Hoaxes and Hobgoblins

This past September we learned of The University of Calgary’s embarrassment over the discovery that oil industry funds had been moved through its research accounts to carry out non-research activities dealing with climate change issues.[1]  These funds were used to support the activities of a group calling itself, buy somewhat mischievously, “Friends of Science” (http://www.friendsofscience.org/).  Of course one thinks immediately of the old saw:  “With friends such as this, who needs enemies”?  Is the irony implicit in the name intended or not (the case would be more interesting if it were).

Read full article: Hoaxes and Hobgoblins [PDF]


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Death by Debt

Here are extracts from Chapter 3 of my book, physician The Doom Loop in the Financial Sector, and Other Black Holes of Risk (University of Ottawa Press, 2010), pp. 101-2:

Thus, by the middle of 2010 six of the seven largest economies in the world looked to be in no shape … to spend their way out of another serious financial meltdown for a very long time to come [due to accumulated debt levels]….  Recent events have seriously eroded the margin of safety in the discretionary public resources available to most of the world’s wealthiest economies; that is, the capacity of their governments to incur additional debt responding to a further financial crisis,…”

Read the full article: Death by Debt [PDF]

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European Debt Crisis in three acts

The Online English Edition of Der Spiegel has a brilliant analysis of the European debt crisis that is not to be missed.

Read “The Ticking Euro Bomb” (October 5-7, no rx 2011):

Act I:

Part 1, advice Section 1:  “How a good idea became a tragedy”:  http://www.spiegel.de/international/europe/0,1518,790138,00.html

Part 1, Section 2:  “The Greeks jump at the opportunity”: http://www.spiegel.de/international/europe/0,1518,790138-2,00.html

Part 1, Section 3:  “The critics of the Euro”: http://www.spiegel.de/international/europe/0,1518,790138-3,00.html

Act II:  Life with the Euro (2001 – 2008):

Part 2, Section 1: “How the Euro Zone ignored its own rules”:

http://www.spiegel.de/international/europe/0,1518,790333,00.html

Part 2, Section 2:  “The Greek deception is discovered”: http://www.spiegel.de/international/europe/0,1518,790333-2,00.html

Act III:

Part 3, Section 1:  What options are left for the common currency? http://www.spiegel.de/international/europe/0,1518,790568,00.html

Part 3, Section 2:  Greece adrift http://www.spiegel.de/international/europe/0,1518,790568-2,00.html

Part 3, Section 3:  Design defects, political weakness, public disinterest http://www.spiegel.de/international/europe/0,1518,790568-3,00.html

Part 3, Section 4:  Are European rescue efforts doomed to fail? http://www.spiegel.de/international/europe/0,1518,790568-4,00.html

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Political Risk in the Middle East: The Emergence of Turkey

In case you missed the important and perceptive article by Doug Saunders, in Saturday’s Globe and Mail (“Why the West quietly cheers Turkey’s Rise,” 17 September 2011, A16: http://tinyurl.com/3sucw5d), here is a short summary: Turkish Prime Minister Recep Tayyip Erdogan was well-received during a visit last week to the capitals of Egypt, Tunisia and Libya. This and other recent initiatives appears to mark a significant shift in Turkey’s foreign-policy orientation, away from Europe and the prospect of EU membership and toward the Arab world, which of course remembers Constantinople as the capital of the Ottoman Empire, which ruled much of the Middle East and North Africa for four centuries, until it finally collapsed for good in 1922.Political Risk in the Middle East

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Two United States Government Reports On the Gulf Oil Spill

Summaries – and links back to the originals – on the reports on the oil spill.

Gulf Oil Spill Reports copy

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Prolonging the Agony: Europe’s Sovereign Debt Crisis

When will the senior political and financial leaders in European countries come to their senses? When will they concede that their current policies to contain the debt crisis are not working and cannot be made to work? How long are they going to prolong the agony of waiting for the next wave of contagion to strike?

Prolonging the Agony

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Three new papers on Risk

Three papers on risks associated with the long-term storage of high-level radioactive waste in Canada, mind commissioned by the Nuclear Waste Management Organization: Go to http://www.nwmo.ca/conceptofrisk

Paper #1: How should matters of risk and safety be discussed?

The first paper addresses the question of how to approach discussions about risk in this area. Four “reference frames” are used to demonstrate the different approaches or perspectives that can be applied to a conversation about this risk: the energy policy frame; the risk and safety frame; the overriding values frame, and; the geographical frame.

http://www.nwmo.ca/uploads_managed/MediaFiles/1673_nwmosr-2010-10_paper1_thinking.pdf

Paper #2: How might communities organize their discussions about hosting a site for used nuclear fuel?

This paper presents a variety of deliberative tools that a community might use when holding discussions about hosting a facility. Communities involved in a site selection process may wish to consider how the process of engagement might unfold in the context of their own unique situation, and the author describes some types of formal and informal methods for facilitating reasoned debates about controversial issues.

http://www.nwmo.ca/uploads_managed/MediaFiles/1671_nwmosr-2010-11_paper2_howmight.pdf

Paper #3: What is happening in other countries where similar issues about used nuclear fuel are being discussed?

This final paper deals primarily with high-level radioactive waste management and provides an overview of the plans of various countries to deal with their high-level waste. All of the information is taken from publicly-available Internet sources, most of which are websites maintained either by national agencies that have legal responsibility for the waste within their borders, or international agencies with other types of mandates in this area. Profiles for 16 countries are provided, along with a large collection of references and links to internet-based resources, as well as a table illustrating the progress of each country in managing radioactive waste.

http://www.nwmo.ca/uploads_managed/MediaFiles/1672_nwmosr-2010-12_paper3_whatisha.pdf

William Leiss, OC, PhD, FRSC

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Risk Blogs – Summer 2011

The following series of short essays was written in the period June – August 2011 and posted on my website: www.leiss.ca. Similar pieces will be added to the series on a regular basis. If you are interested in them you may check the website periodically or follow me on Twitter (@WilliamLeiss), where I post a Tweet (a) each time a new short blog appears on my website and (b) when I read something in the current press relevant to risk issues and provide the URL for those who also might want to read it.

LeissRiskBlogsSummer2011rev2 [PDF]

Update: the PDF was updated August 29, 2011

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Financial Risk Management: Duping the Rubes

Before 2008 financial industry professionals arranged to deceive local government officials around the world about the risks inherent in their “structured” products, pilule costing the citizens those officials worked for huge losses they could ill afford. Much of this sad story has been told in excellent investigative journalism accounts published in The New York Times, some of which are referred to in my 2010 book, The Doom Loop in the Financial Sector and Other Black Holes of Risk (University of Ottawa Press), pages 38-43. Here I refer to developments occurring after the book was finished, as well as one other newly-reported important episode, involving school districts in the state of Wisconsin.

Duping the RubesRev3 [PDF]

Update: the PDF was updated October 3

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Difficult Risk – Risk Tradeoffs: Political vs. Financial Risk in the EU

There was an important article by Jack Ewing and Liz Alderman in the August 10 edition of The New York Times, thumb entitled “Some in Germany want Greece to temporarily exit the Euro Zone.” This article takes up issues that have been quietly heating up in the background for some time already but which are, cialis inevitably, becoming harder to ignore. Ever since the first EU bailout of Greece in May 2010, and intensifying with the subsequent Portuguese rescue mission and especially the second Greek one, both in 2011, comments emanating from Germany and elsewhere have cast aspersions on the “profligate southerners” who have come to depend on their “frugal” northern compatriots to rescue them from financial disasters of their own making.

Full article: Risk Risk Tradeoffs [PDF]

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Fat Tails and Climate Change: Catastrophic Failures in Risk Management, 5

Image courtesy of UNEP / click image for original

The phrase “fat tails” became familiar to some people after the storm broke in 2008’s global financial crisis. A fat tail refers to the probability and consequences of a possible event that is outside the bounds of our normal expectations, find as defined either by our prior experience or by accepted theories – for example, link theories of the behaviour of financial markets.1 More specifically, it refers to the probability of an adverse event (such as a financial crisis) that is both more likely to occur than is “normally” expected, and that if it should occur could have catastrophic dimensions. [See www.fattails.ca and the lovely 2010 animated graphics in The Economist: http://econ.st/n9xYZq.]

Fat Tails and Climate Change PDF

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Risk Management Cases: Drilling for Shale Gas

Image courtesy of 32BJ/Flickr

Environmental risks associated with drilling for shale gas, prescription and the extraction process known as “hydraulic fracturing” [“fracking”], are receiving a good deal of attention in Canada, the United States, and elsewhere.

The state of New York has had a moratorium on shale gas development for the past year, but Governor Mario Cuomo has recommended that it be lifted in favour of permitting activity in selected areas. The Province of Quebec now has a two-year moratorium in place and has indicated that further research will be required before it is known whether the environmental risks can be limited to acceptable levels.

Readers who are interested in this issue, especially those who live in or near areas where underground shale deposits may attract this activity, will be interested in the following current resources.

Shale Gas Drilling [PDF]

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Financial Risk: The World turned Upside Down

Image courtesy PIAZZA del POPOLO / Flickr

Here’s the latest from the Greek debt crisis:

“Europe is seeking to avoid a default at all cost because it could also initiate payment of credit-default swaps, there with unpredictable results. There is little public information on which financial institutions have sold credit-default swaps and might have to absorb losses if Greece defaulted, there but it is likely that American banks and insurance companies have taken on the largest share. The shock to the global economy might compare to the collapse of Lehman Brothers in 2008, illness the European Central Bank has warned.” (Jack Ewing & Landon Thomas Jr., “Europe faces tough road on effort to ease Greek debt,” The New York Times, 4 July 2011)

Wait a minute! In credit default swaps the first party pays a premium to a second party in order to “insure” the value of an amount invested in corporate or government bonds made by the first, and the second party guarantees to make up the shortfall if that investment loses value, for example where the issuers of the bonds default on their debt.* Derivatives such as credit default swaps are a risk management strategy for investors, protecting them (for a price) against large losses. So how does this very sensible risk mitigation strategy, used by individual investors, end up causing or exacerbating another broad financial crisis?

The World turned Upside Down

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Catastrophic Failures in Risk Management, 4: The Terrorist Attack on Air-India Flight 182

Image courtesy Corinna A. Carlson / Flickr

The month of June 2011 marks the first anniversary of the release of Air India Flight 182: A Canadian Tragedy, illness the final report of the Commission of Inquiry into the Investigation of the Bombing of Air India Flight 182, troche headed by Mr. Justice John Major.

The mid-flight destruction of Flight 182 off the Irish coast on 23 June 1985 killed all 329 passengers and crew; an explosion at Narita Airport in Japan, which was part of the same terrorist plot, killed two baggage handlers there. The resulting toll represents, still today, the second-largest loss of life (second only to the September 11, 2001 events in the United States) in a single terrorist plot ever to occur anywhere in the world.

Catastrophic Failures in Risk Management 4 [PDF]

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Catastrophic Failures in Risk Management, 3: Blood Donation Risk and Gay Men

Image courtesy vincent0849 / Flickr

As we are now seeing in the long-running global financial crisis, decease the initial stages of catastrophic failures in risk management can have follow-on consequences over long periods of time. In the case of blood donation risk, the infection of blood recipients by the HIV and Hepatitis C viruses in many countries around the world, including Canada, in the 1980s was such a catastrophic failure. This risk is known as “transfusion-transmitted infection” (TTI). Full post here: Catastrophic Failures in Risk Management 3 [PDF]

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Catastrophic Failures in Risk Management, 2: The Never-Ending Global Financial Crisis

With increasing frequency comments on the ongoing sovereign debt crisis in Greece and the euro zone include a reference to the need to avoid a repeat of the collapse of the investment bank Lehman Brothers in September 2008. The basis for this otherwise puzzling comparison is the concept of “contagion,” that is, cascading failures in the financial sector – the “falling dominos scenario” – which once started with a single “event” cannot be halted, by any means currently at our disposal, until other (perhaps many other) large losses occur.

Full post here: Catastrophic Failures in Risk Management 2 [PDF]

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Blindsided by risk – presentation

Intergovernmental Forum on Risk Management 2011 Conference Board of Canada, Ottawa, May 2011 and the 3rd iNTeg-Risk Conference: “Risk vs. Risk” Stuttgart, Germany, June 2011. PDF version of slides here: Blindsided by Risk

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PPT presentation by Dr. Atsuo Kishimoto

Dr. Atsuo Kishimoto is a member of the Research Institute of Science for Safety and Sustainability (RISS), National Institute of Advanced Industrial Science and Technology (AIST) , Onogawa 16-1, Tsukuba 305-8569, Japan. This presentation was delivered at the iNTeg-Risk Annual Conference, 7-8 June 2011, in Stuttgart, Germany and is made available here with the kind permission of Dr. Kishimoto:

Atsuo Kishimoto, “Risk governance deficits in the multiple risk situation: The Great East Japan Earthquake, Tsunami, and Fukushima nuclear accident” [PPT]. IR_JP 1 4_Kishimoto

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New York Times helps us understand risk

The essential mission of risk management is to “anticipate and prevent or mitigate harms that may be avoidable.” The detailed, ed retrospective analysis of risk management failures is a crucial aspect of learning from mistakes and making the requisite changes to avoid or mitigate future failures. This type of analysis seeks to provide a precise accounting of the situation as it existed before the catastrophic failure occurred, included what was known, or reasonably should have been known, by the main actors in the events, about relevant information and alternative strategies for risk reduction. (Thus it is not a case of adding blame after the fact for mistakes that could not have been foreseen by anyone.)

A series of articles published in The New York Times since March 2011 is indispensable for understanding what when wrong, and why. For a full list of all articles, go to: The New York Times, “Times Topics”:

EARTHQUAKE, TSUNAMI AND NUCLEAR CRISIS

http://topics.nytimes.com/top/news/international/countriesandterritories/japan/index.html

The following Times articles are of particular interest:

1. “Japanese Rules for Nuclear Plants relied on Old Science,” by Norimitsu Onishi and James Glanz, 26 March 2011:

The offshore breakwaters protecting Japan’s nuclear plants – all of which face the sea – were designed to protect against the risk of typhoons, but not the risk of tsunamis. In general, this article’s review of Japan’s approach to nuclear safety concludes: “Japan is known for its technical expertise. For decades, though, Japanese officialdom and even parts of its engineering establishment clung to older scientific precepts for protecting nuclear plants,… failing to make use of advances in seismology and risk assessment since the 1970s.”

2. “Culture of Complicity tied to stricken Nuclear Plant,” by Norimitsu Onishi and Ken Belson, 26 April 2011:

This article details the long-term web of complicity among industry officials, politicians, and government regulators which ensured that dissenting views on risk management were systematically excluded from consideration. “Influential bureaucrats tend to side with the nuclear industry – and the promotion of it – because of a practice known as amakudari, or descent from heaven. Widely practiced in Japan’s main industries, amakudari allows senior bureaucrats, usually in their 50s, to land cushy jobs at the companies they once oversaw.”

3. “Japanese Officials ignored or concealed Dangers,” by Norimitsu Onishi and Martin Fackler, 16 May 2011:

During decades of successfully battling against lawsuits filed by civilians against the nuclear industry in Japan, industry officials and academics regarded as friendly to the industry systematically covered up deficiencies in the siting of the plants, seismological records, the existence of fault lines, and the viability of the safety measures at the plants.

4. “’Safety Myth’ left Japan ripe for Nuclear Crisis,” by Norimitsu Onishi, 24 June 2011:

The use of robots for emergency measures at nuclear plants – especially when radiation levels are very high – is standard in the industry around the world, but not in Japan, despite the fact that it is the world’s leader in robotic technologies. Why not? Hiroyuki Yoshikawa, a robotics expert, explained: “The [nuclear] plant operators said that robots, which would premise an accident, were not needed. Instead, introducing them would inspire fear [among the public], they said. That’s why they said that robots couldn’t be introduced.”

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Emerging Risks with the Potential For Catastrophic Losses

I am particularly concerned with emerging risks with the potential for catastrophic losses, which will be, in my view, an integral feature of an increasingly globally-interconnected world. Of course, this is an overriding concern for both the insurance and reinsurance industries as well as for governments (in their capacity as insurers of last resort for their citizens). In my presentation at the iNTeg-Risk conference I mentioned three such events in the past three years: the global financial crisis (ongoing since late 2008, with no end in sight and with almost incalculable levels of realized and projected losses around the globe); the BP spill in the Gulf of Mexico (2010); and the nuclear industry crisis in Japan (2011).

This is the opening paragraph from Dr Leiss’ opening remarks at the iNTeg-Risk/IRGC Joint Session on Emerging Risks in Stuttgart, 6 June 2011. A copy of his full talk is attached.

Emerging Risks

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