Exploding the Debt Threshold Myth

Friday, 26 April 2013 | By Salvatore Babones, Truthout | Op-Ed

In January 2010, two prominent Harvard University economists, Carmen Reinhart and Kenneth Rogoff, published a highly influential paper in which they argued that high levels of government debt are associated with low levels of economic growth.

They concluded that above the threshold where government debt exceeds 90 percent of national income, "median growth rates fall by one percent, and average growth falls considerably more."

Following on the heels of the 2008 global financial crisis and the associated spike in government borrowing in Europe and the United States, the Reinhart-Rogoff paper quickly became a touchstone for the small-government crowd. Austerity is the order of the day. Reinhart and Rogoff are its prophets.

Now three economists at the decidedly less upscale University of Massachusetts - Thomas Herndon, Michael Ash and Robert Pollin - have uncovered a series of errors and outright blunders in the Reinhart-Rogoff results.

Not only did the trio show that Reinhart and Rogoff misinterpreted and misanalyzed their data, they also found a simple spreadsheet error that dramatically changed the statistical results. Austerity, it turns out, only works if you don't know how to use Excel.

Reinhart and Rogoff have acknowledged their errors, though they are at pains to stress that the errors are largely immaterial to their overall conclusions that government debt levels of more than 90 percent of national income are associated with low levels of economic growth.

They also disingenuously point out that "We are very careful in all our papers to speak of 'association' and not 'causality.' " Disingenuously, since their pro-austerity stance shines through all their work. After all, the title of their 2010 paper was "Growth in a Time of Debt," not "Debt in a Time of Recession."

Especially misleading is a chart in their paper that shows US economic growth rates for four different levels of US government debt, with the bars becoming alarmingly redder as the debt levels increased.

Reinhart and Rogoff analyzed 220 years of US economic history to conclude that, on average, the US economy has consistently grown at rates over 3 percent per year at all levels of government debt from 0 percent to 90 percent of national income. But when US government debt has risen above 90 percent, the US economy has contracted, they found.

Nowhere in their paper do they mention just when it was that US government debt rose above 90 percent of national income. Was it the Great Depression? No. The Bush or Obama years? No. Perhaps back in the 19th century? No.

In fact, in its 220-year recorded economic history, the United States has only ever experienced four years in which federal government debt exceeded 90 percent of US national income: 1944, 1945, 1946 and 1947.

In those four years, real economic growth was 8.1 percent, -1.1 percent, -10.9 percent and -0.9 percent, respectively. Which tells us absolutely nothing, except that after a huge world war it takes some time for an economy to readjust to peacetime production. Anyone who says that America's sudden recession in 1946 was due to government debt, not the end of the war, is either crazy, deceitful or stupid.

Carmen Reinhart is the Minos A. Zombanakis Professor of the International Financial System at Harvard's Kennedy School of Government. Kenneth Rogoff is the Thomas D. Cabot Professor of Public Policy and Professor of Economics at Harvard University. You be the judge.

Actually, Reinhart and Rogoff do recognize the warping effects of World War II - on Australia and New Zealand. In those two countries Reinhart and Rogoff found that high debt was actually associated with stronger than average economic growth. But they (correctly) wrote this off as a distortion caused by the war.

In fact, of the 20 rich countries studied by Reinhart and Rogoff, only one example shows negative growth resulting from high debt: the United States after World War II. But despite the fact that they are American, live in America and mainly study the US economy, they fail to note that the only period of high debt coupled with recession in US history was the 1946 demobilization after World War II.

Apparently war distorts the data when it makes debt look good, but war isn't worth mentioning when it makes debt look bad.

It gets worse. University of Southern California professor Richard Green raises an even bigger issue. In a column for Forbes magazine, he suggests that it may be the case that debt doesn't cause low growth. It may be that low growth causes governments to go into debt.
Green presents very preliminary statistical results in his column based on a standard econometric technique called the Granger causality test. His results suggest that the impact of high debt on economic growth is either positive or neutral, while the impact of economic growth on high debt is either negative or neutral.

This is strong first-look evidence that recessions cause debt, not the other way around. But no one - Green included - expects to solve this complex statistical issue in a 600-word column. The travesty is that Reinhart and Rogoff didn't even raise the issue in a 25-page academic paper.

Lies, damned lies, and statistics. It is easy to massage data. For example, why should one expect high government debt to have an immediate impact on economic growth? Reinhart and Rogoff could just as well have studied the impact of government debt on growth rates several years later.

If they had, they might have found that in the United States, high government debt was associated with rapid economic growth. US government debt peaked in 1945 at 112.7 percent of national income. Five years later, in 1950, the US economy was racing ahead at an 8.7 percent growth rate.

The potential lesson for today? If we borrow heavily in 2013, we can enjoy a huge growth dividend in 2018.

Of course, that lesson is no more valid than Reinhart and Rogoff's austerity lesson. But it's no less valid.

If we borrow now to invest in education, job training and infrastructure, it's likely we will have robust growth in 2018. But we don't know that from Reinhart and Rogoff's historical data. We know that from common sense.

Even if the expected economic growth doesn't materialize, we will still have the education, the job training and the infrastructure to show for our spending. That's something.

At a time when the US government can borrow for five years for less than 1 percent annual interest and for 30 years for less then 3 percent annual interest, it's crazy to be cutting government spending instead of investing in our future. Well, it's either crazy, deceitful or stupid. You be the judge.

JPMorgan admits to losing $5.8 billion this year so far

RT - Published: 13 July, 2012,

There’s bad news out of Wall Street this week after JPMorgan Chase admits that a trading goof earlier this year has helped earn the country’s biggest bank $5.8 billion in losses — nearly triple the original estimate.

JPMorgan Chase CEO Jamie Dimon tells reporters early Friday that the botched deal overseen by then-Chief Investment Officer Ina Drew is now believed to have cost the bank around $4.4 billion in the second quarter for 2012. Originally JPMorgan staffers saw the gaffe as costing them only around $2 billion, but between Friday morning’s revelation and the revisions made on its first quarter losses, the actual amount lost in 2012 for the bank stands to be around $5.8 billion, notwithstanding any further developments.

Speaking to the press early Friday, Dimon tells the media, “we don’t take it lightly,” but adds that he believes the snafu was not part of any larger screw-up.

"We're not making light of this error, but we do think it's an isolated event,” Dimon pleads.
Dimon has dismissed claims that the mix-up earlier this year will have long-lasting effects on the bank, but has also been open to admitting their faults. In a statement delivered in May, Dimon said, “We maintain our fortress balance sheet and capital strength to withstand setbacks like this, and we will learn from our mistakes and remain diligently focused on our clients, who count on us every day.”

Drew, the former CIO for the bank, resigned from that role in May after news of the gaffe made international headlines. Even after overseeing a deal that cost the company only an estimated $2 billion at the time, though, Drew’s departure from JPMorgan was accompanied by a payout expected to bring her $15 million personally by walking away.

“Despite our recent losses in the CIO, Ina’s vast contributions to our company should not be overshadowed by these events,” Dimon insisted after the resignation was made public.

In this Friday’s statement, Dimon adds, "We have put most of this problem behind us and we can now focus our full energy on what we do best.”

Marty Mosby, an analyst that follows JPMorgan for Guggenheim Securities, tells USA Today that the new developments about the trading loss doesn’t come as too big of a surprise on Wall Street. The real shocker, however, was that JPMorgan has revised is first-quarter earnings to account for a $459 million in additional losses that it is only admitting too now.

"The trading loss was right in line with what we expected," says Mosby. "And the actual report on earnings was much stronger than we expected. What we didn't expect was the restatement. It raises further uncertainty and could lead to reviews from the Securities and Exchange Commission" and other regulators.

The bank agrees that the latest development "raises questions about the integrity" of other trades made this year.

Credit Error? It Pays to Be on V.I.P. List

May 14, 2011

Credit Error? It Pays to Be on V.I.P. List
By TARA SIEGEL BERNARD
 
The credit rating bureaus, whose reports influence everything from credit cards to mortgages to job offers, have a two-tiered system for resolving errors — one for the rich, the well-connected, the well-known and the powerful, and the other for everyone else.

The three major agencies, Equifax, Experian and TransUnion, keep a V.I.P. list of sorts, according to consumer lawyers and legal documents, consisting of celebrities, politicians, judges and other influential people. Those on the list — and they may not even realize they are on it — get special help from workers in the United States in fixing mistakes on their credit reports. Any errors are usually corrected immediately, one lawyer said.

For everyone else, disputes are herded into a largely automated system. Their complaints are often electronically ferried to a subcontractor overseas, where a worker spends, on average, about two minutes figuring out the gist of the matter, boiling it down to a one-to-three-digit computer code that signifies the problem — “account not his/hers,” for example — and sending a dispute form to the creditor to investigate. Many times, consumer advocates say, the investigation translates to a perfunctory check of its records.

“The legal responsibility of the credit reporting agencies and of the creditors is well established,” said Leonard Bennett, a consumer lawyer in Newport News, Va. “There is a requirement that they do meaningful research and analysis, and it is almost never done.”

Consumers who have trouble fixing errors through the dispute process can quickly find themselves trapped in a Kafkaesque no man’s land, where the only escape is through the court system.

“You are guilty before you are proven innocent in a situation like this,” said Catherine Taylor, 45, of Benton, Ark., who said she had been denied employment and credit because her filing was mixed up with a felon who had the same name and birthday.

Judy Johnson of Bossier City, La., was confused with a less creditworthy Judith Johnson, with a similar address and Social Security number. For nearly seven years, Judy Johnson, a 63-year-old credit manager for a building supply company, said she tried to remove the black marks from her credit report. But when she was denied a credit card, she knew the problem had returned — a third time. “This time, I was livid,” she said.

She ultimately brought a suit against one of the bureaus, and recently settled for an amount she cannot disclose. But the problems still linger. A deputy sheriff recently came to her door to serve her papers for a debt she says she does not owe.

The credit rating bureaus, private-sector companies that each attempt to track all American consumers’ credit use, have grown much more powerful over the last couple of decades as credit has become a crucial cog in the nation’s financial system. Their reports are used to formulate the all-powerful credit score, which lenders use to determine creditworthiness.

But as the bureaus’ work has become more important, consumer advocates say, regulation has not kept up, in large part because their overseer, the Federal Trade Commission, lacks broad authority. That could change once responsibility for the credit bureaus shifts to the new Consumer Financial Protection Bureau, which will be able to write rules and examine the credit agencies’ policies.

The bureaus, meanwhile, do not have an economic incentive to improve the system, consumer advocates say, because their main customers are the creditors, not consumers.

“There is no neutrality in the credit reporting agencies,” said John Ulzheimer, who has been an expert witness in more than 80 credit-related cases and is president of consumer education at SmartCredit.com. “They work for the lenders who buy credit reports from them, and anyone who suggests otherwise is not being intellectually honest.”

When asked about the V.I.P. category, TransUnion said all consumers “have the ability to speak to a live representative.” Equifax said consumers who received a free copy of their credit report were provided with a number for customer service.

Experian denied that it had V.I.P. lists. But a spokeswoman did say that prominent people deemed high risk — like politicians in an election year — might have their credit files taken offline so that creditors or other companies making inquiries could not get access without the bureau’s permission. Experian said those people did not receive any other special handling.

David Szwak, a consumer lawyer in Shreveport, La., who has handled dozens of credit cases, said that the V.I.P. designation and preferential treatment did exist at Experian, and he provided sworn testimony from former Experian employees that the category existed.

Estimates of credit reports with serious errors vary widely, anywhere from 3 to 25 percent. A recent study, paid for by the Consumer Data Industry Association, the trade group for the bureaus, found potential errors in 19.2 percent of reports, but said that less than 1 percent of them had disputes that, when settled, resulted in a meaningful increase in scores. Even 1 percent translates into millions of consumers, since there are at least 200 million files at each of the bureaus.

The F.T.C. is expected to deliver a nationwide study on credit report accuracy next year that could provide more clarity. It could also include recommendations for legislative action.

The volume of disputes has been rising as consumers borrow more and gain greater access to credit reports. The automated system was a response to that. A spokesman for the trade group said most consumers received an answer within 14 days.

Experian is the only bureau that still processes disputes in the United States, experts said, though most complaints wind their way through the same online system — unless the dispute involves a V.I.P.

“They get a lot more high-end treatment,” said Mr. Szwak, the lawyer, who has read the bureaus’ internal procedure manuals and deposed or cross-examined employees. The biggest difference at TransUnion and Equifax, lawyers said, is that V.I.P.’s disputes are specially handled domestically. Regular consumers’ files, meanwhile, may get priority treatment if they involve a time-sensitive issue, like a mortgage pending, or if the consumer is represented by a lawyer or dealing with fraud.

Last year, new rules went into effect to strengthen existing regulations on the accuracy of reports. The rules also allow consumers to dispute errors directly with the creditor. But critics say the rule lacks any teeth because consumers don’t have the right to sue the companies. (Individuals can, however, sue the bureaus and creditors after lodging a dispute through their system.)

But the problem, advocates say, is that consumers cannot vote with their feet. “They cannot remove their information from the bureaus,” said Chi Chi Wu, a staff lawyer at the National Consumer Law Center, who wrote a report on the automated dispute process in 2009, “or take their business elsewhere.”

Ordinary Workers Are Fired in Seconds If They Screw Up as Badly as the Bankers

(Sscrew-ups or thieves?--jef)

#*#

There has been little change in personnel and no acknowledgment of error at the central banks whose incompetence was responsible for the crisis.
By Dean Baker, AlterNet
May 29, 2010

The world is suffering from the worst downturn since the Great Depression. The crisis has left tens of millions unemployed in the U.S., Europe, and elsewhere. The huge baby boomer generation in the United States, now on the edge of retirement, has seen much of its wealth destroyed with the collapse of the housing bubble.

It would be difficult to imagine a worse economic disaster. Prior periods of bad performance, like the inflation ridden seventies, look like mild flurries compared to the blizzard of bad economic news in which we are now enmeshed.

None of this is new. People don't need economists to tell them that times are bad. However, what the public may not recognize is that the same people who caused this disaster are still calling the shots. Specifically, there has been little change in personnel and no acknowledgment of error at the central banks whose incompetence was responsible for the crisis.

Remarkably, this crew of incompetents is still claiming papal infallibility, warning governments and the general public that bad things will happen if they are subjected to more oversight. Instead, the central bankers and their accomplices at the IMF are dictating policies to democratically elected governments. Their agenda seems to be the same everywhere, cut back retirement benefits, reduce public support for health care, weaken unions and make ordinary workers take pay cuts.

Given how much they have messed up, it is amazing that these central bankers have the gall to even show their face in public. They are lucky that they still have jobs -- and very good paying ones at that. (Many of the boys and girls at the IMF can retire with six figure pensions at the age of 50.) Ordinary workers, like teachers, autoworkers, or custodians, would be fired in a second if they performed as badly as the world's central bankers.

What was going through their heads when they saw house prices in the United States, the UK, Spain and elsewhere spiral upward with no basis in any of the fundamentals of the housing market? How did they think this bubble would end; did they think that trillions of dollars of housing bubble wealth could just disappear without any impact on the economy. Or, did they think the bubble would never end and that house prices would just continue to go skyward forever?

How about the central bankers who allowed the euro to be imposed on a mix of economies with very little in common and no controlling governmental organization? Did they think that wages and prices would follow the same pattern in Greece and Germany? If not, what adjustment mechanism did they envision once these widely different economies were tied to together in a single currency?

Yes, many of the central bankers are now saying that they knew the euro was a bad idea back when it was established. Some of them even muttered quietly to this effect. But the central bankers and the IMF in 1998 were not making the same bold pronouncements and issuing the same directives to elected governments about structuring the euro zone that they are now doing in telling them to dismantle their welfare states. In other words, these central bankers failed disastrously -- why do they still have jobs and why on earth is anyone listening to them?

At the top of the list of villains in this story is the IMF. Its ineptitude managed to reverse the fundamental flows of capital in the world economy. In normal times capital is supposed to flow from wealthy countries with large amounts of capital, like the United States and the European countries, to the developing countries who need capital to fuel their development. Due to the failure of the IMF to establish a workable system of international finance, the flows went in the opposite direction in a huge way. The world's poor were sending their capital to the United States because the IMF gave them little choice.

It is important to be clear about the responsibility of the central bankers and the IMF for this totally preventable disaster. The first reason is accountability, something that is very important to economists who believe in economics. Economic theory teaches us that if workers are not held accountable for poor work, then they have no incentive to do their jobs well. If the central banker and IMF crew can mess up disastrously and continue to draw their paychecks as though everything is fine, what is their incentive to do better next time?

The other reason why it is important to recognize the responsibility of the central bankers and the IMF for this disaster is so that we don't continue to take advice from people who apparently don't have a clue. Before anyone listens to Ben Bernanke, European Central Bank President Jean-Claude Trichet, or IMF Managing Director Dominique Strauss-Kahn, they should first be forced to tell us when they stopped being wrong about the economy. We cannot afford to let these subprime central bankers control economic policy any longer.

Ensnared by Error on Growing U.S. Watch List

Ensnared by Error on Growing U.S. Watch List
By MIKE McINTIRE

Rahinah Ibrahim, a Stanford University doctoral student, arrived at San Francisco International Airport with her 14-year-old daughter for a 9 a.m. flight home to Malaysia. She asked for a wheelchair, having recently had a hysterectomy.

Instead, when a ticket agent found her name on the no-fly list, Ms. Ibrahim was handcuffed, searched and jailed amid a flurry of phone calls involving the local police, the F.B.I. and the Department of Homeland Security. Two hours after her flight left, Ms. Ibrahim was released without explanation. She flew to Malaysia the next day.

But when she tried to return to the United States, she discovered that her visa had been revoked. And when she complained that she did not belong on a terrorist watch list, the government’s response came a year later in a form letter saying only that her case had been reviewed and that any changes warranted had been made.

Every year, thousands of people find themselves caught up in the government’s terrorist screening process. Some are legitimate targets of concern, others are victims of errors in judgment or simple mistaken identity.

Either way, their numbers are likely to rise as the Obama administration recalibrates the standards for identifying potential terrorists, in response to intelligence failures that let a would-be bomber fly to Detroit from Amsterdam last Christmas. On Friday, the administration altered rules for identifying which passengers flying to the United States should face extra scrutiny at the gate. And it is reviewing ways to make it easier to place suspects on the watch list.

“The entire federal government is leaning very far forward on putting people on lists,” Russell E. Travers, a deputy director of the National Counterterrorism Center, said at a recent Senate hearing. Before the attempted attack on Christmas, Mr. Travers said, “I never had anybody tell me that the list was too small.”

Now, he added, “It’s getting bigger, and it will get even bigger.”

Even as the universe of those identified as a risk expands, the decision-making involved remains so secretive that people cannot be told whether they are on the watch list, why they may be on it or even whether they have been removed. The secrecy, government officials say, keeps terrorists off balance. But civil liberties advocates say it can hide mistakes and keep people wrongly singled out from seeking redress.

Now, five years after Ms. Ibrahim’s arrest at the United Airlines ticket counter, a lawsuit she filed is chipping away at that wall of secrecy. While judges have dismissed many similar cases, a federal appeals court let hers proceed, endorsing a new legal strategy for challenging placement on the watch list. In December, a federal judge scoffed at the government’s claim for secrecy and ordered it to release files on Ms. Ibrahim’s detention.

Ms. Ibrahim’s case has also raised legal questions about detaining people whose names appear on the no-fly list, and it casts light on the role of private contractors in deciding whether someone should be held. The police in San Francisco said they had acted on the instructions of a contractor working for the Homeland Security Department.

The government is fighting back, and there is no guarantee that Ms. Ibrahim, a 44-year-old mother of four, will ever learn more about what happened. However, an examination of her case, along with documents from other lawsuits, government audits and official testimony, offers some broad hints about the murky system.

The watch list is actually a succession of lists, beginning with the Terrorist Identities Datamart Environment, or TIDE, a centralized database of potential suspects. Mr. Travers said that about 10,000 names come in daily through intelligence reports, but that a large percentage are dismissed because they are based on “some combination of circular reporting, poison pens, mistaken identities, lies and so forth.”

Analysts at the counterterrorism center then work with the Terrorist Screening Center of the F.B.I. to add names to what is called the consolidated watch list, which may have any number of consequences for those on it, like questioning by the police during a traffic stop or additional screening crossing the border. That list, in turn, has various subsets, including the no-fly list and the selectee list, which requires passengers to undergo extra screening.

The consolidated list has the names of more than 400,000 people, about 97 percent of them foreigners, while the no-fly and selectee lists have about 6,000 and 20,000, respectively.

The standards for adding names to the lists have gone through a cycle of tightening, then relaxing. After the Sept. 11 attacks, hundreds of names were added with few guidelines, eventually leading to complaints that too many innocent travelers were being stopped. Two years ago, the government developed a reasonable suspicion standard and secret protocols for applying it; their last major revision was outlined in a 72-page memorandum in February 2009 that clarified the “minimum substantive derogatory criteria.”

A federal official involved in the process said that under those rules, associating with a known or suspected terrorist was not enough to warrant being listed; there had to be evidence that the person supported terrorism. The criteria also generally require more than a single source of “derogatory information,” said the official, who requested anonymity to discuss security matters.

A task force formed after the Christmas Day episode is considering changes to the process, including making it easier to label suspects extremists and giving greater weight to credible “single-source walk-ins,” the official said. The suspect in the attempted bombing, Umar Farouk Abdulmutallab, was known to American intelligence analysts because his father, a banker in Nigeria, had reported him to the authorities, but he had not been placed on the watch list.

Putting United States citizens on the watch list requires more than just a single tip, although one tip could prompt an investigation that eventually leads to placement on the list. Local police officers are encouraged to file “suspicious activity reports” with the F.B.I. or the Homeland Security Department, which finances about 70 intergovernmental intelligence cooperatives nationwide.

While federal policies prohibit profiling, a wide range of innocent activities can be deemed suspicious. Guidelines distributed by several cooperatives advise landlords to be alert for tenants who prefer ground-floor apartments and have little furniture. Among the warning signs listed by one in Ohio are “immersion in a purely Muslim environment” and the “study of technical subjects” like engineering.

By such standards, Erich Scherfen could look suspicious. A veteran of the Persian Gulf war and a commercial pilot from Pennsylvania, Mr. Scherfen converted to Islam and married a Pakistani-born woman, Rubina Tureen, who runs a small business selling religious books. They have taken part in Islamic conferences and interfaith seminars.

In May 2006, a co-worker told the state police that Mr. Scherfen had retrofitted the family car to carry bombs, court records show. (He said he had simply removed a broken seat from his old Mazda.) Not long after, Mr. Scherfen and Ms. Tureen began being detained at airports, jeopardizing his job.

The couple filed a lawsuit, and his job was saved after a judge was given secret evidence that apparently indicated that Mr. Scherfen had been taken off the selectee list.

“I think some ill-informed people were putting the dots together and came to faulty conclusions,” Ms. Tureen said.

Their lawsuit cited rulings in Ms. Ibrahim’s case as precedents.

A Muslim who came to the United States to study civil engineering, Ms. Ibrahim impressed colleagues at Stanford. “Of all the people you could think of who might be on a list of terrorism suspects, she would be pretty close to the bottom,” said Raymond Levitt, one of her faculty advisers.

The judge presiding over her lawsuit appeared skeptical, too.

“It looks like to me it was a monumental mistake, and they identified the wrong person,” the judge, William H. Alsup of Federal District Court in San Francisco, said at a hearing in December. “I’m just guessing.”

The authorities will not say why they singled out Ms. Ibrahim. A week before her scheduled flight to Malaysia in January 2005, she was visited by two F.B.I. agents, said her lawyer, Marwa Elzankaly.

“They actually claimed they did not know why they were there to interview her,” Ms. Elzankaly said, “and basically just asked her a few background questions about herself, her family, her line of work, her travel plans and her education.”

When the airport ticket agent discovered her name on the no-fly list, he called the San Francisco police, who contacted the Transportation Security Administration in Washington. There, they reached a watch officer working for U.S. Investigations Services, one of several private contractors the agency has hired for its 24-hour operations center.

The contractors’ duties “include receiving telephone inquiries and providing direction as to how to handle passengers,” said Kristin Lee, an agency spokeswoman.

The police incident report says the watch officer told the police to “deny the flight to Ibrahim, contact the F.B.I. and detain her for further questioning.” She was driven to a police substation, where she was searched and placed in a holding cell. Eventually, an F.B.I. agent told the police to let her go, adding that she was being moved to the selectee list and could fly home.

Outraged, she decided to sue for wrongful arrest and to find out why she was on the list. But the law creating the T.S.A. made it virtually impossible to mount a legal challenge against it.

Instead, Ms. Ibrahim’s lawsuit focused on the F.B.I.’s Terrorist Screening Center, which does not have the same legal protections. After much of her case was thrown out, a divided United States Court of Appeals for the Ninth Circuit reinstated it.

“If your name or my name or anybody’s name in this courtroom were put on that list, we would suffer grievously,” the chief judge, Alex Kozinski, said at a hearing in April 2008. “And we want to have some way of going to our government and possibly to our courts and saying, ‘Look, I shouldn’t be on that list.’ ”

Another issue raised by Ms. Ibrahim’s case is whether inclusion on the no-fly list is sufficient grounds for arrest. At a hearing last December, government lawyers agreed that it was not, although the courts generally allow brief detentions for investigative purposes.

The police, as part of their defense, offered to explain why they detained Ms. Ibrahim, but the F.B.I. and Department of Homeland Security refuse to allow it.

Meanwhile, Ms. Ibrahim earned her doctorate from Stanford but has been unable to return to the United States to participate in the lawsuit. Her lawyers said in a court filing that when she applied for a new visa last September, American Embassy officials in Kuala Lumpur questioned her about the suit, asking what it would take to settle it.

Last month, Ms. Ibrahim accepted a $225,000 settlement from the San Francisco police and U.S. Investigations Services. But she is pursuing her claims against the federal government. None of the defendants’ lawyers would comment for this article.

At the December hearing, Judge Alsup showed his displeasure at the government, telling Justice Department lawyers that they were abusing the secrecy privilege.

“You’re holding onto this five-year-old information like, you know, like another 9/11 is going to happen if you somehow release it,” the judge said, according to a transcript. “That’s just baloney.”