Harry Markopolos, Meet Stephen McIntyre

After The Hockey Stick Illusion by Andrew Montford (about Stephen McIntyre’s criticisms of Michael Mann’s hockey-stick graph), I read No One Would Listen by Harry Markopolos (sent to me by the publisher), about the Madoff case. They have plenty in common.

Size. According to Elizabeth Kolbert and New Yorker fact checkers, “thousands of scientists at hundreds of universities in dozens of countries” are sure that humans are disastrously warming the Earth. Madoff stole about $60 billion from thousands of investors. Helped by dozens of hedge-fund managers.

Hans Christian Andersen. The lesson of The Hockey Stick Illusion was that of The Emperor’s New Clothes, as I said. Markopolos mentions that story at least twice.

Failure at the top. In The Hockey Stick Illusion, Nature magazine and the National Academy of Sciences dismiss McIntyre’s criticisms. In No One Would Listen, the Wall Street Journal was given the story and, for three years, failed to do anything with it. They covered it only after Madoff confessed.

Regulatory failure. Science is said to be “self-regulating,” meaning that mistakes will be noticed and fixed by other scientists. Unfortunately for that homily, McIntyre wasn’t a scientist. In No One Would Listen, the no one of the title means no one at the SEC (Securities and Exchange Commission). After hearing Markopolos’s story, a congressman says the SEC “couldn’t find steak at an Outback”.

“It cannot be”. Just as Kolbert believes that a “hoax” of such size isn’t possible, many people told Markopolos that what he was claiming wasn’t possible. One of the best stories in No One Would Listen is about a colleague of Markopolos’s named Frank Casey, who helped Markopolos investigate Madoff. Casey’s job is selling financial products. After a sales call at an insurance company, the prospective customer, after declining to buy anything, asks Casey about Madoff. Casey is stunned. It felt like a random sales call. Casey tells him what he knows. It takes a half hour. Then the insurance executive explains his question. He recently married into “an extremely wealth Jewish family.” Madoff was at his wedding. After the wedding, Madoff took him aside and said he’d get him “set up” (meaning invested in Madoff). The insurance executive, after studying Madoff’s claimed returns, thought something was fishy and refused to invest. This got him in trouble with his father-in-law. “It’s your job as my son-in-law to take care of my daughter, and you should be putting your money with Bernie,” the father-in-law said over and over. His refusal to invest with Madoff is causing serious friction, he tells Casey, and  begs Casey to put what he said in writing so that he can convince his father-in-law to withdraw his money.  Casey writes a long email. The insurance exec brings it to his father-in-law and reads it out loud. “It can’t be,” says his father-in-law. “Bernie wouldn’t do this to me.” The father-in-law does nothing. They lose everything.

6 Responses to “Harry Markopolos, Meet Stephen McIntyre”

  1. Vic Says:

    Seth, I am more than willing to believe that global warming mightl be a hoax, but a far bigger hoax is the entire academic discipline of economics (as related by Nassim Taleb among others). To a greater degree than climate science, economic “science” rely on mathematical models to model that which cannot be modeled. And the economic hoax is costing us far more than any possible climate hoax, as bogus, but scientific sounding, economic theories underlie everything from fiscal and monetary policy to individual and pension plan investment decisions, from the structure of markets and financial instruments, to policies on immigration, free trade, taxation, and welfare and to social norms about executive compensation, etc. etc.

  2. John Blake Says:

    This bears on society’s “clean hands” preference for abstract, disembodied theory rather than any resort to grubby fact-checking of “reality”, if you will. Empirical scientific method stands wholly opposed to such elitist privilege, which partially explains why mere verbalizers gravitate to model-making disciplines such as “climatology” (sic), economics, even law.

    For some decades now, deconstructionists and feminists in particular have explicitly rejected reliance on objective, rational argument in favor of contentious attitudinal assertions lacking any basis in socio-cultural reality whatever. So long as this unreasoning prejudice against hands-on, non-ideological integrity persists, so long will polities remain in thrall to incompetent, corrupt insiders of all persuasions.

    Perhaps the worst offenders are those high achievers, men of wealth, who gravitate to politics with the object of suppressing free markets not only in competitive products but ideas. Delusions of grandeur foster the endemic societal disease which celebrates such as Bernie Madoff until all is lost.

  3. Robert E. Phelan Says:

    Interesting parallel – but the claim of “thousands of scientists at hundreds of universities” is a bit disingenuous. The overwhelming majority of those thousands have not the time, interest or expertise to evaluate the claims of climate scientists on their own. Most would not dream of lying about their science and do not expect to be lied to. Much like the father-in-law of Casey’s insurance executive, they take the word of people they believe can be trusted. When that word also supports other elements in a person’s world view (man is greedy, corporations crush human freedom, capitalism serves the interests of elites) that word is more readily accepted. The conspiracy of thousands is simply a straw-man.

    Vic’s complaint above deserves a far more nuanced response than I can supply here. I’d just like to make a few points:

    1. Science is nothing more than the systematic and careful observation of events in the real world followed by the development of explanations (theories) for their occurence.
    2. All theories are models. Mathematical/computer models are simply dynamic extensions of those models to generate predictions of future events (i.e. if what we know is true, and all other things remain equal, changing this should result in that…)
    3. Theories will always be used to justify a course of action. Any theory can be used to justify diametrically opposed courses of action. Economic Theory does not mandate bloated executive compensation, but bloatedly compensated executives will use theory as their justification.
    4. Science is not TRUTH. It is a way of “knowing”…. but there are other ways of “knowing”, much like the words from a duet in “The Woman In White”: “….I believe my heart. It believes in you. It’s telling me that what I see is completely true…”
    5. You don’t submit your emotional life to scientific scrutiny, you don’t base public policy on the yearnings of your heart.

  4. GregO Says:

    Vic – I with you on this…but I’d like you to consider your use of the word hoax in a slightly different context. To me, both the economic modelers and the AGW modelers perhaps weren’t attempting a deliberate fraud as much as simply falling in love with their ideas; falling in love with their Frankenstein creations; all of it a fantasy built on a firm bedrock of unquestioned assumptions and false beliefs and a willful ignorance of and contempt for real-world measurement.

    That Madoff was perpetrating a fraud is clear and he’s in prison – is the intent of the AGW crowd to perpetrate a similar fraud? Maybe not…But the objective result ends up equally harmful if not more so (COP15 alone had 45,000 of the world best talkers talking about and agreeing on nothing – that couldn’t have cost much…hmm….so much for good intent).

  5. Duncan Says:

    “Bernie wouldn’t do this to me.” I’ve heard it suggested that plenty of the fund managers who gave their and their clients money to Madoff were pretty sure he was up to something. They just thought he was doing something cleverer and playing someone else, or “the system”, not them.

  6. Nathan Myers Says:

    I have cousins who would have been Madoff victims. I asked, and was told they avoided him because the word had gone around to stay clear. The untold story of Madoff is likely to involve pervasive bribes, kickbacks, and cooked audits. Normally a guy like Madoff never gets to jail, because he’s too valuable as a stoolie. In this case, evidently, nobody was interested in who he could finger.