Financial Reform: Mortgage Fraud Continues to Boom

Who paid $300,000 for this "structure".

Special report: Flipping, flopping and booming mortgage fraud

(Reuters) – The house on the 53rd block of South Wood Street in Chicago’s Back of the Yards doesn’t look like a $355,000 home. There is no front door and most of the windows are boarded up.

Public records show it sold in foreclosure for $25,500 in January 2009, then resold for $355,000 in October. In between, a $110,000 mortgage was taken out on the home, supposedly for renovations. This June, the property went back into foreclosure.

To Emilio Carrasquillo, head of the local office of non-profit lender Neighborhood Housing Services of Chicago (NHS), the numbers don’t add up. He believes this is a case of mortgage fraud.

It may not make the blood boil like murder or rape, but mortgage fraud is a crime that cost an estimated $14 billion in 2009 and could be hampering an already fragile recovery in the housing market. The FBI has been fighting back, assembling its largest ever team to fight it. They have their work cut out for them, though, as a tsunami of foreclosures is making classic scams easier and spawning new ones to boot.

“There’s no way any property in this neighborhood should sell for that kind of money,” said Carrasquillo, standing outside the house on Wood Street in this poor, predominantly black area of Chicago’s South Side. “Even if it was in great condition.”

Carrasquillo has identified a number of properties in Back of the Yards that sold for between $5,000 and $30,000 last year and then came back on the market for up to $385,000. He said property prices are being artificially inflated, allowing fraudsters to walk away with vast profits and making it harder for honest local people to buy a home.

Mortgage fraud takes many forms, but a well-organized scam frequently involves a limited liability company (LLC) or a “straw buyer.” In

Who paid $355,000 for this structure?

 this scheme, fraudsters use a fake identity or that of someone else who allows them to use their credit status in return for a fee. The seller pockets the money the buyer borrows from a lender to pay for the home. The buyer never makes a mortgage payment and the property goes into foreclosure.

In other words, the money simply disappears, leaving the lender with a large loss. Since the U.S. government is now backing much of the mortgage market in the absence of private investors, that means “taxpayers are ultimately on the hook for fraud,” said Ann Fulmer, vice president of business relations at fraud-prevention company Interthinx.

Back of the Yards was hit by fraud during the housing boom and Carrasquillo says the glut of foreclosures is now making it easier for scammers to pick up properties for a song and flip them for phenomenal profits.

Drug dealers and gang members have taken over abandoned houses, many adorned with spray-painted gang signs. Prior to touring the area, Carrasquillo attached two magnetic signs touting the NHS logos on his minivan’s doors to show he is not a police officer. He said he also prefers touring in the morning, as drug dealers and “gangbangers” tend not to be early risers.

“These properties are just going to sit there, boarded up, broken into and a magnet for crime,” he said. “And that makes our job of trying to stabilize this neighborhood so much harder.”

CRACKDOWN NETS MORE REPORTS OF FRAUD

The U.S. Federal Bureau of Investigation said in a report released on June 17 that suspicious activity reports (SARs) related to mortgage fraud rose 5 percent in 2009 to around 67,200, up from 63,700 the year before. The number had tripled from 22,000 in 2005 and the number of SARs for the first three months of 2010 hit nearly 38,000.

“We don’t see the number declining while foreclosures remain so high,” said Sharon Ormsby, section chief of the FBI’s financial crimes section.

Robb Adkins, executive director of the Financial Fraud Enforcement Task Force, is known as U.S. President Barack Obama’s financial fraud czar. He describes mortgage fraud as “pervasive” and fears it is exacerbating the nation’s real estate woes. “That, in turn, could act as an anchor on the economic recovery,” he said.

For the housing market to recover, potential homeowners need confidence in home prices and investors need confidence to get back into the secondary mortgage market, Adkins explained.

Since the subprime meltdown, a wide variety of scams have come to the fore. They include big cases like that of Lee Farkas, the former head of now bankrupt mortgage lender Taylor, Bean & Whitaker Mortgage Corp, charged in June with fraud that led to billions of dollars of losses. The scheme involved the misappropriation of funds from multiple sources, including a lending facility that had received funding from Deutsche Bank and BNP Paribas.

That appears to be the scam of choice. On July 22, for instance, seven defendants were indicted in Chicago in a $35 million mortgage fraud scheme involving 120 properties from 2004 to 2008 using straw buyers. Of the half dozen properties listed in the indictment, two were in Back of the Yards.

In the mid-2000s, the availability of easy money, poor due diligence by lenders and low- or no-documentation loans, acted as a magnet for fraudsters, who used identity theft and other scams to bag large sums of cash.

“During the boom it was almost like people in the real estate market could do no wrong,” said Ohio Attorney General Richard Cordray. “As ever more money rushed in, it attracted a lot of people who engaged in shady behavior.”

Instead of leaving them without a market, the crash has instead provided fraudsters with a glut of foreclosures, stricken borrowers and desperate lenders to take advantage of.

“There were plenty of opportunities for fraud on the way up and there are plenty on the way down,” said Clifford Rossi, a former chief credit officer at Citigroup and now a teaching fellow at the University of Maryland in College Park.

Alongside familiar scams like property flipping, the crash has added new terms to the lexicon: short sale fraud, builder bailouts and flopping. Rescue scams targeting struggling homeowners with false promises of help are also on the rise.

If some of the mechanisms are new, a lot of the fraudsters are not: in many cases, they turn out to be mortgage brokers, appraisers, real estate agents or loan officers. “Because they’re insiders, they see exactly what’s happening and they’re able to stay one step ahead of the game,” said Todd Lackner, a fraud investigator in San Diego. “They’re the same people who were committing fraud during the boom and they were never caught or prosecuted.”

BACK TO THE YARDS

Just a stone’s throw from downtown Chicago, Back of the Yards is the setting for Upton Sinclair’s classic 1906 novel “The Jungle,” a tale of grueling hardship and worker exploitation at the city’s stockyards. The book includes an act of mortgage fraud against an unsuspecting Lithuanian family.

“Mortgage fraud is nothing new,” said Christopher Wagner, co-managing attorney of the Ohio Attorney General’s Cincinnati office. “It’s been around for a long time.”

Saul Alinsky, considered the founder of modern community organizing, started out in Back of the Yards in the 1930s. Decades later, a young community organizer named Obama got his start near here.

The neighborhood has always been poor, but south of the old railway tracks at W 49th St, the housing crisis’ legacy of empty lots and boarded-up homes is evident on every block. There are few stores and services available — in four separate visits for this story, no police vehicles were sighted.

“This is what we refer to as a ‘resource desert,'” Carrasquillo said. “When no one pays attention to an area like this, it makes it easier to get away with fraud.”

Marni Scott, executive vice president for credit at Troy, Michigan-based lender Flagstar Bancorp, says there are virtually no untainted sales in the area. “There are no cases of Mr and Mr Jones selling to Mr and Mrs Smith.”

“We see cases of mortgage fraud around the country,” she added. “But there’s nothing out there that could match the mass-production, assembly-line fraud that’s going on here.”

In 2008 Flagstar instituted a rule whereby any loan applications here and in parts of Atlanta — another fraud hot spot — must be approved by Scott and the lender’s chief appraiser. In a Webex presentation, Scott rattles through a number of properties snapped up for pennies on the dollar in 2009 and then sold for around $360,000.

She provides an underwriter’s-eye-view of one property, on the 51st block of South Marshfield Avenue, sold in foreclosure in July 2009 for $33,000. In January of this year Flagstar received a loan application to buy the house for $355,000.

The property appraisal — compiled by an appraiser who Scott believes never visited the area — showed four nearby comparable properties of around the same age (100 plus years) sold recently for around $360,000. The trick to this kind of scheme is engineering the sale of the first few fraudulently overvalued properties to get “comps” — comparable values — to fool appraisers and underwriters alike.

“Miraculously, all of these properties were all within a very narrow price range,” Scott said with weary sarcasm. “This is a perfect appraisal for an underwriter. If you are an underwriter sitting in Kansas or California it all looks fairly straightforward so you can just hit the button and approve it.”

Using a $5 product called LoanIQ from U.S. title insurer First American Financial Corp called LoanIQ, Flagstar determined the application itself was fraudulent and there was a foreclosure rate in the area of nearly 60 percent. What is more, property prices here spiked 84 percent last year after 44 percent and 26 percent declines in 2008 and 2007.  [How mant times have you heard the MSM report that “Housing prices recovered 1% last month”]

“No neighborhood should look like this,” said Scott, who declined the application.

Last April, however, another lender approved a loan application for $335,000 on the same property from the same people.

FORECLOSURE MAGNET

Reports this year from Interthinx, CoreLogic Inc and the Mortgage Asset Research Institute (MARI) — which all provide fraud prevention tools for lenders — show foreclosure hotspots Florida, California, Arizona and Nevada are also big mortgage fraud markets.

MARI said in its April report that reported mortgage fraud and misrepresentation rose 7 percent in 2009, adding fraud “continues to be a pervasive issue, growing and escalating in complexity.”

Denise James, director of real estate solutions at LexisNexis Risk Solutions and one of the author’s reports, said reported fraud will continue to rise throughout 2010.

In its first-quarter report, Interthinx said its Mortgage Fraud Risk Index rose 4 percent to 151, the first time it had passed 150 since 2004. A figure of 100 on the index would indicate virtually no risk of fraud.

Congressman Barney Frank

According to various estimates, the 30310 ZIP code in Atlanta is one of the worst in the country. An analysis of that ZIP prepared for Reuters by Interthinx showed a fraud index of 414, making it the eighth worst ZIP code in the country. Back of the Yards — ZIP code 60609 — had an index of 309.

“In some neighborhoods in Atlanta there hasn’t been a clean transaction in 10 years,” Interthinx’s Fulmer said.

In 2005 local residents here formed the 30310 Fraud Task Force. Members sniff out potential signs of fraud — such as repeated property flipped — and report them directly to the FBI and local authorities. Information from the task force led to the arrest of a 12-member mortgage fraud ring on September 15, 2008 — better known in the annals of the financial crisis as the day Lehman Brothers filed for Chapter 11 bankruptcy protection.

Brent Brewer, a civil engineer and task force member, said the arrests had a noticeable impact on fraud in the area. “It made a statement that if you come here to commit fraud there’s a good chance you’ll get caught,” he said.

But Brewer harbors no illusions the fraudsters are gone. “There’s no way they can catch everyone who’s involved in fraud. But if you’re dumb, greedy or desperate, you’re going to get caught.”

FBI GETTING INTERESTED

Law enforcement has come a long way in combating mortgage fraud, though officials freely admit that’s not saying much.

Senator Chris Dodd

Ben Wagner, U.S. attorney for the eastern district of California, said as mortgages are regulated at the state and local level, for years there was little federal interference. Prior to the recent boom, he said, fraud simply “was not identified as a huge problem.”

“There has been a little bit of a learning curve,” Wagner said. “This was not something federal prosecutors had much familiarity with. Now we’re getting pretty good at it.”

Half of Wagner’s 50 or so criminal prosecutors focus on white-collar crime including fraud. Two new prosecutors will be dedicated solely to mortgage fraud.

Now mortgage fraud is a known quantity, Wagner said all U.S. prosecutors tackling it are linked by Internet groups. The May edition of the bi-monthly “United States Attorneys’ Bulletin” (published by the Executive Office for United States Attorneys) was devoted entirely to mortgage fraud.

The FBI has more than 350 out of its 13,000 agents devoted to mortgage fraud. There are also now 67 regular mortgage fraud working groups and 23 task forces at the federal, state and local level. “This is the broadest coalition of law enforcement ever brought together to fight fraud,” Adkins said. He admitted, however that limited resources to fight fraud still pose a challenge.

Attorney General Eric Holder

In June U.S. authorities said 1,215 people had been charged in a joint crackdown on mortgage fraud. Many of the charges were for crimes committed years ago.

Latour “LT” Lafferty, the head of the white-collar crimes practice at law firm Fowler White Boggs in Tampa, Florida, said fraud in the boom was so pervasive that many crimes will go undetected and unprosecuted. “Everyone had their hands in the cookie jar during the boom,” he said. “Lenders, brokers, Realtors, homeowners … everyone.”

OLD DOG, NEW TRICKS

A new mortgage scam born out of the housing crisis is short sale fraud. Short sales are a way for stricken homeowners to get out of their homes, whereby in agreement with their lender they sell their home for less than they paid for it and are forgiven the remainder.

But they have also proven a tempting target for fraudsters, usually involving the Realtor in the deal. Lackner, the fraud investigator in San Diego, described a typical scheme: “Let’s say you have a property up for short sale that you know as a Realtor you can get $350,000 for,” he said. “But you arrange a low-ball appraisal of $200,000 and have someone make an offer of that amount.”

Tont Rezko - Convicted Felon - Real Estate "Development"

“The Realtor says to the bank this is the best offer you’re going to get, take it or leave it,” he added. “Then they turn around and flip it immediately for $350,000. In cases like this, the lender is probably already stuck with a lot of foreclosed properties and doesn’t want more. So they go for it.”

Where the process of fraudulent appraisals overvaluing a property for sale is “flipping,” deliberately undervaluing them has become known as “flopping.”

Bob Hertzog, a designated real estate broker at Summit Home Consultants in Scottsdale, Arizona, says he gets emails from unknown firms offering to act as a “third-party negotiator” between the seller and the bank with what turns out to be a grossly undervalued bid.

Hertzog has tried tracing some of the LLCs, but describes a chain of front companies leading nowhere.

“The problem is it is so cheap and easy to set up an LLC online that sometimes they are set up for just one transaction,” Flagstar’s Scott said. “And if they’re set up using fake information or a stolen identity, it’s very hard to trace who’s behind them.”

Many web sites boast they can help you form an LLC online for under $50.

Another common target for fraud is the reverse mortgage. Designed for seniors to release equity from a property, according to financial fraud czar Adkins, they have been used to commit a “particularly egregious type of fraud.”

Fraudsters commonly forge their victims’ signatures and, without their knowledge or consent, divert funds to themselves. The scam is worst in Florida, a magnet for American retirees.

“Unfortunately it is often not until the death of the victim that their heirs realize that all of the equity has been stripped out of the property by fraudsters,” Adkins said.

But Arthur Prieston, chairman of the Prieston Group, which sells mortgage fraud insurance and has launched a patented system to rate lenders on the quality of their loans, said most mortgage fraud he comes across consists of ordinary people fudging figures to get a loan. “The vast majority of the fraud we see is where people intend to occupy a property, but can’t qualify for a loan,” he said. “They’ll do anything to get that loan approved.”

He added this is achieved with the active collusion of Realtors, brokers and lenders looking to make a sale and keep the market moving. Before his firm issues fraud insurance it reviews a lender’s loans and between 20 percent and the 30 percent of the loans reviewed so far have had “red flags.”

The problem with assessing the extent of the damage caused by mortgage fraud is that it’s not just the dollar amount of the fraud itself. It also hits property values, property taxes and often causes crime to rise.

“Most people interpret white collar crime as a victimless crime, where the bank pays the price and no one else,” said Andrew Carswell, associate professor of housing and consumer economics, University of Georgia. “This is a mistaken perception … neighborhoods and homeowners pay the price.”

UNCOVERING THE SCAMS

Companies like Interthinx, CoreLogic and DataVerify all have data-driven fraud prevention tools for lenders. Interthinx’s program, for instance, identifies some 300 “red flags” including a buyer’s identity and recent sales in a neighborhood, while CoreLogic uses pattern recognition technology. CoreLogic also aims to bring a short sale fraud product to the market soon.

Interthinx’s Fulmer said regardless of the source, on average solid fraud prevention tools can be had for as little as $10 to $15 per loan. “The tools out there enable us to see what’s going on out there right now in real time,” she said.

Apart from fraud insurance, Prieston Group’s new credit rating system for lenders should have enough data within the next year to start providing valid ratings.

Prieston said the firm’s insurance product is growing at more than 100 percent per month, while CoreLogic’s Tim Grace said the firm’s fraud prevention tool business was booming.

Many lenders are also sharing more information about bad loans, though LexisNexis’ James said it is not nearly enough. “If lenders don’t start to share more information then fraudsters will continue to go from bank to bank to bank until they’re caught,” she said.

The University of Maryland’s Rossi said what the industry needs is a “central data warehouse” to combat fraud. “There has been a failure of collective data warehousing across the industry,” he said.

Mortgage Bankers Association (MBA) spokesman John Mechem said members have no plans for a central database, but added “we view our role as being to facilitate and encourage information sharing in the industry.”

The U.S. Patriot Act of 2001 allows lenders a safe harbor to share information, but does not mandate it. “We always encourage more information sharing,” said Steve Hudak, a press officer at the U.S. Treasury Department’s Financial Crimes Enforcement Network, or FinCen. “As of now, however, this is an entirely voluntary process.”

But Rossi said the government should step in. “The Federal government is probably going to have to take the initiative because I don’t see the industry doing this one on its own,” he said. “I am personally not a fan of big government, but we need more information sharing.”

Ultimately, the expectation is lenders will be forced either to improve due diligence, or face being pushed out of business as investors burned by sloppy underwriting during the boom urge them to adopt fraud prevention tools.

“Investor scrutiny is going to be higher than it ever has been,” Rossi said. “The days of a small amount of due diligence are gone.”

Many investors are also investigating their losses and forcing lenders to repurchase bad loans. This is resulting in “thousands of repurchases a month,” according to Prieston.

“When it comes to small lenders with only a few million dollars of loans, ten repurchases will absolutely put some of them out of business,” he said.

The government now guarantees more than 90 percent of the mortgage market and forms almost the entire secondary mortgage market, as private investors have not returned. The FHA, Fannie Mae and Freddie Mac are thus seen as playing an instrumental role in pushing improved due diligence to clean up the government’s multi-trillion dollar portfolio.

FHA commissioner David Stevens was appointed in July 2009. Since then the FHA has shut down 1,100 lenders, after decades in which the government closed an average of 30 lenders annually. He says most lenders he deals with are of a “very high quality,” but that “there are still lenders that either don’t have controls in place or are proactively engaging in practices that pose a risk to the FHA.”

Stevens does not expect to shut down lenders at the same rate as the past year, but added “the number will be much higher than the historical average.”

CoreLogic’s Grace said most large lenders have the tools in place to combat mortgage fraud, but admitted he was concerned about some smaller lenders. “The next shakeout of weak lenders will take place over the next 12 to 24 months,” he said.

The MBA’s Mechem said the U.S. mortgage market must be cleaned up if it is ever to return to normal. “The one thing private investors need to get back into the secondary market is confidence,” he said. “And investors won’t risk buying mortgages if they don’t have confidence in the quality of the loans. Restoring that confidence is going to play a pivotal role in restoring the markets.”

In the meantime, mortgage fraud is expected to cause more problems in areas like Back of the Yards in Chicago.

Three doors down from the boarded-up, foreclosed property that has aroused Carrasquillo’s suspicions, father-of-three Oti Cardoso says he and his neighbors try to cut the grass at the abandoned properties on his block and to keep thieves out. But he has heard most empty houses end up occupied by gang members.

“I want my children to be safe, I don’t want drug dealers here,” he said. “I have tried to find the owner of these houses so I can work with them to help keep their homes clean.”

“If they only knew what was happening here,” he added, “I’m sure they would want to do what was right.”

http://www.reuters.com/article/idUSTRE67G1S620100817

Investors Row - half million dollar houses in a row ...

Obama and the VAT: Obama Moves Closer to Breaking “No New Tax Pledge” To The Poor, The Elderly And Those Who Can Least Afford It

We all remember candidate Obama’s pledge, “If you a make under $250,000, your taxes won’t go up. Your taxes won’t go up as much as one thin dime”.

Looks like Obama the politician is about to break that pledge. Just another political huckster about to betray those who elected him.

Obama is now calling for a VAT Tax, or Value Added Tax, to be placed on nearly all items purchased in the United States. The VAT is a National Sales Tax. The amount of the tax being discussed by the Administration is 20% or 20¢ (cents) on every dollar.

A $100 purchase would become $120, a $1000.00 (1 thousand dollar) purchase will become a $1200.00 (one thousand two hundred dollar) purchase.

For those of you hoping that car sales will pick up, a $20,000 (twenty thousand dollar) auto, will cost $24,000 (twenty four thousand dollars) after a 20% VAT.

The young, students, the poor, the working poor, the elderly and those on fixed incomes will suffer the most. VAT taxes, like any sales tax, effect these people the most because they spend more of their income just to survive, more than the rich ever spend on necessities.

Another broken promise by another Politician that should not have been trusted!

Obama suggests value-added tax may be an option

WASHINGTON – President Barack Obama suggested Wednesday that a new value-added tax on Americans is still on the table.  

Obama adviser Paul Volcker recently raised the prospect of a value-added tax, or VAT.

The Senate passed a non-binding resolution last week, 85-13, that calls such a tax “a massive tax increase that will cripple families on fixed income and only further push back America’s economic recovery.”

Obama was asked in a CNBC inetrview if he could see a potential VAT in this nation, the president said: “I know that there’s been a lot of talk around town lately about the value-added tax. That is something that has worked for some countries. It’s something that would be novel for the United States.”

http://news.yahoo.com/s/ap/20100421/ap_on_bi_ge/us_obama_tax

Eventually, every politician who believes in “spreading the money around”, “gets around” to your wallet too!

Climategate – The Scientific Method & Scientific Intregrity – Where It All Began – The McIntyre Presentation:Ohio State University, May 16, 2008

If you are reading this post – you are probably aware of the now infamous “ClimateGate”. The hacking of emails which disclosed some the irregularities in the “scientific method” used to create the questionable theory of “man made global warming.

The emails have called into question whether some of the leading “research” (using the term very loosely) has been “cooked” or “fabricated” to produce a predetermined or “desired” result .

The primary issue being whether certain leading individuals in the Global Warming campaign (yes, campaign – as in political) have failed to follow the basic precepts of the “scientific method”.

The “scientific method” is described in this manner by Websters; ” principles and procedures for the systematic pursuit of knowledge involving the recognition and formulation of a problem, the collection of data through observation and experiment, and the formulation and testing of hypotheses”. http://www.merriam-webster.com/dictionary/scientific%20method

The “scientific method” includes, at a minimum, the following 4 elements:

Induction — Forming a hypothesis or theory by drawing general conclusions from existing data.

Deduction — Making specific predictions based on the hypothesis.

Observation — Gathering data, driven by the hypothesis or theory that tell us what to look for in nature.

Verification — Testing the predictions against further observations to confirm or falsify the initial hypothesis or theory.

True science embraces skeptics, because “modern skepticism is embodied in the scientific method, which involves gathering data to test natural explanations for natural phenomenon. A claim becomes factual when it is confirmed to such an extent that it would be reasonable to offer temporary agreement. But all facts in science are provisional and subject to challenge, and therefore skepticism is a method leading to provisional conclusions”. http://spider.ipac.caltech.edu/staff/jarrett/talks/LiU/sci_method_2.html .

A skeptic is one who questions the validity of a particular claim by calling for evidence to prove or disprove it.

With this concept in mind I’m reposting the first few pages of Stephen McIntyre’s presentation at Ohio State University on May 16, 2008 along with a link to the original PDF of the the original presentation

The presentation is self explanatory.

After years of making requests for the “original data” upon which the premises of man made global warming are laid, a portion of the data was provided to Mr. McIntyre.

Applying the elements of the “scientific method” Mr. McInytre attempted to reproduce the original findigs upon which so much of the “Man Made Global Warming Theory” is based. The Scientific Method mandates that if a theory is to be proved “correct” or “valid” the results or outcomes of the “theory” must be reproducible by subsequent examiners ….. you can decide for yourself …….

 

How do we “know” that 1998 was the warmest year of the millennium?

Stephen McIntyre, Presentation at Ohio State University, May 16, 2008

In a prep for a radio interview coming here, the radio host commented that it was impossible for members of the public to personally investigate the science and thus, at some point, it was necessary to simply have faith in the scientists. But something similar could be said in all walks of life, where the need for faith is tempered by external due diligence. If you’re offering securities to the public, there are complicated and expensive processes of due diligence, involving audits of financial statements, independent engineering reports, opinions from securities lawyers and so on. There are laws requiring the disclosure of adverse results. These precautions obviously don’t eliminate financial misconduct, but they are serious attempts to protect the public and make markets work more effectively.

There is far more independent due diligence on the smallest prospectus offering securities to the public than on a Nature article that might end up having a tremendous impact on policy. At this time, I am not saying that journal peer review processes should be overhauled, only that policy-makers should bear in mind that journal peer review is a very limited form of due diligence. Under any circumstances, radically improving requirements for the archiving of data and methods would be a simple and cost-efficient measure for improving quality control and I urge this policy whenever I get a chance.

McAuley’s World – The sceintific community 1st “peer-reviewed” the existence of a “Medieval Warming Period” and a subsequent “Little Ice Age” in the mid 1800’s – The scientific community accepted these findings and “theories” for over 175 years – the only set of scientific studies to call into question the existence of the “MWP” and the “Little Ice Age” are discussed below – Is there any wonder as to why Mann’s original data was requested to confirm these “new” findings – the “new data” was said to refute 175 years of scientific study! How dare anyone ask to see this “new data”!   But this wasn’t 1996, when the scientific community universally accepted the existence of the MWP and the Little Ice Age – It was 2006 and the Canadian Government adopted an untested and unverified “theory” ….      

But in 2002, the Canadian government based its pronouncements on the 2001 International Panel on Climate Change (IPCC) Third Assessment Report (International Panel on Climate Change 2001), which prominently displayed a graphic from then very recent studies by Mann et al in 1998 and 1999 (M. E. Mann, Bradley & Hughes 1998), which announced that 1998 was the warmest year of the millennium. The graphic from the Mann study was re-drawn by IPCC with considerable graphic expertise – indeed, the graphic expertise caught my eye. It was used no fewer than 6 times and occurred as a backdrop in the Working Group 1 press conference. So it was hardly an incidental graphic in the IPCC report; it could almost be termed their logo. (The graphic has been “nicknamed” the “Hockey Stick”)

Today I will only discuss one particular aspect of the debate – The 1000-year temperature reconstructions. I don’t claim that the results here invalidate all of climate science or that policy decisions should be deferred because of these problems. On the other hand, the exigencies of policy should not prevent proper consideration of individual smaller issues, even if these ultimately prove only of academic interest. Good coaches and good teams look after the details.

Some people have argued that if the Hockey Stick is not correct, then the situation is worse than we thought. My reaction is: well, then I shouldn’t be the only one examining the validity of these reconstructions. 

As a quick overview, I’ll introduce you to the infamous Hockey Stick, then its more recent incarnation in what we can call spaghetti graphs. I’ll show that these supposedly “independent” studies are nothing of the sort, but rely on the re-cycling of a very small number of stereotyped series to achieve the Hockey Stick effect. I’ll discuss several of these key proxies, identifying problems with each one.

Finally, I’ll briefly discuss whether another view of the matter can be rationally held.

I’m pretty sure that the first time I ever thought about climate change was in late 2002 when the Canadian Government was promoting acceptance of the Kyoto Protocol. The slogan for their campaign was that the 20th century was the warmest century, the 1990s the warmest decade and 1998 the warmest year in the past millennium – a slogan that got repeated in speech after speech and presentation after presentation.

The past decade was the world’s warmest decade of the century. And that century was the warmest of the past millennium. Without action, the long term consequences will be devastating.” – David Anderson, Minister of the Environment (Canada) Oct. 27, 2001

“The 20th century was the warmest in the Northern Hemisphere in the past 1000 years. The 1990s was the warmest decade on record and 1998 was the warmest year – in Canada and internationally.” – David Anderson, April 5, 2002.

“The 20th century was the warmest in the Northern Hemisphere for the past 1000 years and the 1990s the warmest decade on record… The science of climate change has been subjected to international scrutiny, open to all qualified experts, peer review, atmospheric modeling and process studies.” – Liberal Party of Canada Caucus, Aug. 22, 2002

In Canadian grade school, you learn about the Vikings in the Middle Ages – about the colonies in Greenland and their discovery of North America long before Columbus, an explorer presumably well recognized at Ohio State. (OSU is located in Columbus, OH). Had one sought an interpretation of 1000-year climate history as long ago as, say, 1996, one would have been shown a diagram with a pronounced Medieval Warm Period in the early part of the millennium and a cold Little Ice Age from the 17th to 19th centuries.

The graphic (Hockey Stick) continues in use to this day. It occurs prominently in Al Gore’s Inconvenient Truth (Gore 2006), where it is called Dr Thompson’s thermometer. I wondered about this in early 2003 in the most casual possible fashion. I thought that it would be interesting to look at the underlying data, rather as I might look at drill data from a mining promotion. Business was slow and I browsed the internet for a due diligence package. I could not locate such a due diligence package nor the underlying proxy data for MBH98. Out of the blue (I was then a Canadian businessman unknown toclimate scientists), I emailed Michael Mann, the primary author, inquiring as to the location of the MBH98 proxy data. To my astonishment, Mann replied that he had “forgotten” the exact location, but that an associate would locate it for me. The associate said that the data did not exist in any one location, but that he would get it together for me. I was dumbfounded. Here was a study that had been on the front page of the IPCC study, used in brochures sent to every household in Canada and there was no due diligence package. 

Dear Dr. Mann, I have been studying MBH98 and 99. I located datasets for the 13 series used in MBH99 … and was interested in locating similar information on the 112 proxies referred to in MBH98 … Thank you for your attention. Yours truly, Stephen McIntyre, Toronto, Canada

“Dear Mr. McIntyre, These data are available on an anonymous ftp site we have set up.  I’ve forgotten the exact location, but I’ve asked my Colleague Dr. Scott Rutherford if he can provide you with that information. best regards, Mike Mann”.

“Steve, The proxies aren’t actually all in one ftp site (at least not to my knowledge). I can get them together if you give me a few days. Do you want the raw 300+ proxies or the 112 that were used in the MBH98 reconstruction? Scott

I realized that this study had never been audited, as I understood the process. Since no  one else had done so, I thought that it would be interesting to do so – sort of like doing a big crossword puzzle. I had never written an academic paper nor had I any plans of doing so. Anyway, this led to a very unexpected and unusual introduction to the science community. I associated myself with Ross McKitrick of the University of Guelph, who I’ve become close friends with along the way. We published several articles, first in 2003 (McIntyre & McKitrick 2003) and then in 2005 (McIntyre & McKitrick 2005). 

So why was the Hockey Stick so influential? First, it appeared to provide a much more sophisticated statistical analysis than earlier efforts. It claimed to have “statistical skill”, reporting highly significant verification RE and r2 statistics. It claimed to be robust to the presence or absence of tree ring proxies, about which there was then considerable specialist caution. It used seemingly sophisticated principal components methods to handle a much larger data set than had been considered in prior studies.

But we (McIntyre & Associates) were unable to replicate these claims.

Our calculations showed that the verification r2 statistic in the AD1400 step, the first step in MBH98, was only 0.02 – completely insignificant. Other standard statistics failed as well.

The claimed robustness to presence/absence of tree rings was also untrue. Sensitivity analysis showed that the reconstruction was not only highly sensitive to the presence/absence of bristlecone pines, but indeed the shape of the early part of the reconstruction was entirely dependent on bristlecones. We also observed that they had modified the principal components calculation so that it intentionally or unintentionally mined for hockey stick shaped series. It was so powerful in this respect that I could even produce a HS (Hockey Stick) from random red noise. This last observation has received much publicity. However, we did not and do not argue that this is the only way that a HS series can be obtained from red noise: there is the old fashioned method – manually select series with a hockey stick shape and then average. 

McAuley’s World; The following is the link to the original PDF where you are free to read the full presentation:  http://climateaudit.org/2008/05/22/ohio-state-presentation/                                                                                         

I encourage you to review the original PDF where you can examine the original presentation slides, charts and graphics which I cannot reproduce in this forum ……. Updated PDF Here (1MB).  http://climateaudit.files.wordpress.com/2005/09/ohioshort.pdf

For those who do not know what transpired next – when Mann refused to supply a copy of his full data set or explain certain aspects of his methodology to Mr. McIntrye, Mr McIntrye went to the original sources and attempted to replicate Mann’s measurements and outcomes – neither the measurements nor the outcomes could be reproduced ….. I encourage you to review the actual PDF …… and decide for yourself.

Again, this presentation only concerns one of the cornerstones of the Man Made Global Warming theory – the cornerstone that insists, incorrectly, that the 1990’s were the warmest decade in the history of the earth ………. Mr.  McIntrye and a significant portion of the scientific community state we need only examine the MWP (as in King Henry 8th’s time) to discover a warmer period in the earth’s most recent past – a time when there was nearly zero man made CO2.

No one in the scientific community seriously questions that the earth was much, much warmer at the time of the dinosaurs than it is today – the additional warmth and the CO2 the increased temperatures caused were necessary for the great green jungles to grow, the same jungles that fed the herbivores of the jurasic period  …..

Associated Press – Economy’s rebound not as strong as first thought – Growth Overstated By 25%

By JEANNINE AVERSA, AP Economics Writer Jeannine Aversa, Ap Economics Writer 10 mins ago

WASHINGTON – The economy is growing modestly, with consumers too wary about spending to invigorate the recovery.

That picture emerged Tuesday from reports on the nation’s economy and the confidence of consumers, who power 70 percent of it. The economy grew at a 2.8 percent rate last quarter — less than originally estimated. And forecasts for the current quarter are for similarly slight growth before a drop-off next year.

The main reasons are that consumers remain reluctant to spend, commercial construction has slipped and imports are dampening U.S. growth.

The Commerce Department’s new reading on gross domestic product was weaker than the 3.5 percent growth rate for the July-September period estimated just a month ago. The GDP, which measures the value of all goods and services produced in the United States, also was a tad weaker than the 2.9 percent growth rate that economists surveyed by Thomson Reuters had expected.

At the same time, the Conference Board’s latest survey of consumer confidence found that as retailers enter the crucial holiday season, shoppers remain gloomy. Unemployment and tight credit have sapped consumers’ willingness and ability to spend freely.

Also Tuesday, the Standard & Poor’s/Case-Shiller home price index of 20 major cities suggested that the housing market’s recovery is continuing, if only gradually. Home prices rose slightly in September. Compared with a year earlier, though, they remain down 9.4 percent.

http://news.yahoo.com/s/ap/20091124/ap_on_bi_go_ec_fi/us_economy

Just like the bogus “jobs created or saved” numbers – the Obama Administration continues to politicize the numbers …. GDP growth was overstated by 35% and home sales – which are repeatedly touted as being “up” are in fact down between 9% and 10% from last year – one of the worst years on record ………

Unbelievable Corruption – Government To Rebate $42,000 On $110,000 2 Seat Sports Car!

What former Politicians or current Political contributors are cleaning up on this scam?

How much of the “stimulus money” went to underwrite the budget in the State of Colorado and therefore indirectly underwrite this giveaway program?

We all know there is only so much money to go around – that is why the US Government is borrowing trillions of dollars from the Communist Chinese to pay our current bills. Trillions of dollars that the younger generations of Americans will be forced to repay.

And now we have this stupidy …….

The State of Colorado’s “income”, which it generates through taxes and fees and the transfer of funds from the US taxpayers who don’t live in Colorado, isn’t umlimited.

So why funnel $42,000 to inidivuals who buy a a Tesla. Tesla is a California based company, which is partially owned by Daimler AG (as of May 19, 2009). You remember, Damlier, Chryslers’ former owner?

Tesla has already received $500 Million from the US Department of Energy (March 2009) to “defer” the cost of developing these vehicles. $500 million from the Department of Energy, when the “owners” or “investors” in Tesla, have committed approximately $100 million of their personal wealth. In other words, 5 out of 6 dollars has been funded by American Taxpayers through the Department of Energy to start with. Now the Taxpayers will fund half the purchase price of the car for those who can plunk down $100,000 plus to start with.

You don’t need to sell Tesla’s to develop the technology – the technology is already in the car. If someone wants to use the “technology” they should pay a royalty to Tesla to use and adapt it. If the plan is to let Tesla “hoard” the technology, that is fine, but they can do that without further Government subsidy.  If Tesla can make autos that will sell on their own, let the private market place fund the venture, not the American taxpayer.   

At the present time Tesla employs something slightly more than 350 people. Tesla has 8 sales stores, 2 in California, 1 in Colorado, 1 in Illinois, 1 in Florida, 1 in Washington, DC, 1 in Toronto, Canada and 1 in Monaco.  At full production, Tesla manufacturers approximately 25 autos per week.

The Tesla vehicle in question carries a US Identification number, however, the chasis and most of the vehicles external parts are manufacturered outside of the US. The components are assembled and shipped to the US where the battery packs and power drive are installed.

It appears that the Tesla is a wonderful vehicle, but as a $100,000 plus 2 seater, it isn’t really a practical vehicle for a family of 4?

For every $42,000 that the Government “rebates” for the purchase of a Tesla, that is $42,000 that isn’t in the Government’s budget to pay for the operating expenses, expenses that lead to “budget deficits” and budget short falls. $42,000 that isn’t available for student loans, to pay teachers, fireman or police officers or to cover unemployment benefits for the 7.6 Million lost jobs in this Country.

$42,000 that must be replaced by taxing the average working stiff.  

Has the Country gone crazy or just the people we elect to govern it?

World’s Largest Cash-Back Rebate: $42K Off Tesla Roadster

 
provided by      
 

If you’re in the market for a new car and would like a little help with the purchase, there’s a nice $3,500 cash-back rebate this month on the Pontiac G8. There’s a similar $3,500 rebate on leftover 2009 Ford Mustangs. Or, for Colorado residents, there’s a $42,083 rebate on the all-electric Tesla Roadster.

Yeah, read it again. Didn’t change, did it?

Autoblog reports, “Colorado is offering a $42,083 rebate on the 2009 Tesla Roadster until December 31st…yep, that’s a 38-percent discount on what must be the most desirable electric car currently for sale in the United States.” 

For the uninitiated, the Tesla Roadster is a guilt-free supercar. A topless, wind-in-your-hair rocket that surges from a standstill to sixty miles per hour in less than four seconds, it’s fast enough to catch the gingerbread man. It corners faster than a caffeinated chipmunk running from a lawn mower and, oh yeah, it doesn’t use gas. When you get home (which shouldn’t take long), you just plug it back into the wall.  

The only problem with the Roadster is its buzz-killing six-figure sticker price. Except, apparently, for those who can see the Rockies from their driveway.  

Autoblog explains, “The incentive actually applies to a slew of qualifying hybrid and electric vehicles and will be paid in the form of an income tax credit that’s calculated by determining the difference in price of the alt-fuel car or truck as compared to a competitive gas-powered model. In the case of the Tesla Roadster, Colorado figures the EV costs a whopping $50K more than its competitive set.”  

We have no idea what possessed them to think the Tesla had competitors. There’s just nothing else like it. They may have compared it to the Lotus Elise, a similarly-sized, lightweight track racer that does cost about $50K less.  

(McAuleys World: So the Government thinks they should help you buy a Tesla, provided you live in Colorado, and to make sure you don’t have to pay more than you would spend on a Lotus – and just how many of us drive a Lotus sports car?)

Whatever they were comparing it to, they took a massive chunk out of the price. Jalopnik notes, “The final price, after the tax credit, is a relatively low $67,800 (relative to the 110K starting price).”  

Tesla dealers are rare, but Colorado shoppers are in luck. Fox News reports, “Tesla will open a new store in Boulder, Colorado, this Friday.”  

If you need more than two seats, or trunk space for something larger than a pen, the Tesla won’t meet your needs. But we found jaw-dropping rebates on some cars that might. A fact sheet put of by the Taxpayer Service Division of the Colorado Department of Revenue lists the lot of them, ranging from $3,906 off a Ford Escape Hybrid to $20,392 off a Lexus LS 600 hybrid 

http://autos.yahoo.com/articles/autos_content_landing_pages/1151/worlds-largest-cash-back-rebate-42k-off-tesla-roadster/

Hmmmm …. $20,000 plus off a Lexus LS 600 Hybrid.

Somebody pays for the $20,000 discount on the Lexus, just like somebody pays for the $42,000 on the Tesla. Wanna guess who?

Wanna guess whose tax money was sent to Colorado to subsidize their State Budget and indirectly subsidize this giveaway program? 

It is absolute insanity!

CONGRESS GONE WILD AND THE WHITE HOUSE, TOO

George F  Will

New York Post

WITH the braying of 328 yahoos House mem bers who voted for retro active and punitive use of the tax code to confiscate legal earnings of a small unpopular group still reverberating, the Obama administration Monday invited private-sector investors to become business partners with the capricious and increasingly anti-constitutional government.

This latest plan to unfreeze the financial system came almost half a year after Congress shoveled $700 billion into the Troubled Asset Relief Program, $325 billion of which has been spent without purchasing any toxic assets.

TARP funds have, however, semi-purchased, among many other things, two car companies (and, last week, some of their parts suppliers), which must amaze Sweden. That unlikely tutor of America regarding capitalist common sense has said, through a Cabinet minister, that the ailing Saab automobile company is on its own: “The Swedish state is not prepared to own car factories.”

Another embarrassing auditor of US misgovernment is China, whose premier has rightly noted the unsustainable trajectory of America’s high-consumption, low-savings economy. He has also expressed sensible fears that his country’s $1 trillion-plus of dollar-denominated assets might be devalued by America choosing, as banana republics have done, to use inflation for partial repudiation of improvidently incurred debts.

Congress, with the approval of a president who has waxed censorious about his predecessor’s imperious unilateralism in dealing with other nations, has shredded the North American Free Trade Agreement. Congress used the omnibus spending bill to abolish a program created as part of a protracted US stall regarding compliance with its obligation to allow Mexican long-haul trucks on US roads. The program, testing the safety of Mexican trucking, became an embarrassment because it found Mexican trucking at least as safe as US trucking. Mexico has resorted to protectionism tariffs on many US goods in retaliation for Democrats’ protection of the Teamsters union.

NAFTA, like all treaties, is the “supreme law of the land.” So says the Constitution. It is, however, a cobweb constraint on a Congress that, ignoring the document’s unambiguous stipulations that the House shall be composed of members chosen “by the people of the several states,” is voting to pretend that the District of Columbia is a state. Hence it supposedly can have a Democratic member of the House and, down the descending road, two Democratic senators.

Congress rationalizes this anti-constitutional willfulness by citing the Constitution’s language that each house shall be the judge of the “qualifications” of its members and Congress can “exercise exclusive legislation” over the District. What, then, prevents Congress from giving House and Senate seats to Yellowstone National Park, over which Congress exercises exclusive legislation? Only Congress’ capacity for embarrassment. So, not much.

Jefferson warned that “great innovations should not be forced on slender majorities.” But Democrats, who trace their party’s pedigree to Jefferson, are contemplating using “reconciliation” a legislative maneuver abused by both parties to severely truncate debate and limit the minority’s right to resist to impose vast and controversial changes on the 17 percent of the economy that is health care.

When the Congressional Budget Office announced that the president’s budget underestimates by $2.3 trillion the likely deficits over the next decade, his budget director, Peter Orszag, said: All long-range budget forecasts are notoriously unreliable so rely on ours.

This is but a partial list of recent lawlessness, situational constitutionalism and institutional derangement. Such political malfeasance is pertinent to the financial meltdown as the administration, desperately seeking confidence, tries to stabilize the economy by vastly enlarging government’s role in it.

http://www.nypost.com/seven/03242009/postopinion/opedcolumnists/congress_gone_wild_161008.htm

Obama Administration Wants A New $1 Trillion From Taxpayers – MSNBC

Treasury’s toxic asset plan could cost $1 trillion

Geithner releases initial outlines of proposal to be unveiled on Monday

Treasury Secretary Timothy Geithner intends to announce Monday aims to use the resources of the $700 billion bank bailout fund, the Federal Reserve and the Federal Deposit Insurance Corp.

The plan relies on a new government entity, the Public Investment Corp. to help purchase as much as $1 trillion in toxic assets on banks’ books.

[You may have thought the Government was already doing this – for an explantion of where the money has been going up to now see: https://mcauleysworld.wordpress.com/2009/03/21/aig-cash-channelled-to-hedge-fund-millionaires/ ]

The initiative will seek to entice private investors, including big hedge funds, to participate by offering billions of dollars in low-interest loans to finance the purchases and also sharing risks if the assets fall further in value. [The same Hedge Funds that have been receiving our “Bailout Dollars” to purchase “bad debt insturments” at 100% of face value – will now use those same “bailout dollars” paid out of American Taxpayer Dollars – to repurchase the same assets – but at 20 cents on the dollar – This is a criminal conspiracy of the highest order. For the Hedge Funds who received our bailout dollars there is no “risk” at all – only more profit at taxpayer expense] 

http://www.msnbc.msn.com/id/29817617

Is Geitner complicit in this scheme or just a  “fall guy” or “patsy” to take the blame when the facts become public knowledge.  

BACKGROUND: 

1). Banks lend money and obtain mortgages

2) Most Banks do not “hold the mortgages until they are paid off in 30 years.   The Banks “sell” the mortgages as “mortage securties” to investors – most notably “Hedge Funds” – like the ones run by Madoff and Stanford.

3). The investors/Hedge Funds “insured” these securities through firms like AIG and Goldman Sachs. With CDOs (credit default swaps) and other “instruments”.

4). The Bailout dollars have been going in the front doors of banks and firms like AIG and straight out the backdoor to the Hedge Fund Firms and other investors. The great bulk of Taxpayer money spent to this date has not gone to restoring the economy or creating jobs but has instead gone to make the Billion dollar Hedge Funds, their Managers and Investors whole.

5). The governemnet did not even negotiate on the amounts paid out – the Hedge Funds have been paid 100 cents on the dollar. In some instances the Government overpaid by as much as 500%  – Incredible Government waste in what could be a “criminal enterprise”.

6). These same Hedge Funds, their investors and the Foreign Banks who received the Taxpayer Bailout dollars will now be offered the chance to repurchase these same “assets”, using the “bailout money” that was “channeled” to them through firms like AIG. Repurcahse the same assets at 20 cents on the dollar. An immediate 80% profit at taxpayer expense.

7). At a minimum, this effort exposes the incredible failure of the previous bailout activities and an almost unimaginable amount of Government waste. The same parties to receive the “bailout cash” are now being “invited” to “repurchase” the same investments.

Who Do You Think Benefits From The Ongoing Bailout Schemes? Tell Congress the Bailouts Were A Bad Idea to Begin With – To Stop Them Now!       

 

 

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