Double Blind

We’re having an election in Canada and we get to vote this Monday. One of the issues that have not really come up is the environment, which is usually the domain of the NDP. The Liberals, however, have been claiming that if they get elected, they will uphold the Kyoto Protocol. They also threaten that if the Conservatives get elected, we will not uphold Kyoto. My thoughts on the Kyoto accord and global warming are pretty well summarized by one of Den Beste’s posts on the issue, and reading the US Department of Energy’s report on the costs of implement the Kyoto Protocol. To sum things up, if Canada or the USA was stupid enough to actually implement Kyoto, they would be bankrupting themselves.

I also don’t buy the argument that cutting greenhouse gas emissions to 1990 levels actually will do anything. Why not cut emissions to 1950 levels, or 1900 levels? Or how about we go all the way and bring ourselves back to the stone age while we’re at it? But hold on, we humans generate carbon dioxide to live, which causes greenhouse gas emissions every time we exhale our lungs. I guess you’ll have to tax breathing as well!

This environmental issue used to be called “Global Warming”, but the political correctness police changed it to “Climate Change” since they didn’t want to discredit themselves in times where we had unusually cold weather, because this is so obviously due to “climate change”. Yeah right.

So now that we’ve changed the criterion for “doing something” to any sort of change in weather (instead of just heating), we’ve gotten ourselves into a situation where effectively any disturbance in weather can be attributed to greenhouse emissions in the atmosphere. If you believe that weather has a degree of randomness to it, then you better be off predicting the results of Suzuki Foundation as an excuse why we should take action on greenhouse emissions.

The politicians have not been oblivious to getting the environmental vote at the expense of the rest of the country, so let us go through the Liberal press release, dated June 12, 2004, on their own party website. I will cut and paste their entire release, which I have quoted in yellow below:

Issue:

Stephen Harper would rip up the Kyoto Protocol on climate change.

Reality Check:

Stephen Harper shows a clear lack of vision in promising to rip up the Kyoto Accord regarding climate change.

Anybody proposing the rip up the Kyoto accord shows leadership and vision simply because they are making the right decision, but more importantly are making the right decision against what most think is a good thing. This is on a tangent, but leadership isn’t following what the majority thinks should be done – that’s simply good politics. Rather, the definition of leadership is all about doing what is right in the fact of the majority.

The only exception I will make for the Kyoto Accord is that when Jean Chretien forced parliament to ratify the accord, that he realized that the USA wouldn’t ratify the protocol at all. Without the USA joining the act, the rest of the world would be pretty stupid to follow. If this was his line of thinking when he ratified the treaty, then he’s a good politican. Bill Clinton did the same thing – he signed the Kyoto protocol, but he knew that the US Senate wouldn’t ratify the treaty. That’s good politics as well.

Climate change is real. Scientists make it clear the impacts will be severe. It has contributed many severe weather related problems including:

more severe summer forest fires due to drought;
changed precipitation patterns;
shrinking glaciers;
higher snowlines;
less mountain runoff to rivers in summer on both slopes of the Rockies; and
the Pine Beetle Infestations in B.C. due to warmer winters.

I have a real problem with this piece of text. All of the problems described are consequences of the planet warming up. So it is pretty clear that “climate change” in this context means global warming. But why don’t we go in the other direction? Why isn’t something saying we should be cooling down the planet? After all, if we cooled down the planet 5 degrees, we would have:

less severe summer forest fires due to excessive precipitation;
expanding glaciers;
lower snowlines;
more mountain runoff to rivers to feed our hydroelectric damns and resivoirs; and
those damn pine beetles will freeze to death in winters, saving our forests for the tree-huggers!

Why doesn’t anybody make the case for global cooling? Yeah, that’s right, it was already done in the 1970’s. See why the enviro-luddites don’t want to use the term “global warming” anymore?

In ignoring the reality of climate change, Harper is choosing to ignore the findings of virtually every scientific study done in the last 20 years.

Like this, this, or this?

I’m beginning to think the only people that ignore the findings of ’scientific studies’ are the people in contact with the media.

Harper is ignoring the opinion of the vast majority of Canadians, more than 80 per cent of whom say, time-after-time-, in poll-after-poll, that climate change is a major concern, and that they want to the Government of Canada to act on this concern.

I think the 80% claim is pure bullshit. Granted, the poll question asked whether the issue in question was the “most important” opposed to a “major concern”, but just the fact that just 2% of Canada indicated that the environment was an issue suggests that we really care about other things. There was another poll done in May; read the last paragraph on that link and see how much selection bias you can pick up.

Canada ratified the Kyoto Protocol in 2002. It is the only international agreement to combat climate change.

And we were stupid enough to ratify it unless if we knew that the USA would never ratify it (which is a safe assumption).

As with defense and foreign policy, Harper favours bilateral arrangements with other countries rather than a multilateral approach to dealing with global environmental issues.

Who cares? If I was running the country, I would be making agreements with whoever it was necessary to make agreements with. I don’t need the rest of the planet to give their royal assent to whatever I decide.

�The Canadian Parliament ratified the Kyoto Protocol. I was proud to vote for Kyoto, it was the right thing to do. We will implement the Kyoto Protocol in a way that produces long term and enduring results. I feel very strongly about upholding our international commitment to Kyoto and Canada will keep its word,� said Paul Martin on June 9, 2004.

Going back on Canada�s word in signing the Kyoto Protocol would hurt our international reputation, and would effectively kill the treaty.

The United Kingdom�s Environment Minister Elliot Morley told the Edmonton Journal as much this week.

�It would be a huge blow, both I think to Canada�s reputation and to the Kyoto process. It many even be a terminal blow,� Mr. Elliot said.

Why should Canadians care what the UK’s environment minister thinks? The treaty is already effectively dead with the USA out of the action. We’ve already lost most of our reputation in the world after World War 2 was over. What sealed the deal is when we handed our military defence over to the USA in the 50’s. And now we have to live with our decision.

To summarize, any political party saying they support Kyoto is harming the country. They’re trying to cripple the country in exchange for your vote.

For the past few years, I’ve been touting ING Direct as a good place to stick your short-term cash since it simply offers the best interest rates, anywhere. As of today, its interest rate on short-term deposits is 2.25%, which is down from 2.5% before June 15th. While 2.25% is still the best rate you can get on cash deposits (the primary competition for this market is President’s Choice Financial, which is actually controlled by CIBC – they have a rate of 2.15%), this is lower than what their typical spread above the competition has been.

The chart on the left is of short-term interest rates set by the Bank of Canada over the past year. As you can see, there is no dip around June 15th, so the decrease of ING Direct interest rates must have not been because of market factors, but because of some other factors that are not so apparently obvious. For this, we will go through some theory and come up with a hypothesis or two to explain why ING Direct lowered their interest rate.

The theory of banking (some might call it a dirty secret) is that banks do not make their money in high or low interest rate environments. Rather, they make money through the differential between short term and long term interest rates. You can examine what these interest rates are by going to the Bank of Canada’s website and look up the “Govt. of Canada Benchmark Yields” to see what the Canadian government is paying on their debt. Right now, their 2-year bond yields 3.36%, 5-year bond yields 4.23% and their 10-year bond yields 4.96%. This relationship between yields and time is called the yield curve.

How does a bank make money? You deposit your money with them and the bank will pay you a nominal rate of interest (in this case, 4.6% for a 5-year GIC). Another customer wants to borrow money (through a mortgage) from the bank for 5 years. Assuming that the customer and loan are secure, they will currently charge around 5.4% for this loan. Over five years, the bank will pocket the spread (0.8%) and report this as income on its income statement. For reasons I won’t get into here, the bank can loan out more money than it has in deposits and become wildly profitable assuming they continue to get good customers that actually pay off their loans and keep deposits at their bank. As a rule of thumb, for every dollar of deposits a bank takes in, it can dish out 7 dollars worth of loans. So for every billion dollars that the bank can take in as deposits, it can dish out 7 billion dollars in loans. Assuming every deposit and loan was for a five year term, the bank would make $56 million dollars income, each year for five years. Of course, it can use this $56 million income to take out an extra $392 million in loans each year, which accumulates an extra $3 million income, and so on.

The second way that a bank makes money is by matching the maturity of its loan portfolio with its customers’ deposits. A customer typically does not walk in looking for a 5-year GIC. In the case of ING Direct, I would suspect most customers typically park their cash in a short-term savings account because it offers the best rate. Instead of getting a 5-year rate, the bank will give a small rate (2.25%) and the customer has the option of withdrawing their cash at a moment’s notice. It is up to the bank to ensure that their short term deposits and GICs match up with their loan portfolio to ensure that the spread is as high as possible. Using our example above, if you manage to support 5-year mortgages with a billion dollars of short-term savings, your spread rises to 3.15% per dollar loaned; on a 7-billion dollar loan portfolio, that’s $220 million per year income. Realistically, their spread is somewhere between the two figures.

Banks love customer deposits: for every dollar they receive, they can typically make 10 cents of profit from that dollar, depending on the climate for loans. The penny they toss you in interest is pocket change compared to what they make from their loan portfolio.

Now that you’ve learned how a bank works, you can probably piece together why ING Direct has chosen that strategy that it has: lure capital by offering significantly higher short-term rates, and then use these customer deposits as collateral for the real money-makers: Mortgages. Now that they’re sufficiently established and have generated enough income (present and future) with their loan portfolio, they can afford to drop their interest rates on savings. Although some people will bail out, this will affect the bottom line less than the profit they make on the extra 0.25% spread.

So finally, this leads me to my hypothesis why ING Direct is lowering interest rates even though the Bank of Canada has kept their interest rates steady: The spread is not high enough and ING Direct can afford to lose customer deposits in pursuit of a larger spread.

What do I intend to do about it? Initially, nothing. But when I see opportunities open in the stock markets, I will pounce on them, leaving somebody else to collateralize ING Direct’s loans. It’s unfortunate that right now is such a horrible time to be investing in stocks, so patience is the key.

On June 18, 2004, Translink held a vote on whether they wanted the provincial government to help with the potential liabilities of the RAV (Richmond/Airport/Vancouver) line. They also voted whether they wanted to proceed with their original proposal that they voted down a month earlier; I wrote about this in a previous article on this site. The vote to have the provincial government assume any potential liabilities on the project was rejected 8-4. The vote to resume the original plan was rejected 6-6. There was a third item on the agenda with regards to an at-grade (i.e. on land) form of RAV, but I don’t recall reading anything about that. As a result, the project is effectively dead. I still maintain that there will not be a rapid transportation link between Richmond and Vancouver for 30 years. There is just too much of a political mess in this province to solve any problems until they’re so blatantly obvious that even the unions can agree they need to be fixed. The analysis is as follows:

Reason for the vote against RAV:

The directors that voted against RAV claimed that it was too expensive. This is total garbage since Translink only had to pony up $300M out of the entire $1.6B cost of the proposed project. The real reasons are that: (a) The proposal had a non-union component in the public-private partnership which pissed off half of the directors; (b) Most of the Mayors have a beef with Gordon Campbell and the BC Liberal party.

One misconception that will get spouted in the media is (c) The Northeast Lower Mainland municipalities were under the impression that they were going to get rapid transit first. This is complete steer manure as well, since it was the directors from North Vancouver, Vancouver, Burnaby and New Westminster that effectively torpedoed the proposal for no real reason. The mayor of Pitt Meadows can’t be blamed for voting against the project since they’ve already got their sweetheart deal with the new Fraser River Crossing bridge. The mayors’ secret wish is that the money that would have otherwise went into RAV would have been funneled into their jurisdiction, but they will be sadly mistaken when the federal, provincial and YVR take their collective billion dollars and tell Translink to shove it.

A final argument is that Translink was worried about cost overruns – if this was the case, then why not let the province take the liability? Translink was worried that they would not be able to exert control over the RAV line and thus rejected the money. I find it to be a rather sad state of affairs when government agencies automatically assume that projects are going to be over budget. The last Skytrain project, the Millennium line, was actually on budget.

My conclusion is that cost of the project was actually a smokescreen for the pro-union agenda. There’s no other reason to kill the project, especially when you’re receiving $1.3B of external funding to do so.

The list of losers:

Anybody living in Richmond that commutes to Vancouver, or vice versa. Skytrain would have added the passenger capacity equivalent to 10 lanes of roads to Vancouver. Since there are only six lanes of roads connecting to Vancouver (the Arthur Laing, Oak Street and Knight Street bridges), any alleviation of the road network would have been welcome. Skytrain would have probably provided faster service to the downtown core of Vancouver than a car would. More importantly, the 98 B-Line bus could have been put out of commission, which would have single-handedly improved traffic on Granville Street. The manpower and busses that you save having to cart people to Vancouver can be spent getting people to the primary Skytrain station (probably Richmond Centre).

Translink. They are no doubt going to be the running joke of the province for the next little while. What exactly have they been doing in the region except taxing the crap out of its citizens? Does anybody remember the autocratic ex-chairman of Translink, George Puil, when he tried to put a tax on anything that moves in the Lower Mainland? Translink has demonstrated they are paralyzed by politics, and the fact that they’ve rejected $1.3 billion in external funding compared to their own paltry contribution of $300 million is a either a sign that they’re politically gridlocked, or incompetent. Either way, the six that voted against RAV deserve to get fired.

Derek Corrigan, mayor of Burnaby. This man should be a candidate for the hypocrisy award of the decade. After the province blew a billion and a half on the Millennium line, of which Burnaby was the primary beneficiary, this slimeball decides that Richmond and the airport can’t have a link to the rest of Vancouver because it will be too expensive? Give me a break.

The Northeast Lower Mainland (Coquitlam, Port Moody, Port Coquitlam). I suspect that “revenge voting” will take place in the aftermath of RAV. If you look at the proposed configuration (1820k, zipped .PDF) of whatever rapid transit they do decide on, there really shouldn’t be any public consultation on which is so obviously the correct decision: The Northwest route, combined with Skytrain. Because the NE Lower Mainland was so vocal about getting their rapid transit first (one of the reasons why RAV tanked), I highly suspect that the Northeast will get screwed with one of the light rail options. It will probably take another blown billion dollars before Translink learns that light rail doesn’t work simply because it’s not fast enough.

Other reasons why RAV failed:

The unions were highly influential in making sure that this project would get tanked. One of the reasons is that they’re really afraid that the P3 (Public-Private-Partnership) would use non-union labour for some components of the construction and maintenance of the line. Secondly, Skytrain is completely automated and does not use any human drivers. Unions love busses because they employ unionized bus drivers and also because you need a disproportionate unionized army to maintenance them. The unions have heavy influence on guys like Derek Corrigan and they also like to automatically disagree with whatever the provincial government says, since Gordon Campbell has been slapping them pretty hard over the past few years.

Now before you start spouting about how much of a conspiracy theory this is, I should point out that the BC NDP leader, Carole James, had this to say about the RAV vote – the headline being “NDP Leader says transportation project sacrificed to Premier�s privatization agenda” – it’s pretty obvious that it wasn’t the RAV line that they were disagreeing with, rather the fact that it had a private component to it. Secondly, the leading union in BC, CUPE, had some serious disagreements with the whole RAV line. If it was just the private component that was the problem, why not suggest to the province that they should assume that role and pay the $300M themselves? They would then complain that the province would be “wasting taxpayer’s money”, which is exactly why the P3 is in there in the first place. The unions are really masters at writing press releases with “no-win situations”, which is exactly why any jurisdiction that is infested with unions don’t win either.

Advantages/Disadvantages of RAV:

Skytrain has been installed in the central part of the city, as you can see in the city transportation map. The problem is that busses are subject to the whims of rush hour and they clog up city streets, contributing to the rush hour that they are designed to abate. As I have argued in the past, Skytrain is fast and reliable. For the first time, RAV was proposing something that I consider to be the holy grail of rapid transit: getting people to their destinations in a cheaper and shorter time than it would take to get there by automobile.

For those of you not familiar with the network effect, just refer to one of Steven Den Beste’s articles on it – my argument is that the value of rapid transit (Skytrain) increases as it expands and encompasses more points on the geographical map. Richmond to Vancouver already generates the largest amount of commuter traffic each day – adding in rapid transit is a logical decision.

The only disadvantage of this proposal was cost: Translink was claiming that the $1.6B to be spent could be applied better elsewhere. This is again a bad argument, since approximately $1.3B of that money was earmarked to be only spent on RAV! The alternatives hyped by the opposing directors consisted of an at-grade light rail. I consider light rail to have many faults, mainly:

Integrating with existing traffic: It doesn’t. Proponents of light rail claim that the traffic grid will prioritize light rail traffic, but that’s what they said about the 98 B-Line bus going through Richmond. Anybody that’s taken the 98 B-Line through Richmond compared to what was offered in Richmond years earlier will know that it makes absolutely ZERO difference on total travel time. If they can’t even get traffic priority correct with the 98 B-Line, what makes you think they can get light rail correct?

Light rail requires a driver. This is important for the unions.

It’s slower. It won’t even come close to getting to Vancouver at the speed of a regular commute by car.

The passenger capacity of light rail is materially less. It won’t scale up well in rush hour (which is when a rapid transit system has to be the most reliable). This is exactly to avoid the type of situation where you try to hop aboard a 98 B-Line bus and discover that it is full. You can run Skytrains as frequently as two minutes if necessary.

For an idea of the deficiencies of light rail, referring to the North East rapid transit summary is a good start to get the comparisons. Something a little more difficult to read is the differences between Skytrain, Light Rail and bus for Broadway and Lougheed, but this is a large document.

It is true that light rail from Richmond to Vancouver would probably cost about $300-$400M cheaper than Skytrain, but this is exactly what the other government agencies and the airport were willing to pay for!

Conclusion

The conclusion is simple: The Lower Mainland needed RAV to extend the Skytrain network to its most commuter-dense areas; the project was mostly funded by non-Translink sources, but the Translink board shot it down for political reasons. The political reason was not cost, but rather the negative influence that the public-private partnership had on the Translink board. Political pressures from unions forced half the directors into voting RAV down.

Before the Sasser Worm struck the internet, I was rather complacent in my security configuration simply because I believed that there was no way I could possibly catch anything providing I didn’t explicit run any malicious executable code off the internet. This code typically consists of file attachments through email (which I don’t run), malicious ActiveX applets (which I don’t run since I don’t use Internet Explorer), or embedded malicious executables in typically pirated software (which I don’t do too much anymore since practically anything useful that has been made in the software world has been made over two years ago and isn’t worth upgrading).

Two pieces of software that have been advertised as providing security to people are virus scanners and firewalls. It is rather amusing from my perspective that both these pieces of software will not do anything to prevent new exploits from reaching your system. Virus scanners will only eliminate malicious software long after they have done their damage, while consumer firewalls are practically useless due to the end-user desensitization of having a dialog box constantly ask whether they want to accept TCP connections from who-knows-where. Either way, it’s the consumer’s PC that always initiates the malicious connection and the firewalls aren’t configured to stop this. I never saw a point in running a virus scanner, and I only ran a firewall back in my internet glory days when I ran a MP3 soundtrack site before the days of Napster, where I needed to avoid the detection of the incompetent Rogers Cable Service.

Sasser changed everything. Here was a perfect piece of software – in order to catch the virus, all your computer needed to do was sit on the internet with an unguarded connection and running Windows XP with a poorly programmed LSASS.EXE process. Once you catch the worm, your RPC process dies, and you get a 60-second countdown to death before your operating system automatically reboots.

Sasser was a beautiful worm. It is the first worm in my entire memory of computing where you could catch it passively – no file attachments and no ActiveX. All you needed to be doing was running an unpatched version of Windows XP at the time and your computer was compromised.

My server is an old dual Pentium 2 400MHz system that was originally bought from parts and home-made in 1998. It used to be my main system before I got my laptop early last year, but it has continued to perform a few vital services for me. Its primary function is the mail server. When I have my own mail server and domain, it is much more easier to control accounts and spam than otherwise possible. The server provides other services, such as acting as a web server (the one that is serving this page right now). The machine is a file server, which enables me to send and receive files from my own machine anywhere in the world through FTP. It contains most of my disk capacity and is fully redundant with a backup on a different physical drive. Finally, the computer is an answering machine. It has a modem connected to it, which has an application that logs the caller ID and also acts as a voice mail system. This way I can retrieve calls and monitor calling activity.

The server also must be secure. I don’t want other people reading my files, and as such, Windows XP after the Sasser worm increasingly appeared to me as a bad choice. One choice was to install a firewall and block all ports that I do not know the function of from the outside world. This choice had some appeal, but the fundamental issue is that Windows XP has some processes doing something I know absolutely nothing about. Thus, the choice to move back to Windows NT4 was the only alternative.

I spent the past couple days backing up and re-installing the operating system, something I haven’t done for over a year. There were some hiccups, such as the main hard drive partition (27GB) not being recognized by NT4. There were additional problems in moving back my voice mail system, which is powered by a discontinued Symantec product called Talkworks Pro 3.0. Otherwise, the installation of my mail, web and ftp servers went smoothly and I feel a bit more secure when running netstat and knowing exactly where my system could be compromised, if anywhere.

I do this with a nifty utility called Nmap which is a good all-purpose portscanner. Doing a portscan on myself yields the following:

PORT STATE SERVICE
21/tcp open ftp
25/tcp open smtp
80/tcp open http
110/tcp open pop3
135/tcp filtered msrpc
136/tcp filtered profile
137/tcp filtered netbios-ns
138/tcp filtered netbios-dgm
139/tcp filtered netbios-ssn
366/tcp open odmr
443/tcp open https
5800/tcp open vnc-http
5900/tcp open vnc
8082/tcp open blackice-alerts

Note I have filtered off TCP ports 135 to 139 to prevent any potential RPC/NetBIOS attacks on my server. All the other open TCP ports on my system I have full knowledge of – mail is handled by 25, 110, 366 and 8082, web is handled by 80/443, ftp is 21, and remote control is 5800/5900. There is absolutely no way to take over my system unless if there is an application-level exploit in any of the applications that are open above.

If you compare this with a typical installation of Windows XP, there are plenty of holes which can be exploited. Taking a look at a friend’s computer, we have the following:

PORT STATE SERVICE
21/tcp open ftp
135/tcp open msrpc
139/tcp open netbios-ssn
1025/tcp open NFS-or-IIS
1400/tcp filtered cadkey-tablet
5190/tcp filtered aol
5191/tcp filtered aol-1
5631/tcp filtered pcanywheredata
5632/tcp filtered pcanywherestat

What exactly is Windows XP doing with TCP ports 135, 139, and 1025 open? What other buffer overruns are waiting out there to get exploited?

I don’t know. What I do know is that Windows XP Service Pack 2 has been in the works for nearly a year, and the hackers have just as free access to the previous versions as do the system administrators. If you were a hacker that had a working remote exploit to Windows XP, would you tell anybody about it? I sure as hell wouldn’t.

Something worse than no security at all is a false sense of security. Firewalls and virus scanners provide exactly that – a false sense of security. This is the definition of unsafe software – software that is misleading the end user into believing something which doesn’t exist.

As a result, my decision to downgrade to Windows NT4 is strictly for the reason that “less is more” – by having less potential exploitable material on my computer system, there is less for the hackers to get into if they try to do another mass attack on the internet like they did with the Sasser worm. I do not like having my own data and security compromised and this is how I choose to fight back – by downgrading to a safer operating system.