk" in the plant's older design and could conceivably face charges for not doing something about said risk.

This kind of talk really grinds my gears.  In any engineering situation there is always some risk.  You can have less risk, or more risk, but risk is not something you either have or do not have.

I will go one step further.  This ex post facto witch hunt aimed at folks who discussed risks  (an pogrom that occurs in nearly every product liability lawsuit with fishing expeditions through company memos) is the WORST possible thing for consumers concerned about the safety of their products and environment.  Engineers have to feel free to express safety concerns within organizations no matter how hypothetical these suppositions may be.

Some concerns will turn out to be unfounded.  Some suggested risks will be deemed too small to economically overcome.  And some will turn out to be substantial and require action.  And sometimes well-intentioned people will make what is, in retrospect, the wrong trade-offs with risks.   These witch hunts only tend to suppress this very valuable and necessary internal dialog within organizations.  Nothing is going to turn the brains of engineers off faster than an incentive system that punishes them retroactively for well-intentioned discussions about risk.

This article by Mark Perry seems right to me -- the lightest touch (and probably the most effective) approach to bank regulation is to return to a regime that puts its major emphasis on capital requirements.

We can talk all day about causes of the recent financial crisis, but in my mind the root cause was taking real property with a volatile underlying value (e.g. homes) and leveraging the absolute crap out of it.   In the initial transaction, home buyers were allowed to come to the table with less and less equity, until deals were being cut with more than 100% debt.  This stupidity was a true public-private partnership, as the government kicked off the party and encouraged its growth via various community development policies as well as policies atFannie and Freddie, but private originators as well as home buyers eagerly jumped into the fray.

This debt backed by property that was already too highly leveraged was thrown into portfolios that were themselves highly leveraged, and then further leveraged again through CDS's and other derivatives.  And then the CDS's were put into leveraged portfolios.  I would love to figure out the effective leverage in the AIG portfolio.  For ever $1 million in real property that secured the mortgages they insured, how much equity did they have?  A thousand bucks?  Less?

These investors felt protected by diversification that didn't really exist.  The felt safe with AAA ratings from agencies who really didn't understand the risks any better than anyone else did.  They relaxed assuming everything was watched by government regulators who were in way over their heads.  But more than anything, they felt protected by history.  The system of putting mortgage risks into tranches, such that the top tranches could only be affected by default rates consider then to be wildly improbable, had never to that point failed to deliver its promise.   Default rates had always stayed withing expected norms.

And this is the most dangerous risk -- the risk that something will happen that has never happened before.  Default rates that seemed impossible suddenly became reality.  Tranches that were untouchable suddenly were losing large chunks of their value.  Sure, there were warning signs, but at the end of the day what happened was that events occurred that were worse than people had thought was the worst case scenario  (there is a whole body of interesting behavioral study on how humans tend to overestimate their understanding and underestimate the width of a probability distribution).

As new financial products are created and the economy evolves and the government pursues new forms of interventions in commerce, new failures can occur that have never happened before.  And never has there been invented a micro-regulatory approach that guards against new-type failures (they don't even do a very good job against old-style failures).  Capital requirements are the one approach that guard against catastrophic failures even for unanticipated risks.

It can be argued that this will raise the cost of capital, at it is true interest rates at any one point of time would have to go up.  But one can argue that the low interest rates of the 2000's greatly understated the true cost of capital, and that those additional costs were paid in a sort of balloon payment at the end of the decade.

I am still thinking this through -- I don't think any regular reader would be mistake me for someone who favors regulation in general, but I am coming around to some extent on the notion that banks are different.  I would ideally like to see a self-policing market where companies that choose to cut equity too fine just go bankrupt.  But the reality of the political-financial complex today is that this never happens -- costs of large failures are socialized, and executives who made bad choices get fat gold parachutes and Treasury jobs.

Postscript:  I have arguments all the time about whether the financial melt down was mainly caused by government or private action.  Was it a public or private failure.?  My answer is yes.

One thing that those of us who promote private action over public can never repeat enough is this:  Our support for private action does not mean that private actors don't screw up, that there are not bad outcomes, that people don't make bad decisions, etc.  They do.  Lots of them.  When these constitute outright fraud, there should be prosecution.  For the rest of the cases, though, libertarians believe that in a free society there are automatic corrections and sources of accountability.

Make a bad product - people stop buying it.  Sign a union contract with wages that are too high - you go bankrupt.  Treat your workers shabbily - and the best of them go work for someone else.  Take on too much risk - you will fail and lose all your capital.

The problem with our financial sector is not that it is not regulated -- it is the most regulated sector of the economy.   The problem is that, as always happens, there has been substantial regulatory capture.  There has been an implicit deal cut by large financial institutions - regulate me, but in return protect me.  In a sense, as is typical in a corporate state, large corporations and government have become partners.

As a result, many of the typical checks and balances on private action in a free economy have been disrupted.  In effect, certain institutions became too big to fail, and costs of failure and risk taking were socialized.

That is why the answer is not one or the other.  Certainly the massive failures were driven by the actions of private actors.  But they were driven in part by incentives put in place by the government, and their stupid behavior was not checked because traditional private avenues of accountability had been neutered by the government.    This is why the recent financial crisis will always remain a sort of political Rorschach test, where folks of wildly different political philosophies can all find justification for their position.

The third installment of my series on Obamacare is now up at Forbes.  An excerpt:

In the health care field, the Holy Grail of rent-seeking is to get one’s medical device, drug, or procedure added to state health insurance mandates.  Before Obamacare, health care insurance regulation had been a state function, and each state had written laws mandating that all health insurance policies written in the state must cover certain services.   By getting one’s particular service added to such a mandate, the service essentially becomes “free” to consumers in that state  (of course it’s not free — everyone pays in the form of higher premiums, but the marginal price for the service goes to zero).

Imagine you have a procedure — let’s use laser elimination of birthmarks as an example.   This procedures requires a series of treatments using a fairly expensive piece of equipment to produce results that are of enormous value to a few people with extensive birthmarks, and of smaller value to many other people with smaller birthmarks.  Business growth in such a field is typically good at first as those who most value the procedure pay for it.  But it can be hard to grow outside of a relatively small niche, as most potential customers may consider it to be an expensive elective cosmetic procedure that, given other uses for their money, they can do without.  What can an aspiring dermatologic surgeon do?  Run to the government!

In 1997, the University of Indiana conducted a study of the laser treatment of these birthmarks.  I don’t know who funded the study, but tellingly the study findings did not really touch on the efficacy of the treatment or its risks.  The study surveyed a number of dermatologic surgeons.  What was its primary finding?  ”Based on current health care policy guidelines, laser treatment of port-wine stains should be regarded, and covered, as a medical necessity by all insurance providers.”  In other words, the sole purpose of this research was to convince legislators to add this procedure to their state’s  insurance mandates.   To date, this procedure has been added to the must-carry list in only two states, but in those two states doctors no longer have to convince price-sensitive patients that this elective procedure is worth the cost – after all, its free!

As you can imagine, the cost of these mandates are staggering for those of us who pay the premiums.  State governments are requiring us to pay higher insurance rates in order to cover procedures we might never consider.   Four states have mandated coverage for naturopaths;  three for athletic trainers; one for oriental medicine; eleven for hair prosthesis; four for massage therapists; and three for pastoral counselors.  The state with the most such mandates is Rhode Island, with 70, a state which not coincidently also has the third highest insurance premiums in the country.

On a quasi-related note, John Goodman has thoughts on "government failure" (an analog to market failure) as it applied to health care.  It is a point that cannot be made too often.  Merely pointing out supposed imperfect outcomes from private action does not immediately justify government action -- too often people take the default position that if an improved outcome can be imagined, the government can achieve it.  But does this ever happen?  In health care, the irony is that many of the supposed market failures we are "fixing" with Obamacare are in fact results of past ham-handed government action.

Bruce McQuain tells some stories of bureaucratic frustration in the Gulf, as local governors trying to protect their state from the spill fights against a myriad of mindless bureaucracies.

The governor said the problem is there's still no single person giving a "yes" or "no." While the Gulf Coast governors have developed plans with the Coast Guard's command center in the Gulf, things begin to shift when other agencies start weighing in, like the Environmental Protection Agency and the U.S. Fish and Wildlife Service. "It's like this huge committee down there," Riley said, "and every decision that we try to implement, any one person on that committee has absolute veto power."

I would state the problem differently.  In the Federal bureaucracy, seemingly everyone has the power to say "no," and absolutely no one is willing to risk their career or even a minor bureaucratic sanction to over-rule when someone else in the room says "no."  I have seen it a hundred times in my business -- we will be close to doing something for the public, building a new shower building in a campground for example, and some government employee in the room will say that their sister's gynecologist's barber's housekeeper once overheard a conversation in a bar that some guy who may have visited a university once said he had heard a rumor that there might have been a Native American settlement somewhere within 100 miles of that spot 10,000 years ago -- and suddenly the work on the shower has to stop for 6 months while we all run around calling in archeologists and taking this concern seriously.

The problem  in a government discussion, particularly a multi-agency discussion, is that EVERYONE can say "no," and worse, since their incentives are loaded towards risk avoidance (they get punished for violating procedure, but never punished for missing an opportunity), they have a tendency to say "no" a lot, in fact to say "no" by default.  In the Gulf you have a thousand federal employees from 20 agencies whose entire incentive system, whose entire career, whose every lesson from every bureaucratic battle in a sort of long-term aversion therapy, prompts them to say "no" by reflex.

What is missing is someone who can say "yes," and make it stick against all the no's.  That does not have to be Obama -- but it probably does have to be someone very senior who knows (and who everyone else knows) is backed to the hilt by the President and has an incentive system where the only measure of success is more or less oil damage, and thus for whom aggrieved bureaucrats (even senior ones) and petty procedure are irrelevant.  It does not appear such a person has been appointed.

Postscript: By the way, I don't want folks to fall into the trap of thinking that these government folks are necessarily bad people.  I think that is a mistake both conservatives and liberals make -- conservatives vilify government employees, while liberals want to believe that government would work right if we just had the right people in it.   I work with a lot of very bright, very good people in government.  The problem is that their incentives and information are awful.  How would you behave if for 20 years your main feedback was to be criticized for violating minor procedures or trying new things?  How would you have any understanding of business if you grew up in the bizarro world of government budgeting and accounting?   This is the problem with government - not that it is full of bad stupid people, but it takes good smart people and incentivizes them do counter-productive things.

Update: Here is a great example, from Kevin Drum, who is a smart guy but can't do anything but dither in a decision among multiple risks:

It's pretty hard to take the other side of this argument [ie defending the Coast Guard's decision to hold up the GUlf cleanup barges for minor rules violations]. But I wonder. We are, after all, talking about barges that are sucking up oil, and the last time I checked oil was pretty damn flammable. Everyone wants the cleanup operation to proceed with breakneck speed, but that's exactly when people get tired and sloppy. And I wonder what everyone would think of the Coast Guard's ridiculous rules if they waived them and then some boat went up in a huge fireball because a spark caught somewhere and no one had a fire extinguisher handy?

I will say again - I have been in many rooms of bureaucrats, both federal and private, and they all think this way.  These rooms are full of Kevin Drum's wondering out loud, "I don't know, what happens if..."  This is such a common phrase in these meetings I wish I had a dollar for every time I heard it.  Then everyone in the room defers to this hypothetical risk.   Bureaucrats are always more worried about sins of commission  (e.g. knowingly allowing a barge to go out without enough fire extinguishers in violation of guidelines) than the sin of omission (e.g. delay will allow the spill to get worse).  Even when the omission is 100% certainty and the danger from the act of commission is vaguely hypothetical.  It takes a leader to say "send the damn barges out now."

Do you remember the State Science Institute report on Rearden Metal?  If you were like me, you thought that this ridiculous report was an exaggeration, a literary device to make a point.  But as in so much of Atlas Shrugged, I am finding that it was no exaggeration at all.

Check out this real life example of "science."  From the real state science folks at the Interagency Working Group on Climate Change and Health.

There are potential impacts on cancer both directly from climate change and indirectly from climate change mitigation strategies. Climate change will result in higher ambient temperatures that may
increase the transfer of volatile and semi-volatile compounds from water and wastewater into the atmosphere, and alter the distribution of contaminants to places more distant from the sources, changing subsequent human exposures. Climate change is also expected to increase heavy precipitation and flooding events, which may increase the chance of toxic contamination leaks from storage facilities or runoff into water from land containing toxic pollutants. Very little is
known about how such transfers will affect people's exposure to these chemicals"”some of which are known carcinogens"”and its ultimate impact on incidence of cancer.  More research is needed to determine the likelihood of this type of contamination, the geographical areas and populations most likely to be impacted, and the health outcomes that could result.

Although the exact mechanisms of cancer in humans and animals are not completely understood for all cancers, factors in cancerdevelopment include pathogens, environmental contaminants, age, and genetics. Given the challenges of understanding the causes of cancer, the links between climate change and cancer are a mixture of fact and supposition, and research is needed to fill in the gaps in what we know.

One possible direct impact of climate change on cancer may be through increases in exposure to toxic chemicals that are known or suspected to cause cancer following heavy rainfall and by
increased volatilization of chemicals under conditions of increased temperature. In the case of heavy rainfall or flooding, there may be an increase in leaching of toxic chemicals and heavy metals
from storage sites and increased contamination of water with runoff containing persistent chemicals that are already in the environment. Marine animals, including mammals, also may suffer
direct effects of cancer linked to sustained or chronic exposure to chemical contaminants in the marine environment, and thereby serve as indicators of similar risks to humans.64 Climate impact
studies on such model cancer populations may provide added dimensions to our understanding of the human impacts.

Remember, the point of this all is not science, but funding.  This is basically a glossy budget presentation, probably cranked out by some grad students over some beers, tasked to come up with scary but marginally plausible links between health issues and climate change.   Obama has said that climate is really, really important to him.  He has frozen a lot of agency budgets, and told them new money is only for programs that supports his major initiatives, like climate change.  So, every agency says that their every problem is due to climate change, just as every agency under Bush said that they were critical to fighting terrorism.  This document is the NIH salvo to get climate change money, not actual science.