Restricting loans to real estate virtually guarantees another bank crisis in the future

The President's Bank Reforms Don't Add Up. By Peter J Wallison
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.

Basel Committee publishes assessment methodology for compensation practices

Basel Committee publishes assessment methodology for compensation practices
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."

A Free Speech Landmark - Campaign-finance reform meets the Constitution

A Free Speech Landmark. WSJ Editorial
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.

Why Rating Requirements Don't Make Sense - The market—not government mandates—should decide the value of our work

Why Rating Requirements Don't Make Sense. By DEVEN SHARMA
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.

To Help Haiti, End Foreign Aid

To Help Haiti, End Foreign Aid. By Bret Stephens
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

Course unclear for Japan-U.S. alliance

Course unclear for Japan-U.S. alliance. By Takehiko Kajita
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.’’

Haitian Amnesty - A humane decision for temporary refuge in America

Haitian Amnesty. WSJ Editorial
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"

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

Monsanto Response: de Vendomois (Seralini) et al. 2009

Monsanto Response: de Vendomois (Seralini) et al. 2009.

(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

Synopsis:

• 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.

General Comments:

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.

1. 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.

2. 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.

3. 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.

4. 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).

   1. 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.

   2. 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.

   3. 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).

   4. 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.

5. 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
• Reproducibility
• 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).

Kinetic plots

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.

Summary

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
• Reproducibility
• 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.

Additional Background:

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.

References

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
Bfr, 2007. 90-Tage-Studie an Ratten mit MON 863-Mais: Keine Hinweise auf gesundheitliches = [Risk of 90-Day Study on rats with MON 863 Maize: No Indication of a Health Risk]. Bundesinstitut fur Risikobewertung (BfR) [Federal Institute for Risk Assessment], Berlin. Opinion No. 009/2207 from the BfR on 29 March 2007.
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Casarett and Doull. Toxicology, The Basic Science of Poisons. 7th Edition. C.D. Klaassen, Edit. McGraw Hill Medical. New York. 2008.

Covance, 2002. 13-Week Dietary Subchronic Comparison Study with MON 863 Corn in Rats Preceded by a 1-Week Baseline Food Consumption Determination with PMI Certified Rodent Diet #5002. Prepared by: Covance Laboratories, Inc., Vienna, Virginia for Monsanto Company, St. Louis, Missouri. Covance Study No. 6103-293, 17 December 2002.

De Vendomois, J.S., Roullier, F., Cellier, D. and Seralini, G-E. 2009. A comparison of the effects of three GM corn varieties on mammalian health. Int. J. Biol. Sci. 5:706-726.

Doull, J., Gaylor, D., Greim, H.A., Lovell, D.P., Lynch, B. and Munro, I.C. 2007. Report of an Expert Panel on the reanalysis by Seralini et al. (2007) of a 90-day study conducted by Monsanto in support of the safety of a genetically modified corn variety (MON 863). Food and Chemical Toxicology 45 (2007) 2073–2085.

European Food Safety Authority (EFSA) (2007a). Statement of the Scientific Panel on Genetically Modified Organisms on the analysis of data from a 90-day rat feeding study with MON 863 maize. Adopted 25 June 2007.
http://www.efsa.europa.eu/cs/BlobServer/Statement/GMO_statement_MON863.pdf?ssbinary=true

European Food Safety Authority (EFSA) (2007b). EFSA review of statistical analyses conducted for the assessment of the MON 863 90-day rat feeding study. 28 June 2007.
http://www.efsa.europa.eu/cs/BlobServer/Scientific_Document/sc_rep_efsa_stat_review,0.pdf?ssbinary=true

FSANZ. Review of the report by Séraliniet al., (2007): “New analysis of a rat feeding study with a genetically modified maize reveals signs of hepatorenal toxicity”. Food Standards Australia New Zealand July 2007.
http://www.foodstandards.gov.au/_srcfiles/Review_of_Report_by_Seralini_et_al_July_2007.doc

Hammond, B., Lemen, J., Dudek, R., Ward, D., Jiang, C., Nemeth, M., Burns, J., 2006. Results of a 90-day safety assurance study with rats fed grain from corn rootworm-protected corn. Food Chem. Toxicol. 44, 147–160.

Hayes, A.W. Principles and Methods of Toxicology. 5th Edition. Informa Healthcare USA, New York. 2008. Pages 1246, 1524.

Health Canada, Request for a Special Review of Glyphosate Herbicides Containing Polyethoxylated Tallowamine , 2009 http://www.hc-sc.gc.ca/cps-spc/alt_formats/pdf/pubs/pest/_fact-fiche/glyphosate-Herbicides-glyphosate-eng.pdf

Monod H., 2007. Expérience sur rats menée par Monsanto en 2001-2002 avec certains régimes comportant du maïs génétiquement modifié: analyse statistique des courbes d’évolution du poids. Study conducted upon request of the CGB (Commission du Génie Moléculaire, France).
http://www.ogm.gouv.fr/experimentations/evaluation_scientifique/cgb/autres_avis/Avis_CGB_MON 863_15juin2007.pdf

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.

Wilson, N.H., Hardisty, J.F., Hayes, J.R., 2001. Short-term, subchronic, and chronic toxicology studies. In: Hayes, A.W. (Ed.), Principles and Methods of Toxicology, fourth ed. Taylor and Francis, Philadelphia, pp. 917–957.

Don't Shoot the Pollster - Attacks on Scott Rasmussen and Fox News show a disturbing attitude toward dissent

Don't Shoot the Pollster. By PATRICK CADDELL AND DOUGLAS E. SCHOEN
Attacks on Scott Rasmussen and Fox News show a disturbing attitude toward dissent.
WSJ, Jan 15, 2010

Polling is both an art and a science, but recently it's also become a subject of political intimidation.

One shot was fired by White House Press Secretary Robert Gibbs on Dec. 8, when he dismissed Gallup's daily tracking of President Obama's job approval. It had hit a record low of 47%, and Mr. Gibbs called the results meaningless:

"If I was a heart patient and Gallup was my EKG I'd visit my doctor. If you look back I think five days ago. . . there was an 11 point spread, now there's a one point spread. . . I'm sure a six-year-old with a crayon could do something not unlike that. I don't put a lot of stake in, never have, in the EKG that is the daily Gallup trend. I don't pay a lot of attention to meaninglessness."

Polling is a science because it requires a range of sampling techniques to be used to select a sample. It is an art because constructing a sample and asking questions is something that requires skill, experience and intellectual integrity. The possibility of manipulation—or, indeed, intimidation—is great.

A recent case in point is what has happened to Scott Rasmussen, an independent pollster we both work with, who has an unchallenged record for both integrity and accuracy. Mr. Rasmussen correctly predicted the 2004 and 2008 presidential races within a percent, and accurately called the vast majority of contested Senate races in 2004 and 2006. His work has sometimes been of concern for Republicans, particularly when they were losing congressional seats in 2004 and 2006.

Most recently, Mr. Rasmussen has been the leader in chronicling the decline in the public's support for President Obama. And so he has been the target of increasingly virulent attacks from left-wing bloggers seeking to undermine his credibility, and thus muffle his findings. A Politico piece, "Low Favorables: Democrats Rip Rasmussen," reported on the attacks from blogs like the Daily Kos, Swing State Project, and Media Matters.

"Rasmussen Caught With Their Thumb on the Scale," cried the Daily Kos last summer. "Rasmussen Reports, You Decide," the blog Swing State Project headlined not long ago in a play on the Fox News motto.

"I don't think there are Republican polling firms that get as good a result as Rasmussen does," Eric Boehlert, a senior fellow with the progressive research outfit Media Matters, said in a Jan. 2 Politico article. "His data looks like it all comes out of the RNC."

Liberals have also noted that Rasmussen's daily presidential tracking polls have consistently placed Mr. Obama's approval numbers around five percentage points lower than other polling outfits throughout the year. This is because Rasmussen surveys likely voters, who are now more Republican in orientation than the overall electorate. (Gallup and other pollsters survey the entire adult population.) On other key issues like health care, Rasmussen's numbers have been echoed by everyone else.

Mr. Rasmussen, who is avowedly not part of the Beltway crowd in Washington, has been willing to take on issues like ethics and corruption in ways no other pollsters have been able to do. He was also one of the first pollsters to stress people's real fear of the growing size of government, the size of the deficit, and the concern about spending at a time when these issues were not really on Washington's radar screen.

The reaction against him has been strident and harsh. He's been called an adjunct of the Republican Party when in fact he has never worked for any political party. Nor has he consulted with any candidates seeking elective office.

The attacks on Rasmussen and Gallup follow an effort by the White House to wage war on Fox News and to brand it, as former White House Director of Communications Anita Dunn did, as "not a real news organization." The move backfired; in time, other news organizations rallied around Fox News. But the message was clear: criticize the White House at your peril.

As pollsters for two Democratic presidents who served before Barack Obama, we view this unprecedented attempt to silence the media and to attack the credibility of unpopular polling as chilling to the free exercise of democracy.

This is more than just inside baseball. As practicing political consultants, both of us have seen that the established parties try to stifle dissent among their political advisers and consultants. The parties go out of their way to try to determine in advance what questions will be asked and what answers will be obtained to reinforce existing party messages. The thing most feared is independence, which is what Mr. Rasmussen brings.

Mr. Gibbs's comments and the recent attempts by the Democratic left to muzzle Scott Rasmussen reflect a disturbing trend in our politics: a tendency to try to stifle legitimate feedback about political concerns—particularly if the feedback is negative to the incumbent administration.

Mr. Caddell served as a pollster for President Jimmy Carter. Mr. Schoen, who served as a pollster for President Bill Clinton, is the author of "The Political Fix" just out from Henry Holt.

Don't Like the Numbers? Change 'Em

Don't Like the Numbers? Change 'Em. By MICHAEL J. BOSKIN
If a CEO issued the kind of distorted figures put out by politicians and scientists, he'd wind up in prison.
WSJ, Jan 14, 2010

Politicians and scientists who don't like what their data show lately have simply taken to changing the numbers. They believe that their end—socialism, global climate regulation, health-care legislation, repudiating debt commitments, la gloire française—justifies throwing out even minimum standards of accuracy. It appears that no numbers are immune: not GDP, not inflation, not budget, not job or cost estimates, and certainly not temperature. A CEO or CFO issuing such massaged numbers would land in jail.

The late economist Paul Samuelson called the national income accounts that measure real GDP and inflation "one of the greatest achievements of the twentieth century." Yet politicians from Europe to South America are now clamoring for alternatives that make them look better.

A commission appointed by French President Nicolas Sarkozy suggests heavily weighting "stability" indicators such as "security" and "equality" when calculating GDP. And voilà!—France outperforms the U.S., despite the fact that its per capita income is 30% lower. Nobel laureate Ed Prescott called this disparity the difference between "prosperity and depression" in a 2002 paper—and attributed it entirely to France's higher taxes.

With Venezuela in recession by conventional GDP measures, President Hugo Chávez declared the GDP to be a capitalist plot. He wants a new, socialist-friendly way to measure the economy. Maybe East Germans were better off than their cousins in the West when the Berlin Wall fell; starving North Koreans are really better off than their relatives in South Korea; the 300 million Chinese lifted out of abject poverty in the last three decades were better off under Mao; and all those Cubans risking their lives fleeing to Florida on dinky boats are loco.

There is historical precedent for a "socialist GDP." When President George H.W. Bush sent me to help Mikhail Gorbachev with economic reform, I found out that the Soviet statistics office kept two sets of books: those they published, and those they actually believed (plus another for Stalin when he was alive).

In Argentina, President Néstor Kirchner didn't like the political and budget hits from high inflation. After a politicized personnel purge in 2002, he changed the inflation measures. Conveniently, the new numbers showed lower inflation and therefore lower interest payments on the government's inflation-linked bonds. Investor and public confidence in the objectivity of the inflation statistics evaporated. His wife and successor Cristina Kirchner is now trying to grab the central bank's reserves to pay for the country's debt.

America has not been immune from this dangerous numbers game. Every president is guilty of spinning unpleasant statistics. President Richard Nixon even thought there was a conspiracy against him at the Bureau of Labor Statistics. But President Barack Obama has taken it to a new level. His laudable attempt at transparency in counting the number of jobs "created or saved" by the stimulus bill has degenerated into farce and was just junked this week.

The administration has introduced the new notion of "jobs saved" to take credit where none was ever taken before. It seems continually to confuse gross and net numbers. For example, it misses the jobs lost or diverted by the fiscal stimulus. And along with the congressional leadership it hypes the number of "green jobs" likely to be created from the explosion of spending, subsidies, loans and mandates, while ignoring the job losses caused by its taxes, debt, regulations and diktats.

The president and his advisers—their credibility already reeling from exaggeration (the stimulus bill will limit unemployment to 8%) and reneged campaign promises (we'll go through the budget "line-by-line")—consistently imply that their new proposed regulation is a free lunch. When the radical attempt to regulate energy and the environment with the deeply flawed cap-and-trade bill is confronted with economic reality, instead of honestly debating the trade-offs they confidently pronounce that it boosts the economy. They refuse to admit that it simply boosts favored sectors and firms at the expense of everyone else.

Rabid environmentalists have descended into a separate reality where only green counts. It's gotten so bad that the head of the California Air Resources Board, Mary Nichols, announced this past fall that costly new carbon regulations would boost the economy shortly after she was told by eight of the state's most respected economists that they were certain these new rules would damage the economy. The next day, her own economic consultant, Harvard's Robert Stavis, denounced her statement as a blatant distortion.

Scientists are expected to make sure their findings are replicable, to make the data available, and to encourage the search for new theories and data that may overturn the current consensus. This is what Galileo, Darwin and Einstein—among the most celebrated scientists of all time—did. But some climate researchers, most notably at the University of East Anglia, attempted to hide or delete temperature data when that data didn't show recent rapid warming. They quietly suppressed and replaced the numbers, and then attempted to squelch publication of studies coming to different conclusions.

The Obama administration claims a dubious "Keynesian" multiplier of 1.5 to feed the Democrats' thirst for big spending. The administration's idea is that virtually all their spending creates jobs for unemployed people and that additional rounds of spending create still more—raising income by $1.50 for each dollar of government spending. Economists differ on such multipliers, with many leading figures pegging them at well under 1.0 as the government spending in part replaces private spending and jobs. But all agree that every dollar of spending requires a present value of a dollar of future taxes, which distorts decisions to work, save, and invest and raises the cost of the dollar of spending to well over a dollar. Thus, only spending with large societal benefits is justified, a criterion unlikely to be met by much current spending (perusing the projects on recovery.gov doesn't inspire confidence).

Even more blatant is the numbers game being used to justify health-insurance reform legislation, which claims to greatly expand coverage, decrease health-insurance costs, and reduce the deficit. That magic flows easily from counting 10 years of dubious Medicare "savings" and tax hikes, but only six years of spending; assuming large cuts in doctor reimbursements that later will be cancelled; and making the states (other than Sen. Ben Nelson's Nebraska) pay a big share of the cost by expanding Medicaid eligibility. The Medicare "savings" and payroll tax hikes are counted twice—first to help pay for expanded coverage, and then to claim to extend the life of Medicare.

One piece of good news: The public isn't believing much of this out-of-control spin. Large majorities believe the health-care legislation will raise their insurance costs and increase the budget deficit. Most Americans are highly skeptical of the claims of climate extremists. And they have a more realistic reaction to the extraordinary deterioration in our public finances than do the president and Congress.

As a society and as individuals, we need to make difficult, even wrenching choices, often with grave consequences. To base those decisions on highly misleading, biased, and even manufactured numbers is not just wrong, but dangerous.

Squandering their credibility with these numbers games will only make it more difficult for our elected leaders to enlist support for difficult decisions from a public increasingly inclined to disbelieve them.

Mr. Boskin is a professor of economics at Stanford University and a senior fellow at the Hoover Institution. He chaired the Council of Economic Advisers under President George H.W. Bush.

Health Experts and Double Standards - Jonathan Gruber, Peter Orszag and the press corps

Health Experts and Double Standards. WSJ Editorial
Jonathan Gruber, Peter Orszag and the press corps.
The Wall Street Journal, page A18, Jan 14, 2010

The press corps is agonizing, or claims to be agonizing, over the news of Jonathan Gruber's conflict of interest: The MIT economist has been among the foremost promoters of ObamaCare—even as he had nearly $400,000 in consulting contracts with the Administration that weren't disclosed in the many stories in which he was cited as an independent authority.

Mr. Gruber is a health economist and former Clinton Treasury hand, as well an architect of Mitt Romney's 2006 health plan in Massachusetts that so closely resembles ObamaCare. His econometric health-care modelling is well-regarded. So his $297,600 plum from the Department of Health and Human Services in March for "technical assistance" estimating changes in insurance costs and coverage under ObamaCare, plus another $95,000 job, is at least defensible.

However, this financial relationship only came to wide notice when Mr. Gruber wrote a commentary for the New England Journal of Medicine, which has a more stringent disclosure policy than most media outlets. Last week the New York Times said it would have disclosed Mr. Gruber's financial ties had it known when it published one of his op-eds last year. Mr. Gruber told Politico's Ben Smith that "at no time have I publicly advocated a position that I did not firmly believe—indeed, I have been completely consistent with my academic track record."

We don't doubt Mr. Gruber's sincerity about his research, though the same benefit of the political doubt wasn't extended to, say, Armstrong Williams when it was revealed that the conservative pundit had a contract with the Department of Education during the No Child Left Behind debate. Any number of former Generals-turned-TV-analysts were skewered in the New York Times in 2008 merely because of continuing contact—and no financial ties—with the Pentagon.

The political exploitation of Mr. Gruber's commentary is another matter. His work figured heavily into a recent piece by Ron Brownstein in the Atlantic Monthly that the Administration promoted as an antidote to skepticism about ObamaCare's cost control (or lack thereof). White House budget director Peter Orszag has also relied on a letter from Mr. Gruber and other economists endorsing the Senate bill.

In a December conference call with reporters, Mr. Orszag said that "I agree with Jon Gruber that basically everything that has been put forward in health policy discussions for a decade is in this bill." He also praised "the folks who have actually done the reporting and read the bill and gone through and done the hard work to actually examine, rather than just going on buzz and sort of loose talk, but actually gone through and looked at the specific details in the bill," citing Mr. Brownstein in particular. Which is to say, the journalists who had "done the reporting" were those who agreed with the Gruber-White House spin.

Mr. Orszag never mentioned Mr. Gruber's contract. Nor did HHS disclose the contract when Mike Enzi, the ranking Republican on the Senate health committee, asked specifically for a list of all consultants as part of routine oversight in July. His request noted that "Transparency regarding these positions will help ensure that the public has confidence in the qualifications, character and abilities of individuals serving in these positions."

We're not Marxists who think everyone's opinion depends entirely on financial circumstances. But if Mr. Gruber qualifies as a health expert despite his self-interest, then the studies of self-interested businesses deserve at least as much media attention. The insurer WellPoint has built a very detailed and rigorous model on the likely impact of ObamaCare, using its own actuarial data in regional markets, and found that insurance costs will spike across the board. The White House trashed it, and the press corps ignored it.

This is a double standard that has corroded much of the coverage of ObamaCare, with journalists treating government claims as oracular but business arguments as self-serving. We'll bet Messrs. Orszag and Brownstein that WellPoint's analysis will more closely reflect the coming insurance reality than the fruits of Mr. Gruber's government paycheck.

Bashing Bankers Is a Political Duty

Bashing Bankers Is a Political Duty. By HOLMAN W. JENKINS, JR
But don't overlook the fact that taxpayers are making out on the bailout too.
WSJ, Jan 13, 2010

If you would know why bankers are enjoying a large and controversial deluge of annual bonuses, look no further than the monthly report of the New York State Comptroller's Office. The economy may be in the dumps, but Wall Street enjoyed record profits of $50 billion in the first nine months of last year—"nearly two and a half times the previous annual peak in 2000."

"Profitability," adds the state of New York, "has soared because revenues rose while the costs of doing business—particularly interest costs—declined" (in other words, thank you Federal Reserve).

That $50 billion may seem odd in relation to Wall Street's reported bonus pool of $90 billion, but compensation isn't paid out of profits, it's paid out of revenues. Goldman last year paid out about 44% of revenues as compensation, Citigoup about 30%. In contrast, an auto company pays out about 11% of revenues, but an auto company consumes a lot of other inputs—glass, steel, energy, advertising, aluminum—whereas Wall Street has only two inputs: smarts and money.

Bonuses are a dominant part of compensation because Wall Street firms pay a large chunk of compensation as variable comp, for which the word bonus has been used. Now some firms are paying larger fixed salaries just so the public won't hear the word bonus.

But look at it this way: The $90 billion that will be distributed to employees is but a sliver of the massive capital Wall Street is sitting on. One firm, Goldman, cares for $880 billion, Citi another $1.9 trillion, JP Morgan another $2 trillion. Much of the nation's paper wealth rebounded sharply last year from depressed values after (choose your reason) Americans overbet on housing or the federal government briefly fumbled public trust in its ability to protect the financial system.

Do bankers deserve it? Of course not. Do you deserve your good looks, good health or good luck in choice of parents and/or country you were born in?

Compensation in our society is not set by Henry Waxman and a committee of Congress, but as a matter of legal and instrumental obligation under circumstances of market competition. A firm's management, with its own interests strongly in mind, ultimately decides how much of a firm's revenue to spend pleasing the highly mobile employees who do the work of pleasing the firm's highly mobile clients and investors.

But didn't taxpayers bail out the financial system, so don't taxpayers deserve the bonuses? No. Taxpayers (aka voters) were acting in their own interests in bailing out the system. They weren't doing anybody a favor. Furthermore, government already stands to collect about 50% of any Wall Street cash bonuses in the form of income tax (which explains why the subject is of interest to the New York state comptroller).

What's more, despite a casual imputation that taxpayers were the suckers at the table, taxpayers did not, as commonly alleged, "spend" money to bail out the banks. They traded one claim for another. Mostly, they traded claims they printed (dollars) for claims on real assets, such as housing, commercial property and industrial equipment.

Taxpayers effectively acquired these assets on a bet that taxpayers' own intervention would raise their value, which had previously been depressed at least partly by fears that taxpayers wouldn't intervene. That bet has proved a good one so far (as bets often do when you control the outcome). Even the most notorious of the exchanges that taxpayers engaged in—dollars for securities held by Goldman Sachs that had been guaranteed by AIG—are accruing profits on the balance sheet of the Federal Reserve.

In fact, yesterday the Fed, whose balance sheet is about the size of Citigroup's, reported whopping profits for 2009 of $52 billion—just a few billion shy of what Wall Street as a whole is likely to report for the year. (All this throws a mocking light on the Obama administration's claim yesterday that a new tax must be imposed on banks to "recoup" bailout costs.)

None of this means Americans don't have an ancient and abiding interest in subjecting bankers to scorn. A rough socialism is fundamental to civilization: The most beautiful virgin must be sacrificed to make the other virgins feel better—a service politicians are especially keen to provide when the alternative might be looking at their own role in the reckless risk-taking of banks and homebuyers.

Still, looking at Washington's own role would be a good idea, since taxpayers' success (so far) in catching the falling knife is certainly no reason to repeat the experiment.