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Shoddy Anti Derivatives Reform “Study” From Firm That Falsely Claimed Top Academics as Advisor

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It’s high time that reporters start lifting the veil to look at exactly who is behind the “research” put out by think tanks. Even drug company research, which many members of the public now know to view with some doubt, at least has an actual investigation of some sort underpinning it (the doubts about them usually involve study design and/or interpretation of results). Think tank end product should be taken with even more salt, since it too often is the intellectual equivalent of a CDO: taking junk ideas and dressing it up in a structure and a brand name so that most people will regard it as AAA-rated thinking.

A piece by Andrew Ross Sorkin at the New York Times is an all-too-rare and badly need hard look at the less than savory process of creating impressive-looking arguments in favor of special-interest serving policies. The object lesson is a vehemently anti-derivatives reform paper presented by Keybridge Research, which claims that derivatives reform will result in the loss of 130,000 jobs and reduce corporate spending by $6.7 billion. Gee, if you accept his on its face, that chump change compared to the cost of the AIG bailout alone, much less the cost of the global financial crisis one might attribute to derivative (even 5% times the cumulative loss that the prevailing estimates place at 40% to 50% of US GDP of roughy $14 trillion gets you to $700 billion. The cost looks like a no-brainer relative to the potential benefits).

But even so, the report ran immediately into a buzz saw of criticism, and not just for offering questionable findings. Keybridge listed on its website seven advisors including Nobel prize winner Joseph Stiglitz and economics professors David Labison and Stephen Zeldes.

Sorkin noted the disconnect between the views of some of the advisors, notably Stiglitz, who is of the view that rules are often necessary to make markets function well and began ringing around. Keybridge started removing the names of advisors. It turns out Labison and Zeldes disavowed any relationship with the firm, and Stiglitz said he worked for them in the past, the last stint being nearly two years ago.

The study is apparently not very good either. Per Sorkin:

But many economists derided the report within hours of its publication.

“This is not any kind of research. This is people who want to overleverage and risk the system — because, once again, they will get the upside and taxpayers/all citizens get the downside,” Simon Johnson…wrote on his blog.

Mr. Stiglitz was even more adamant, saying the study’s conclusions encouraged the equivalent of “free fire insurance,” in that companies could protect themselves from commodity price swings without paying up. “The argument they make is particularly foolish,” he said. Mr. Stiglitz also said the argument seemed ludicrous in light of corporate America’s already stingy ways: “Companies are sitting on $2 trillion of cash. It’s just an embarrassment that they’d use that argument in the current context.”

Sorkin suggests the Chamber of Commerce might have been the moving force behind the report, and Keybridge’s president does not even try to pretend that the study was prepared to offer a fair minded assessment: ” “the client had asked us…It was a hypothetical study.”

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9 comments

  1. ottnott

    “Keybridge’s president does not even try to pretend that the study was prepared to offer a fair minded assessment: ” “the client had asked us…”

    …and we just happened to be wearing a pair of kneepads.

  2. Francois T

    “the client had asked us…”

    Sex workers also get really bizarre demands that are detrimental to self…

    1. Yves Smith Post author

      I don’t think any of the other academics called, it’s just that Keybridge was caught out.

      With Stiglitz, he did do some work for them a while back, so unless Stiglitz specifically called, the value of his name to them is too great. But I can’t imagine him working for them going forward after this.

      I’m sort of amazed they haven’t removed his name given the NYT report, but their assumption must be that that will die down. Good luck with that one.

  3. ajay

    FYI, Bachus just quoted this study in an FSC hearing.

    “Let’s be clear up front right at the beginning of this hearing: End users of derivatives did not cause the financial crisis. They were among its victims. Although the 2,300-page Dodd-Frank Act was promoted as being directed at Wall Street, as we are coming to understand more clearly, it is the end users of derivatives who will bear so much of the regulatory brunt of this law. As a result, hundreds of American companies could take their capital and jobs elsewhere. One study, released just yesterday, concludes that upwards of 130,000 jobs could be lost if U.S. regulators impose new restrictions on derivatives transactions too broadly.
    Others may not see a loss of jobs, but will see increased costs because of these regulations — costs that will be passed along to consumers.”

    1. Birch

      But, Bachus is the god of revelry and merry-making! The inventor of wine! The world really has turned upside down.

  4. Don't GS me please!

    Corporatocracy back at spreading disinformation to continue their mission:

    Privatize the profits and socialize the DEBT!

  5. readerOfTeaLeaves

    “This is not any kind of research. This is people who want to overleverage and risk the system…

    Well, at least they still think they need a fig leaf, evidently.

    I’m assuming they couldn’t operationalize a variable if their lives depended on it.

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