Streetwise Professor

December 3, 2017

Please Reconcile This: The Kremlin Is Hermetically Sealed to Outsiders, But They Told All to Christopher Steele

Filed under: Politics,Russia,Uncategorized — The Professor @ 7:45 pm

This article caught my eye last week: “At the epicenter of the Russian election manipulation story, reporters can’t report.”

As tensions rise, Ferris-Rotman finds reaching sources inside the government all but impossible. She says foreign correspondents based in Moscow can’t just pick up their phone and text or call an official.

“Russia is a very closed place,” she says. “It’s not like the U.S. where, you know, over years or over some time you can develop a source in the White House — someone who you can trust and that you trade information with. Basically (the Kremlin) is a sealed up institution and there’s no way for us to get into it. “

The Kremlin is a “sealed up institution,” but we are supposed to believe that Christopher Steele was able to get multiple sources within the Kremlin to repeat highly sensitive conversations involving the highest personages in the Kremlin, including Putin himself.

The dossier itself is bad enough, but its handling in the US–specifically by the FBI and the intelligence community–is downright sinister. This is even more evident after it was revealed that the FBI agent who was responsible for handling the dossier was a pro-Hillary/anti-Trump partisan who was fired by Mueller for exchanging anti-Trump texts with his lover, also an FBI agent. (Not that Mueller told us that this was why he was fired when it happened months ago. I guess he didn’t have time because he was so busy leaking.) Moreover, this same individual allegedly has been interfering with the House Intelligence Committee’s attempts to get to the bottom of the story of the dossier.

But there’s more: the same FBI official led the investigation of Hillary’s emails.

As the expression goes: the fix is in! Although here, it is necessary to use the plural: the fixes are in!

Boy, if only there was a Republican attorney general who could get control of a rogue FBI and get some answers about the dossier–how it was obtained, and how it was used by the FBI.

 

 

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October 31, 2017

Kelly Causes Mass Apoplexy, Again

Filed under: Civil War,History,Politics,Uncategorized — The Professor @ 7:56 pm

John Kelly shares his boss’ ability to cause mass apoplexy on the left. And I think he knows it, and does it deliberately.

Kelly caused today’s mass freakout by making remarks about Robert E. Lee and the Civil War. He committed three grave sins.

First, he criticized presentism, which is an -ism that the left wholeheartedly endorses:

“There are certain things in history that were not so good, and other things that were very, very good,” Kelly said. “I think we make a mistake as a society, and certainly as individuals, when we take what is accepted as right and wrong, and go back 100, 200, 300 years or more and say, ‘What Christopher Columbus did was wrong.'”

“Five hundred years later, it’s inconceivable to me that you would take what we think now and apply it back then. I just think it’s very very dangerous. It shows you how much of a lack of appreciation of history and what history is,” said Kelly, a retired Marine Corps General.

Just so. Exactly.

Then, he defended Robert E. Lee as an honorable man:

“Robert E. Lee was an honorable man who gave up his country to fight for his state,” Kelly said. “One hundred and fifty years ago, that was more important than country — it was always loyalty to state back in those days.”

As a matter of historical truth, this is also spot on. Who disputes that Lee chose his state over the United States?–but only after secession, and when his state was threatened with invasion.

Whether this conduct is honorable or not is fundamentally subjective. Honor–as Lee understood it, and as people like Kelly understand it–means living up to a certain code of conduct, adhering to one’s beliefs, even at great personal cost. The underlying beliefs are not objectively verifiable: they inhere in the subject. Honor involves adhering to them.

Now, you may object to Lee’s code, and what his beliefs were. But it is nigh on to impossible to dispute that he made his choice in good conscience, fully recognizing the personal risks he was taking.

Insofar as that code is concerned, Lee was acting on the basis of a theory of the United States, and the Constitution thereof, that was widely held in the South. Namely, that the Union was a compact of sovereign states, and that states had the right to depart from the Union of the federal government infringed on the rights of the states. In this view, the purpose of Union was to defend the rights of the states, and an infringement by the federal government on those rights justified the dissolution of the Union.

The Civil War basically ended that theory as a practical force in American politics, but it was a viable, and widely held, theory in 1861. And under that theory, one was a citizen of the US via one’s citizenship in a state. The state was more basic, more fundamental, than the union of the states.

Many object that Lee swore an oath to the US. A couple of things here. First, hard cases–situations where basic principles are in conflict–make bad law. Lee indeed agonized over his oath and his divided loyalties. Second, under the theory that Lee (and others) operated, obligations went both ways: the federal government had obligations to the states, and their citizens. In the minds of many Southerners, the government’s violation of its obligations relieved them of theirs. And rightly or wrongly, many Southerners viewed those rights to be at risk as the result of Lincoln’s election in 1860.

This theory was taken very seriously. So seriously, in fact, that it greatly–and some would argue fatally–impaired the Confederate war effort. Southern governors, most notably Joseph Brown of Georgia, drove Jefferson Davis to distraction with their strict insistence that the Confederate government in Richmond respect the rights of their states. Jefferson Davis was one of those who claimed that this was indeed fatal to the South because it undermined a unified war effort necessary to achieve victory. When he said the epitaph of the Confederacy was “Died of a Theory,” the theory he was referring to was that of states’ rights.

It is true that many have dishonestly claimed that the insistence on states’ rights shows that the Civil War wasn’t about slavery. In fact, these are not alternative theories of secession, or the war, but complementary ones. The right that Southern states were insistent upon, to the point of dissolving the Union, was that of a state to choose its “domestic institutions.” And the domestic institution the Southerners were willing to fight over was that of slavery.

You may argue against the theory, but you can’t credibly argue that Lee was dishonorable in adhering to the principles thereof. One may be an honorable and faithful servant of a false god.

Among his contemporaries–including many Northerners–Lee was considered an honorable man, and indeed perhaps, the archetypal honorable man. Recall that Grant saluted Lee on the steps of the McClean House at Appomattox, after accepting the surrender.

Lee was also from an honor culture, or cultures, actually–the South, and the military (and the antebellum military was deeply infused with Southern cultural values). Lee’s idea of honor no doubts resonates with Kelly, the product of another honor culture, the US Marine Corps.

Again, you may dislike or even ridicule this culture (as Twain did in Huckleberry Finn) but you cannot deny its existence or fundamental features, or claim that Lee did not strive to adhere to its values and strictures.

But Kelly’s biggest sin was this:

Now it’s different. But the lack of an ability to compromise led to the Civil War, and men and women of good faith on both sides made their stand where their conscience had them make their stand.

This is what really got heads exploding. Deep thinkers like Rep. Ted Lieu (D-CA), Jake Tapper (you know, the ex-VH1 reporter who made his bones by doing snarky, superficial, and rather sleazy programs on, say, the legal battles over the Lynyrd Skynyrd legacy), and Ta-Nehiesi Coates inveighed against Kelly for daring even to suggest this.

In fact, Kelly’s remark is correct, as a matter of logic and of history.

Insofar as logic is concerned, a necessary condition for conflict is the failure to reach agreement–compromise. Those who make a deal aren’t fighting.

Insofar as history is concerned, sectional conflict was avoided throughout the 19th century through arduously negotiated compromises. The Missouri Compromise (1820), the Compromise Tariff (1833), the Compromise of 1850, the Kansas-Nebraska Act. Sectional compromise was the leitmotif of mid-19th century American political history: the Civil War was the exception to that rule, the time when compromise failed.

Abraham Lincoln’s political idol–Henry Clay–was known as “the Great Compromiser” for his work in negotiating the first three of these. But Clay was dead in 1860, as was another major figure in negotiating deals, Daniel Webster. Moreover, the political balance had changed, and the pernicious effects of Kansas-Nebraska made compromise even more difficult.

But nonetheless compromises were attempted. The Crittenden Compromise, introduced to Congress in December, 1860, was the most notable of these. It was satisfactory to southerners, but not to northerners, so it died aborning. (One of Crittenden’s sons became a Union general, another a Confederate general. The latter died in battle in 1861.)

Yet even in March 1861, Lincoln was making conciliatory gestures to the South in an attempt to achieve compromise. Lincoln ran explicitly denying any intent to interfere with slavery where it existed (a position he also took during the debates with Douglas), and conceded fundamental states rights principles to the South in his inaugural address:

have no purpose, directly or indirectly, to interfere with the institution of slavery in the States where it exists. I believe I have no lawful right to do so, and I have no inclination to do so.

Those who nominated and elected me did so with full knowledge that I had made this and many similar declarations and had never recanted them; and more than this, they placed in the platform for my acceptance, and as a law to themselves and to me, the clear and emphatic resolution which I now read:

Resolved, That the maintenance inviolate of the rights of the States, and especially the right of each State to order and control its own domestic institutions according to its own judgment exclusively, is essential to that balance of power on which the perfection and endurance of our political fabric depend; and we denounce the lawless invasion by armed force of the soil of any State or Territory, no matter what pretext, as among the gravest of crimes.

Note well this sentence: “we denounce the lawless invasion by armed force of the soil of any State or Territory, no matter what pretext, as among the gravest of crimes.” Lee would have agreed: he viewed the prospect of an invasion of Virginia by the government of the US to be a lawless act, and it is on that issue of lawlessness which he and Lincoln disagreed.

Lincoln went so far as to accept what was an anathema to abolitionists–the Fugitive Slave Act–arguing that the controversy was a matter of details (“a merely unsubstantial controversy as to how it should be kept”), not Constitutional principle:

It is scarcely questioned that this provision was intended by those who made it for the reclaiming of what we call fugitive slaves; and the intention of the lawgiver is the law. All members of Congress swear their support to the whole Constitution–to this provision as much as to any other. To the proposition, then, that slaves whose cases come within the terms of this clause “shall be delivered up” their oaths are unanimous. Now, if they would make the effort in good temper, could they not with nearly equal unanimity frame and pass a law by means of which to keep good that unanimous oath?

There is some difference of opinion whether this clause should be enforced by national or by State authority, but surely that difference is not a very material one. If the slave is to be surrendered, it can be of but little consequence to him or to others by which authority it is done. And should anyone in any case be content that his oath shall go unkept on a merely unsubstantial controversy as to how it shall be kept?

In other words, even Lincoln was perfectly willing to reach a compromise that preserved slavery where it existed, and which allowed Southerners to retrieve escaped slaves from anywhere in the US.

The basis for compromise on the lines of those thrashed out 1820-1854 existed, and many on both sides strove to realize it. But the Fire Eaters in the South in particular rejected it. So it is historical fact that the war came because the politicians of 1860-1861 failed to reach compromises like those their predecessors had accomplished a few decades before, despite attempts to do so.  There is a very solid historical basis for what Kelly said.

Now of course any such compromise would have perpetuated slavery. But this is something that Northerners were overwhelmingly willing to accept. And here is the irony. By rejecting the compromises that the North (and the Republicans specifically) would have been willing to offer that would have extended slavery, the Southern radicals embarked on a course that resulted in its destruction within a handful of years. They turned the would-be successor to the Great Compromiser into the Great Emancipator.

The morals of sectional compromise are also not nearly as clearcut as the Ta-Nahiesi Coateses of the world would have it. Yes, Lincoln would have willingly been complicit in the perpetuation of a great evil–something that he recognized as a great evil. But by rejecting Southern terms, and insisting on Union, Lincoln unleashed a war that resulted in the deaths of ~2.5 percent of the US population–and about 20 percent of the military age male population in the South. As Lincoln said in his Second Inaugural, “every drop of blood drawn by the lash was paid by another drawn by the sword.” War is a great evil too. You may prefer one evil to another, but you have to acknowledge that it is indeed a choice between great evils.

This raises another issue that I will write about in the future. It is relatively straightforward to understand why the South seceded, and to recognize that at root it left over slavery. It is harder to understand why the North fought to keep them in the Union. It most certainly was NOT to eradicate slavery: even by 1863, emancipation did not have majority support in the North, and the 13th Amendment was passed in 1865 only by the slimmest of margins, and with the help of some very swampy political dealings.

So why? I have some conjectures–largely unsatisfying–that I’ll share in the future. Suffice it to say it is far too neglected a subject, especially in contrast to the  vast amount of ink spilled over explaining secession.

In sum, for all of the freaking out that Kelly’s remarks induced, he has a far firmer grasp on historical truths than those freaking out do.

But he had to know that what he said would spark a backlash. Yet he went ahead. This is actually quite fascinating, and revealing. He did so after the left attempted to shut him up and shout him down for going after the execrable Florida representative over the Trump phone call to the widow of a soldier killed in Niger. By speaking up on such a controversial topic so soon afterwards Kelly is making it very clear that he will NOT be intimidated.

Further, it demonstrates on matters of substance that Kelly’s beliefs track Trump’s very closely–or should I say that Kelly’s sincere beliefs track positions that Trump has staked out? Further proof that anyone thinking that the temperamental difference between Trump and his chief of staff reflects differences in political positions is sadly deluded. Indeed, Kelly’s gravitas (isn’t it funny that word is usually reserved for Democrats, even those who don’t really have it?)  will make Trump far more effective. Kelly is an effective spokesman, and an unapologetic one.

Semper Fi. That makes him a very formidable foe for the left.He is not afraid of a fight, and knows how to win one.

 

 

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October 22, 2017

Cranking the Russian Absurdity to 11: Logical Consistency Need Not Apply

Filed under: Politics,Russia,Uncategorized — The Professor @ 4:37 pm

The absurdity of the Russia collusion investigation knows no bounds. The most recent iteration is that a Russian troll farm placed Facebook ads that promoted political division in the US. A far cry that from Trump personally canoodling with Putin, but put that aside. Front and center among the most recent allegations is that said troll farm placed material advancing Black Lives Matters themes with the intent of stoking racial division.

Members of the Congressional Black Caucus are extremely critical of Facebook for failing to derail the ads:

“This is a very fragile moment in time for African-Americans across this country,” Rep. Cedric Richmond (D-La.), chairman of the CBC, told reporters. “What we needed Facebook to understand is that they play a role in the perception of African-Americans, and they are influencers that use their platform to influence this country.”

. . . .

CBC lawmakers said they think the Russian ads promoting Black Lives Matter would have been easily flagged, and likely not seen by as many as 10 million people, had Facebook employed more people of color. Sandberg committed to adding a person of color to the board of directors soon, Richmond told reporters.

Several comments about this.

First, far be it from me to defend Facebook, but can you imagine the hue and cry had Facebook blocked similar–or even identical–content from any BLM-affiliated or sympathetic group or individual? The CBC would have been first in line to scream censorship. And does anyone believe that “people of color” at FB would have been more likely to flag and suppress pro-BLM messages? In what universe? Thus, this chin pulling is a case of ad hominem argument: it is not the content that they find objectionable, but who placed the content and for what purpose. (I doubt that the foreign origin of the material matters either: I imagine that the same people would be quite comfortable with similar messages being spread by ideological allies from say, Venezuela or Cuba. The alleged Russian origin only looks problematic in hindsight in the aftermath of the election.)

Second, the Obama administration was very sympathetic to the BLM agenda. Obama hosted BLM leader DeRay McKesson at the White House. I daresay he met privately with DeRay and other BLM leaders more than he met with some cabinet secretaries. Even more outspoken than the president was his Attorney General, Eric Holder. Holder traveled to Ferguson, Missouri at the height of the turmoil there and made remarks that hewed very closely to the BLM line–that was pretty damned divisive.  He gave speeches praising BLM.  BLM played a prominent role at the Democratic convention in 2016, and Holder said “black lives matter” during his speech there.

Again, if such BLM-themed remarks are racially divisive when made in Facebook ads placed by Russians (allegedly) and seen by a relatively small number of people, aren’t they much more so if expressed repeatedly by the president and the country’s chief law enforcement official at a time this issue was very raw, and receiving wall-to-wall coverage in all forms of media? Is BLM-themed rhetoric dangerous per se or not? If it is, that is true regardless of who says it.

And if advancing BLM-related themes is inherently bad, why are the same people criticizing the Facebook ads (and Facebook) the most outspoken defenders of kneeling NFL players, and the most vocal critics of a president who criticizes those players?

The logical fallacies and logical contradictions are rampant.

Third, assuming the allegations re Russia are correct, and indeed, assuming that this was part of a political influence operation run by Russian intelligence, it is nothing new! The Russians/Soviets have done this for years and years and years. The medium–social media–is new, but the methodology is tried-and-true: the Soviets/Russians have always used available media as part of these operations, so it should be no surprise that they have turned to social media given its current dominance. Further, the Russians/Soviets have focused on sowing racial division in particular during periods of racial strife in the US (e.g., the disinformation campaign claiming that AIDS was a CIA plot to kill black people). It is only the historical idiocy of the American establishment/political class that leads them to find something novel and uniquely dangerous in this new iteration of a very old game.

Indeed, when I argued years ago that ZeroHedge was a Russian influence operation it was precisely because it exhibited tells and used methodologies that I became aware of during the height of the Cold War. I noted specifically the seeding of pro-Occupy stories and themes in ZeroHedge as an indication that it was an influence operation. Replace Occupy with BLM and ZH with FB, and the analogy is exact. Again, anyone who thinks this is something new and a unique threat to the Republic is an historical idiot.

Indeed, look at the similarities with what is alleged about the social media strategy and ZeroHedge. ZH has long run very contradictory messages. Yes, there were many Occupy-themed posts. But there were also many Ron Paul-liberatarian posts, and anti-Obama administration posts. The common theme was that the posts addressed controversial issues in inflammatory ways. There was no common ideological line: they pushed everybody’s buttons. This is exactly what is alleged in the Facebook-Russia story.

This hysteria over this recent–and rather mild, by historical standards–iteration on this methodology wreaks of desperation to rationalize a devastating political loss, and an intent to delegitimize the winner of that election.

The triviality and triteness of this alleged conduct is all the more evident when one considers another story–one which the media is doing its damndest to ignore. The Hill–hardly a fellow traveler of Breitbart–has run several stories detailing the myriad links (including specifically financial links) between the Clintons and Russia, which were contemporaneous with the decision by the US government to approve the sale of Uranium One (which owned 20 percent of US uranium production) to Russia. Further, The Hill reports that the FBI had engaged in a thorough investigation of corruption surrounding the deal, which ultimately resulted in an indictment and conviction of one of the Russian principals–something which the FBI and DOJ announced with virtually no fanfare. Further, the plea covered a fraction of the criminal conduct that had been uncovered, greatly undercharged the offense, and was delayed until after it could have scotched the Uranium One deal.  Congress and the government body that must approve foreign takeovers over national security-sensitive companies were kept in the dark about the massive bribery scheme. The US informant has been gagged and threatened with criminal prosecution if he talks to Congress.

The Clinton Foundation was at the center of a nexus of connections between the corrupt parties to the transaction. The fact that many of the main actors in the Trump-Russia imbroglio–Hillary, Mueller, Comey, Rosenstein, and McCabe–were also deeply involved in the events reported by The Hill makes it all too much, really.

Today the Daily Caller–yes, closer to Breitbart than The Hill–notes the potential connection with the Russian spy ring story of 2010.

I’m not going to try to parse these stories–it is not necessary to do so for my present purpose here. Suffice it to say that the connections reported by The Hill–which, in turn, were allegedly uncovered as part of an FBI investigation that resulted in a conviction–are far more substantial and better documented than any of those that involving Trump, despite the assiduous efforts of legions of journalists and investigators to find the latter. What’s more, The Hill allegations involve Hillary Clinton’s actions while she held the most senior post in the president’s cabinet, and the concealment of the details from Congress and the American public required the complicity of Holder and Obama, as well as the FBI. All of which means that if the more flimsy allegations against Trump warrant a special counsel and numerous Congressional inquiries, those against Clinton (and the Obama administration) deserve at least as much, if not more.

Again–is a little logical consistency too much to ask for? That was a rhetorical question, folks.

The upshot of all of this is that the frenzy regarding Russia right now has little, if any, relationship to its substantive importance. The new social media-related allegations are ad hominem in nature: if advancing a BLM narrative is racially divisive, and that is inherently bad, Russian troll farms are the least important offenders. Obama, Holder, and Colin Kaepernick are far more culpable. Further, the alleged conduct is par for the Russian course, and indeed, is exactly the kind of activity that I pointed out in 2009–and which was well known decades before that. Lastly, the Democratic hysteria over Russia has to be the greatest case of projection in political history, when one considers the myriad Clinton-Russia connections.

This cranking of the Russia absurdity to 11 has nothing to do with facts or realities or even logical consistency. In fact, I should say especially logical consistency. The grotesque inconsistencies demonstrate instead that it has everything to do with a peculiarly American disinformation campaign intended to overturn the results of an election, and to kneecap the victor thereof.

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August 27, 2017

Riding the Storm Out

Filed under: Uncategorized — The Professor @ 11:08 am

Harvey has hit Houston with Biblical rains. I’m stocked up and off ground level, and searching the Internet for Ark plans. One of the most damaging hurricanes in Houston history was Allison, in June, 2001. Like Harvey, rather than hitting the city with devastating winds, it was a slow moving storm that inundated the city. Post-Allison Houston made efforts to increase drainage capacity, but the city is low-lying, and with all the pavement and buildings, this storm is likely to result in some pretty devastating flooding. How devastating depends a lot on how fast Harvey decides to get out of town.

It’s hard to get a comprehensive picture of things, especially at street level. You see pictures on the news or Twitter of flooded areas, but hard to know how representative that is. My street and the nearest major street are curb deep in water, and there are cars stalled.

All I can do is hang out and ride it out and hope for the best. Maybe given my enforced idleness I’ll write a substantive post in a bit 😉

And even though I’m not a big REO Speedwagon fan, this seems an appropriate way to pass the time.

Update. Sadly, there are parts of the Houston area where this seems more appropriate:

Braes Bayou, where I used to live, is over its banks. The place I first lived in here was a block from the Bayou, and had been flooded up to the door frames by Allison. (I moved in a year after it had been repaired.) I’m sure it’s flooded again.

 

 

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June 28, 2017

Media Meltdown: “Mommy! Mommy! No Fair! Donnie Hit Me Back!

Filed under: Uncategorized — The Professor @ 7:05 pm

Watching the prissy press go to into absolute meltdown mode over the fact that Trump, Sarah Huckabee Trump, and Sean Spicer are such meanies is hilariously entertaining. My God, who do these people think they are? They are so impressed with themselves, and convinced of their own importance, that any criticism is tantamount to unleashing death squads against them.

And no, that is not hyperbole.

CNN is leading the collective crying jag, because it has been the target of Trump’s and Trump’s media team’s most pointed criticism. And justifiably so, given the networks obsession over Trump and the Russia story in particular. An obsession which has resulted in stories so bad that three “journalists” responsible for one of them (relating to Trump friend Anthony Scaramucci allegedly meeting with the head of a Russian investment fund, during which CNN (falsely) claimed Scaramucci indicated that sanctions would be lifted) being fired.

This reminds me of the story about the kid who goes screaming to his mother: “Mommy! Mommy! No fair! Donnie hit me back.”

Yes, the media truly believes that they can hit until arm weary, but it is a grave offense for the target of their blows to hit back.

The funniest thing about this whole episode is that the media actually thinks that anybody outside their bubble gives a shit. No! They don’t! The media is widely loathed, and for good reason. In fact, to the extent that anybody outside the bubble cares about the media getting smacked around, they are likely to care in the way I do–that is, they get some satisfaction and entertainment out of the spectacle.

The overreaction will actually be counterproductive for exactly this reason. Going after the media is throwing red meat to Trump supporters. The more the media howls, the better it is for Trump, and the more he will ramp it up.

This illustrates yet again the media’s (and the establishment’s generally) complete failure to understand the Trump phenomenon. They just do not comprehend that there are people that not only don’t think like them, but dislike them actively and intensely. So they act like Einstein’s definition of a madman: they do the same thing over and over, expecting different results.

Sorry, folks. The song remains the same. Actually, not sorry.

The “elite” is preternaturally thin-skinned because of their excessive self-regard. The media are the most flagrant examples of this, for at least a couple of reasons. One is that they have ready access to mass media, and can more readily express their outrage in ways that are noticed beyond their immediate circle: related to this is the fact that these widely disseminated public displays feed off one another, and the hysterics compete with one another to demonstrate who can be the most hysterical.

Another reason is that journalism is not a highly paid profession, and as a result a substantial fraction of the compensation is psychic: as figures in the public eye, media people have status that far exceeds their skills (note that journalists as a group have below average cognitive abilities), and crucially is disproportionate to their income. Hence, they are jealously protective of this status: without it, they are low paid hacks in a dying profession.

Meaning that Trump and his minions are striking hard at the media’s self-esteem, and as inflated as it is, that’s pretty much all they’ve got. Hence the hysterical reaction.

Which I find hysterical (in another sense of the word).

 

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March 7, 2016

Clear the Way: LSE (and LCH!) on the Block

The biggest news from the exchange world in a long time is the proposed merger between LSE and Eurex. Both entities operate stock exchanges, but that’s a commoditized business these days, and it’s not the real driver of the merger. Instead, LSE’s LCH.Clearnet, and in particular LCH’s SwapClear, are the prizes. LSE and Eurex also both have valuable index businesses, but its hard to see how their value is enhanced through a combination: synergies, if they exist, are modest.

There are potentially large synergies on the clearing side. In particular, the ability to portfolio margin across interest rate products (notably various German government securities futures traded and cleared on Eurex, and Euro-denominated swaps cleared through LCH) would provide cost savings for customers that the merged entities could capture through higher fees. (Which is one reason why some market users are less than thrilled at the merger.)

A potential competitor to buy LSE, ICE, could also exploit these synergies. Indeed, its Euro- and Sterling-denominated short term interest rate futures contracts are arguably a better offset against Euro- and Sterling-denominated swaps than are Bunds or BOBLs.

The CME’s experience suggests that these synergies are not necessarily decisive competitively. The CME clears USD government security and STIRs, as well as USD interest rate swaps, and therefore has the greatest clearing synergies in the largest segment of the world interest rate complex. But LCH has a substantial lead in USD swap clearing.

It is likely that ICE will make a bid for LSE. If it wins, it will have a very strong clearing offering spanning exchange traded contracts, CDS, and IRS. Even if it loses, it can make Eurex pay up, thereby hobbling it as a competitor going forward: even at the current price, the LSE acquisition will strain Eurex’s balance sheet.

CME might also make a bid. Success would give it a veritable monopoly in USD interest rate clearing.

And that’s CME’s biggest obstacle. I doubt European anti-trust authorities would accept the creation of a clearing monopoly, especially since the monopolist would be American. (Just ask Google, Microsoft, etc., about that.) US antitrust authorities are likely to raise objections as well.

From a traditional antitrust perspective, an ICE acquisition would not present many challenges. But don’t put it past the Europeans to engage in protectionism via antitrust, and gin up objections to an ICE purchase.

Interestingly, the prospect of the merger between two huge clearinghouses is making people nervous about the systemic risk implications. CCPs are the new Too Big to Fail, and all that.

Welcome to the party, people. But it’s a little late to start worrying. As I pointed out going back to the 1990s, there are strong economies of scale and scope in clearing, meaning that consolidation is nearly inevitable. With swaps clearing mandates, the scale of clearing has been increased so much, and new scope economies have been created, that the consolidated entities will inevitably be huge, and systemically important.

If I had to handicap, I would put decent odds on the eventual success of a Eurex-LSE combination, but I think ICE has a decent opportunity of prevailing as well.

The most interesting thing about this is what it says about the new dynamics of exchange combinations. In the 2000s, yes, clearing was part of the story, but synergies in execution were important too. Now it’s all about clearing, and OTC clearing in particular. Which means that systemic risk concerns, which were largely overlooked in the pre-crisis exchange mergers, will move front and center.

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February 21, 2016

The first rule of the Republican Establishment is: You do not talk about the Republican Establishment

Filed under: Politics,Uncategorized — The Professor @ 2:55 pm

The straw man argument is one of the oldest–and lamest–rhetorical tricks. Obama is a master. But he’s by no means alone. Alleged intellectuals (and yet another 5 time Jeopardy champion!) like John Podhoretz play this cheap trick, as in this Podhoretz article denying the existence of a Republican Establishment.

Here’s Podhoretz’s straw man definition:

The Republican Establishment was a subset of the American Establishment. These were not formal entities; they were not entities at all. Indeed, the term for them only came into common currency in England in the 1950s, when the British journalist Henry Fairlie used it to describe a group of people who went to the same schools, ate lunch in the same clubs, and so from childhood came to share the same set of attitudes that permeated the way they exercised power and transmitted cultural messages through the system. It is meaningful that Fairlie described it so pointedly just as it was crumbling away in England; perhaps it was only as it was melting away that its skeletal structure could be seen and its genus and species identified.

and:

an Establishment is a set of people in the elite who share the kinds of cultural and social commonalities that truly define a kind of social and political caste, and for which important matters are transmitted invisibly through family and educational and social ties so that they end up operating almost unconsciously from the same base of experience.

How’s that for crypto-academic argle-bargle?

It’s also completely at odds with the way that the term is hurled as an insult in the ongoing 2016 presidential contest in the Republican Party. In the current political discourse, the term is not used as it would be in a sociology seminar. In fact, those using the term today are referring precisely to people who sound like they are giving a sociology lecture.

Instead, it is used by normal people to refer to a particular group of individuals concentrated in Washington, DC. This group consists of senior elected officials (especially in the Senate), Republican Party functionaries, and assorted courtiers in journalism (notably the Weekly Standard, National Review, and Commentary), think tanks, and lobbying firms. The extended establishment includes businesses who are dependent on regulation and government expenditure (e.g., defense contractors).

This is a self-perpetuating group whose primary purpose is not ideological or principled, but is instead dedicated to maintaining power, access to power, and the sinecures attendant to power. These are people who speak of the nation, but whose real obsession is much more parochial: their horizons do not truly stretch beyond the confines of the 202 area code. These are people who are mainly interested in being players. Winning the game is actually secondary.

Indeed, the thought of a game that can actually be won or lost is rather terrifying to them, because losing would mean that they could be unceremoniously ejected from their comfortable perches. An unending, static contest is much more to their interest, and their liking.

This group has many mechanisms of social control to keep its members in line. Withholding funding, social ostracization, or providing plum jobs or committee assignments are all used to coerce or seduce loyalty.

This is why Trump and Cruz are so terrifying to the establishment. Trump is not dependent on it in any way. Indeed, he has gained traction precisely because he insults it at every turn, and they can do nothing about it: their levers of social control do not work on him. The establishment recoiled in horror at his remarks about Iraq and 911, but this did not dent his popularity, and likely increased it: the fact that he was willing to say such outrageous things about the establishment signaled that he is the kind of guy that many Americans are thirsting for, because it shows he does not play by the establishment’s rules.

For his part, Cruz has shown that he will not play by establishment rules either, even though as a Senator he is ostensibly an insider. He has fought against the Republican Senate hierarchy (the heart of the Republican establishment) in a very public way from day one, and has expressed his disdain for it while doing so. This has earned him the hatred of the 202 in-crowd: witness the intense anti-Cruz fury of establishmentarian emeritus Bob Dole. But again, this is a feature, not a bug for many Americans.

Establishment political culture is not new. Americans have long been inured to the existence of a governing class consisting of different partisan elements that is more engaged in advancing its interests as a class than national or popular interests. What is different about 2016 is that many Americans believe, with good reason, that the governing establishment is utterly indifferent to their concerns: once upon a time, the establishmentarians were able to fake sincerity, but now they don’t seem to try to do even that. Further, the fact that the establishment has done pretty well for itself in the past decade, while many Americans can’t say the same, feeds anger. Washington seems like pre-Revolutionary Versailles to many Americans.

On the Republican side, immigration has proved to be the issue that has alienated the establishment from those outside of DC. Trump realized this early, and seized on it. It is the issue that will make it difficult indeed for the Republican establishment’s preferred candidate-Rubio-to win. Too many people who vote in Republican primaries identify with Trump on this salient issue, rather than Rubio.

It must be noted that the disdain for the governing establishment is not limited to the Republicans. Hillary’s inability to shake a dotty socialist demonstrates that many Democratic voters are also deeply alienated. Hillary is rightly perceived as the insiders’ insider, and her risible attempt to sound militant comes off as dishonest and phony.

Podhoretz’s attempt to deny the existence of a Republican establishment has a comic element to it. It reminds me of the rules of Fight Club: The first rule of the Republican Establishment is: You do not talk about the Republican Establishment. The second rule of the Republican Establishment is: You do not talk about the Republican Establishment. Podhoretz’s attempt to deny its existence betrays a deep fear. He is very much a part of that establishment, and his access, influence, and income are threatened by the barbarians at the gates. He is not alone, and as a result the desperation is palpable: witness the frenzied attempts to pump up Rubio.

What Podhoretz and his ilk aren’t getting, however, is their efforts are completely counterproductive. Since they are the problem in the minds of many Americans, their attempts to promote one candidate and tear down others hurts the former and helps the latter: their endorsements are an insult, and their insults are endorsements.

They don’t have a positive agenda to offer, and preservation of their class is hardly a selling point in the current political environment. And an establishmentarian’s denial of the existence of an establishment will do nothing to convince anti-establishmentarians that their anger is misdirected. To the contrary, it will come off as another act of condescension-“the establishment doesn’t exist: who are you gonna believe, me, or your lying eyes?”-that will just feed the anger.

I think it is fairly clear that the Republican side of the establishment is doomed, which is precisely why people like Podhoretz are so intent on denying its existence. I sometimes wonder whether the party is in the throes of a collapse comparable to the Whigs in the 19th century. Its passing will not be lamented. What remains to be seen is whether what replaces it will be an improvement.

 

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January 6, 2016

Ten Years After

Filed under: Uncategorized — The Professor @ 3:38 pm

Today is the 10th anniversary of Streetwise Professor. Hard to believe. What a long, strange trip it’s been.

I started the blog with the intent of focusing on topics directly related to my academic research on derivatives, commodities, and exchanges. I’ve done quite a bit of that, and indeed, blog posts were often the first draft of material that turned up in research papers, or at least, were a way of thinking out loud that shaped what later appeared in more formal work. But, of course, the range of topics I’ve written about has metastasized over the years. I never would have predicted when I first envisioned the blog that Russia would have consumed so much time and attention. And probably a good thing too, because that probably brought more traffic to SWP than any other single topic, and people who came here for my Russia rants stayed for other topics. But it’s not just Russia. I’ve written about politics (Thanks, Obama!), China, broader economic issues, history, military matters, climate change, sports and even punk rock. It’s my blog, and I’ll write what I want to.

2006 was a propitious time to start a blog, because the subsequent decade has been chock-full of history, especially in financial and commodity markets. The biggest financial crisis in recent history spawned a huge onslaught of regulation, which provided a lot of grist for my mill. (Thanks, Frankendodd!) Furthermore, the End of History that some forecast at the beginning of the 2000s definitely did not occur in the 2006-2016 decade. Indeed, the world has been as unsettled as in any decade since the 1930s. In 2009 or so, I wondered whether these times were more like the 30s or the 70s, and sadly, the former answer wins. But that has provided considerable material to work with.

In areas related to things I actually know something about–commodity prices, energy, speculation, manipulation, HFT, derivatives market regulation, and clearing–I think it’s fair to say that SWP has had some impact on policy, or at least the way people think about policy. I know that there are more than a few followers in the financial and legal community, and among regulators around the world.

Along the way I’ve made quite a few friends, for which I’m grateful. It has been gratifying over the years to have people approach me and mention this post or that. I have to confess that some people have remembered posts that I forgot writing 😉

I’ve also made a few enemies, for which I’m also grateful. It’s part of the way I know I’ve made an impact, but more importantly, I’ve made enemies mainly by calling out rather forcefully the frauds, follies, fecklessness–and fuck-ups–of those who presume to rule us. (I have it on very good authority, for instance, that I was banned from the CFTC building by Gensler.) Their anger is a sign that I’ve hit the mark.

I would like to extend my sincere appreciation to those who have read the blog, particularly those who have read it regularly over the years, and especially those hardy souls who have ventured into the comment section.

What will then next ten years bring? Since I was so mistaken in my expectations about SWP when I started, I will forego a prediction now, other than to say that I will go where the spirit leads me (recognizing that sometimes the spirit is an evil one :-P). I think eclecticism has worked, and I’ll keep it up.

Thanks again for reading, and I hope you stick around. I hope I give you reason to stick around.

PS. Talk about some sort of fate. I remember distinctly sitting in front of my computer ten years ago, wondering what to call this damn thing. Then this song played, and I knew immediately that Streetwise Professor was the perfect name. And what should begin playing on Pandora when I started the third paragraph? Yup. Lars Frederiksen and the Bastards, playing Streetwise Professor. Too funny.

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September 12, 2015

The Road to Hell is Paved With Good Intentions, German Refugee Policy Edition

Filed under: Uncategorized — The Professor @ 5:37 pm

Germany has opened the floodgates for refugees-and others impersonating refugees-into the country, and into Europe. It is a colossal blunder that will not end well, and which reflects Germany’s political defects.

Merkel’s motives are rooted in German historical neuroses and romanticism. Germany is at pains to prove that it has overcome its Nazi and racist past. As one German historian put it:

“We want to prove that we are good people. Even if no one wants to be reminded of this, the good that we do has to be seen in relation to the crimes that we initiated,” Arnulf Baring, a conservative German historian, wrote in the Bild tabloid this week.

Furthermore, Merkel and others in German (especially in the governing and culture classes) have a romantic view of refugees, more likely to see them as waifs (like the drowned boy in the photograph that marked, and arguably contributed to, the inflection point in the refugee crisis) and women fleeing war.

Other Germans advance more pragmatic justifications: Germany is aging and in demographic decline, and needs a new supply of labor to replacing the retiring and the dying. (Many in Sweden, also very open to the refugees, make the same argument.)

All of these reasons are daft, and ignore much grittier realities. Expiating past guilt seldom results in current good. Further, the romantic view of the migrants is at odds with the reality. They are disproportionately young and male, which is to be expected: young men are more able to withstand the rigors of the trek from Syria (or Eritrea or wherever), and often have little to hold them at home. Indeed, those with the fewest attachments are likely to be misfits, meaning that the migrants are being sampled disproportionately from the less desirable part of the distribution.

Furthermore, they are likely to be fertile ground for recruiting by Islamist radicals. Already German security services are leaking that Islamist recruiters are descending on refugee centers. Germany, which already has an Islamist problem (and has had so for years: witness Mohammed Atta), has just made it that much worse.

As for the labor argument, it is a damning indictment of EU labor markets and labor mobility (and capital and goods markets for that matter). It is not as if Europe as a whole lacks idle labor, and a well-functioning labor market with mobility would match those unemployed and underemployed Europeans (e.g., young Spaniards–or Greeks!) with German employers. If the grandiose European project were in fact working, Germany wouldn’t have to import gastarbeiters qua refugees to replace its retiring workers.

Moreover, this argument reflects an ignorance of, and arguably a disdain for, Germans working in factories and services. Labor is not an undifferentiated mass. Germans are much more productive than the refugees are, and are likely to be, for generations to come. Education, skills, and yes, cultural attributes mean that the refugees are a poor substitute for German labor. Looking at it in a completely mercenary way, those who think that the refugees are going to be productive enough to be taxed enough to support a growing population of pensioners are deluding themselves.

Merkel’s actions also betray the elitism and undemocratic tendencies that characterize the EU generally and Germany in particular. This was not a decision taken after any democratic deliberation whatsoever, and many Germans are decidedly unhappy about it, especially in Bavaria and the Rhineland. (The security services are furious too: why else would they leak so soon about Islamist recruiting?)

And if many Germans are unhappy about Merkel being charitable to refugees at their expense, smaller European nations are furious because the immigrant wave will hit them as well. Denmark-long a thorn in Germany’s side-hit back immediately, stopping passenger rail traffic and closing major freeways into Germany in order to stem the immigrant tide.

German statements that other European countries should accept refugees because Germany’s resources are not unlimited add insult to injury. “Hey Germany, salve your conscience on your own Euro, not ours.” This is particularly rankling given that Germany is far richer than many of the countries it wants to take more refugees, and given that many of these countries believe that the Euro has enriched Germany at their expense. But the German leaders have a tin ear on these issues, and are apparently oblivious that this reinforces every negative perception about them and their dominance of Europe.

The EU is doing its part as well, including issuing a diktat to nonmembers Iceland, Liechtenstein, Norway and Switzerland that they accept asylum seekers. Or else:

[The EC]  notes all four countries will have to accept Dublin “and its development without exception.” They will have no say or input in amending Dublin, nor will they have any say on the Commission’s relocation plan.

“They do not take part in the adoption of any acts amending or building upon the Dublin acquis”, it says.

This is going to end very badly. It will impose a substantial economic burden on Germany (and other European nations) in the near to medium term with little or no long term benefit to compensate. It will exacerbate Europe’s jihadi problem. It will reinforce already strong beliefs that the EU is remote, dictatorial, and indifferent to popular concerns. It will drive many moderate Germans (and moderate Europeans) into the arms of the far right because they will (correctly) believe that the governing class is indifferent to the impact of the wave of immigrants on them, and will dismiss their concerns–when they are not insulting them for being racists because they don’t accept the migrants with open arms.

They don’t want to pay for Angela Merkel et al‘s masturbatory do-goodism. They are willing to help, but don’t want to be inundated by alienated and culturally alien immigrants; they want a reasonable, measured response that takes their economic and security concerns into account; and they don’t want to be dictated to by their self-appointed betters. But it looks like none of that is going to happen. It is more likely that the exact opposite will. There will be a price to be paid for that. And it is likely to be a steep one, both in Euros and in social and political peace.

 

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February 16, 2015

ISIS’s Eschatology Is Its Greatest Vulnerability, Not a Reason to Shrink From Confronting It

Filed under: History,Military,Politics,Uncategorized — The Professor @ 11:09 pm

I am a distant relative of William Tecumseh Sherman: we share a common ancestor (a Puritan who settled in Connecticut n the 1630s). I like to think that my red beard and slightly crazed look is a reflection of that genetic connection. Be that as it may, I do share something of a philosophic affinity for him. Ruthlessly practical and unromantic (even though he lived in a decidedly Romantic era). Nothing demonstrated this better than his views on war, including in particular this quote:

War is the remedy that our enemies have chosen, and I say let us give them all they want.

@libertylynx reminded me of this quote when she was debating a wannabe wonk on Twitter. Said wonk claimed that ISIS should not be confronted militarily, because that is what they want. He therefore condemned the Egyptian bombing raids on ISIS in response to its latest atrocity, the slaughter of 21 innocent Copts for the crime of being Christian “crusaders.” (Copts have been in the Middle East since hundreds of years before Mohammed. Just who are the invading holy warriors here? Continuing its craven refusal to acknowledge the reality of ISIS’s religiously inspired rampage, the White House condemned the murder of “21 Egyptian citizens.” The words “Copt” and “Christian” were absent.)

It is becoming a idée fixe on the Left that confronting ISIS militarily is futile. There will be civilian casualties! Yes, those are inevitable: but how many civilian casualties will there be while such monsters are on the loose? Attacking them will rally recruits to their standard! Apparently the killing ISIS fighters is akin to sowing dragon’s teeth: it will just make more enemies. So we might as well just give up, until their blood lust is sated. Or something.

This meme reached the levels of absurdity in the hands of State Department spokeswoman Marie Harf, who apparently strives daily to make a box of rocks look like John von Neumann by comparison to her, and largely succeeds in her mission:

HARF: We’re killing a lot of them and we’re going to keep killing more of them. So are the Egyptians, so are the Jordanians. They’re in this fight with us. But we cannot win this war by killing them. We cannot kill our way out of this war. We need in the medium to longer term to go after the root causes that leads people to join these groups, whether it’s lack of opportunity for jobs, whether —

MATTHEWS: We’re not going to be able to stop that in our lifetime or fifty lifetimes. There’s always going to be poor people. There’s always going to be poor muslims, and as long as there are poor Muslims, the trumpet’s blowing and they’ll join. We can’t stop that, can we?

HARF: We can work with countries around the world to help improve their governance. We can help them build their economies so they can have job opportunities for these people…

Memo to Marie: when Chris Matthews makes a lot more sense than you do, it’s time to give up.

And yeah. It’s all about jobs and governance.

It’s not really, as this excellent article from the Atlantic demonstrates. ISIS is not of this age, or even of this world. Materialistic concerns projected by western leftists are completely irrelevant to it. Obama’s and other western leaders’ denials to the contrary, it is a fanatical religious movement imbued with a fervor totally alien to comfortable western minds, and progressive minds in particular, who believe that such forces were left behind several turns of the dialectical wheel ago.

In particular, as the Atlantic piece brings out, ISIS has an apocalyptic vision, and crucially, its adherents fervently believe in an imminent eschatology, culminating in a climactic battle against the “Romans” on the Plains of Dabiq in Syria. (Note that the latest ISIS snuff film documenting the beheading of the innocent Copts included a warning that they were coming to Rome.)

So yes, they want a battle. In the worst way.

So why not give it to them? Now usually, one tries to avoid doing what the enemy wants. But when the enemy’s firmest desire is based on delusion, that rule no longer applies. ISIS has no real conception of how militarily mismatched it is. Yes, Kobane gave them something of an inkling, but even there the US deployed and displayed only a fraction its capabilities. Nothing like an Arc Light raid of the Vietnam War, or the kind of power unleashed in Desert Storm.

This does not mean rushing in to fight on their terms. It means forcing or maneuvering them into a position where they have to stand and fight in a way that makes them vulnerable to a pounding. To use their eagerness to fight a climactic battle to lure them into a fight they cannot win.

The closest historical analog to ISIS is the Mahdist War of 1881-1899. This conflict culminated in the Battle of Omdurman, in which a massive Islamist army was lured into attacking a much smaller British-Egyptian army equipped with the latest in small arms, machine guns, and artillery, which resulted in the Mahdists’ utter destruction: they lost over 50 percent casualties. The very fanaticism that had carried the Mahdists to victory after victory was the cause of their utter ruin. That could be a model for the war on ISIS.

We only defeated the fanatical Japanese and the fanatical Nazis in WWII by killing them in vast numbers. That is the only way to defeat the current breed of fanatic. And fortunately, ISIS is neither so numerous, nor militarily capable, as either such foe, and current American capability makes the forces of the 1940s look like toys by comparison.

So rather than being a reason to shrink from fighting it, ISIS’s eschatological vision and mad thirst for battle against the New Romans is its greatest vulnerability. The smart thing for them to do would be hit and run: but we can use their fanaticism to get them to stand and fight. American strategy should be focused on making their dearest wishes come true. As Sherman said, War is the remedy ISIS has chosen, and I say let us give them all they want, but on our terms, exploiting our advantages.

ISIS needs to be introduced to the America of Billy Sherman and Andy Jackson. But we have Barry Obama.

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