Streetwise Professor

April 14, 2014

Men Without Chests: The Pusillanimity Riot

Filed under: Military,Politics,Russia,Uncategorized — The Professor @ 8:33 pm

The egregious pusillanimity, fecklessness, and cravenness in the US, Europe, and Ukraine, metastasizes day by day.

Today Obama, at Putin’s request, spoke with the Russian president.

That’s problem one. Obama should have said: we have nothing to talk about until you call off your dogs in eastern Ukraine, move your troops away from the border, and cease all economic pressure on Ukraine.

And yeah, all the previous five talks made such a big freaking difference. Hasn’t Obama heard about Einstein’s definition of insanity? Or maybe he is a glutton for punishment, and gets some perverse pleasure out of being Putin’s bitch.

Why do you think Putin asked for the call? The most likely explanation is that he gets off on having Obama being his supplicant, and then telling him to sod off.

Obama expressed “grave concern.” Judas Priest, if I hear “grave concern” or “deep concern” or “great concern” one more time I am  going to have a stroke. The most vacuous phrase in the English language, because this airy “concern” is never transformed into action.

It gets worse, if you can believe that’s possible:

[Obama] urged President Putin to use his influence with these armed, pro-Russian groups to convince them to depart the buildings they have seized.

“Use his influence”? Seriously? Barry-they are under Putin’s orders, as anyone with two eyes and a room temperature IQ can understand.

But it gets even worse!

Obama to reassure Putin: Won’t provide lethal aid to Ukraine

The White House on Monday said President Barack Obama would speak to Russian President Vladimir Putin soon, perhaps later in the day, and made clear the United States was not considering lethal aid for Ukraine.

“We are looking at a variety of ways to demonstrate our strong support for Ukraine including diplomatically and economically,” White House spokesman Jay Carney told reporters.

“We’re not actively considering lethal aid but we are reviewing the kinds of assistance we can provide,” he said

Reassure Putin? Huh? So he can, after being suitably reassured, proceed to gobble up Ukraine with no fear of humiliating defeat, or even breaking a nail?

Here’s a thought: “Hey, Vlad. Remember those Kornet ATGMs that wound up in Hezbollah hands and caused the Israelis huge problems in Lebanon in 2006? Good times, good times. Well, anyways, since one good turn deserves another, we’re supplying  Javelins and TOWs out the wazoo to Ukraine. And we have all these Dragons that we’ve phased out laying around, but they were designed specifically to take out T-72s, and it would be a shame to have them sit around going to waste.  The C-130s and C-5s are winging their way as we speak. We’re nothing if not generous, and I hope you appreciate the spirit in which these are given. Have a nice day!”

If you can handle more, there’s this:

The President noted Russia’s growing political and economic isolation as a result of its actions in Ukraine and made clear that the costs Russia already has incurred will increase if those actions persist.

Obviously our genius president hasn’t figured out that Putin wants to isolate Russia: isolation is a feature, not a bug. He has made it quite clear that he views the west as a malign force, and fears that western ideas and influence threaten his control over Russia. But Obama so believes that everyone views the world the same way as he and the Harvard faculty and the Euros do, and would  just die! at the thought of being cut off from their wine and cheese parties. Mirror imaging will be the death of us.

And insofar as costs are concerned, even the seriously mentally challenged will have concluded that the “costs” that have been imposed heretofore have not checked Putin in the slightest. This implies that if Obama is serious about deterring Putin, he must dramatically ratchet up the pressure. Dramatically: the costs must be increased by orders of magnitude. The additional sanctions announced last week just convinced Putin of Obama’s lack of seriousness: yeah, like Putin could give a damn about the Crimean oil and gas company. Rosneft and Gazprom, and Sberbank and VTB: maybe that would get his attention.  But instead of stabbing brutally at the jugular, Obama gingerly pricks the capillaries.

Sadly, Obama has plenty of company in his pusillanimity riot.

The Euros have announced that they might have a meeting in a week or so to discuss the “emergency” in Ukraine. If it can wait a week, it ain’t an emergency. Disgusting. The Euros give every impression of someone who hopes that Putin will prevail in the next couple of days, so they can throw up their hands and say “Too bad! There’s nothing we can do now!”

But the Ukrainian “leadership” gives Obama and the Euros a run for their money for the Craven Cup. It is obviously paralyzed at the thought of exercising control over its own territory, and this paralysis just spurs on Putin. Acting President Turchynov declared that the military would undertake an “anti-terrorist” operation against those who have seized government buildings and facilities (including air bases) throughout eastern Ukraine. But as of yet, nothing serious has happened. This is stoking popular anger at the new government: Maidan may very well reconstitute itself to demand ouster of this government out of outrage at the abject failure to defend Ukraine from invasion by Russia.

If the World War II cohort was “the greatest generation,” we are its antithesis. We are the living personification of what C.S. Lewis called “men without chests.” Denatured humans, enervated by a smug rationalism that is profoundly irrational because it fails to take the world as it is, populated by people who see things much, much differently, and who act accordingly.

“We make men without chests and expect from them virtue and enterprise. We laugh at honor and are shocked to find traitors in our midst.”

That is where we are now.

 

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April 12, 2014

Yes, Brad, It’s Just You (And Others Who Oversimplify and Ignore Salient Facts)

Filed under: Derivatives,Economics,Exchanges,HFT,Politics,Regulation,Uncategorized — The Professor @ 2:48 pm

Brad DeLong takes issue with my Predator/Prey HFT post. He criticizes me for not taking a stand on HFT, and for not concluding that HFT should be banned because it is a parasitic. Color me unpersuaded. De Long’s analysis is seriously incomplete, and some of his conclusions are incorrect.

At root, this is a dispute about the social benefits of informed trading. De Long takes the view that there is too little informed trading:

In a “rational” financial market without noise traders in which liquidity, rebalancing, and control/incentive traders can tag their trades, it is impossible to make money via (4). Counterparties to (4) will ask the American question: If this is a good trade for you, how can it be a good trade for me? The answer: it cannot be. And so the economy underestimates in fundamental information, and markets will be inefficient–prices will be away from fundamentals, and so bad real economic decisions will be made based on prices that are not in fact the appropriate Lagrangian-multiplier shadow values–because of free riding on the information contained in informed order flow and visible market prices. [Note to Brad: I quote completely, without extensive ellipses. Pixels are free.]

Free riding on the information in prices leading to underinvestment in information is indeed a potential problem. And I am quite familiar with this issue, thank you very much. I used similar logic in my ’94 JLE paper on self-regulation by exchanges to argue that exchanges may exert too little effort to deter manipulation because they didn’t internalize the benefits of reducing the price distortions caused by corners. My ’92 JLS paper applied this reasoning to an evaluation of exchange rules regarding the disclosure of information about the quantity and quality of grain in store. It’s a legitimate argument.

But it’s not the only argument relating to the incentives to collect information, and the social benefits and costs and private benefits and costs of trading on that information. My post focused on something that De Long ignores altogether, and certainly did not respond to: the possibility that privately informed trading can be rent seeking activity that dissipates resources.

This is not a new idea either. Jack Hirshleifer wrote a famous paper about it over 40 years ago. Hirsleifer emphasizes that trading on information has distributive effects, and that people have an incentive to invest real resources in order to distribute wealth in their direction. The term rent seeking wasn’t even coined then (Ann Kreuger first used it in 1974) but that is exactly what Hirshleifer described.

The example I have in my post is related to such rent seeking behavior. Collecting information that allows a superior forecast of corporate earnings shortly before an announcement can permit profitable trading, but (as in one of Hirshleifer’s examples) does not affect decisions on any margin. The cost of collecting this information is therefore a social waste.

De Long says that the idea that there is too little informed trading “does not seem to me to scan.” If it doesn’t it is because he has ignored important strands of the literature dating back to the early-1970s.

Both the free riding effects and the rent seeking effects of informed trading certainly exist in the real world. Too little of some information is collected, and too much of other types is collected. And that was basically my point: due to the nature of information, true costs and benefits aren’t internalized, and as a result, evaluating the welfare effects of informed trading and things that affect the amount of informed trading is impossible.

One of the things that affects the incentives to engage in informed trading is market microstructure, and in particular the strategies followed by market makers and how those strategies depend on technology, market rules, and regulation. Since many HFT are engaging in market making, HFT affects the incentives surrounding informed trading. My post focused on how HFT reduced adverse selection costs-losses to informed traders-by ferreting out informed order flow. This reduces the losses to informed traders, which is the same as saying it reduces the gains to informed traders. Thus there is less informed trading of all varieties: good, bad, and ugly.

Again the effects of this are equivocal, precisely because the effects of informed trading are equivocal. To the extent that rent seeking informed trading is reduced, any reduction in adverse selection cost is an unmitigated gain. However, even if collection of some decision improving information is eliminated, reducing adverse selection costs has some offsetting benefits. De Long even mentions the sources of the benefits, but doesn’t trace through the logic to the appropriate conclusion.

Specifically, De Long notes that by trading people can improve the allocation of risk and mitigate agency costs. These trades are not undertaken to profit on information, and they are generally welfare-enhancing. By creating adverse selection, informed trading-even trading that improves price informativeness in ways that leads to better real investment decisions-raises the cost of these welfare-improving risk shifting trades. Just as adverse selection in insurance markets leads to under provision of insurance (relative to the first best), adverse selection in equity or derivatives markets leads to a sub optimally small amount of hedging, diversification, etc.

So again, things are complicated. Reducing adverse selection costs through more efficient market making may involve a trade-off between improved risk sharing and better decisions involving investment, etc., because prices are more informative. Contrary to De Long, who denies the existence of such a trade off.

And this was the entire point of my post. That evaluating the welfare effects of market making innovations that mitigate adverse selection is extremely difficult. This shouldn’t be news to a good economist: it has long been known that asymmetric information bedevils welfare analysis in myriad ways.

De Long can reach his anti-HFT conclusion only by concluding that the net social benefits of privately informed trading are positive, and by ignoring the fact that any kind of privately informed trading serves as a tax on beneficial risk sharing transactions. To play turnabout (which is fair!): there is “insufficient proof” for the first proposition. And he is flatly wrong to ignore the second consideration. Indeed, it is rather shocking that he does so.*

Although De Long concludes an HFT ban would be welfare-improving, his arguments are not logically limited to HFT alone. They basically apply to any market making activity. Market makers employ real resources to do things to mitigate adverse selection costs. This reduces the amount of informed trading. In De Long’s world, this is an unmitigated bad.

So, if he is logical De Long should also want to ban all exchanges in which intermediaries make markets. He should also want to ban OTC market making. Locals were bad. Specialists were bad. Dealers were bad. Off with their heads!

Which raises the question: why has every set of institutions for trading financial instruments that has existed everywhere and always had specialized intermediaries who make markets? The burden of proof would seem to be on De Long to demonstrate that such a ubiquitous practice has been able to survive despite its allegedly obvious inefficiencies.

This relates to a point I’ve made time and again. HFT is NOT unique. It is just the manifestation, in a particular technological environment, of economic forces that have expressed/manifested themselves in different ways under different technologies. Everything that HFT firms do-market making, arbitrage activities, and even some predatory actions (e.g., momentum ignition)-have direct analogs in every financial trading system known to mankind. HFT market makers basically put into code what resides in the grey matter of locals on the floor. Arbitrage is arbitrage. Gunning the stops is gunning the stops, regardless of whether it is done on the floor or on a computer.

One implication of this is that even if HFT is banned, it is inevitable-inevitable-that some alternative way of performing the same functions would arise. And this alternative would pose all of the same conundrums and complexities and ambiguities as HFT.

In sum, Brad De Long reaches strong conclusions because he vastly oversimplifies. He ignores that some informed trading is rent seeking, and that there can be a trade-off between more informative prices (and higher adverse selection costs) and risk sharing.

The complexities and trade-offs are exactly why debates over speculation and market structure have been so fierce, and so protracted. There are no easy answers. This isn’t like a debate over tariffs, where answers are much more clean-cut. Welfare analyses are always devilish hard when there is asymmetric information.

Although a free-market guy, I acknowledge such difficulties, even though that means that implies that I know the outcome is not first best. Brad De Long, not a free market guy, well, not so much. So yes, Brad, it is just you-and other people who oversimplify and ignore salient considerations that are present in any set of mechanisms for trading financial instruments, regardless of the technology.

* De Long incorrectly asserts that informed trading cannot occur in the absence of “noise trading,” where from the context De Long defines noise traders as randomizing idiots: “In a ‘rational’ financial market without noise traders in which liquidity, rebalancing, and control/incentive traders can tag their trades, it is impossible to make money via [informed trading].” Noise trading (e.g., in a Kyle model) is a modeling artifice that treats “liquidity, rebalancing and control/incentive” trades-trades that are not information-driven-in a reduced form fashion.  Randomizing idiots don’t trade on information. But neither do rational portfolio diversifiers subject to endowment shocks.

It is possible-and has been done many, many times-to produce a structural model with, say, rebalancing traders subject to random endowment shocks who trade even though they lose systematically to informed traders. (De Long qualifies his statement by referring to traders who can “tag their trades.” No idea what this means. Regardless, completely rational individuals who benefit from trading because it improves their risk exposure (e.g., by permitting diversification) will trade even though they are subject to adverse selection.) They will trade less, however, which is the crucial point, and which is a cost of informed trading, regardless of whether that informed trading improves other decisions, or is purely rent-seeking.

 

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April 2, 2014

Michael Lewis’s HFT Book: More of a Dark Market Than a Lit One

Filed under: Derivatives,Economics,Exchanges,HFT,Politics,Regulation,Uncategorized — The Professor @ 2:35 pm

Michael Lewis’s new book on HFT, Flash Boys, has been released, and has unleashed a huge controversy. Or put more accurately, it has added fuel to a controversy that has been burning for some time.

I have bought the book, but haven’t had time to read it. But I read a variety of accounts of what is in the book, so I can make a few comments based on that.

First, as many have pointed out, although this has been framed as evil computer geniuses taking money from small investors, this isn’t at all the case. If anyone benefits from the tightening of spreads, especially for small trade sizes, it is small investors. Many of them (most, in fact) trade at the bid-ask midpoint via internalization programs with their brokers or through payment-for-order-flow arrangements. (Those raise other issues for another day, but have been around for years and don’t relate directly to HFT.)

Instead, the battle is mainly part of the struggle between large institutional investors and HFT. Large traders want to conceal their trading intentions to avoid price impact. Other traders from time immemorial have attempted to determine those trading intentions, and profit by trading before and against the institutional traders.  Nowadays, some HFT traders attempt to sniff out institutional orders, and profit from that information.  Information about order flow is the lifeblood of those who make markets.

This relates to the second issue. This has been characterized as “front running.” This terminology is problematic in this context. Front running is usually used to describe a broker in an agency relationship with a customer trading in advance of the customer’s order, or disclosing the order to another trader who then trades on that information. This is a violation of the agency relationship between the client and the broker.

In contrast, HFT firms use a variety of means-pinging dark pools, accessing trading and quoting information that is more extensive and obtained more quickly than via the public data feeds-to detect the presence of institutional orders. They are not in an agency relationship with the institution, and have no legal obligation to it.

And this is nothing new. Traders on the floor were always trying to figure out when big orders were coming, and who was submitting them. Sometimes they obtained this information when they shouldn’t have, because a broker violated his obligation. But usually it was from watching what brokers were trading, knowing what brokers served what customers, looking at how anxious the broker appeared, etc.  To throw the floor of the track, big traders would use many brokers. Indeed, one argument for dual trading was that it made it harder for the floor to know the origin of an order if the executing broker dual traded, and might be active because he was trading on his own account rather than for a customer.

This relates too to the third issue: reports that the FBI is investigating for possible criminal violations. Seriously? I remember how the FBI covered itself in glory during the sting on the floors in Chicago in ’89. Not really. The press reports say that the the FBI is investigating whether HFT trades on “non-public information.”  Well, “non-public information” is not necessarily “inside information” which is illegal to trade on:  inside information typically relates to that obtained from someone with a fiduciary duty to shareholders. Indeed, ferreting out non-public information contributes to price discovery: raising the risk of prosecution for trading on information obtained through research or other means, but which is not obtained from someone with a fiduciary relationship to a company, is a dangerous slippery slope that could severely interfere with the operation of the market.

Moreover, it’s not so clear that order flow information is “non-public”.  No, not everyone has it: HFT has to expend resources to get it, but anybody could in theory do that. Anybody can make the investment necessary to ping a dark pool. Anybody can pay to get a faster data feed that allows them to get information that everyone has access to more quickly. Anybody can pay to get quicker access to the data, either through co-location, or the purchase of a private data feed. There is no theft or misappropriation involved. If firms trade on the basis of such information that can be obtained for a price that not everyone is willing to pay, and that is deemed illegal, how would trading on the basis of what’s on a Bloomberg terminal be any different?

Fourth, one reason for the development of dark pools, and the rules that dark pools establish, are to protect order flow information, or to make it less profitable to trade on that information. The heroes of Lewis’s book, the IEX team, specifically designed their system (which is now a dark pool, but which will transition to an ECN and then an exchange in the future) to protect institutional traders against opportunistic HFT. (Note: not all HFT is opportunistic, even if some is.)

That’s great. An example of how technological and institutional innovation can address an economic problem. I would emphasize again that this is not a new issue: just a new institutional response. Once upon a time institutional investors relied on block trading in the upstairs market to prevent information leakage and mitigate price impact. Now they use dark pools. And dark pools are competing to find technologies and rules and protocols that help institutional investors do the same thing.

I also find it very, very ironic that a dark pool is now the big hero in a trading morality tale. Just weeks ago, dark pools were criticized heavily in a Congressional hearing.  They are routinely demonized, especially by the exchanges. The Europeans have slapped very restrictive rules on them in an attempt to constrain the share of trading done in the dark. Which almost certainly will increase institutional trading costs: if institutions could trade more cheaply in the light, they would do so. It will also almost certainly make them more vulnerable to predatory HFT because they will be deprived of the (imperfect) protections that dark pools provide.

Fifth, and perhaps most importantly from a policy perspective, as I’ve written often, much of the problem with HFT in equities is directly the result of the fragmented market structure, which in turn is directly the result of RegNMS. For instance, latency arbitrage based on the slowness of the SIP results from the fact that there is a SIP, and there is a SIP because it is necessary to connect the multiple execution venues. The ability to use trades or quotes on one market to make inferences about institutional trades that might be directed to other markets is also a consequence of fragmentation. As I’ve discussed before, much of the proliferation of order types that Lewis (and others) argue advantage HFT is directly attributable to fragmentation, and rules relating to locked and crossed markets that are also a consequence of RegNMS-driven fragmentation.

Though HFT has spurred some controversy in futures markets, these controversies are quite different, and much less intense. This is due to the fact that many of the problematic features of HFT in equities are the direct consequence of RegNMS and the SEC’s decision (and Congress’s before that) to encourage competition between multiple execution venues.

And as I’ve also said repeatedly, these problems inhere in the nature of financial trading. You have to pick your poison. The old way of doing business, in which order flow was not socialized as in the aftermath of RegNMS, resulted in the domination of a single major execution venue (e.g., the NYSE). And for those with a limited historical memory, please know that these execution venues were owned by their members who adopted rules-rigged the game if you will-that benefited them. They profited accordingly.

Other news from today brings this point home. Goldman is about to sell its NYSE specialist unit, the former Spear, Leeds, which it bought for $6.5 billion (with a B) only 14 years ago.  It is selling it for $30 million (with an M).  That’s a 99.5 decline in market value, folks. Why was the price so high back in 2000? Because under the rules of the time, a monopoly specialist franchise on a near monopoly exchange generated substantial economic rents. Rents that came out of the pockets of investors, including small investors.  Electronic trading, and the socialization of order flow and the resultant competition between execution venues, ruthlessly destroyed those rents.

So it’s not like the markets have moved from a pre-electronic golden age into a technological dystopia where investors are the prey of computerized super-raptors. And although sorting out cause and effect is complicated, the decline in trading costs strongly suggests that the new system, for all its flaws, has been a boon for investors. Until regulators or legislators find the Goldilocks “just right” set of regulations that facilitates competition without the pernicious effects of fragmentation (and in many ways, “fragmentation” is just a synonym for “competition”), we have to choose one or the other. My view is that messy competition is usually preferable to tidy monopoly.

The catch phrase from Lewis’s book is that the markets are rigged. As I tweeted after the 60 Minutes segment on the book, by his definition of rigging, all markets have always been rigged. A group of specialized intermediaries has always exercised substantial influence over the rules and practices of the markets, and has earned rents at the expense of investors. And I daresay it would be foolish to believe this will ever change. My view is that the competition that prevails in current markets has dissipated a lot of those rents (although some of that dissipation has been inefficient, due to arms race effects).

In sum, there doesn’t appear to be a lot new in Lewis’s book. Moreover, the morality tale doesn’t capture the true complexity of the markets generally, or HFT specifically. It has certainly resulted in the release of a lot of heat, but I don’t see a lot of light. Which is kind of fitting for a book in which a dark pool is the hero.

 

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March 3, 2014

It Gives Me No Joy, But Yes: I Will Say I Told You So. Seven Damn Years Ago.

Filed under: History,Military,Politics,Russia,Uncategorized — The Professor @ 4:45 pm

In 2007, in my 60th post on SWP, I wrote a post about Putin and the Euros, titled “A Man in a Hurry.”  If you look at Putin’s aggression in Ukraine, and the utterly pusillanimous European response to this aggression, that post from more than 7 years ago is quite clearly prophetic, to the last jot and tittle.

The closing paragraph:

I think that most Europeans, and those few Americans who seem to pay much attention to these issues, are nonplussed by Putin’s audacity in large part because they are projecting their attitudes onto him. They cannot envision why someone would engage in such seemingly short sighted actions. As a recent Newsweek story puts it, they wonder why Putin is risking severe “blowback.” However, their attitudes have evolved and developed in a completely different institutional, economic, and political environment than Russia’s. The Euro-American environment is much more conducive to taking the longer view that the unsettled (and unsettling) environment that characterizes Russia today. So, the Europeans–and Americans–should be ready for more “surprises” from Putin–which shouldn’t be surprises at all.

My main question is why a blogger, and amateur student of Russian politics, could figure this out, but the State Department, the intelligence agencies, the national security community, the vast bulk of think tanks, and the editorial pages of every major US paper couldn’t.  And why they haven’t been able to do so despite all that has happened since.  Georgia.  The castling move whereby Putin resumed the presidency.  The unrelenting crackdown on civil society.  It’s one thing to ignore reality when it’s lying around.  It’s another to ignore it when it is hitting you in the goddam face.

I’m not claiming genius.  Quite the contrary. This shouldn’t have been that hard.  I’m claiming common sense and a willingness to look objectively at reality.

But maybe that’s the problem.  All the king’s horses and all the king’s men were unable to do that for the reason I mentioned in that old post: a dominant mindset in which the bien pensants projected their own self-image onto Putin.  A failure of a navel gazing elite.  (We would be better served by a naval gazing elite, but since history ended that’s apparently so passé.)

This, frankly, is why we are where we are today.  Which is totally f*cked, by the way.

While I’m in this mood, I will also take credit for being among the first to advocate what is now becoming recognized as the only real way to hit Putin and the Russian elite where it hurts: an aggressive investigation of all the dirty money these bastards have squirreled away around the world.

Sadly, although this is widely recommended, the Germans and the British are going to fight this tooth and nail.  More on that later.

Postscript. Speaking of Putin as a Man in a Hurry, imagine my surprise to read Matthew Kaminski’s WSJ piece last night in which he said that Crimea was Putin’s appetizer, and characterized Putin as “a man in a hurry.”  Perhaps it is just coincidence, but more than 24 hours before I had written a post in which I had said that Crimea was Putin’s appetizer, and  that I had long said that Putin was a man in a hurry.  Surely a coincidence, except for the fact that the only references I can find to Putin being a man in a hurry are things I wrote.  Also probably a coincidence that 24 hours after I wrote a post saying that the EU had “midwifed” a deal with Yanukovych and that the ultimate outcome would probably be him ruling over a “rump state” in eastern Ukraine, Andrew Peek in the Fiscal Times uses the exact same words to express the exact same ideas.   It’s not like “midwifed” and “rump state” are everyday expressions.

Sorry.  Perhaps this is self-indulgent.  But this happens with some frequency.  Too often to be purely coincidence.  Citation/acknowledgement is the coin of the realm in academia, and as a result, using without attribution is tantamount to grand theft, which is why it gets under my skin.  But I guess journalism and academia are quite different.  In fact, I don’t guess: I know.  Journalists (and many bloggers) are the biggest lifters of the work of others that I know of.

 

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January 4, 2014

The Wages of Fecklessness

Filed under: History,Military,Politics,Uncategorized — The Professor @ 10:32 pm

The Wall Street Journal reports that the Obama administration has put any additions to the Magnitsky List on hold.  The administration has always disliked the list, because it didn’t want it to interfere with its fabulous Reset.  It resisted the list for as long as it could, and then grudgingly implemented Congress’s directive.

The desire to appease Russia is disturbing.  But I could see a realpolitik justification for slow walking it now.  Putin and the Russian elite hate the list.  Hate, hate, hate.  We could presumably extract something tangible, something highly advantageous to US interests.

The sad thing is that the administration thinks it has:

Why veto the expanded Magnitsky list? Russia’s human-rights record hasn’t miraculously improved. In his interview with Itar-Tass, Mr. Rhodes suggested the answer. He praised Moscow’s role in striking a deal with Syria’s Bashar Assad to give up his chemical weapons stockpile in return for removing any Western threat to attack his military forces, who are now liberated to try to finish off the rebels. Mr. Rhodes also noted Russian support for nuclear talks with Iran.

For crying out loud.  Seriously.  It got nothing from Putin.  Putin has played us like a drum on Syria, and is content to watch us give away the store to Iran.

Obama was desperate to avoid having to cash the check his big mouth wrote (“redline”) in Syria.  Putin bailed out Obama, and has achieved all of his objectives in Syria.  The chemical weapons deal leaves Assad in power, and effectively makes the United States his partner.  So Syrians won’t be killed by chemical weapons.  Yay! They are just continuing to die, at a rate of about 150 a day, felled by barrel bombs, bullets, artillery bombardments and the blades of ISIS head choppers.  The country has descended into a hell of warlordism akin to China in the ’20s and ’30s, with the government holding sway in a rump state near the coast and a horrifying collection of Islamist groups (with ISIS being the most horrific) controlling patches of territory in the north and east.  The war is spreading into Lebanon, which is seeing a major car bombing a week.  The country is a running sore, and will continue to be for years to come.  No one has the strength to prevail, so things will be stalemated for the foreseeable future.

And Putin doesn’t care.  Every Chechen that goes to Syria on jihad is one less that he has to deal with in the Caucasus.  And every one that is killed is just a bonus.  His client survives.  The United States looks pitiful.

All in all, a big win for Putin, and a loss for the US.  We didn’t get anything on Syria for forbearing on Magnitsky: we gave Putin everything he wanted.

And on Iran, Obama doesn’t need Putin’s help.  Obama is evidently willing to make any concession to get a deal with the mullahs.

In sum: Obama got bupkus for caving on the Magnitsky List.

Back to Syria.  The WSJ ran a long story detailing the sorry, sorry tale of American policy.  Read the whole thing, but it is readily summarized.  The administration wanted nothing to do with Syria, but didn’t have the stones to says publicly.  It gave out aid to the rebels in penny packets to appease frantic allies appealing for American support.  The result: the aforementioned stalemate in which the most radical and bloodthirsty survive. I cannot think of a comparable example of American fecklessness in the 226 years of the history of the Republic.

Obama’s reluctance to get involved in Syria is understandable.  There was no easy choice.  But the administration made the worst choice of the lousy ones available.  A robust intervention on behalf of the rebels would have probably resulted in their victory, with an outcome similar to the final scenes of Lawrence of Arabia, with squabbling rebels and tribes making a hash of things in Damascus.  But that would have been better than the current and future situation, with Islamist warlords ranging from the psychotic to the extremely psychotic face off against one another and the remnants of a blood-soaked Baathist regime.

By trying not to choose, Obama made a choice.  Millions of Syrians-and Lebanese-are paying the price.  Such are the wages of fecklessness.

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December 6, 2013

What is the Guardian Guarding? Names of UK Intelligence Personnel: No. The FSB: Yes.

Filed under: History,Military,Politics,Russia,Uncategorized — The Professor @ 1:58 pm

To put it in Navspeak, the egregious Guardian editor Alan Rusbridger has really screwed the pooch.  In testimony before a Parliamentary committee he admitted that (a) documents sent out of the country had names of British intelligence personnel on them, (b) he couldn’t be bothered to vet all the documents to ensure no names of intelligence agents were included in what he shipped out of the UK (to the NYT, specifically), and (c) paid Greenwald’s partner Miranda to mule the documents out of the UK (in stark contrast to his previous denials that the Guardian had paid Miranda).  Blogger Louise Mensch covered the hearing in detail.

This is a big deal because it is a crime in Britain to transport the names of UK intel personnel out of the country.  Even if it wasn’t a crime, it would be a very grave matter because it would put lives at risk, and would jeopardize British national security.  Not to mention the national security of UK allies, including the US, Canada, New Zealand, and Australia.

His defense? That release of the Snowden material is self-evidently in the public interest, and that there is no evidence that UK intel people had been put at risk.

In other words, Alan Rusbridger, elected by nobody, and who claims he should not be accountable to anybody, and especially not to the British government or law enforcement, has appointed himself the final arbiter of what is in the public interest.  What’s more, he claims to be able to know how people operating in the very clandestine world of intelligence cannot possibly be threatened by disclosure of their names.  (I would note that even if individual agents do not come to harm, their disclosure can lead to the harm of those they have interacted with, or the undermining of operations that would have otherwise reduced the risk of actions that could harm UK national security, or the lives of innocent individuals.)  (As Mensch notes, moreover, any individual whose name was leaked has suffered a severe career setback, as they are essentially undeployable in a covert role: something the Guardian understood when it came to Valerie Plame.)

And then there are the suck-ups who work for Mr. Rusbridge.  Luke Harding (@lukeharding1968) is a very special case. Bravura performance? Get a room, please.

Harding is a special case because he co-authored a book on Wikileaks in which he-wait for it-blasted Assange for not redacting the names of individuals named in the State Department cables stolen by Manning and released-via the Guardian-to the world.  So let me get this straight, Luke:  Assange was treacherous, but Alan I Couldn’t Be Bothered to Redact Names Because There Were Just So Many Bleeding Documents Rusbridge is a hero bravely defending liberty and a free press before Parliament.  Have I got that right?  What is it?  That was then, this is now?  Or, is it that Assange screwed the Guardian, so you had to find a club to beat him with, but wouldn’t dare turn the same club upon yourselves?  I guess I don’t qualify as a first rate intelligence by the F. Scott Fitzgerald definition, because I am having a really hard time of holding two opposed ideas in mind at the same time and still retaining the ability to function.  And believe me, your criticism of Assange and your defense of Rusbridge are about as totally opposed as ideas can get.

Harding is also a special case because he wrote a book about his experiences in Russia that was very critical of the Putin regime and the FSB in particular.  Yet he is mute on the subject of Snowden’s flight to Russia and control by the FSB, even though any sentient being without an axe to grind realizes that the greatest beneficiary of Snowden is Putin and the FSB that Harding claims to despise.

Luke Harding is the exemplar of a form of transitivity that characterizes the Guardian.  Yes, it often writes things that are very critical of Russia and Putin.  But its dislike of Russia pales in comparison with its hatred of the US and the UK government-at least the defense and intelligence establishments thereof.  So when it becomes an issue of the US vs. Russia-as is the case with Snowden-all criticism and even questioning of Russia is silenced, and screeching about the US and UK government reaches a deafening pitch.  In the Snowden matter, Ed’s complicity with and aiding and abetting of the FSB is never mentioned: indeed, anyone who suggests it is slimed as an NSA/GCHQ lackey.  When the FSB follows Harding, or breaks into his apartment, now that’s important.  That deserves a book!  But when the Guardian’s pet project provides incredible aid and comfort to that very same FSB, nary a word is spoken.  FSB?  What FSB?  This is all about NSA and GCHQ.  Snowden is a crusader for freedom, even though he is a tool in the hands of a regime that is inimical to freedom.  Following the party line.  Jot and tittle.

So when push comes to shove, when there is a choice to be made, the Guardian-and Luke Harding-make it plain where their real sympathies lie. They deserve no respect and no credibility.  And at least some-notably Alan Rusbridger-deserve the tender mercies of the law, with all the protections and procedures it affords him in the UK.  If it were Russia, not so much.

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December 5, 2013

We’re Spying on the Russians????? Who Knew????

Filed under: History,Military,Politics,Russia,Uncategorized — The Professor @ 11:41 am

In his heroic efforts to alert Americans to the NSA’s threats to their civil liberties, Edward Snowden’s latest document release reveals that NSA colluded with Sweden to spy on Americans.

Wait.  Did I say Americans?  Sorry.  Got all wrapped up in the narrative.

Let me start over.  Edward Snowden’s latest document release reveals that the NSA and its counterpart the Swedish National Defense Radio Establishment  (“RFA”) cooperated to collect intelligence on Russia, including high priority targets such as the leadership.

A couple of comments.

First, I sure as hell hope so and am damned glad.

Second, um, isn’t the whole point of the NSA-and presumably RFA-to collect intelligence on foreign nations, especially those who are not just potential adversaries, but actual ones?  Hell, NSA’s primary reason for being for  decades was to collect intelligence of all varieties on the USSR.  The anti-terrorist mission which Poitras, Greenwald, etc., insinuate is the only legitimate basis for its current existence was pretty much an afterthought, and is still only a portion of what NSA does.  (IMO the NSA and the intelligence community in general have been mistaken in emphasizing its anti-terror role as a justification for its programs.  This has allowed the Snowden gang to raise doubts about the legitimacy of NSA’s non-terror-related activities, including collecting intelligence on foreign leaders and countries.  NSA should defend these activities.)

Third, this is a case where the US and Sweden have common interests, as is the case with the US and many of the other countries with whom it has cooperated, as revealed by previous Snowden disclosures.

Indeed, Sweden has long been, and continues to be, the subject of aggressive Russian intelligence and military operations.  These include Soviet submarine incursions into Swedish waters. (The lack of these episodes post-Soviet collapse are due more to the implosion of the Russian submarine force than any change in intent.)  They also include violations of Swedish airspace, including several recent simulated bombing runs on Sweden.

Given this history, cooperation between NSA and FRA is about as shocking, and about as alarming, as the cooperation between the FBI and local law enforcement on kidnapping and bank robbery.

As a near front-line state, with deep engagements and interests in eastern Europe and the Baltic, Sweden has no illusions about the threats posed by Russia.  Military. Economic. Criminal. (In Russia, these two are hard to distinguish.)  And yes, political.  Note that Sweden’s Karl Bildt has been among the most outspoken in criticizing Russia’s intimidation in Ukraine.  (Could he give John Kerry a blood transfusion?  He could use it. First the French, and now the Swedesare making Kerry and Obama look feckless and craven.  Read that sentence again to get the full significance of how embarrassing that is.)

The fact that Snowden, Poitras, Greenwald et al think that this revelation somehow reveals that the US is engaged in illegitimate acts tells you about their utterly unrealistic view of the justifiable activities of national intelligence authorities.  States have engaged in such activities since time immemorial.  They are an essential state function.  This revelation also shows that they believe that cooperation with the United States is inherently disreputable.  Because they believe like most hardcore leftists that the US is uniquely malign.  The criticism of those who cooperate with the US, and the elevation of the Russians-the Russians-to the status of victims tells you need to know all about whom they think are the bad actors.

The point is to put pressure on the US, and most notably, US allies, who cooperate out of self-interest with US intelligence agencies.  It has nothing to do with the privacy or civil liberties of the nations involved-the ostensible justification for Snowden’s theft-and everything to do with compromising the legitimate activities of free, democratic countries.

And who are the beneficiaries? Unfree, undemocratic ones.  Most notably Russia.  You know, the country to which Snowden fled, and which has given him asylum, obviously under the control of its security services, as self-righteously-and implausibly-as Snowden, Greenwald et al try to deny it.

Russia. The country of SORM.  Which those stalwart defenders of human liberty and privacy Snowden, Greenwald, Poitras, et al never mention ever.

What they reveal and what they refuse to discuss proves, day after day, that they are all objectively pro-Russian, and outrageous hypocrites to boot.  And sorry, but advancing Russian interests at the expense of American and Swedish (and German and British and Portuguese and French and Spanish and . . .) interests is utterly incompatible with a claimed purpose of fighting for liberty and privacy.  Because however imperfect these countries may be, on their worst day they are far superior to Russia on its best.

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December 3, 2013

I Call Total Rip-Off on Jen Rubin

Filed under: Uncategorized — The Professor @ 12:58 pm

I am somewhat used to getting material from SWP ripped off.  The Economist did it a couple of times early on in the history of this blog, and other less eminent writers/bloggers have done it subsequently.  But seldom have I seen such a total expropriation-of Russian Yukos-like proportions-as this piece by Jennifer Rubin at the WaPo.  The title and main metaphor of the piece.  The substance of the analysis.  Blatant and shameless.

I give away what I write here.  (Some may say that’s a fair price.)  I am more than pleased when people quote what I write.  Indeed, that’s the primary compensation for the time and effort that I devote: I write so that my ideas, such as they are, get discussed and disseminated and yes, criticized.  The ethical expectation is that credit be given.  It doesn’t cost a thing.  Except, perhaps, for those who are so insecure and desperate to be thought of as creative and perhaps under pressure to produce new content day after day that they take from others without attribution.

There’s a right way to do this.  Felix Salmon and I have had disagreements, in public via our respective blogs.  But he gives a respectful hearing to what I say, attributes it plainly (with links), and characterizes it fairly.  John Kemp (also of Reuters) is another example.

And then there’s the Jennifer Rubin way.

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November 11, 2013

The Weakest Horse

Filed under: History,Military,Politics,Uncategorized — The Professor @ 9:54 pm

It gets better and better. And by better and better I mean worse and worse. And by “it”, I mean the rubbing of the American nose in the manure pile in the Middle East. The Saudis flip out on us.  Then Bibi flips out on us.  (Quite an accomplishment to get the Saudis and Israelis on the same page.)

And now the Egyptians host a Russian naval vessel for the first time since 1992. Moreover, the Egyptians, who can’t even afford a pot to pee in (as my grandfather used to say), are looking to buy $4 billion in arms from Putin.  Obviously the Egyptians are sending a message to Obama.

Yeah.  That hurried Kerry visit to Cairo sure worked magic, eh?

The US has always been the object of hatred in the Middle East, but the president who orated in Cairo promising to enhance American prestige in the region has made our nation even more widely hated, not that I would have thought that possible.  In Egypt-the location of his allegedly transformational Cairo speech-Obama has turned the amazing trick of making the US hated by Islamists, secularists, and militarists.  It’s the only thing all Egyptians agree on.  That’s our Obama.  Bringing people together.

What’s worse, he’s made the US an object of ridicule and derision.

Machiavelli famously asked whether it was better for a prince to be loved than feared.  He concluded that it would be best to be both, but that since that was unlikely, it was better to be feared than loved.

The Middle East is as Machiavellian a place as exists today.  Obama’s Quixotic foreign policy-faithfully represented by his Sancho Panza, aka John Kerry-has resulted in the worst of all outcomes in such a place: to be hated and not just not feared, but to be actually ridiculed and despised as an unreliable ally and craven and cowardly enemy.

Obama reveled in killing Osama.  But he has given life to one of Osama’s most notable observations: “When people see a strong horse and a weak horse, by nature they will like the strong horse.”

Everybody in the Middle East-and the Russians too-see the US as a weak horse.  Hell, not even a horse. A donkey-or an ass-is more like it.

This cannot end well.

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November 5, 2013

Will Miracles Never Cease? CNN(!) Calls BS on Holger Stark (and hence on Snowden)

Filed under: Uncategorized — The Professor @ 12:05 am

A recurring theme in the Snowden saga has been the debunking of the most spectacular claims, with metronomic regularity.  The NSA has direct access to Google, Facebook, and Yahoo servers! Uhm, no.  The NSA has spied on French and Spanish and Dutch citizens! Uhm, no: the French and Spanish and Dutch intelligence services collected data and shared it with the NSA.  And on and on.  Many claims have disintegrated within 24 hours.  Several others survived a whole two or three days before imploding! But nonetheless, every new revelation is treated uncritically by a fawning press, as if Ed has brought down Powerpoints from a burning bush.

Given this record, any good Bayesian would discount each new allegation, and the haircut would increase every time one of these allegations proves to be overblown (which happens to be every time an allegation is made).  The most recent “bombshell”-that the NSA is somehow accessing the cloud storage of Google*, etc.-is a case in point.  I would give good odds that this story too will prove to be all hat, no cattle.  (It’s based on a doodle from Post-It note, for crying out loud.)

One of the more enduring claims-meaning that it lasted more than a week-is that the US eavesdropped on Angela Merkel’s cellphone.  Look at that article. 7 pages when printed out, with a cast of thousands given bylines (including the noted “journalist” Jacob Appelbaum).  There have been hundreds, perhaps thousands, of articles written since repeating the “US spied on Merkel claim.”  With nary a soul pushing back.

Well, at least there was one soul. CNN’s (will miracles never cease?) Becky Anderson called total bullshit on Holger Stark, one of the authors of the article and the primary German bag man for the Snowden material.

Note how Anderson utterly demolishes him.  He repeats the claim that the NSA was “monitoring” Merkel’s cellphone.  Then Anderson swoops in: “What you don’t report is what information the spy agency was gathering.  Were her conversations for example recorded, or was this the gathering of what we’ve come to know as metadata?”

Stark: “We’ve been shy on commenting on those points because we just can’t know that for sure.”

Seriously? Shy? Are you kidding me?  Shy?  Seven pages in Der Spiegel screaming “NSA spied on Merkel” is shy? You “don’t know for sure”?  Funny.  I hadn’t noticed. Y’all seemed pretty damned sure.

More Stark: “The only thing we know for sure is that this entry shows her as an active target.” Then he goes on to say that she is the target of a special unit that collects everything.  Then he admits “we don’t know that for sure [what has been collected] and we only want to report on things that are confirmed.”

Really?  She’s on a list. That’s all Stark knows.  The rest is pure speculation with zero documentary support. Do know for sure. Don’t know for sure. Whatever.  Only report on things that are confirmed: again, that’s news to me.

And speaking of documents.  The most spectacular conclusions that Greenwald, Poitras, Gelman, Stark, etc., have drawn from these documents are not supported by the documents themselves.  But are the documents even authentic?  If they aren’t, even the shrunken allegations are not supportable.

What measures have the gang taken to establish the validity and provenance of the documents? Most are Power Point presentations.  Who’s to say Ed didn’t create them, or embellish them?  (Trivial to add a slide or two.)  Would it be possible to prove the authenticity of these documents so that they could be admitted as evidence as a trial?  If not, why not?

It seems that everything is taken on faith.  My motto in this instance would be: don’t trust, and verify.  But the motto of the gang appears to be: these documents are too good to check because they support our agenda!

Watch the rest of the interview.  Anderson just owns Stark, who attempts to weasel his way out of his repeated overstatements.  She almost gives me some hope for journalism and journalists.  Would that more of that craven set follow her example.

*Google’s Eric Schmidt expressed outrage at the claim that the NSA had penetrated the cloud, or intercepted data en route to the cloud.  Spare me.  I mean, seriously, people.  I know Google reads my email.  I know it.  How do I know it?  The banner ads that creepily echo subjects of my email.  I write an email including a discussion of Russia, and up pops a banner advertisement for Russian dating services  I write an email mentioning the stock market, and up pops an ad for stock brokerages.

Google obviously doesn’t give a rat’s rump about my privacy, or yours.  Indeed, our information is its livelihood.  And I know that the NSA couldn’t care less about my email, unless my metadata intersected with that of bomb makers from the Tribal Territories of Pakistan, or Yemen, or Somalia.

So don’t worry about the NSA having access to information you communicate via Google.  Worry about Google having information you communicate via Google.

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