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Should There Be a 'National Transportation Safety Board' to Investigate Financial Disasters?

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The NTSB's report on a terrible bus accident shows why it is no model for financial industry investigations.

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MINYANVILLE ORIGINAL A few months ago, I commented unfavorably on proposals to create a Food and Drug Administration for financial products. It's not that the idea of testing and approval is inherently bad. My complaint was that the proponents (Eric Posner and E. Glen Weyl) had selected the FDA as a model, the poster child for regulatory capture, instead of, for instance, the Center for Disease Control.

There is a similar popular idea to create a National Transportation Safety Board to investigate financial disasters, originally proposed by Eric Fielding, Andrew W. Lo, and Jian Helen Yang and more recently championed in a Bloomberg editorial by Simon Johnson. Once again, people are picking the worst possible model.

Like an FDA for finance, there is some logic to the idea on paper. The dozens of existing federal financial regulatory authorities have difficulty conducting impartial investigations because they were involved in the regulation that possibly contributed to, and certainly failed to prevent, the disaster. Creating a relatively small and simple independent organization without regulatory powers to investigate and make recommendations seems like common sense.

However, you would think people would do at least a little bit of research into the organizations they want to clone before suggesting things like this. To get an idea of how a National Financial Safety Board would operate in practice-not theory-let's consider a terrible event last year: A bus accident in the Bronx that killed 15 people. The carrier, World Wide Travel, was a "curbside" bus company, meaning its intercity busses picked up riders at designated street locations instead of bus terminals. New York Representative Nydia Velázquez and Senator Charles Schumer immediately called for an NTSB investigation into the safety of curbside carriers.

Seven months later, the NTSB issued an 80-page report. Only a couple of pages deal with the question of whether curbside bus carriers are safe, and even those give only snippets of data. Most of the report describes the difficulty of the investigation, how much effort went into it, how great the NTSB is, and various vaguely-related NTSB programs. There is one picture in the report: The overturned World Wide Travel bus. This is typical of government reports-ninety parts self-promotion, eight parts conclusions, one part sensationalism, and one part data.

Of the report's 27 findings and 76 subpoints, only one subpoint got significant news coverage: "The fatal accident rate for curbside carriers from January 2005 to March 2011 was seven times that of conventional bus operations." That is the only clear and dramatic statement in the NTSB press release. It sets off immediate alarm bells for any numerate person. Flying on small private airplanes is 6 times as dangerous as flying on commercial airliners, US military personnel in Iraq died at 3 times the rate for comparable US civilians, construction workers are killed on the job at 3 times the rate of average workers, and miners at 6 times the rate. These are all things everyone knows without government statistical studies. It's pretty hard to believe that the curbside bus industry could grow to overtake conventional intercity bus carriers in less than a decade while killing so many of their customers, and without anyone noticing. And if it is true, shouldn't the NTSB have said something before 15 people got killed in the Bronx? Isn't that their only job?

I did a Google search for "curbside bus service safety." All of the first 100 hits mentioned this figure. Most were stories about how unsafe curbside bus service is. The next biggest group were stories about all the curbside bus services shut down in a federal sweep instigated by the NTSB report. One story from Salon claimed the NTSB report proved that Libertarians are wrong.

The NTSB report told an entirely different story than the headline figure. There are only a few pieces of data presented that relate to the question. The main pieces of data are that curbside carriers have 25% fewer accidents per bus than conventional carriers, and 30% fewer accidents with injuries. You won't find these anywhere in the text or figures; you have to combine data from different tables and charts with a little arithmetic. These facts certainly escaped mention in the press release and all the news stories based on the study, and they didn't prevent federal regulators from closing down nearly a quarter of curbside carriers.

There is only one safety statistic on which curbside carriers appear to be worse: 1.4 people are killed per fatal accident versus 1.0 for conventional carriers. So it appears that curbside carriers have fewer accidents, but more deadly ones. However, this is misleading. The period of study is 2005 to 2011, during which conventional carriers had 26 accidents with fatalities and 27 people killed. That is, all but one were single fatality accidents, and one killed two people. In the same period, curbside carriers (who operate more total busses) had 37 accidents with 52 people killed. If we take out the one accident in the Bronx that initiated the investigation, that's 36 accidents with 37 people killed, which is essentially the same ratio as conventional carriers. Again, none of this is explained in the report.

So the real situation is that there was one completely anomalous bus accident in six years, and it happened to involve a curbside carrier. Basing conclusions entirely on this crash violates two statistical principles. It is selection bias because that accident is the reason you did the study in the first place. If you initiate a study every time there is a multiple-fatality accident involving a curbside bus carrier and include that accident in your sample, you will get an upwardly-biased estimate of curbside fatality rates per accident. The bias is severe since fatal accidents are rare and you started with one with 15 times the average number of fatalities. The second violation is that there is negligible statistical significance to a single observation. The press release did not mention the essential concept of "standard error" of estimate. The report also omitted the term (the word "error" is reserved for bus drivers, not NTSB estimates), but one set of charts contains bars.

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