AIN Blog: BARR and the Global Financial Crisis

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June 14, 2011 - 5:57am

One result of our Netflix subscription is that my wife and I are watching many films that we probably would have missed. Two such films are Michael Ferguson’s “Inside Job,” which won the Academy Award for best documentary last year, and Oliver Stone’s “Wall Street: Money Never Sleeps,” with Michael Douglas reprising his role as Gordon Gekko from 1987’s “Wall Street,” also directed by Stone.

Both of the newer films revolve around the factors that brought the U.S. banking industry to the brink of failure in 2007 and fueled the subsequent Global Financial Crisis (or Credit Crunch), which we’re all still trying to claw ourselves out of four years later. I highly recommend “Inside Job.” As a popcorn drama, “Wall Street” is OK, but if you have time to see only one, watch “Inside Job.”

The two movies led me to pick up a book on the same subject, The Big Short: Inside the Doomsday Machine, by David Lewis, which I also highly recommend. The films and book motivated me to do a bunch of Google searches, which was like taking an ad hoc course in Econ 101.

The long and the short of all this, no pun intended, is that I have learned enough to quickly bore anyone within earshot about the basics of sub-prime mortgage bonds, collateralized debt obligations, structured asset-backed securities and credit default swaps. More important, I have a layman’s understanding, I believe, of how the unscrupulous manipulation of these securities by people in the U.S. financial industry brought the global economy to the brink of collapse.

What is frightening about this despicable debacle is that so few people were able to figure out what was really going on while it was happening, including the analysts in the credit rating agencies (Standard & Poor’s, Moody’s and Fitch Group), most people (including CEOs) in the very investment banks that were creating, selling and buying these “structured investments,” the regulators in the Security Exchange Commission (the industry’s supposed watchdog) and civil servants and elected officials in our nation’s governing bodies.

I wish I could offer a solution to the sub-prime mess–well, here are three suggestions: outlaw subprime mortgages, highly regulate structured notes and require investment banks to be partnerships, as they used to be, not corporations as they are now. But one thing that did strike me was an unexpected parallel between the lead-up to the late-2000s’ financial crisis and the government’s recent decision to eliminate the Block Aircraft Request (BARR) program.

BARR was a response to the FAA’s release in 1997 of real-time flight data, via the Aircraft Situation Display to Industry (ASDI) data feed, which is accessible on a number of websites. Some business aircraft operators objected to free, unlimited access to ASDI data, citing security and business concerns. So, the aviation alphabet groups petitioned the FAA to find a way to restrict the release of ASDI flight data to a need-to-know basis. In 2000, Congress added a section to a law so that companies showing ASDI data were required to provide the capability to block aircraft registration numbers. The NBAA took on the task of administering the program that facilitates this: BARR. Everyone seemed happy.

Then in 2008, after the CEOs of the Big Three automakers flew to Washington on their corporate jets to ask for bailout money, ProPublica, a non-profit investigative journalism organization, filed a request under the Freedom of Information Act for a list of flights blocked under BARR, claiming that because the flight data was government-based and therefore funded by the public, all data should be accessible to the public. NBAA filed a motion for a restraining order. In February 2010, a district judge in Washington, D.C., found in ProPublica’s favor.

On May 27 this year, the FAA announced that the BARR program would be virtually eliminated. “This action is in keeping with the Obama administration’s commitment to transparency in government,” said Transportation Secretary Ray LaHood. “Both general aviation and commercial aircraft use the public airspace and air traffic control facilities, and the public has a right to information about their activities.”

The FAA plans to dismantle the BARR program on August 1 and NBAA, along with the Aircraft Owners and Pilots Association and the Experimental Aircraft Association, is working on seeking an injunction to stop the government.

It’s impossible to know how this will turn out. As any reader of books by lawyer-turned-novelist John Grisham knows, the law can be used to prove many things that aren’t true, correct or fair and courtroom judgments often have little to do with what is right.

Here is what is right about BARR.

If you want to fly IFR, you must file a flight plan and use the national air traffic control system. The U.S. government owns and runs the Air Traffic Organization. You don’t have a choice to use a private air traffic control system because there is none. You must use the government’s ATC system whether you like it or not, because it is a monopoly. This is a safe and efficient system.

So the argument that flight data should be available to the public simply because it is funded by taxes is specious. It’s like saying that the medical records of everyone receiving healthcare under Medicare and Medicaid or at a Veterans Administration hospital should be available publically on the Internet.

ProPublica, the Obama Administration and the FAA have it all wrong. There is no basis for transparency of ASDI data. No one outside ATC has any particular right to know where anyone flies. Quite the opposite. The public is lucky to get any ASDI fight data at all.

BARR is important because it gives aircraft operators the choice of having their N-numbers shown or not shown. And there should be no need to prove a reason for wanting one’s N-number blocked–whether it be security or competitive concerns, or anything. If you want the number blocked, you should be allowed to have it blocked. End of story.

And so, what’s the parallel between BARR and the causes of the Credit Crunch? Transparency. Its not flight data that needs transparency, its our financial system.

If anything, ProPublica and the Obama Administration should be paying much more attention to making sure that neither Ferguson nor Stone finds a reason to make “Wall Street III” following another meltdown of the world’s economy. Making the U.S. banking industry transparent would really be a goal worth attaining.

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