Sunday, January 31, 2010
In some corridors, 'high-speed' rail won't be much faster than trains in the 1930s.
WSJ, Feb 01, 2010
On Thursday the Obama administration awarded $8 billion in stimulus funds to plan and build high-speed rail projects in California and Florida, and for other routine passenger-rail projects masquerading as high-speed rail. This is a political plum to the states that will receive the money.
It is also a dream come true for fans of bullet trains in Japan and Europe and the faster, greenhouse gas-belching Mag-Lev (magnetic levitation) lines. But this is not money well spent.
Supporters say high-speed rail is a cost-effective, "green" solution to airport and highway congestion. In reality, it is costly to build and operate and has a negligible impact on highway and airport traffic. High-speed rail is driven by little more than a romantic notion to confer a European ambiance on American cities.
Proponents also claim that high-speed rail is profitable, but this too is off the mark. Internationally, only two segments have ever broken even: Tokyo to Osaka and Paris to Lyon.
Ridership in these markets has been bolstered by high gasoline prices and one-way highway tolls of $40 and $100, respectively. These and other foreign routes have attracted much of their ridership from a strong core of rail passengers that does not exist in the U.S.
The administration is giving California $2.25 billion for trains that are expected to reach 220 miles per hour between Los Angeles and San Francisco. The cost of building this rail line is now estimated by the California High Speed Rail Authority to be more than $40 billion and could be $60 billion or more.
Even after adjusting for inflation, the projected cost of the system has increased by half over the original cost in the past decade. Ridership projections have also fluctuated wildly, from as low as 32 million annually to nearly 100 million; now the rail authority estimates the train will carry 41 million passengers each year.
High-speed rail does little to unsnarl traffic jams because most highway congestion is within urban areas, not between them. It also has negligible impact on airport congestion. The world's strongest high-speed rail market, Tokyo to Osaka, is also one of the world's largest airline markets. Even with high-speed rail, there is still frequent air-shuttle service between Paris and Marseille.
Environmental claims are misleading. Using California High Speed Rail Authority's data, Joe Vranich and I estimated that the California system would reduce the emissions of greenhouse gases, such as CO2, at a cost of $2,000 per ton. The Intergovernmental Panel on Climate Change estimates that we should be able to meet its greenhouse gas targets by spending $50 or less per ton.
The administration is planning on giving Florida $1.25 billion to build a Tampa to Orlando high-speed rail line. The train on that route is expected to hit speeds of 160 mph and to make a trip between the two cities in about 45 minutes.
This will be helpful if you happen to live in the Orlando Station and have business in the Tampa Station. But most travelers will be better off driving.
It's about 90 minutes by car, though it can be less depending on your home and destination. Once you factor in the time it would take to travel to the station, park, walk to the platform, and wait for the train to depart and also pick up a rental car on the other end, driving would probably be faster.
Other rail projects aren't much better. One project involves a line connecting Portland, Ore., and Seattle, Wash. The administration wants to spend $600 million on the line to shave about 10 minutes off of a three-and-a-half hour trip (which it would do by raising average speeds to 51 mph, from 49 mph).
In the other corridors where the administration plans to spend money—such as Charlotte to Raleigh and Chicago to St. Louis—projected train speeds won't be much faster than what the fastest trains in the 1930s were able to do. Some trains then topped 80 mph. As a result, car trips will normally be as fast door to door, and they will be far less costly than taking the train and then renting a car.
There is no need to subsidize intercity travel. Flyers pay for virtually all of the costs of running the airline system, including airports and air traffic control. Gasoline taxes and highway tolls built and maintain intercity roadways, and they also support mass transit with $10 billion in subsidies annually. Intercity buses require no taxpayer funds.
Only rail requires heavy subsidies. At the end of the day, the great danger is that true high-speed rail could cost taxpayers even more than the tens of billions in subsidies that have been paid to Amtrak since the 1970s.
Mr. Obama said in Tampa last week that we are "falling behind" other countries in high-speed rail. With a record budget deficit, it makes sense to fall behind in spending on high-speed rail that we don't need with money we don't have.
Mr. Cox is principal of Demographia, a consulting firm based in St. Louis. He served on the Amtrak Reform Council from 1999-2002 and is co-author with Joseph Vranich of the 2008 Reason Foundation study. "The California High Speed Rail Proposal: A Due Diligence Report."
Friday, January 29, 2010
The president's anti-Wall Street rhetoric is not good for the economy, and may hurt his party politically
The president's anti-Wall Street rhetoric is not good for the economy, and may hurt his party politically.
WSJ, Jan 29, 2010
The problem with fires is that they can blow in any direction. Consider the White House, which is seeing a backdraft from the anti-Wall-Street flame it has been dousing with gasoline.
His agenda on the ropes, President Obama made a calculated decision to pivot to populism. The Massachusetts Senate race highlighted a fed-up public. The White House strategy: Channel that anger away from itself and to easier targets. Its opening shots were a new tax on banks, new restrictions on banking activities, and Mr. Obama roaring, "We want our money back!"
The president fed the fire with his State of the Union address. Americans are angry at "bad behavior on Wall Street." It is time to "slash the tax breaks for companies that ship our jobs overseas." Lobbyists are trying to "kill" financial regulation. American "cynicism" is the result of "selfish" bankers, CEOs who "reward" themselves "for failure" and lobbyists who "game the system." (No mention of Cornhusker Kickbacks or backroom union deals, but never mind.)
For an administration that claims to know its political history, the White House appears to have misread at least one decade. FDR was re-elected in 1936 for many reasons, but among them was his fiery denunciations of "economic royalists," "economic tyranny," and "economic slavery." Business knew it was in the president's crosshairs and put its capital on strike. The economy didn't recover until the war.
Team Obama is already witnessing a repeat. The U.S. economy ought to be flying out of recession. Yet bank lending is sluggish. Companies refuse to hire. Business is going elsewhere to raise capital: China last year outstripped the U.S. as a center for initial public offerings. The market gyrates on Washington's latest political drama.
A venture capitalist recently remarked to me that the uncertainty the administration has created is "nothing short of paralyzing." Nobody will invest in an industry that might be the next to be overtaxed, overregulated, or publicly disemboweled.
Add to that uncertainty the administration's new populist bent, and it's a recipe for a continued capital freeze. "People in the economy are thinking about whether to invest or take risks when what they are seeing are early signs of Hugo Chávez economics," says Wisconsin GOP Rep. Paul Ryan. With the White House's political fortunes fundamentally tied to economic recovery, this populist fire is an act of self-immolation.
The blowback is already hobbling the White House's own economic team. Senate Democrats, following presidential example, have been newly eager to skewer their own "symbol" of Wall Street. The nearest to hand happened to be Mr. Obama's own Fed chief, Ben Bernanke. Majority Leader Harry Reid spent two weeks putting down a reconfirmation revolt, helping save Mr. Obama from his own antibank rhetoric.
In the House, Treasury Secretary Tim Geithner was meanwhile called to answer questions about AIG disclosure and counterparties. He left accused by Democrat Edolphus Towns of aiding Wall Street banks in "looting the corpse" of the insurer. Talk about a populist liability. The two men survive only as damaged goods, more susceptible to congressional pressure, less able to make tough decisions. And should Mr. Obama cut Mr. Geithner loose, the White House's tough talk narrows the pool of experienced hands it can nominate as replacements.
Policy-wise, too, the administration is boxing itself in. In keeping with the populist swerve, a feisty Mr. Obama this week upped the ante on financial regulation, warning Congress he'd veto anything less than "real reform." Yet it is precisely a stick-it-to-them bill that will have the most trouble passing a frayed Congress in an election year. And heaven help the administration if there is another financial meltdown, one that truly poses systemic risk. Could this White House dare write another bailout check to "Wall Street"?
And for what? The administration made the mistake of leaking that its new strategy was pure politics, designed to re-energize the public and put Republicans on defense. That somewhat robbed it of its authenticity. Americans have also watched this White House prop up moribund auto makers, float Fannie Mae and Freddie Mac, and cut deals with pharmaceutical companies. The bank war appears a bit disingenuous. The country's growing investor class is not impressed by the sort of business mau-mauing that pummels their 401(k)s.
As for those Republicans, they are hardly cowering in fear. They watched Scott Brown bat away the president's bank tax, explaining it would be passed on to consumers and hurt lending. His victory suggested the public is open to free-market explanations, and the GOP is feeling more emboldened to make them.
Not all populism is bad. There is indeed an anti-establishment anger in the nation. But the majority of it is directed at a Washington that is foisting an unpopular agenda on the country, and at the cavalier treatment of the free market that creates jobs. The president might try tapping into that.
Thursday, January 28, 2010
Regulators can't agree on what the real systemic threat was.
WSJ, Jan 28, 2010
Will regulators ever coherently explain why AIG could not be allowed to go bankrupt in September of 2008?
At yesterday's House hearing, Secretary of the Treasury Timothy Geithner and predecessor Hank Paulson said they didn't bail out AIG to save its derivatives counterparties. Instead, said Mr. Geithner, the now-famous 100-cents-on-the-dollar buyouts of credit default swap contracts were necessary to prevent a further downgrade of AIG by credit-ratings agencies.
This topic probably deserves another hearing on its own. Remember, the Federal Reserve Bank of New York, where Mr. Geithner was president, had by that time already seized AIG. We're guessing that a ratings agency is pretty comfortable with the creditworthiness of a firm 79.9%-owned by Uncle Sam. Yet Mr. Geithner is saying that the same credit raters that applied triple-A ratings to tranches of junk mortgages somehow got the yips when the world's most respected borrower was standing behind AIG.
If the agencies had applied to AIG the credit rating of its new owner, there wouldn't have been much need to send more collateral to such counterparties as Goldman Sachs. Instead, AIG could have demanded the return of some of the collateral it had already posted. Bad news for those counterparties.
More broadly, the hearing showed that the story of why AIG could not be allowed to fail continues to change, which inspires little confidence that Washington can be trusted with new powers to identify and address systemic risk. The original Beltway line was that the systemic risk was caused by AIG's inability to back up the credit default swap contracts it sold, thus endangering counterparties on the other end of these deals. In Washington's original telling, the company's insurance subsidiaries, heavily regulated by states, were safely segregated from the mess.
Yesterday, however, Messrs. Geithner and Paulson went further than ever in stating that the real systemic risk was to AIG's heavily regulated insurance businesses. Their testimony directly contradicts that offered to Congress by former New York Insurance Superintendent Eric Dinallo, who was AIG's principal insurance regulator at the time.
Last year Mr. Dinallo told the Senate that "The main reason why the federal government decided to rescue AIG was not because of its insurance companies." He was so confident in the health of the AIG subsidiaries that, before the federal bailout, he was working on a plan to transfer $20 billion of their excess reserves to the parent company.
Yesterday, Mr. Geithner said that the "people responsible" for overseeing the insurance subsidiaries "had no idea" about the risks facing AIG policyholders. He's talking about Mr. Dinallo here. Instead of being safely segregated, Mr. Geithner said the insurance businesses were "tightly connected" to the parent company. Mr. Paulson added that the healthy parts of AIG had been "infected" by the "toxic assets." He added, "One part of the company would have contaminated the other."
This raises some serious issues for financial reform. The Geithner and Paulson story now is essentially that the system of heavy state insurance regulation was a sham. When push came to shove, policyholders were not protected from a default by the parent company.
This also makes us wonder about all of the political and media chatter over the last year that derivatives were the doomsday machine that caused the meltdown. If this testimony is correct, then the systemic risk wasn't that if AIG collapsed it would infect Goldman and other financial companies like falling dominoes across the world.
The real risk was closer to an implosion of AIG that would have jeopardized millions of insurance policies. That's a big problem for insurance regulation. But if bad bets on derivatives would only have ruined AIG and its subsidiaries, that's not the same kind of danger to the entire financial system. And it suggests the need for different regulatory changes. We're not sure that policyholders were really in danger, but Mr. Dinallo and other state regulators deserve a chance to respond on the record, and under oath.
If yesterday's testimony is true, the real systemic risk was not in unregulated markets where the danger is obvious, but in markets where regulation created the illusion of safety.
Wednesday, January 27, 2010
ACSH, Jan 27, 2010
Tuesday, January 26, 2010
Why Do the Chinese Save So Much? A skewed sex ratio is fueling a highly competitive marriage market, driving up China’s savings rate
Why Do the Chinese Save So Much? By Shang-Jin WeiA skewed sex ratio is fueling a highly competitive marriage market, driving up China’s savings rate and with it the global trade imbalance.
Columbia Business School Ideas@Work, Jan 22 2010
Much attention has been directed toward China’s high savings rate. Not only is the savings rate disproportionately high compared to virtually any other country, but it directly impacts China’s current account surplus and the U.S. consumer deficit. When national savings exceeds investment, the excess savings shows up in China’s current account surplus.
The prolonged period of low global interest rates has been attributed in large part to this surplus, and with the surplus come pros and cons. “In the context of the current crisis, the long period of low interest rates was linked to excessive risk-taking behavior in U.S. markets, especially where regulation has been lax or inadequate,” Professor Shang-Jin Wei says. “The upside is that with low interest rates comes a lower cost of capital, which is good for investment.”
Given its far-reaching effects, both private sector analysts and policy makers have attempted to trace the causes of China’s high savings rate and to predict how long it will last. Some have attributed the savings primarily to Chinese corporations rather than households. Others point to a precautionary savings motive: because Chinese people are worried about costs of healthcare, education and old-age pensions and are unsure about how much these costs might change over time, they respond by saving more. Other explanations point to habit formation or financial development.
“But these explanations do not tell the whole story, and possibly are not the most important part of the story,” says Wei. Instead, Wei hypothesized that an important social phenomenon is the primary driver of the high savings rate: for the last few decades China has experienced a significant imbalance between the number of male and female children born to its citizens.
There are approximately 122 boys born for every 100 girls today, a ratio that translates into cutting about one in five Chinese men out of the marriage market when this generation of children grows up. Three factors conspire to produce the imbalance. First, Chinese parents often prefer sons. Second, it has become increasingly inexpensive for even a relatively poor farmer to afford the $12 Ultrasound B, the most common technology used for learning the gender of a fetus.
Third, and perhaps most importantly, China’s stringent family planning policy limits the number of children a couple can have. The policy allows most couples to have only one child. But in some regions, if a couple’s first child is a daughter, the state permits the couple to have another child. Families with one daughter that become pregnant with another daughter are more likely to terminate the second pregnancy in hopes of producing a son later on. (India, Korea, Vietnam and Singapore also have sex ratio imbalances that favor male children despite the absence of these stringent family planning policies. It might be that in these countries people voluntarily want to restrict the number of children they have, and still prefer sons and have access to inexpensive selective abortions. The sex ratio imbalance is high in these countries but not as extreme as in China.)
“The increased pressure on the marriage market in China might induce men and parents with sons to do things to make themselves more competitive,” Wei says. “Increasing savings is one logical way to do that, to the extent that wealth helps to increase a man’s competitive edge. Parents increase household savings mostly by cutting down their own consumption.”
Wei worked with Xiaobo Zhang of the International Food Policy Research Institute in Washington, D.C., to see if his hypothesis held up, comparing savings data across regions and in households with sons versus those with daughters. “We find not only that households with sons save more than households with daughters in all regions,” Wei says, “but that households with sons tend to raise their savings rate if they also happen to live in a region with a more skewed sex ratio.”
The effect is significant. The household savings rate in China rose from about 16 percent of disposable income in 1990 to over 30 percent today, which is much higher than most countries. About half of the increase in the savings rate of the last 25 years can be attributed to the rise in the sex ratio imbalance. “It’s a very high ratio of savings to income,” Wei says. “The comparable savings rate in the United States would be 2 or 3 percent before the crisis, and about 6 percent since the crisis.”
Even those not competing in the marriage market must compete to buy housing and make other significant purchases, pushing up the savings rate for all households.
“While the conventional explanations for the high savings rate all play a role, they are not as important as people previously thought,” Wei says. “People had noticed the sex ratio imbalance as a social problem. Sociologists and other social scientists had looked at the phenomenon but had not looked at it in relation to the high Chinese savings rate.”
As economists and policy makers have looked with concern to the large Chinese current account surplus and large U.S. current account deficit, or global imbalances, much of their discussion has focused on changing exchange rate policy.
There are global economic implications if China continues to save at such a high rate, and Wei’s research highlights a connection between social policy, saving behavior and current account balances.
“Exchange rates might be part of the solution, but our work suggests they might not be the most important part,” Wei says. Because sex ratio imbalances that skew toward males are viewed as evidence of a society’s tendency to discriminate against women, it calls attention to the status of women and women’s rights. And China is not the only country where the sex ratio dynamic needs attention. “The effect of sex ratio imbalance on savings is not unique to China,” he says. “Many other countries with significant sex ratio imbalances also have relatively high current account balances.
“None of the discussion about global imbalances has brought family planning policy or women’s rights to the table, because people do not see these issues as related to economic policy,” Wei says. “Our research suggests that this is a serious omission. You can only implement the right policy when you get the diagnosis correct, and fruitful policy dialogue has to include discussion on these issues.”
Shang-Jin Wei is the N.T. Wang Professor of Chinese Business and Economy in the Finance and Economics Division and director of the Jerome A. Chazen Institute of International Business at Columbia Business School.
Monday, January 25, 2010
Restricting loans to real estate virtually guarantees another bank crisis in the future.
WSJ, Jan 25, 2010
After the Democrats' disaster in Massachusetts last Tuesday, President Obama appears to be flailing. Gone is the cool and measured demeanor that made him look presidential when the financial crisis struck during the 2008 campaign. Instead, the financial reform proposals he advanced later in the week seem to reflect political panic—a desperate attempt to appeal to the populist sentiment against Wall Street. Unfortunately, they also reflect a limited understanding of good financial or banking policy.
First, Mr. Obama has proposed to limit the size of banks or their holding companies, or both. The trouble with limiting the size of these institutions is that no one has the faintest idea what the right size is. What's more, if the purpose of the size limit is to prevent a bank or bank holding company from being or becoming too big to fail, we have to know what size would cause a failed institution to cause a financial train wreck. No one knows that, either. Under these circumstances, it's hard to take such a proposal seriously.
Second, Mr. Obama says that some firms should be prohibited from engaging in "proprietary trading." The White House announcement seems to apply to both banks and bank holding companies, but there is a huge difference between them. A bank is chartered by the government, its deposits are insured, it can participate in the U.S. payment system, and it has access to the Fed's discount window. None of these things is true of a bank holding company—which is an ordinary corporation that controls a bank.
Because banks are government-backed, and privileged in many ways, their activities are limited by law and regulation. They are restricted in how they can use their insured deposits. The Glass-Steagall Act, despite what we constantly hear in the media and from people who should know better, still applies to banks; it forbids them from engaging in underwriting or dealing in securities. This should prohibit them from engaging in proprietary trading to the extent that this is dealing in securities. Bank holding companies, however, because they are not banks and not government-backed, can engage in any financial activity, including securities dealing. Why would we prohibit them from doing so when they are using their own funds?
Apparently, Mr. Obama is arguing that bank holding companies should be prohibited from proprietary trading because it's too risky. The trouble is that proprietary trading is a profitable business for many bank holding companies, and there is no evidence that it caused serious losses for either banks or bank holding companies in the recent financial crisis.
There are strong firewalls between the holding companies and the banks they control that prevent the activities of the holding companies from affecting their bank subsidiaries. If Mr. Obama's plan is adopted, many bank holding companies will have to give up profitable businesses or sell off their banks. But even that wouldn't really solve the problem, since some would contend that large financial institutions like Goldman Sachs and Morgan Stanley, even if they ceased being bank holding companies, would still be too big to fail.
But if we are going to stop Goldman Sachs and Morgan Stanley from taking risks in securities trading generally because they are too big to fail, why not stop securities trading by all large financial firms, such as investment banks or insurance companies? Even for a newly minted populist, this is a bit much.
There is one more factor to consider. Banks have been committing themselves increasingly to financing real estate. The reason for this is simple. Because they cannot underwrite or deal in securities, they have been losing out to securities firms in financing public companies—that is, most of American business other than small business. It is less expensive for a company to issue notes, bonds or commercial paper in the securities markets than to borrow from a bank.
Where, then, can banks find borrowers? The answer, unfortunately, is commercial and residential real estate.
Real-estate loans rose to 55% of all bank loans in 2008 from less than 25% in 1965. These loans will continue to rise in the future, because only real-estate, small business and consumer lending are now accessible activities for banks.
This is not a good trend, because the real-estate sector is highly cyclical and volatile. It was, indeed, the vast number of subprime and other risky mortgages in our financial system that caused the weakness of the banks and the financial crisis. Requiring banks to continue to lend to real estate, because they have few other alternatives, virtually guarantees another banking crisis in the future.
Since banks can never be let out of these restrictions as long as they are government-backed, one solution for banking organizations is to center their activities in the bank holding company which—because it is not government-backed—does not have to limit its range of activities. The fact that Mr. Obama now proposes to close off this one avenue through which banking organizations can be profitable is strong evidence that neither he nor his advisers, in attempting to lash out at banks, have thought through the long-term prospects and needs of the banking industry.
That might make good populist politics, but it is not responsible policy. Instead of trying to punish the banking industry, Mr. Obama should try to understand why banks have become so heavily invested in real estate.
Banks must remain restricted in their range of activities, but bank holding companies are not banks. The solution to the long-term problems of the banking business is not to narrow the activities of bank holding companies, but to broaden them.
Mr. Wallison is a senior fellow at the American Enterprise Institute.
Saturday, January 23, 2010
BIS January 22, 2010
The Basel Committee on Banking Supervision today issued Compensation Principles and Standards Assessment Methodology. The Methodology seeks to foster supervisory approaches that are effective in promoting sound compensation practices at banks and help support a level playing field.
Mr Fernando Vargas, Chairman of the Basel Committee's Task Force on Remuneration and Associate Director General of Banking Supervision at Bank of Spain, explained that "the Methodology provides a comprehensive set of tools for supervisors to assess compensation practices in an effective and consistent manner."
The Methodology will help supervisors assess a firm's compliance with the Financial Stability Board's "Principles for Sound Compensation Practices" and related implementation standards. This will contribute to ongoing implementation of the Principles and Standards, including the FSB’s current thematic review of national and firm implementation. Consistent with the FSB "Principles for Sound Compensation Practices", the Methodology is structured based on the following themes:
1. Effective governance of compensation
2. Effective alignment of compensation with prudent risk taking, and
3. Effective supervisory oversight and engagement by stakeholders.
Mr Nout Wellink, Chairman of the Basel Committee and President of the Netherlands Bank, stated that "use of the Methodology will promote appropriate compensation practices that create the right incentives for effective risk management and avoiding excessive risk-taking." He noted that "the Basel Committee's work on compensation issues is ongoing. It is likely that the Methodology will expand and change over time as more practical experience is gained."
Thursday, January 21, 2010
Campaign-finance reform meets the Constitution.
The Wall Street Journal, page A18, Jan 22, 2010
Freedom has had its best week in many years. On Tuesday, Massachusetts put a Senate check on a reckless Congress, and yesterday the Supreme Court issued a landmark decision [see slip op.] supporting free political speech by overturning some of Congress's more intrusive limits on election spending.
In a season of marauding government, the Constitution rides to the rescue one more time.
Justice Anthony Kennedy wrote yesterday's 5-4 majority opinion in Citizens United v. Federal Election Commission, which considered whether the government could ban a 90-minute documentary called "Hillary: the Movie" that was set to run on cable channels during the 2008 Presidential campaign. Because it was funded by an incorporated group and was less than complimentary of then-Senator Hillary Clinton, the film became a target of campaign-finance limits.
The 2002 Bipartisan Campaign Finance Act, aka McCain-Feingold, banned corporations and unions from "electioneering communications" within 30 days of a primary or 60 days of a general election. Yesterday, the Justices rejected that limit on corporate spending as unconstitutional. Corporations are entitled to the same right that individuals have to spend money on political speech for or against a candidate.
Justice Kennedy emphasized that laws designed to control money in politics often bleed into censorship, and that this violates core First Amendment principles. "Because speech is an essential mechanism of democracy—it is the means to hold officials accountable to the people—political speech must prevail against laws that would suppress it by design or inadvertence," he wrote. The ban on corporate expenditures had a "substantial, nationwide chilling effect" on political speech, he added.
In last year's oral argument for Citizen's United, the Court got a preview of how far a ban on corporate-funded speech could reach. Deputy Solicitor General Malcolm Stewart explained that, under McCain-Feingold, the government had the authority to "prohibit the publication" of corporate-funded books that called for the election or defeat of a candidate.
That was a shock and awe moment at the Court, as it also should have been to a Washington press corps that has too often been a cheerleader for campaign-spending limits. Mr. Stewart was telling a truth already familiar to campaign-finance lawyers and the speech police at the Federal Election Commission. Former FEC Commissioner Hans von Spakovsky recalled yesterday that in 2004 the agency investigated whether a book written by George Soros critical of George W. Bush violated campaign laws. Liberals as much as conservatives should worry about laws that allow such investigations.
The Court's opinion is especially effective in dismantling McCain-Feingold's arbitrary exemption for media corporations. Thus a corporation that owns a newspaper—News Corp. or the New York Times—retains its First Amendment right to speak freely. "At the same time, some other corporation, with an identical business interest but no media outlet in its ownership structure, would be forbidden to speak or inform the public about the same issue," wrote Justice Kennedy. "This differential treatment cannot be squared with the First Amendment."
For instruction and sheer entertainment, we also recommend Justice Antonin Scalia's concurring opinion that demolishes Justice John Paul Stevens's argument in dissent that corporations lack free speech rights because the Founding Fathers disliked them. "If so, how came there to be so many of them?" Mr. Scalia writes, in one of his gentler lines.
The landmark decision—which overturned two Supreme Court precedents—has already sent the censoring political class into orbit. President Obama was especially un-Presidential yesterday, putting on his new populist facade to call it "a major victory for big oil, Wall Street banks, health insurance companies" and other "special interests." Mr. Obama didn't mention his union friends as one of those interests, but their political spending will also be protected by the logic of this ruling. The reality is that free speech is no one's special interest.
New York Senator Chuck Schumer vowed to hold hearings, and the Naderite Public Citizen lobby is already calling for a constitutional amendment that bans free speech for "for-profit corporations." Liberalism's bullying tendencies are never more on display than when its denizens are at war with the speech rights of its opponents.
Perhaps one day the Court will go even further and overturn Buckley v. Valeo, the 1976 decision that was its original sin in tolerating limits on campaign spending. The Court did yesterday uphold disclosure rules, so a sensible step now would be for Congress to remove all campaign-finance limits subject only to immediate disclosure on the Internet. Citizens United is in any event a bracing declaration that Congress's long and misbegotten campaign-finance crusade has reached a Constitutional dead end.
Tuesday, January 19, 2010
Why Rating Requirements Don't Make Sense - The market—not government mandates—should decide the value of our work
The market—not government mandates—should decide the value of our work.
WSJ, Jan 19, 2010
Some very eminent voices, including this newspaper, have called for repealing regulations that directly or indirectly require certain investors to hold debt evaluated by rating agencies. They argue this government mandate interferes with the free market and encourages undue investor reliance on credit ratings.
We at Standard & Poor's could not agree more. We support removing investor rating requirements and believe the market—not government mandates—should decide the value of our work.
We have always measured our success by the value we bring investors. We offer our ratings as a view of relative credit risk—not as a buy, hold or sell recommendation. But we recognize that rating mandates may have prompted some investors to use ratings in ways they were never intended.
S&P is one of 10 firms considered by the Securities and Exchange Commission to be "Nationally Recognized Statistical Rating Organizations" (NRSROs). Various federal and state regulations prevent certain banks, public pension funds, money market funds, and other regulated entities from investing in securities unless they have NRSRO ratings.
These regulations may have led some investors to confuse NRSRO ratings with a government seal of approval or to inappropriately use ratings as a short cut for gauging investment suitability, rather than as just one of many tools that investors can use in independently analyzing credit risk.
Now Congress is considering legislation that would subject rating agencies to discriminatory liability standards because of their NRSRO status.
Currently, rating agencies face the same liability standards as accountants and securities analysts. If the proposed legislation becomes law, rating agencies would be subject to discriminatory, more onerous, liability standards than other capital markets participants. The proposed legislation could also make it difficult for new or small rating agencies to enter the market.
Worse, the proposed standards could deter firms from rating new debt, which would restrict the amount of capital available to new enterprises and technologies—capital that is critical to job creation.
Ratings are a valuable benchmark for investors. With respect to the assumptions underlying our ratings of U.S. residential mortgage securities in recent years, yes, we and others, including banks and regulators, failed to anticipate how steep the fall in house prices would be.
We have learned from this harsh lesson and have made significant revisions to our rating approach. Those revisions include modifying our methodologies and criteria to better account for a possible period of severe economic stress. Our ratings should now be more stable, comparable and transparent than before.
For instance, our criteria for rating a security as AAA (our highest designation) include consideration of what could happen to a security if the country faces an economic scenario on par with the Great Depression.
While we believe these and other enhancements will create more forward-looking ratings, it is still true that a credit rating is not intended to be, and must never be used, as the sole determinant of how well an investment meets an investor's needs.
That is why we believe rating mandates should be removed and why other rating firms that have made important changes in response to the financial crisis should also embrace removing rating mandates.
Standard & Poor's traces its origins back 150 years, long before any rating mandate, and would certainly be able to compete in an open market, as it does now overseas. We deploy over 1,300 credit rating analysts to provide investors with ratings that represent a common risk benchmark across industry sectors and geographic regions, as well as over time.
The administration and Congress aim to prevent another financial meltdown by increasing regulatory oversight and transparency for rating agencies, derivatives and mortgage underwriting practices. They also aim to diminish systemic risk. We support these reforms insofar as they create a level playing field that ensures that capital markets return to sustainable growth.
Irrespective of regulatory reforms, our most important audience will remain the marketplace. If our ratings are valuable, people will use them. If not, market participants should not be forced to use them. We should be judged by the quality of our products and the value investors derive from them.
Mr. Sharma is president of Standard & Poor's.
Monday, January 18, 2010
For Haitians, just about every conceivable aid scheme beyond immediate humanitarian relief will lead to more poverty, more corruption and less institutional capacity.
WSJ, Jan 19, 2010
Sunday, January 17, 2010
Japan Today, Jan 17, 2010
TOKYO — Despite last week’s accord between Foreign Minister Katsuya Okada and U.S. Secretary of State Hillary Clinton to further deepen the Japan-U.S. alliance, it is unclear what will actually be achieved in light of a disagreement over a U.S. military air base that has strained bilateral relations.
Both the top Japanese and U.S. diplomats spoke highly of the bilateral alliance, saying it has underpinned security in the Asia-Pacific region for the past 50 years.
They formally agreed to launch talks to further deepen the alliance, with foreign and defense ministers from the two nations holding a meeting in the first half of this year for a midterm review and seeking a final conclusion in November.
Noting that this year marks the 50th anniversary of the current bilateral security arrangements, Clinton said, ‘‘It is an opportunity to mark the progress we have achieved together for our people and for the people of the region and the world.’‘
Okada said he hopes the upcoming talks will result in a new document replacing the 1996 Japan-U.S. security declaration, which expanded the scope of the bilateral alliance from one configured for the Cold War era to one encompassing the entire Asia-Pacific region.
But questions arise on whether the project will proceed as hoped for, in light of the tension spawned by the bickering over where the U.S. Marine Corps’ Futenma Air Station in Okinawa Prefecture should be relocated.
Prime Minister Yukio Hatoyama of the Democratic Party of Japan has delayed the decision on the relocation issue until May, indicating that Tokyo could renege on the previously agreed plan to transfer Futenma’s helicopter functions to another site in Okinawa by 2014.
There is no guarantee, however, that the Tokyo government and the ruling coalition can reach a decision by then because the Social Democratic Party, a minor coalition partner, insists that the air base facility be moved off the southernmost island prefecture entirely.
Hatoyama appears determined to keep the three-way coalition intact, which also includes the People’s New Party, another small party, as the DPJ lacks a majority in the House of Councillors even though it is an overwhelmingly dominant force in the more powerful House of Representatives.
Another reason for doubts is Okinawa’s lingering resentment about what its residents see as an unfair burden in maintaining the Japan-U.S. alliance. Okinawa hosts about half the 47,000 U.S. military personnel in Japan.
While the city of Nago has offered to be home to the facility to Futenma, a mayoral election there on Jan 24 could turn the tide. In the election, an incumbent who accepts the relocation plan under a 2006 bilateral deal will face off with a contender who is opposed to it.
Should the central government decide to go ahead with the Nago plan by the election, it would face difficulties in carrying it out because environmental assessment procedures at the planned transfer site in a coastal area will likely be disturbed by local protests.
‘‘I’m afraid the net result of what the Hatoyama government is doing would be that the Futenma base will remain put permanently,’’ said a Japanese government official who requested anonymity.
Apart from the Futenma dispute, there is another source of doubt about the alliance talks—why it is necessary at this point and in which direction Japan wants to navigate them.
The Hatoyama government has pledged to deal with the United States on a more ‘‘equal’’ basis, while emphasizing closer relations with China.
After the talks with Clinton, Okada was vague about what will be among major elements to be considered to strengthen the alliance. He said security environments in East Asia, including China’s moves, should be scrutinized, but admitted it is difficult to predict how the talks will evolve.
Asked about his own vision for a future alliance with the United States, he said only, ‘‘It may be better for you to pose the question to the prime minister.’’
Saturday, January 16, 2010
A humane decision for temporary refuge in America.
WSJ, Jan 16, 2010
The Obama Administration acted properly, and humanely, late yesterday in extending temporary amnesty to Haitians who were illegally inside the U.S. before this week's catastrophic earthquake. Some 30,000 Haitians had been awaiting deportation but will now be allowed to stay in the U.S. and work for another 18 months.
You might even call this amnesty of a sort, if we can use that politically taboo word. But we hope even the most restrictionist voices on the right and in the labor movement will understand the humanitarian imperative. The suffering and chaos since the earthquake should make it obvious that Haiti is no place to return people whose only crime was coming to America to escape the island's poverty and ill-governance.
For that matter, we don't mind if they stay here permanently. Haitian immigrants as a group are among America's most successful, which demonstrates that Haiti's woes owe more to corruption, disdain for property rights and lack of public safety than to any flaw in its people. Their remittances to Haiti also help to sustain the impoverished population. Haitians received some $1.65 billion from overseas in 2006, according to the Inter-American Development Bank.
We can argue later about whether to make this temporary amnesty permanent, but for now the U.S. decision to let the Haitians stay is evidence of the generosity that Americans typically show in a crisis.
FDA Decision on Chemical BPA Gets Mixed Review: "ACSH scientists are glad a ban was avoided but remain disappointed"
ACSH, January 15, 2010
New York NY -- January 15th, 2010. The American Council on Science and Health applauds today's decision by the Food and Drug Administration (FDA) not to ban the plastic hardener bisphenol-A (BPA). Despite heavy pressure from various activist "environmental" groups, the FDA has not placed any restrictions on the chemical's use in consumer products but rather decided to "support" industry's decisions to reduce exposure to BPA in food-related products aimed at infants and children. FDA is also "facilitating" the development of alternatives to BPA in infant formula cans.
FDA stopped well short of a ban on this common and useful chemical, which has been in safe use in a wide spectrum of consumer products for over 50 years. ACSH scientists are pleased but remain disappointed that the FDA review and recommendations deviated at all from sound science -- by showing concern for hypothetical and non-existent health risks. ACSH's medical director, Dr. Gilbert Ross, said: "BPA has been among the most well-studied substances known to man, and repeated evaluation by respected scientific bodies worldwide has without fail deemed BPA safe as typically used. Our publication on BPA remains quite relevant today: we found that BPA is safe for all ages, including infants and children."
Another key fact is that since BPA became commonplace in the lining of canned goods, foodborne illness from canned foods -- including botulism -- has virtually disappeared. Any possible new replacement could not have the same record of testing and safety as has been shown for BPA.
ACSH's president, Dr. Elizabeth M. Whelan, added, "The fear campaign against BPA promoted by a few activist groups has been based solely on flimsy animal research. Recently, lacking real science to support their alarmist claims, some labs have tried 'novel approaches to test for subtle effects,' as the FDA report states. This is not how human risk assessment should be carried out. If there were any real adverse health effects from exposure to BPA, such effects would have become manifest long ago and would not have required bizarre tests in a few advocate's labs."
ACSH's associate director, Jeff Stier, pointed out: "This finding should put the matter to rest. The current FDA is very cautionary. After taking all this extra time to re-study the issue, the fact that they are keeping BPA on the market speaks volumes about the safety of the product. If BPA were endangering children, they'd have never left it on the market."
See also: ACSH's earlier official statement on The Facts About Bisphenol A.
For media contact, including interviews, please call:
Dr. Elizabeth Whelan (WhelanE[at]ACSH.org): 917-439-8043
Dr. Gilbert Ross (RossG[at]ACSH.org): 516-581-8400
Jeff Stier (StierJ[at]ACSH.org): 646-245-1443
Friday, January 15, 2010
(A Comparison of the Effects of Three GM Corn Varieties on Mammalian Health)
Regarding: MON 863, MON 810 and NK603
Assessment of Quality and Response to Technical Issues
The laboratory findings primarily related to kidney and liver function reflect the large proportion of tests applicable to these organ systems. This is not a defect in the design of the study, but simply the reality of biochemical testing - there are good clinical tests of these systems which are reflected in blood chemistry. The function of other organ systems is assessed primarily via functional assessment, organ weight, and organ pathology rather than through blood or urine biochemical assays.
The authors apply a variety of non-standard statistical approaches. Each unique statistical approach and each comparison performed increases the number of statistically significant findings which will occur by chance alone. Thus, the fact that de Vendomois et al. find more statistically significant findings than reported in the Monsanto analysis is entirely expected. The question, which de Vendomois et al. fail to address, is whether these non-routine statistical tests contribute anything of value to a safety assessment. Do they help to ascertain whether there are biologically and toxicologically significant events? In our opinion (consistent with prior reviews of other publications from Seralini and colleagues) they do not.
The authors undertake a complex “principle component analysis” to demonstrate that kidney and liver function tests vary between male and female rodents. This phenomenon is well-recognized in rodents (and, for that matter, humans) as a matter of gender difference. (This does not indicate any toxic effect, and is not claimed to do so by the authors, but may be confusing to those not familiar with the method and background.)
De Vendomois et al. appear to draw from this a conclusion that there is a gender difference in susceptibility to toxic effects. While such differences are possible, no difference in susceptibility can be demonstrated by gender differences in normal baseline values. Utilizing this alleged difference in gender susceptibility, the authors proceed to identify statistically significant, but biologically meaningless differences (see next bullet) and to evaluate the extent to which these changes occur in males verses females.
De Vendomois et al. fail to consider whether a result is biologically meaningful, based on the magnitude of the difference observed, whether the observation falls outside of the normal range for the species, whether the observation falls outside the range observed in various reference materials, whether there is evidence of a dose-response, and whether there is consistency between sexes and consistency among tested GM materials. These failures are similar to those observed in previous publications by the same group of authors.
While the number of tests that are statistically significant in males verses females would ON AVERAGE be equal in a random distribution, this ratio will fluctuate statistically. The authors have not, in fact, demonstrated any consistent susceptibility between genders, nor have they demonstrated that the deviations from equality in regards to numbers of positive tests fall outside of expectation. For example, if you flip a coin 10 times, on average you will get 50% heads and 50% tails but it is not unusual to get 7 heads and 3 tails on a particular 10 tosses. If you do this over and over and consistently get on average 7 heads and 3 tails then there may be something different about the coin that is causing this unexpected result. However, de Vendomois et al. have not shown any such consistent difference.
While de Vendomois et al. criticize the lack of testing for cytochrome P450, such testing is not routinely a part of any toxicity testing protocol. These enzymes are responsible for (among other things) the metabolism of chemicals from the environment, and respond to a wide variety of external stimuli as a part of their normal function. There is no rational reason to test for levels of cytochromes in this type of testing, as they do not predict pathology. De Vendomois et al. could have identified thousands of different elements, enzymes and proteins that were not measured but this does not indicate a deficiency in the study design since there is no logical basis for testing them.
While de Vendomois et al. criticize the occurrence of missing laboratory values, the vast majority of missing values are accounted for by missing urine specimens (which may or may not be obtainable at necropsy) or by a small number of animals found in a deceased condition (which are not analyzed due to post-mortem changes). Overall, despite the challenges in carrying out such analyses on large numbers of animals, almost 99% of values were reported.
The statistical power analysis done by de Vendomois et al. is invalid, as it is based upon non-relevant degrees of difference and upon separate statistical tests rather than the ANOVA technique used by Monsanto (and generally preferred). The number of animals used is consistent with generally applicable designs for toxicology studies.
Prior publications by Seralini and colleagues in both the pesticide and GM crops arenas have been found wanting in both scientific methodology and credibility by numerous regulatory agencies and independent scientific panels (as detailed below).
In the press release associated with this publication, the authors denounce the various regulatory and scientific bodies which have criticized prior work, and claim, in advance, that these agencies and individuals suffer from incompetency and/or conflict of interest. In effect, the authors claim that their current publication cannot be legitimately criticized by anyone who disagrees with their overall opinions, past or present.
To summarize, as with the prior publication of Seralini et al. (2007), de Vendomois et al. (2009) uses non-traditional and inappropriate statistical methods to reach unsubstantiated conclusions in a reassessment of toxicology data from studies conducted with MON 863, MON 810 and NK603. Not surprisingly, they assert that they have found evidence for safety concerns with these crops but these claims are based on faulty analytical methods and reasoning and do not call into question the safety findings for these products.
Response to de Vendomois et al. 2009:
In the recent publication “A comparison of the effects of three GM corn varieties on mammalian health”, (de Vendomois et al., 2009), the authors claim to have found evidence of hepatorenal toxicity through reanalysis of the data from toxicology studies with three biotechnology-derived corn products (MON 863, MON 810 and NK603).
This theme of hepatorenal toxicity was raised in a previous publication on MON 863 by the same authors (Seralini et al., 2007). Scientists who reviewed the 2007 publication did not support that paper’s conclusions on MON 863 and the review addressed many deficiencies in the statistical reanalysis (Doull et al., 2007; EFSA, 2007a; EFSA, 2007b; Bfr, 2007; AFFSA, 2007, Monod, 2007, FSANZ, 2007). These reviews of the 2007 paper confirmed that the original analysis of the data by various regulatory agencies was correct and that MON 863 grain is safe for consumption based on the weight of evidence that includes a 90-day rat feeding study.
De Vendomois et al., (2009) elected to ignore the aforementioned expert scientific reviews by global authorities and regulatory agencies and again have used non-standard and inappropriate methods to reanalyze toxicology studies with MON 863, MON 810 and NK603. This is despite more than 10 years of safe cultivation and consumption of crops developed through modern biotechnology that have also completed extensive safety assessment and review by worldwide regulatory agencies, in each case reaching a conclusion that these products are safe.
De Vendomois et al. (2009) raise a number of general criticisms of the Monsanto studies that are worthy of mention before commenting on the analytical approach used by de Vendomois et al. and pointing out a number of examples where the application of their approach leads to misinterpretation of the data.
Testing for cytochrome P450 levels is not a part of any standard toxicology study, nor do changes in P450 levels per-se indicate organ pathology, as the normal function of these enzymes is to respond to the environment. Testing of cytochrome P450 levels is not part of any recognized standard for laboratory testing.
De Vendomois et al. note that the “effects” assessed by laboratory analysis were “mostly associated with the kidney and liver”. However, a review of the laboratory tests (annex 1 of paper), ignoring weight parameters, will indicate that measures of liver and kidney function are disproportionately represented among the laboratory tests. Urinary electrolytes are also particularly variable (see below). The apparent predominance of statistical differences in liver and kidney parameters is readily explained by the testing performed.
As noted by the authors, findings are largely within the normal range for parameters even if statistically significant, are inconsistent among GM crops, and are inconsistent between sexes. Despite this, and the lack of associated illness or organ pathology, the authors choose to interpret small random variations typically seen in studies of this type as evidence of potential toxicity.
The authors criticize the number of missing laboratory data, and indicate that the absence of values is not adequately explained. We would note that the bulk of missing values relate to urinalysis. The ability to analyze urine depends upon the availability of sufficient quantities of urine in the bladder at the time of necropsy, and thus urine specimens are often missing in any rodent study. Organ weights and other studies are generally not measured on animals found deceased (due to post-mortem changes the values are not considered valid). Each study consisted of 200 animals, or 800 possible data collections (counting urine, hematology, or organ weights + blood chemistry as one “type” as in the paper).
NK 603- of 600 possible data determinations, 28 values were missing. 20 were due to missing urines and 2 were missing weights and biochemical analysis due to animals found dead (1 GM, 1 reference). Of the remaining 6 values (hematology), only 1 value is from the GM-fed group.
MON 810- Of 600 possible determinations, 24 values were missing. 18 were due to missing urines and 1 value was missing (weight and biochemical analysis) due to an animal found dead (reference group). Of the remaining 5 values (hematology), 2 are from the GM-fed group and 3 from various reference groups.
MON 863- Of 600 possible determinations, 25 values were missing. 13 were due to missing urines. 9 hematology analyses (3 GMO-fed) and 3 organ weight/biochemical analyses due to deaths (1 GMO) were reported as missing (not deceased).
These are large and complex studies. Ignoring urines and the small number of animals found deceased (which occurs in any large study), 20 data sets (17 hematology, 3 organ weights/chemistry) are missing from a possible 1800 sets, i.e.- almost 99% of data were present, despite the technical difficulties inherent in handling large numbers of animals.
- The “findings” in this study are stated to be due to “either the recognized mutagenic effects of the GM transformation process or to the presence of… novel pesticides.” We would note that there is no evidence for “mutagenic effect” other than stable gene insertion in the tested products. We would also note that while the glyphosate tolerant crop (NK603) may indeed have glyphosate residues present, this is not a “novel” pesticide residue. The toxicity of glyphosate has been extensively evaluated, and the “effects” with NK603 cannot be explained on this basis. Similarly, other available data regarding the Bt insecticidal proteins in MON 810 and MON 863 do not support the occurrence of toxic effects due to these agents.
Statistical Analysis Approach:
De Vendomois et al., (2009) used a flawed basis for risk assessment, focusing only on statistical manipulation of data (sometimes using questionable methods) and ignoring consideration of other relevant biological information. By focusing only on statistical manipulations, the authors found more statistically significant differences for the data than was previously reported and claimed that this is new evidence for adverse effects. As is well documented in toxicology textbooks (e.g., Casarett and Doull, Toxicology, The Basic Science of Poisons, Klaassen Ed., The McGraw-Hill Companies, 2008, Chapter 2) and other resources mentioned below, interpretation of study findings involves more than statistical manipulations, one has to consider data in the context of the biology of the animal. This subject was addressed by a peer review panel of internationally recognized toxicologists and statisticians who reviewed the Seralini et al., (2007) publication. They state in Doull et al. (2007)
“The Panel concludes that the Seralini et al. (2007) reanalysis provided no evidence to indicate that MON 863 was associated with any adverse effects in the 90-day rat study (Covance, 2002; Hammond et al., 2006). In each case the statistical findings reported by both Monsanto (Covance, 2002; Hammond et al., 2006) or Seralini et al. (2007) were considered to be unrelated to treatment or of no biological or clinical importance because they failed to demonstrate a dose–response relationship, reproducibility over time, association with other relevant changes (e.g., histopathology), occurrence in both sexes, difference outside the normal range of variation, or biological plausibility with respect to cause-and-effect”
There are numerous ways to analyze biological data and a multitude of statistical tools. To provide consistency in the way that toxicology data are analyzed, regulatory agencies have provided guidance regarding the statistical methods to be used. The aforementioned peer review panel stated:
“The selection of the types of statistical methods to be performed is totally dependent upon the design of the toxicology study, and on the questions expected to be answered, as discussed in the US FDA Redbook (FDA, 2000). Hypothesis testing statistical analyses as described by WHO (1987), Gad (2001), and OECD (2002b) include those tests that have been traditionally conducted on data generated from rodent 90-day and chronic toxicity studies. These are also the procedures that have been widely accepted by regulatory agencies that review the results of subchronic and/or chronic toxicity tests as part of the product approval process. There are many other statistical tests available such as 2k factorial analysis when k factors are evaluated, each at two levels, specific dose–response contrasts, and generalized linear modeling methods, but these methods typically have not been used to evaluate data from toxicology studies intended for regulatory submissions”
Commenting on the statistical analysis used originally to analyze the toxicology data for MON 863 conducted at Covance labs, the expert panel also stated:
“All of these statistical procedures are in accordance with the principles for the assessment of food additives set forth by the WHO (1987). Moreover, these tests represent those that are used commonly by contract research organisations throughout the world and have generally been accepted by FDA, EFSA, Health Canada, Food Standards Australia New Zealand (FSANZ), and the Japanese Ministry of Health and Welfare. In fact, EFSA (2004) in their evaluation of the Covance (2002) study noted that it ‘‘was statistically well designed’’.”
de Vendomois et al., (2009) selected non-traditional statistical tests to assess the data and failed to consider the entire data set in order to draw biologically meaningful conclusions. Their limited approach generated differences that, while being statistically significant, are insufficient to draw conclusions without considering the broader dataset to determine whether the findings are biologically meaningful. In Doull et al., (2007) the expert panel clearly stated:
“In the conduct of toxicity studies, the general question to be answered is whether or not administration of the test substance causes biologically important effects (i.e., those effects relevant to human health risk assessment). While statistics provide a tool by which to compare treated groups to controls; the assessment of the biological importance of any ‘‘statistically significant’’ effect requires a broader evaluation of the data, and, as described by Wilson et al. (2001), includes:
- Dose-related trends
- Relationship to other findings
- Magnitude of the differences
- Occurrence in both sexes.”
Doull et al., (2007) raised questions regarding the appropriateness of some of the statistical analyses described in Seralini et al., (2007):
“The statistical analyses of the serum biochemistry, haematological, and clinical chemistry data conducted by Seralini et al. (2007) and by Monsanto were similar in concept as both used testing for homogeneity of variance and various pair-wise contrasts. The principle difference was that Seralini et al. (2007) did not use an ANOVA approach. The use of t-tests in the absence of multiple comparison methods may have had the effect of increasing the number of statistically significant results (emphasis added). The principle difference between the Monsanto and Seralini et al. (2007) analyses was in the evaluation of the body weight data. Monsanto used ‘traditional’ ANOVA and parametric analyses while Seralini et al. (2007) used the Gompertz model to estimate body weight as a function of time. The Gompertz model assumes equal variance between weeks, an assumption unlikely to hold with increasing body weights. While not inappropriate, as previously stated the Gompertz model does have limitation with respect to the interpretation of the results since it was not clear from the published paper whether Seralini et al. (2007) accounted for the changing variance and the correlated nature of the body weight data over time (emphasis added).”
Based on the expert panel conclusions in Doull et al., (2007); the statistical analysis used by, and the conclusions reached in, the de Vendomois et al. (2009) publication need to be carefully assessed. The authors use of inappropriate statistical methods in the examples below illustrate how inadequate analyses underpin the false and misleading claims found in de Vendomois et al., (2009).
Inappropriate use of False Discovery Rate method. De Vendomois et al., (2009) conducted t-test comparisons among the test and control and then applied the False Discovery Rate (FDR) method to adjust the p-values and hence the number of false positives. The FDR method is similar to many of the multiple comparison procedures that are available for controlling the family-wise error rate. Monsanto did not use any procedures for controlling the percentage of false positives for two reasons: (1) preplanned comparisons were defined that were pertinent to the experimental design and purpose of the analysis, i.e., it was not necessary to do all pairwise comparisons among the test, control, and reference substances and; (2) to maintain transparency and to further investigate all statistically significant differences using the additional considerations (Wilson et al, 2001) detailed above.
Inappropriate power assessment method. De Vendomois et al., (2009) claim that the Monsanto study had low power and support their claim with an inappropriate power assessment that is based on a simple t-test comparison of the test and control using an arbitrary numerical difference. This type of power assessment is incorrect because Monsanto used a one-way ANOVA, not a simple t-test. The appropriate power assessment should be relative to the ANOVA and not a simple t-test. In addition, an appropriate power assessment should be done relative to the numerical difference that constitutes a biologically meaningful difference.
Other non-traditional statistical methods. De Vendomois et al., (2009) also claim that Monsanto did not apply the described statistical methods and simply used a one-way ANOVA and contrasts. This is a false statement since Monsanto used Levine’s test to check for homogeneity of variances and if the variances were different the one-way ANOVA was conducted on the ranks rather than the original observations, i.e., Kruskal-Wallis test.
Specific examples of flawed analysis and conclusions.
De Vendomois et al., (2009) have compared the results across toxicology feeding studies with three different biotech crops using some of the same statistical tests that were used in the previous publication (Seralini et al, 2007). Each of these biotech crops (MON 863, MON 810, NK603) are the result of unique molecular transformations and express different proteins. De Vendomois et al., (2009) claims that all three studies provide evidence of hepatorenal toxicity by their analysis of clinical pathology data only. One might anticipate, if these claims were true, that similar changes in clinical parameters could be observed across the three studies and that the changes observed would be diagnostic for kidney and liver toxicity and would be accompanied by cytopathological indications of kidney or liver disease. However, as shown in Tables 1 and 2 in Vendomois et al., (2009), the statistically significant “findings” in clinical parameters are different across studies, suggesting that these are more likely due to random variation (type one errors) rather than due to biologically meaningful effects. Moreover, as indicated below, there is no evidence of any liver and kidney toxicity in these studies, particularly in relation to other data included in the original study reports that is not mentioned in Vendomois et al., (2009).
NK603 - Kidney
For the NK603 study (Table 1), de Vendomois et al., (2009) listed data from some of the measured urinary electrolytes, urinary creatinine, blood urea nitrogen and creatinine, phosphorous and potassium as evidence of renal toxicity. It has been pointed out that urinalysis may be important if one is testing nephrotoxins (Hayes, 2008), particularly those that produce injury to the kidney. However, it has also been noted that “Urinalysis is frequently of limited value because the collection of satisfactory urine samples is fraught with technical difficulties” (Hayes, 2008). There was a lot of variability for some of the urinary electrolytes as indicated by the high standard deviations that may be attributed to the technical difficulties in collecting satisfactory urine samples.
Examining the original kidney data for NK603, the urine phosphorous values are generally comparable for 11% and 33% NK603 males and the 33% reference groups, while the 33% controls are generally lower than all groups. For females, 33% control females also had slightly lower phosphorous values, but they were not statistically different from 33% NK603 females, unlike males where the 33% NK603 male value was statistically different (higher) than 33% controls. When the blood phosphorous values were compared, there was a slight, but statistically significant reduction in 33% NK603 males compared to controls (but not references) at week 5, and there were no statistically significant differences in NK603 male and female blood phosphorous levels when compared to controls at the end of the 14 week study.
There were no statistically significant differences in urine sodium in males at weeks 5 and 14 in the original analysis (in contrast to the reanalysis reported by de Vendomois et al., 2009). As with phosphorous, there was considerable variability in urine sodium across all groups. The same results were observed for females. In addition, blood sodium levels for 11 and 33% NK 603 males and females were not different from controls. It is apparent when reviewing the data in the table below that the measured urinary electrolytes for the NK603 groups were similar to the values for reference, conventional (e.g., non-GM) corn groups.
Looking at the other parameters listed in Table 1 (de Vendomois et al., 2009), while there was a slight increase in urine creatinine clearance in 33% NK603 males at the interim bleed at week 5 compared to the controls and reference population, this was not apparent at the end of the study when the rats had been exposed longer to the test diets. There was no difference in urine creatinine levels in males. Blood creatinine levels were slightly, but statistically significantly lower in high dose males compared to controls at week 5. Increases in creatinine, not reductions are associated with renal toxicity. The same response was observed for serum urea nitrogen, a slight reduction at week 5 and no differences at in male blood creatinine or urea nitrogen at the end of the study. BUN, like creatinine, is not a very sensitive indicator of renal injury” (Hayes, 2008). Thus the small differences in BUN and serum and urine creatinine are not suggestive of kidney injury.
There was no evidence of changes in other urinary parameters such as pH, specific gravity, protein, sodium, calcium, chloride, volume and kidney weights. The most important factor relating to the kidney that de Vendomois et al., (2009) did not consider was the normal microscopic appearance of the kidneys of rats fed NK603 grain. There was no evidence of treatment-related renal pathologic changes that the authors ignored in their risk assessment, a critical biological factor that an objective, scientific assessment would have considered.
MON 810 - Kidney
If Table 2 in de Vendomois et al., (2009) is examined, none of the aforementioned “findings” listed in Table 1 for NK603 are consistent except for blood urea nitrogen. Kidney weight data was listed, but this was not included in Table 1 for NK603. If the hypothesis of renal toxicity is correct, it is scientifically reasonable to have expected to observe at least some of the same “findings” between studies. The fact that there were no common findings supports the original conclusions reached by the investigative laboratory (and supported by regulatory agency review of these studies) that there is no evidence of kidney toxicity in rats fed either MON 810 or NK603 grain. Indeed, the data alleged by de Vendomois et al., (2009) to be indicative of kidney findings are more attributable to random variation that is commonly observed in rodent toxicology studies, which is well discussed in publications such as Doull, et al., (2007).
In Table 2, de Vendomois et al., (2009) highlights absolute kidney weights for males as being suggestive of kidney toxicity. The scientific basis for this assertion is unclear because there is no differences in male or female kidney weights (absolute, relative to body weight or brain weight) as shown in the table below:
De Vendomois et al., (2009) also lists blood urea nitrogen as indicative of kidney toxicity, yet there were no statistically significant differences in either MON 810 males or females when compared to controls (Hammond et al., 2006). In the absence of any other changes in urine or blood chemistry parameters that could be suggestive of kidney toxicity, and in consideration of the normal histologic appearance of kidneys of rats fed MON 810 grain, there is no scientific data to support the assertion of kidney toxicity in MON 810 fed rats.
NK603/MON 810 liver
Although de Vendomois et al., (2009) lists “findings” in Table 1 and 2 as being indicative of liver toxicity, analysis of these “findings” does not support this conclusion. There are no common “findings” in the liver between both studies. For NK603 de Vendomois et al., (2009) listed liver weights and serum alkaline phosphatase; for MON 810, serum albumin and albumin/globulin ratio. For NK603, the original analysis did not demonstrate statistical differences in absolute or, relative (to body or brain) liver weights for NK603 males and females compared to controls. Therefore, the statistical differences cited by de Vendomois et al., (2009) must be owing to the non-traditional statistical methods being used for their reanalysis of liver weight data. In regard to serum alkaline phosphatase, there were no differences for NK603 males or females when compared to controls; again de Vendomois et al., (2009) report statistical differences, but examination of the original data shows that the values for NK603 males and females are similar to controls and well within the range of values for the reference controls. There were no other associated changes in other liver enzymes, bilirubin, or protein that would be changes associated with liver toxicity. Lastly, but most importantly, the microscopic appearance of NK603 male and female livers was within normal limits for rats of that age and strain; therefore there was no evidence of liver toxicity. Similarly for rats fed MON 810, the only findings de Vendomois et al., (2009) list to support a conclusion of liver toxicity was albumin and albumin/globulin ratios. Contrary to the analysis in Table 2 of de Vendomois et al., (2009), there were no statistically significant differences in male or female serum albumin levels based on the original analysis. There were similarly no statistically significant differences in albumin/globulin with the exception of a slight decrease for 11% MON810 females when compared to controls at week 5. There were no differences observed at week 14 when the rats had been on test diets longer, nor were the differences dose related as they were not apparent in 33% MON 810 females relative to controls. The numerical values for serum albumin and albumin/globulin for MON 810 males and females were also similar to values for the reference groups. Consistent with NK603 rats, there were no other changes in serum liver enzymes, protein, bilirubin, etc., that might be associated with liver toxicity. The liver weights also appeared within normal limits for rats of the same strain and age used, again, consistent with a conclusion of no evidence of liver toxicity. In summary, no experimental evidence supports the conclusion for liver toxicity in rats fed NK603 and MON 810 grain as claimed by de Vendomois et al., (2009).
De Vendomois et al., (2009) has also presented some kinetic plots showing time-related variations for selected clinical parameters chosen for discussion. For 11% (low dose) control fed females, this publication reports that there is a trend for decreasing triglyceride levels over time (week 5 compared to week 14) whereas for 11% MON 863 fed rats, levels increase slightly during the same time period. It is unclear why this publication used these complicated figures to assess these data sets since the same time course information can be obtained by simply comparing the mean data for the group at the two time points. Using this simpler method to assess the data, low dose control triglycerides dropped from a mean of 56.7 at week 5 to 40.9 at week 14. Low dose MON 863 female triglycerides increased slightly from 50.2 to 50.9. What de Vendomois et al., (2009) fails to mention is that high dose control female triglyceride levels increased from 39.3 at week 5 to 43.9 at week 14 and high dose MON 863 triglyceride levels decreased from 54.9 to 46.7. These trends are opposite from what occurred at the low dose, and the low dose trends are, therefore, not dose related. For the female reference groups, triglycerides went either up or down a bit between weeks 5 to 14, illustrating that these minor fluctuations occur naturally. Since most of the other figures reported were for the low dose groups, the trend for the high dose was sometimes opposite to that observed at the low dose. In summary, none of this analysis changes the conclusion of the study that there were no treatment-related adverse effects in rats fed MON 863 grain.
To summarize, as with the prior publication of Seralini et al, (2007), de Vendomois et al., (2009) uses non-traditional statistical methods to reassess toxicology data from studies conducted with MON 863, MON 810 and NK603 to reach an unsubstantiated conclusion that they have found evidence for safety concerns with these crops. As stated by the expert panel that reviewed the Seralini et al 2007 paper (Doull et al., 2007) “In the conduct of toxicity studies, the general question to be answered is whether or not administration of the test substance causes biologically important effects (i.e., those effects relevant to human health risk assessment). While statistics provide a tool by which to compare treated groups to controls; the assessment of the biological importance of any ‘‘statistically significant’’ effect requires a broader evaluation of the data, and, as described by Wilson et al. (2001), includes:
- Dose-related trends
- Relationship to other findings
- Magnitude of the differences
- Occurrence in both sexes.
A review of the original data for clinical parameters, organ weights and organ histology also found no evidence of any changes suggestive of hepato/renal toxicity as alleged in the de Vendomois et al., (2009) publication. This same publication also made false allegations regarding how Monsanto carried out their statistical analysis which has been addressed above.
Although there are many other points that could be made in regards to de Vendomois et al., (2009), given the fact that these authors continue to use the same flawed techniques despite input from other experts, it is not worthwhile to exhaustively document all of the problems with their safety assessment. Most importantly, regulatory agencies that have reviewed the safety data for MON 863, MON 810 and NK603 (including data from the 90 day rat toxicology studies reassessed by de Vendomois et al., 2009) have, in all instances, reached a conclusion that these three products are safe for human and animal consumption and safe for the environment. Peer reviewed publications on 90 day rat feeding studies with NK603, MON 810 and MON 863 grain have also concluded that there are no safety concerns identified for these three biotechnology-derived crops.
Over the last five years, Seralini and associated investigators have published a series of papers first regarding glyphosate and later regarding Genetically Modified Organisms (GMOs, specifically MON 863). Reviews by government agencies and independent scientists have raised questions regarding the methodology and credibility of this work. The paper by de Vendomois et al. (December 2009) is the most recent publication by this group, and continues to raise the same questions regarding quality and credibility associated with the prior publications.
Seralini and his associates have suggested that glyphosate (the herbicide commonly referred to as “Roundup”™, widely used on GM crops (Roundup Ready™ and others) is responsible for a variety of human health effects. These allegations were not considered to be valid human health concerns according to several regulatory and technical reviews. Claims of mammalian endocrine disruption by glyphosate in Richards at al. (2005) were evaluated by the Commission d”Etude de la Toxicité (French Toxicology Commission), which identified major methodological gaps and multiple instances of bias in arguments and data interpretation. The conclusion of the French Toxicology Commission was that this 2005 publication from Seralini’s laboratory served no value for the human health risk assessment of glyphosate. A subsequent paper from Seralini’s laboratory, Benachour et al. (2009), which was released via the internet in 2008, was reviewed by the Agence Française de Sécurité Sanitaire des Aliments (AFSSA, the French Agency for Food Safety). This review also pooled Richard et al (2005) and Benachour et al (2007) from Seralini’s laboratory under the same umbrella of in vitro study designs on glyphosate and glyphosate based formulations. Again, the regulatory review detailed methodological flaws and questionable data interpretation by the Seralini group. The AFSSA final remarks of their review were “the French Agency for Food Safety judges that the cytotoxic effects of glyphosate, its metabolite AMPA, the tensioactive POAE and other glyphosate-based preparations put forward in this publication do not bring out any pertinent new facts of a nature to call into question the conclusions of the European assessment of glyphosate or those of the national assessment of the preparations”. In August 2009, Health Canada’s Pest Management Regulatory Authority (PMRA) published a response to a “Request for a Special Review of Glyphosate Herbicides Containing Polyethoxylated Tallowamine”. The requester submitted 12 documents, which included the same claims made in the Benachour et al. (2009) publication. The PMRA response to this request concluded “PMRA has determined that the information submitted does not meet the requirements to invoke a special review,” clearly indicating no human health concerns were raised in the review of those 12 documents in support of the request.
Regarding GMOs, Seralini et al. (2007) previously published a re-analysis of Monsanto’s 90-day rat safety studies of MON863 corn. Scientists and regulatory agencies who reviewed the 2007 publication did not support that paper’s conclusions on MON 863 and the review addressed many deficiencies in the statistical reanalysis (Doull et al., 2007; EFSA, 2007a; EFSA, 2007b; Bfr, 2007; AFFSA, 2007; Monod, 2007; FSANZ, 2007). These reviews of the 2007 paper confirmed that the original analysis of the data by various regulatory agencies was correct and that MON 863 grain is safe for consumption.
Using the MON 863 analysis as an example, Seralini et al. (2009) recently published a “review” article in the International Journal of Biological Sciences, claiming that improper interpretation of scientific data allowed sub-chronic and chronic health effects to be ignored in scientific studies of GMOs, pesticides, and other chemicals. This paper applies a complex analysis (principle component analysis) to demonstrate a difference in liver and kidney function between male and female rats. Despite the fact that these gender differences are well known and are demonstrated in control and GMO-fed animals, Seralini and his colleagues conclude that these normal findings demonstrate some type of sex-specific susceptibility to toxic effects. Based upon this reasoning, they proceed to over-interpret a variety of minor statistical findings in the MON 863 study. These very same conclusions were roundly criticized in 2007. In fact, the authors of this study admit that their observations “do not allow a clear statement of toxicological effects.”
De Vendomois et al., (2009) elected to ignore the aforementioned expert scientific reviews by global authorities and regulatory agencies and again have used non-standard and inappropriate methods to reanalyze toxicology studies with MON 863, MON 810 and NK603. This is despite more than 10 years of safe cultivation and consumption of crops developed through modern biotechnology that have also completed extensive safety assessment and review by worldwide regulatory agencies, in each case reaching a conclusion that these products are safe.
Although some Seralini group publications acknowledge some funding sources, there are no acknowledgements of funding bias and conflict of interest. Financial support for Seralini’s research includes the Committee for Research and Independent Information on Genetic Engineering (CRIIGEN) and the Human Earth Foundation. Seralini has been the Chairman of the Scientific Council for CRIIGEN since 1999. Seralini and this organization are known for their anti-biotechnology positions (http://www.crii-gen.org/). Both CRIIGEN and the Human Earth Foundation promote organic agriculture and alternatives to pesticides. It is interesting that over the last five years Seralini’s group has published at least seven papers, four of which specifically target Monsanto’s glyphosate-based formulations as detrimental to human health, and the remaining papers allege that Monsanto’s biotechnology or GMO crops have human health implications. In addition, Seralini has a history of anti-Monsanto media releases and statements, including those on YouTube, reflecting not only Seralini’s anti-Monsanto sentiment, but a lack of scientific objectivity.
See: (http://www.youtube.com/watch?v=HkRFGtyabSA; and http://www.youtube.com/watch?v=k_gF6gpSVdY).
Finally, it is worth noting the press release from CRIIGEN, issued at the time of release of the de Vendomois et al. publication:
“CRIIGEN denounces in particular the past opinions of EFSA, AFSSA and CGB, committees of European and French Food Safety Authorities, and others who spoke on the lack of risks on the tests which were conducted just for 90 days on rats to assess the safety of these three GM varieties of maize. While criticizing their failure to examine the detailed statistics, CRIIGEN also emphasizes the conflict of interest and incompetence of these committees to counter expertise this publication as they have already voted positively on the same tests ignoring the side effects.”
This rather remarkable approach clearly indicates how far the authors of this publication have drifted from appropriate scientific discourse regarding GMO safety data. While they would reject criticisms of their methods and arguments by regulatory authorities and other eminent toxicology experts, most persons seeking an objective analysis will welcome broad expert input and a full assessment of the weight of evidence on the subject.
AFFSA, 2007. de l’Agence franc¸aise de se´curite´ sanitaire des aliments relatif a` la re´cente e´tude publie´e1 sur le maı¨s ge´ne´tiquement modifie´ MON 863. Agence Franc¸aise de Se´curite´ Sanitaire Des Aliments. La Directice Ge´ne´rale. AFFSA Dossier No. 2007-SA-0109, 26 April 2007.
Benachour. N. and Séralini, E. Glyphosate Formulations Induce Apoptosis and Necrosis in Human Umbilical, Embryonic, and Placental Cells, Chem. Res. Toxicol. 2009, 22, 97–105
Benachour, N., Sipahutar, H., Moslemi, S., Gasnier, C., Travert, C., and Séralini, G.E. (2007) Time and dose-dependent effects of roundup on human embryonic and placental cells and aromatase inhibition. Arch. EnViron. Contam. Toxicol. 53, 126-133
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Richard, S., Moslemi, S., Sipahutar, H., Benachour, N. and Séralini, G.E. (2005) Differential effects of glyphosate and roundup on human placental cells and aromatase. Environ. Health Perspect. 113, 716-720.
Seralini, G-E. de Vendomois JS, Cellier D, Sultan C, Buiatti M, Gallagher L, Antoniou M, Dronamraju KR. How subchronic and chronic health effects can be neglected fot GMO’s Pesticides, or Chemicals. Int J Biol Schi. 5:438-443 (2009)
Seralini, G.-E., Cellier, D., de Vendomois, J.P., 2007. New analysis of a rat feeding study with a genetically modified maize reveals signs of hepatorenal toxicity. Arch. Environ. Contam. Toxicol. 52, 596–602.
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