Streetwise Professor

Folks are all atwitter about Russia’s tentative plans to sell off stakes in state companies, including Rosneft, in order to raise money to plug its budget deficit.

A few brief comments.

First, I’ll believe it when it happens.  This is something being pushed by Kudrin on fiscal grounds, but it no doubt rubs many powerful people the wrong way.  Outside investors, minority or no, can be troublesome because they have an interest in knowing where their money is spent.

Second, since protections for minority investors are so weak in Russia, it is very hard for these pesky folks to see where their money is going, and to do anything about it when they find out it’s going somewhere it shouldn’t.  So caveat emptor.  Or, as I wrote in one of the very first SWP posts, a fool and his money . . .

Third, the case of Hermitage Capital and William Browder and Sergei Magnitsky should be a cautionary tale about the risks of being a portfolio investor who dares to point out self-dealing and corrupt practices in Russian corporations.  So if you invest, keep your mouth shut: you’re just along for the ride.  Sound like fun?

Fourth, strategic investment in Russian companies isn’t all that appetizing either.  The most recent example of this ConocoPhillips’ decision to sell its stake in Lukoil, an ostensibly private Russian oil company. CP invested in the expectation of doing joint projects with Lukoil in Russia, but that didn’t pan out, apparently due to government intransigence:

ConocoPhillips’ investment into Lukoil avoided a similar breakdown, but it didn’t lead to any new projects or any significant influence in the Russian company’s board room.

“I think all sides were disappointed,” said Ron Smith, head of Europe, Middle East and Africa research at brokerage Chevreux. “It worked well in theory, but just didn’t turn out quite as rosy as they had figured.”

“It’s a major hurdle for foreign companies putting new money to work in Russia,” Smith said. “The real problem is that the Russian government doesn’t see the need for foreign companies to work in [exploration and production] anymore.”

Hardly a story to encourage the return of foreign direct investment, which Russia desperately needs.

Fifth, selling off minority stakes is not privatization in any meaningful sense.  Control does not pass into private hands: private money passes into state hands.  Big difference.

Sixth, it’s not a one way street. The  cage match between Deripaska and Potanin over Norilsk Nickel (which Deripaska says he will “fight to the death“–here’s hoping this is one time Oleg tells the truth!) could lead to the government to take a stake in the company to put an end to the fighting, which is destroying value.  Deripaska gadfly John Helmer (who claims that he was the target of a Rusal assassination plot) unwraps the mystery inside the riddle inside the enigma by reading Bloomberg backwards, and claims that Deripaska will be the one without the chair when the music stops.  Which goes to show that “privatization” in Russia is not a permanent condition.  What the government giveth, the government taketh away.

In sum, if you’re thinking of investing in this simulacrum of privatization, on the outside chance it comes to pass: to learn more about Russian state-business relations, you’re probably best advised to re-watch The Godfather movies.

Not long ago I wrote a post about commodity forward curves, focusing on the confusion between “backwardation” as the term is used in the market, and as misused by Keynes, to the confusion of many.  The basic point was that  Keynesian “normal backwardation” stories cannot explain directly observable forward curves.  Normal backwardation is about risk premia–differences between futures prices and expected spot prices–and these risk premia are not observable directly.

For an asset that is always in positive supply, there can be backwardation in the Keynesian sense but the forward curve will always be at full carry.  Arbitrage considerations drive the forward curve, and risk preferences of the marginal speculator affect both spot and futures prices, without affecting the spot-futures spread.  In essence, if the futures price is downward biased, the spot price will be less than the present value of the expected spot price; this price depression causes an appreciation in the spot price that rewards someone holding the asset for the risk, and this upwards drift over and above the risk free rate is exactly the same as the upward drift in the futures price.  Changes in risk preferences affect both spot and futures prices in the same way by the same amount, leaving spreads unchanged.

But commodities are not always in positive net supply.  There are sometimes stockouts.  Indeed, stockouts must occur in an efficient equilibrium, as if not, some units of the commodity would be produced but never consumed, which would be wasteful.

If risk preferences are to affect the forward curve, then, it must be through their effect on stockholding.  I have investigated this using a dynamic structural storage model of the kind that I examine in detail in my forthcoming book.

The technical details in a nutshell:  I utilize a simple model in which there is one random, mean reverting demand shock; that is, the demand shock follows an O-U process.  Production costs are subject to decreasing returns.   I solve the dynamic programming problem giving the optimal storage rule using the standard machinery.

To take risk preferences into account, I take a trick from contingent claim pricing theory.  If the marginal speculator is risk neutral, the forward price is the expected spot price, where expectations are taken with respect to the true (physical) probability measure.  If the demand shock risk is priced, however, due to risk aversion, the forward price is the expected spot price, where the expectations are taken with respect to an equivalent measure.  The demand shock process in the equivalent measure has a “drift” that differs from that of the process under the physical measure.  A negative drift adjustment means that the forward price is downward biased (Keynesian backwardation).  A positive drift adjustment means that the forward price is upward biased.

I solve the dynamic program for the storage problem under three values of the drift: zero, as under the assumed physical measure, plus 5 percent and minus 5 percent.

The results are interesting, and intuitive (I think, anyways).  The drift–and hence risk preferences–have a first order effect on inventories.  With downward bias, inventories are lower than under the physical measure.  Intuitively, downward bias makes it costly to hedge inventories, so inventories are smaller.

I’ve studied the performance of these model economies using long simulations.  Interestingly, even though inventories are smaller in the downward biased economy, the effects on prices are relatively small.  Plots of the spot prices (based on the same sequence of simulated shocks) from the two economies are almost on top of one another, and the average difference in prices across the simulations is about 1 percent.  There is a slight difference in price volatility (about a 5 percent difference).  Volatility is higher in the downward biased economy as demand shock-buffering inventories are smaller in that economy.  Importantly, prices are highly correlated across the two economies.  Demand shocks are the main drivers of price movements in both economies, and for an identical set of demand shocks, price movements are highly correlated.

Spot-forward spreads are affected somewhat.  (I simulate a spot-3 month spread).  Backwardations are more pronounced, and more frequent, in the downward bias economy.  This is because stockouts are more likely in this economy due to the smaller stockholdings.  But overall, the differences in calendar spreads between the two economies are not large (although they are larger than the price differences); the time series plot of the simulated spread for the downward biased economy is a slight displacement of the simulated spread for the risk neutral economy.  Backwardations peak at about the same times in each simulation, and contangoes/full carry periods exhibit large overlaps (though not complete overlaps, because there are times that the downward biased economy exhibits departures from full carry when the risk neutral economy does not).

One key result is that almost never in the simulations does a substantial backwardation exist in the downward biased economy while the risk neutral economy is at full carry.

Results for the upward biased economy are symmetric.  Inventories are larger, price volatility smaller, and prices about the same in the upward biased economy as in the risk neutral one.  Spreads tend to be closer to full carry, and backwardations are not as extreme, although the timing of backwardations is highly coincident in the two economies.

This has implications for the speculation debate.  Changes in market structure that lead to increased integration between a commodity market and the broader financial markets can, in theory, have an impact on the behavior of the commodity market.  In general, if you believe that a commodity market that is, as in the Keynesian treatment, isolated from the broader financial market exhibits “normal backwardation”, then the entry of diversified speculators that results in a dissipation of downward bias will have some effect on prices and spreads, and potentially a big effect on inventories.

The effect on prices and spreads is likely to be very hard to detect.  Even with a relatively big bias like that I assumed in the simulations, the effects on prices and spreads are not large.  Scholars have had a very hard time detecting any risk premium/bias in forward prices going back to the seminal contribution of Telser in 1960.  Certainly, there are no reliable estimates of bias as large as I assumed in my simulations.  This suggests that any effects of increased speculation on price bias/risk premia would be too small to have any effect on prices and spreads that could be identified reliably.

So, I am skeptical that any “financialization” of commodities that has occurred in recent years has had an effect on price levels or forward curves that can be distinguished against the normal noise in prices and spreads.

It should be noted, moreover, that integration of the commodity markets into the broader financial markets leads to consistent pricing of risks across markets.  Indeed, arguably differences in risk prices is a major driver of flows of capital.  If, for instance, a commodity market (say, oil) is not perfectly integrated in the financial system, so the price of oil price risk is higher than the price justified by risk premia on other investment opportunities in the economy, investors have an incentive to take on more oil price risk in order to capture its too high price. This will reduce the bias.

Integrating fragmented markets and equalizing price differences is typically efficiency enhancing.  It leads to a more efficient allocation of risk.  That’s a big part of what capital markets should be about.

In the commodity case, if the isolated commodity market exhibits downward biased forward prices, the entry of speculative capital that reduces this bias makes hedging cheaper, and encourages the holding of larger buffer stocks.  This reduces price volatility.

Phil Verleger has argued that this process has occurred in the energy markets.  That due to greater financialization, inventories are larger.  He points to the specific case of heating oil, and argues that recent stock buildups encouraged by more speculative activity in the market have helped prevent big price spikes during cold snaps.

These conclusions are also diametrically opposed to the scare stories that are repeatedly told about the effects of the entry of financial players into the commodity markets.  People telling those stories–and you know who they are–assume that the good old days when commodities and finance didn’t mix (which was never completely the case) were some sort of golden age, and that the entry of financial players has upset the operation of the market.

The simple model I’ve set out here implies that such entry may indeed change the market, but in a salutary way by leading to a more efficient allocation of risk.  The effects on price levels and spreads are likely small, and certainly not  immense, as the commodity Cassandras have asserted.  The effects on inventories are likely larger, but this effect is salutary, and tends to reduce price disruptions in the market.

The basic moral of the story: be very skeptical about claims that changes in the degree of financial participation in commodity markets have first order effects on prices and spreads.  Don’t try to explain changes in the shape of forward curves based on changes in speculative activity in the markets.  Intertemporal optimization–adjustment of inventories–in response to fundamental shocks is the most important driver of forward curves, and changes in financial participation likely have second or third order effects on prices and spreads.

The Russian military replaced its two year conscription term with a single year term in order to combat the brutalization of new recruits by more experienced soldiers, a practice called dedovshchina.  This “fix,” apparently, has made things worse, not better:

The number of conscripts who suffer physical abuse at the hands of their colleagues in the Russian armed forces has grown significantly in 2010, the Vedomosti daily said on Tuesday.

Hazing – the physical and psychological torture of younger conscripts by their elders – has long been a problem in Russia and has its roots in the Soviet era.

During January-May 2010, 1,167 draftees were subjected to hazing, an increase of 150% during the same period in 2009, the paper said.

This is consistent with what I wrote a couple weeks back, namely, that hazing within a structured hierarchy is likely to be less intense than hazing within a near anarchic situation in which soldiers are struggling for the right to haze.

As I noted before, playing with the length of service will not eliminate hazing as long as survival of the fittest rules the barracks, rather than the officers or competent and experienced NCOs.  But changing conscription terms only requires the passage of a law.  Reforming an entire culture, including a generation of officers comfortable with the status quo, is a much harder task.  A task, methinks, that is beyond the capability of Russia to perform–and one that the officer corps apparently has little interest in performing regardless.

Barney Frank threw a fit when he was refused a senior discount.  For $1.  Yes.  A meltdown over O-N-E dollar:

Massachusetts Congressman Barney Frank caused a scene when he demanded a $1 senior discount on his ferry fare to Fire Island . . . . Frank was turned down by ticket clerks at the dock in Sayville because he didn’t have the required Suffolk County Senior Citizens ID. A witness reports, “Frank made such a drama over the senior rate that I contemplated offering him the dollar to cool down the situation.”

So here we have a guy who is notoriously liberal with other people’s money having a hissy over a buck.  An alleged man of the people giving a poor clerk a hard time because he can’t follow the rules.

Would it be too much to ask Frank to show the same miserly attitude about other people’s money as he apparently does with his own?

We all know the answer to that, don’t we?

The visitors’ center at the Waterloo Battlefield plays clips from the 1970 Sergey Bondarchuk film, Waterloo.  The museum gift shop has DVDs of the movie in French, Dutch, German, and some other languages, but not English.  But I saw an English copy on Amazon (with Chinese subtitles!), so I bought it and watched it over the weekend (subtitles off).  I’d seen the movie as a 10 year old when it first came out: I haven’t seen it since.  It was cheesy in spots, and Rod Steiger was over the top as Napoleon, but the battle scenes were pretty amazing even 40 years after they were filmed.

The movie was an expensive collaboration between the Soviet Bondarchuk and the Italian producer Dino De Laurentiis.  The battle scenes are immense and elaborate.  And the interesting thing is that 15,000-odd Soviet infantrymen were the combatants on film, and that Cossacks were among the 2,000 cavalrymen.  The Soviets reengineered the landscape at the shooting site in Ukraine, building replicas of buildings like Hougoumont and Le Haye Sainte, constructing hills, planting fields as they were at Waterloo. and installing an elaborate underground irrigation system to create the mud that was an important feature of the Waterloo battlefield and battle.  At the time, it was a hugely expensive movie, and would have been more so if it had been filmed anywhere but the USSR.

So if Russians playing Frenchmen lose a big battle, who gets credit for the win?

Watching Waterloo motivated me to revisit Amazon, where I bought another Bondarchuk epic with a reputation for its elaborate battle scenes, War & Peace.  With English subtitles, which will be on.

Every once in awhile there are stories that capture a major difference in mindset between Russia and the US (or the West, generally).  This is one of those stories:

Russian Prime Minister Vladimir Putin says he has met the Russian agents recently deported from the US – and claimed they were living “tough lives” and had been “betrayed”.

. . . .

ked whether he had sung karaoke with them, Mr Putin said: “We did, but not with a karaoke box. We sang to live music and we sang ‘Where the Motherland Begins’ and other such songs.”

The song became hugely popular after it featured in a 1960s film about a Russian spy working in Nazi Germany.

I can’t imagine a western president or prime minister doing such a thing.  Cordell Hull’s statement that “gentlemen don’t read other gentlemen’s mail” was an extreme, but for the most part American, and most western European statesmen view espionage as something of a necessary evil, and certainly consider those who practice it as rather unsavory.  A karaoke party with spies is almost beyond imagining.

But, it goes to prove the accuracy of LR’s characterization of Putin as a “proud KGB spy.”

The song they sang is also very, very revealing.  It is of the Soviet era.  Moreover, the implicit equation of spying in the US with spying in Nazi German speaks volumes about the attitudes of the Russian security services–and those in government that are just spies seconded to other posts.

Finally, this is choice:

Mr Putin went on to say that the spy swap with the US had come about as a result of “betrayal”.

“Traitors always end badly. They finish up as drunks, addicts, on the street,” he said.

And when asked by reporters if Moscow was planning to take revenge, he said it was incorrect to ask about it.

“It cannot be solved at a press conference. They live by their own laws, and all special services are well aware of these laws,” he said.

Drunks?  Nah, that would be too easy.  The last two paragraphs are rather ominous.  Don’t ask, don’t tell.  Don’t believe in bonhomie between leaders at press conferences (at least I presume he’s referring to Obama-Medvedev conviviality).  I get the definite “payback is a bitch but we don’t talk about it” and “resets only go so far” feel.

The definitive attribution of the capture to betrayal is also very interesting.  I don’t know whether to believe it–it could be easier to blame something like this on betrayal than to an error in the SVR or the effectiveness of US counterintelligence–but knowing Putin it suggests that drunkeness and addiction may be the last thing some people have to worry about.

In a harbinger of an avalanche of unintended consequences from Frank-n-Dodd (not to mention the health care fiasco), Ford Motor Company yanked the sale of securitized auto loans because the members of the credit ratings cartel refused to allow the company to utilize their ratings out of fear of liability provisions in the new law (h/t ASI/Tim Worstall):

Market participants said the auto maker pulled a recent deal, backed by packages of auto loans, because it was unable to use credit ratings in its offering documents, a legal requirement for such sales. The company declined to comment.

The nation’s dominant ratings firms have in recent days refused to allow their ratings to be used in bond registration statements. The firms, including Moody’s Investors Service, Standard & Poor’s and Fitch Ratings, fear they will be exposed to new liability created by the Dodd-Frank law.

The law says that the ratings firms can be held legally liable for the quality of their ratings. In response, the firms yanked their consent to use the ratings, hoping for a reprieve from the Securities and Exchange Commission or Congress. The trouble is that asset-backed bonds are required by law to include ratings in official documents.

The result has been a shutdown of the market for asset-backed securities, a $1.4 trillion market that only recently clawed its way back to health after being nearly shuttered by the financial crisis.

“Issuers have stopped issuing bonds,” said Paul Jablansky, senior ABS strategist at the Royal Bank of Scotland in Stamford, Conn.  [Emphasis added.]

So we have the regulatory analog to a bad drug interaction.   One government policy, imposing liability on ratings issuers, is toxic when mixed with another, a requirement that public debt offerings be rated.

Brain teaser: now that the federal government is writing a blizzard of new policy prescriptions, do you think the likelihood of such toxic interactions will rise or fall?  Now that’s a real toughie, huh?

The legal privileging–no, fetishization–of credit ratings and the ratings cartel was a material contributor to the financial crisis.  But in layering on a new regulation in an effort to “fix” the ratings system while retaining that privileging, Congress just created new problems.

It is this kind of policy boomerangs that will continue to weigh on investment and innovation in the coming years.  Putting a boot in the ABS markets as they struggle to their feet is hardly the way to encourage  a recovery in credit an investment.

The faint recovery is clearly a major concern to the administration.  But rather than grapple with the possibility that their Dr. Feelgood (or Dr. Morell) prescription practices constitute a serious drag on the economy, administration officials are spinning an alternative narrative that casts blame elsewhere.  Taking the lead in this effort is Timmy!, who after being under a rock for the last several months, is now making the rounds telling the tale of how the economy is suffering from some form of PTSD; that business reluctance to invest and hire, and consumer reluctance to spend, has NOTHING, NOTHING to do with government hypertrophy and hyperactivity, but is instead attributable to flashbacks about the crisis.

Today Timmy! was weaving the narrative on Meet the Press.*  Get used to hearing it again and again if the economy continues to stumble.  And get used to the economy continuing to stumble as the number of bad policy interactions, and the fear of bad policy interactions, grows.

* What is it about Timmy! always looking at every interviewer sideways out of the corner of his eye, with his head half-turned?  It is very weird.  Any body language experts have an interpretation?  For his part, MTP host David Gregory played Charlie McCarthy to Krugman’s Edgar Bergen, asking several times whether it wouldn’t be better to spend more, more, more! to stimulate the economy.

Today’s FT runs another cringe-worthy PDA with Anthony Ward of Armajaro.  It is as probing and hard hitting as anything you would expect to read in, say, TigerBeat.  Its tone runs the gamut from credulous to worshipful.

I found the last two paragraphs particularly entertaining:

He is said to argue now as he did in 2002, that all he has done is go to the futures market “to buy cocoa in the most efficient and low-risk way possible”. The trade is likely to bring a stream of profits to Armajaro, particularly if the new Ivorian crop, due in October, disappoints.

Even if prices decline, Mr Ward is unlikely to suffer. A competitor who knows him well has no doubt he will have hedged his position. One admiring executive says: “No one knows the cocoa market better than Anthony.”

Paragraph 1: He’s long cocoa, so if prices rise due to a disappointing crop he reaps a stream of profits.

Paragraph 2: He’s hedged, so if prices fall, he doesn’t lose.  That is, he isn’t long cocoa.

If both of those things are true, he would indeed be a great trader: prices rise he wins, prices fall, he doesn’t lose.  He’s long the upside but not the downside.

How does that work, exactly? I mean, these diametrically opposed statements are in adjacent sentences.  Didn’t an editor think that such a feat was unlikely, or at least sufficiently intriguing to demand further investigation, explanation, and reconciliation?

There is, of course, a way that it could work: Armajaro could be long cocoa puts.  But this seems highly unlikely, as the traded put market is small relative to the deliveries that Ward has taken.  At the very least, though, the tension between the last two paragraphs should have spurred the report to do some actual, you know, investigation and reporting, to see whether the put story has any factual basis, and if so to provide some background on the cost of the puts and its effect on the profitability of the strategy.  And if it doesn’t (as is likely the case), to state forthrightly that Armajaro’s position is a risky one subject to a risk of losses symmetric to the prospect of gains.

But instead the reader gets a breathless fan mag portrayal of the hero who is able to do things that are impossible, or at least so unlikely as to demand further explanation.

This is all bad enough, but nothing compared to the apparent failure to ask any aggressive questions to test the reasonableness of Ward’s denial of squeezing or cornering the market.   If the questions were asked, but not answered, that should have been made plain, or the piece shouldn’t have run at all.  But that would ruin a nice piece of hagiography.

Mr. Ward’s evident hold over the FT is very curious.  An enterprising competitor could do worse than trying to figure out why–after, of course, doing some serious reporting on what has transpired in the cocoa market in recent weeks.

Dripping with condescension, Timmy! blew off the concerns of, oh, I don’t know, just about everyone in every kind of business about the effects of the regulatory avalanche that the administration and Congress have unleashed.  No sign here of that deep empathy that is supposedly he hallmark of Obama appointees (h/t rtyb):

“Businesses always want their taxes lower and always want to live with low regulation,” Geithner said. “There is nothing remarkable, or particularly interesting frankly, that we’re in the midst of another debate, which you hear in almost any administration, with people looking for ways to help affect the outcome on the basic path of regulation and taxes.”

. . . .

But when asked a third time by The [Daily Caller] to address the [Business Roundtable] memo, Geithner said it was “a long, diffuse list of familiar concerns, again reflecting nothing remarkable … in the fact that business would like to operate with fewer restrictions.”

Translation: “The concerns expressed from coast-to-coast by businesses large and small, in virtually every industry, are not legitimate.  They are just petty, grubby attempts to achieve favorable regulatory treatment and reduced taxes.  Those who advance these concerns are self-interested and mercenary, and beneath the contempt of a high minded Olympian such as I.  Let them eat regulation.”

Astoundingly, Geithner dismisses any idea that the financial deform and health care bills are creating spending-suppressing uncertainty:

Geithner contested the idea that the health and financial regulation bills have made it more difficult for businesses to plan for the future.

“The basic framework is set. And that should help again give people a lot of clarity about what the basic rules they’re going to operate under is [sic],” he said. “But of course there’s a lot of rule-writing design, and there should be. A lot of the existing set of rules, muck of rules, were not any good. And so you want people to go back and revise and reform.”

Anyone who could say this is either a mendacious liar or a clueless clown.  (And yes “both” is making a strong run for the money.)  In the financial bill alone, there are at least 243 rules touching on every aspect of banking, securities, and derivatives markets that remain to be written: the true total is probably higher.  Nobody knows what those rules will be.  Nobody knows how those rules will interact.  Nobody knows how businesses and households are going to respond to this blizzard of new ukases.

A lot of clarity my [insert body part of choice here]. “Revise and reform” suggests an incremental process to fix known problems.  In contrast, what we face in the coming years is anything but incremental, but is instead a wholesale re-engineering of the entire financial sector.  And the same is true of the health care legislation.

Let’s just take one slice of one piece of legislation: the derivatives title of Frank-n-Dodd.  What has to be cleared?  No idea.  What will margin requirements be?  Who knows?  What capital requirements will regulators impose?  Oh, probably somewhere between zero and 100 percent.  Who will be exempted from the clearing requirements?  I’ll get back to you on that.  How will derivatives be traded (e.g., WTF is a “swaps execution facility”)?  I haven’t the foggiest idea.  What will energy position limits be?  Ditto.  And on and on and on.

Then, once you’ve finally learned what the rules will actually be, now try to figure out how market participants will respond to them.  What will happen to credit?  Prices?  Entry and exit?  Liquidity?

I talk to quite a few people in finance and energy on a regular basis.  A big part of the reason that I talk to them is that they’re trying to figure out what the hell is in the bills, how regulators are going to respond, and what the implications are for their businesses, and they figure that maybe I have some insights onto that.  And my answer is: I only wish I knew.

“A lot of clarity.”  All that people are clear about is that NOTHING is clear.  As a result, the pucker factor is quite high.

In typical administration fashion, Geithner admits that there is uncertainty out there, but this has nothing to do with anything the administration or Congress has done.  It’s just a psychological phenomenon, a sort of financial post traumatic stress syndrome dating to 2008–conveniently before Obama and Geithner arrived to save us peons:

“The big uncertainty that the world is still in … is that people, again, scarred by the trauma induced by the crisis are still looking to see how strong is growth going to be,” he said.

No, Timmy!  The big uncertainty is that, letting “no crisis go to waste,” the administration and Congress have played the Sorcerer’s Apprentice, and cast spells touching on every aspect of the economy, the effects of which by their own admission they have not the slightest understanding.  (Cf. Nancy Pelosi: “And we will find out what is in the Bill, as soon as it passes,” and Chris Dodd: “We don’t know ultimately how well the ideas we’ve incorporated here will achieve the results we desire” and “No one will know until this is actually in place how it works.”  Yeah, just screams “clarity,” doesn’t it?)  If the people who wrote this stuff have no idea, how are the rest of us poor slobs supposed to figure it out?

In fact, if it sticks with the attitude Geithner expressed, the administration is signing its own death warrant.  Call it a capital strike, going Galt, what have you.  With this barrage of regulations; pea soup fog of uncertainty; and higher spending and taxes as far as the eye can see, investment and consumer spending and employment growth will remain moribund, at best, with devastating political consequences.  And in 2010 or 2012, if things do indeed play out this way, the incantation “Bush did it” won’t work any electoral magic.  Sadly, by then the damage that the nation will have suffered will be immense.

I have a  couple of recent publications that may be of interest to some of you.

A couple of folks have expressed interest in my recent Energy Law Journal paper on manipulation.  Here it is: my policy recommendations are at the end.

Cato just released a Policy Analysis I did on clearing mandates. The link is here: you can download the paper from that page.