Streetwise Professor

July 28, 2014

Deciding Not to Decide on Providing Intel to Ukraine: The Negation of Presidential Leadership

Filed under: History,Military,Politics,Russia — The Professor @ 10:57 am

The NYT ran a long article yesterday describing the administration’s Hamlet-like agonizing over whether to provide Ukraine with real time intelligence useful for targeting rebel forces. (For the record, I called for this in the immediate aftermath of the flight of Yanukovych. It should be an easy decision.)

One part jumped out at me:

“We’ve been cautious to date about things that could directly hit Russia — principally its territory,” but also its equipment, the official said. A proposal to give the Ukrainians real-time information “hasn’t gotten to the president yet,” the official said, in part because the White House has been focused on rallying support among European allies for more stringent economic sanctions against Moscow, and on gaining access for investigators to the Malaysia Airlines crash site.

There in a nutshell is the passivity of this president, and his negation of executive leadership.

An active and engaged leader would not be waiting for things to reach him. He would be demanding that a full range of options be presented to him immediately, if not sooner. This situation has been metastasizing for months. What’s more, in the aftermath of the MH17 atrocity, and the rebels’ ongoing use of artillery and MLRS systems against civilian targets, the suppression of their weapons systems is both a military and humanitarian imperative. The time for action passed long ago, but it is incomprehensible that 10 days after MH17 that Obama has personally avoided considering, let alone ordering, a reasonable, measured US action that would materially assist Ukraine to defend itself, and which would not put one US serviceman or woman at risk.

Also look at the excuse: he’s focused on the diplomatic channel. This is particularly rich a week after Obama flacks in the administration and media responded to criticisms about his fundraiser-dominated schedule by saying that he can multi-task. So, he can’t simultaneously push the Europeans and evaluate steps to aid the Ukrainian government? What happened to that vaunted multi-tasking capability?

Further, military and diplomatic measures are complementary, and need to be processed in parallel rather than serially.

Another thing that stands out in the article is the hand-wringing about “provoking Russia”:

“The debate is over how much to help Ukraine without provoking Russia,” said a senior official participating in the American discussions.

Look. To Putin, anything short of outright capitulation by Ukraine, and the complete abandonment of Ukraine by the US and the EU is a provocation. Let’s not forget what “provoked” this crisis in the first place: Ukraine’s temerity in moving to sign a trade deal with the EU. Continued Ukrainian resistance is all the provocation Putin needs. Anything the US or EU does will have the merest of effects on Putin’s insatiable desire to subjugate Ukraine.

That’s not quite true, actually. Continued passivity, and waiting for the USPS to deliver military options to POTUS, encourages Putin’s aggressiveness. Weakness and passivity are extremely provocative to Putin.

As to another objection-that disloyal individuals in the Ukrainian leadership will provide the information to Russia: this is a non-issue. Yes, such leaks could undermine the effectiveness of the intelligence, by permitting the rebels to move to avoid a strike. But if they are moving, they aren’t shooting. What’s more, given the realities of communication, it is highly unlikely that  truly real-time information useful for targeting could make it to the rebels before it reached the Ukrainian air or artillery units tasked to strike them. Further, attempts by disloyal elements to communicate with the rebels could actually facilitate their discovery, especially if the information is tightly compartmentalized.

As for the Ukrainians getting to rambunctious if they have better information, the US has the option to cut off the information at any time, and to place conditions on its use. If anything, provision of this intelligence will focus Ukrainian military efforts leading to less risk of misguided strikes on civilians or Russia.

In sum, this should be about as easy a decision as a commander in chief should have to make. But because he has clearly signaled that he wants to distance himself from serious involvement with the Ukrainian military efforts against insurrectionists, subordinates and bureaucrats are consciously choosing not to present him with the options that a real leader would be demanding from them.

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July 27, 2014

Ezra Church, 150 Years Later

Filed under: Civil War,History,Military — The Professor @ 8:36 pm

Tomorrow is the 150th anniversary of the Battle of Ezra Church, the third of Hood’s assaults against Sherman’s army that attempted to stop the encirclement of Atlanta.

The story of the battle is relatively simple. After cutting the rail line leading into the city from the east, Sherman moved in what has been characterized as one of his whip-like movements to cut the line running in from Macon to the west. As always, the Army of the Tennessee was the tip of the whip. As it moved south to the west of the city, Hood moved Stephen D. Lee’s and Alexander P. Stewart’s corps out of the city’s defenses in the hopes of surprising the Army of the Tennessee (now under the command of very Eastern general Oliver O. Howard, much to the chagrin of very Western general John A. Logan). But the Union troops anticipated the attack, deployed from their marching formation and formed a V-shaped line. Like veterans on all fronts by the summer of 1864, they immediately started to dig in. Not so much dig, really as collect logs, lumber, and even the pews from Ezra Church, which they piled up to form a makeshift breastwork. Here are some contemporary woodcuts that show the impromptu entrenchments:

 

Ezra_Church_1

Toshiba Digital Camera

The battle itself was never really in doubt. The Confederates gained ground on the Union right flank, but Logan (back in command of the XVth Corps) led a counterattack by two regiments (the 40th Illinois and 6th Iowa) which drove off the Rebels. The Iowans lost Major Ennis, a beloved officer who had served since Shiloh.

The 46th Ohio fought at Ezra Church. One of its members, Sergeant Harry Davis, won the Medal of Honor by advancing in front of the lines to wrest a flag from its dying bearer, as illustrated here in another contemporary print:

Ezra_Church_46ovvi

Other than the fleeting success on the Union right, the Confederate assaults made no progress. The casualties tell the tale. The Union lost about 650 men, the Confederates almost 5 times as many. Of the three assaults in July, this was the one with most disparate losses and the least tactical success. Whereas the Confederates did achieve some local successes at Peachtree Creek and Atlanta. They achieved none at Ezra Church.

The responsibility for actually carrying out the attack lies with Stephen D. Lee. Hood was performing the role of army commander, remaining at his headquarters in Atlanta.

Speaking of Hood, my Battle of Atlanta post generated several thoughtful comments about him. Serendipitously, this weekend I saw a program on CSPAN3 (yes, I am that much of a geek about this stuff) in which a biographer of Hood, Stephen Hood (a distant relation) made a pretty persuasive case that Hood has been unfairly maligned. He presented evidence that many of the anecdotes told at Hood’s expense were specious. He was particularly critical of historian Wiley Sword (whom I know some) for distorting the evidence in his savage attacks on Hood’s generalship, his humanity, and indeed his mental health. He further claims that there is no evidence that Hood actually used opiates, though of course absence of evidence is not definitive evidence of absence.

Overall, his defense was somewhat persuasive, though it cannot and did not answer the brutal facts of Franklin and Nashville. When time permits, I might dig into the sources cited by Hood and Sword to see who gets the better of the argument. Maybe I’ll have a chance to do that by the end of November, when the sesquicentennial of Franklin rolls around.

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July 25, 2014

Benchmark Blues

Pricing benchmarks have been one of the casualties of the financial crisis. Not because the benchmarks-like Libor, Platts’ Brent window, ISDA Fix, the Reuters FX window or the gold fix-contributed in an material way to the crisis. Instead, the post-crisis scrutiny of the financial sector turned over a lot of rocks, and among the vermin crawling underneath were abuses of benchmarks.

Every major benchmark has fallen under deep suspicion, and has been the subject of regulatory action or class action lawsuits. Generalizations are difficult because every benchmark has its own problems. It is sort of like what Tolstoy said about unhappy families: every flawed benchmark is flawed in its own way. Some, like Libor, are vulnerable to abuse because they are constructed from the estimates/reports of interested parties. Others, like the precious metals fixes, are problematic due to a lack of transparency and limited participation. Declining production and large parcel sizes bedevil Brent.

But some basic conclusions can be drawn.

First-and this should have been apparent in the immediate aftermath of the natural gas price reporting scandals of the early-2000s-benchmarks based on the reports of self-interested parties, rather than actual transactions, are fundamentally flawed. In my energy derivatives class I tell the story of AEP, which the government discovered kept a file called “Bogus IFERC.xls” (IFERC being an abbreviation for Inside Ferc, the main price reporting publication for gas and electricity) that included thousands of fake transactions that the utility reported to Platts.

Second, and somewhat depressingly, although benchmarks based on actual transactions are preferable to those based on reports, in many markets the number of transactions is small. Even if transactors do not attempt to manipulate, the limited number of transactions tends to inject some noise into the benchmark value. What’s more, benchmarks based on a small number of transactions can be influenced by a single trade or a small number of trades, thereby creating the potential for manipulation.

I refer to this as the bricks without straw problem. Just like the Jews in Egypt were confounded by Pharoh’s command to make bricks without straw, modern market participants are stymied in their attempts to create benchmarks without trades. This is a major problem in some big markets, notably Libor (where there are few interbank unsecured loans) and Brent (where large parcel sizes and declining Brent production mean that there are relatively few trades: Platts has attempted to address this problem by expanding the eligible cargoes to include Ekofisk, Oseberg, and Forties, and some baroque adjustments based on CFD and spread trades and monthly forward trades). This problem is not amenable to an easy fix.

Third, and perhaps even more depressingly, even transaction-based benchmarks derived from markets with a decent amount of trading activity are vulnerable to manipulation, and the incentive to manipulate is strong. Some changes can be made to mitigate these problems, but they can’t be eliminated through benchmark design alone. Some deterrence mechanism is necessary.

The precious metals fixes provide a good example of this. The silver and gold fixes have historically been based on transactions prices from an auction that Walras would recognize. But participation was limited, and some participants had the market power and the incentive to use it, and have evidently pushed prices to benefit related positions. For instance, in the recent allegation against Barclays, the bank could trade in sufficient volume to move the fix price sufficiently to benefit related positions in digital options. When there is a large enough amount of derivatives positions with payoffs tied to a benchmark, someone has the incentive to manipulate that benchmark, and many have the market power to carry out those manipulations.

The problems with the precious metals fixes have led to their redesign: a new silver fix method has been established and will go into effect next month, and the gold fix will be modified, probably along similar lines. The silver fix will replace the old telephone auction that operated via a few members trading on their own account and representing customer orders with a more transparent electronic auction operated by CME and Reuters. This will address some of the problems with the old fix. In particular, it will reduce the information advantage that the fixing dealers had that allowed them to trade profitably on other markets (e.g.,. gold futures and OTC forwards and options) based on the order flow information they could observe during the auction. Now everyone will be able to observe the auction via a screen, and will be less vulnerable to being picked off in other markets. It is unlikely, however, that the new mechanism will mitigate the market power problem. Big trades will move markets in the new auction, and firms with positions that have payoffs that depend on the auction price may have an incentive to make those big trades to advantage those positions.

Along these lines, it is important to note that many liquid and deep futures markets have been plagued by “bang the close” problems. For instance, Amaranth traded large volumes in the settlement period of expiring natural gas futures during three months of 2006 in order to move prices in ways that benefited its OTC swaps positions. The CFTC recently settled with the trading firm Optiver that allegedly banged the close in crude, gasoline, and heating oil in March, 2007. These are all liquid and deep markets, but are still vulnerable to “bullying” (as one Optiver trader characterized it) by large traders.

The incentives to cause an artificial price for any major benchmark will always exist, because one of the main purposes of benchmarks is to provide a mechanisms for determining cash flows for derivatives. The benchmark-derivatives market situation resembles an inverted pyramid, with large amounts cash flows from derivatives trades resting on a relatively small number of spot transactions used to set the benchmark value.

One way to try to ameliorate this problem is to expand the number of transactions at the point of the pyramid by expanding the window of time over which transactions are collected for the purpose of calculating the benchmark value: this has been suggested for the Platts Brent market, and for the FX fix. A couple of remarks. First, although this would tend to mitigate market power, it may not be sufficient to eliminate the problem: Amaranth manipulated a price that was based on a VWAP over a relatively long 30 minute interval. In contrast, in the Moore case (a manipulation case involving platinum and palladium brought by the CFTC) and Optiver, the windows were only two minutes long. Second, there are some disadvantages of widening the window. Some market participants prefer a benchmark that reflects a snapshot of the market at a point in time, rather than an average over a period of time. This is why Platts vociferously resists calls to extend the duration of its pricing window. There is a tradeoff in sources of noise. A short window is more affected by the larger sampling error inherent in the smaller number of transactions that occurs in a shorter interval, and the noise resulting from greater susceptibility to manipulation when a benchmark is based on smaller number of trades. However, an average taken over a time interval is a noisy estimate of the price at any point of time during that interval due to the random fluctuations in the “true” price driven by information flow. I’ve done some numerical experiments, and either the sampling error/manipulation noise has to be pretty large, or the volatility of the “true” price must be pretty low for it to be desirable to move to a longer interval.

Other suggestions include encouraging diversity in benchmarks. The other FSB-the Financial Stability Board-recommends this. Darrel Duffie and Jeremy Stein lay out the case here (which is a lot easier read than the 750+ pages of the longer FSB report).

Color me skeptical. Duffie and Stein recognize that the market has a tendency to concentrate on a single benchmark. It is easier to get into and out of positions in a contract which is similar to what everyone else is trading. This leads to what Duffie and Stein call “the agglomeration effect,” which I would refer to as a “tipping” effect: the market tends to tip to a single benchmark. This is what happened in Libor. Diversity is therefore unlikely in equilibrium, and the benchmark that survives is likely to be susceptible to either manipulation, or the bricks without straw problem.

Of course not all potential benchmarks are equally susceptible. So it would be good if market participants coordinated on the best of the possible alternatives. As Duffie and Stein note, there is no guarantee that this will be the case. This brings to mind the as yet unresolved debate over standard setting generally, in which some argue that the market’s choice of VHS over the allegedly superior Betamax technology, or the dominance of QWERTY over the purportedly better Dvorak keyboard (or Word vs. Word Perfect) demonstrate that the selection of a standard by a market process routinely results in a suboptimal outcome, but where others (notably Stan Lebowitz and Stephen Margolis) argue that  these stories of market failure are fairy tales that do not comport with the actual histories. So the relevance of the “bad standard (benchmark) market failure” is very much an open question.

Darrel and Jeremy suggest that a wise government can make things better:

This is where national policy makers come in. By speaking publicly about the advantages of reform — or, if necessary, by using their power to regulate — they can guide markets in the desired direction. In financial benchmarks as in tap water, markets might not reach the best solution on their own.

Putting aside whether government regulators are indeed so wise in their judgments, there is  the issue of how “better” is measured. Put differently: governments may desire a different direction than market participants.

Take one of the suggestions that Duffie and Stein raise as an alternative to Libor: short term Treasuries. It is almost certainly true that there is more straw in the Treasury markets than in any other rates market. Thus, a Treasury bill-based benchmark is likely to be less susceptible to manipulation than any other market. (Though not immune altogether, as the Pimco episode in June ’05 10 Year T-notes, the squeezes in the long bond in the mid-to-late-80s, the Salomon 2 year squeeze in 92, and the chronic specialness in some Treasury issues prove.)

But that’s not of much help if the non-manipulated benchmark is not representative of the rates that market participants want to hedge. Indeed, when swap markets started in the mid-80s, many contracts used Treasury rates to set the floating leg. But the basis between Treasury rates, and the rates at which banks borrowed and lent, was fairly variable. So a Treasury-based swap contract had more basis risk than Libor-based contracts. This is precisely why the market moved to Libor, and when the tipping process was done, Libor was the dominant benchmark not just for derivatives but floating rate loans, mortgages, etc.

Thus, there may be a trade-off between basis risk and susceptibility to manipulation (or to noise arising from sampling error due to a small number of transactions or averaging over a wide time window). Manipulation can lead to basis risk, but it can be smaller than the basis risk arising from a quality mismatch (e.g., a credit risk mismatch between default risk-free Treasury rates and a defaultable rate that private borrowers pay). I would wager that regulators would prefer a standard that is less subject to manipulation, even if it has more basis risk, because they don’t internalize the costs associated with basis risk. Market participants may have a very different opinion. Therefore, the “desired direction” may depend very much on whom you ask.

Putting all this together, I conclude we live in a fallen world. There is no benchmark Eden. Benchmark problems are likely to be chronic for the foreseeable future. And beyond. Some improvements are definitely possible, but benchmarks will always be subject to abuse. Their very source of utility-that they are a visible price that can be used to determine payoffs on vast sums of other contracts-always provides a temptation to manipulate.

Moving to transactions-based mechanisms eliminates outright lying as a manipulation strategy, but it does not eliminate the the potential for market power abuses. The benchmarks that would be least vulnerable to market power abuses are not necessarily the ones that best reflect the exposures that market participants face.

Thus, we cannot depend on benchmark design alone to address manipulation problems. The means, motive, and opportunity to manipulate even transactions-based benchmarks will endure. This means that reducing the frequency of manipulation requires some sort of deterrence mechanism, either through government action (as in the Libor, Optiver, Moore, and Amaranth cases) or private litigation (examples of which include all the aforementioned cases, plus some more, like Brent).  It will not be possible to “solve” the benchmark problems by designing better mechanisms, then riding off into the sunset like the Lone Ranger. Our work here will never be done, Kimo Sabe.*

* Stream of consciousness/biographical detail of the day. The phrase “Kimo Sabe” was immortalized by Jay Silverheels-Tonto in the original Lone Ranger TV series. My GGGGF, Abel Sherman, was slain and scalped by an Indian warrior named Silverheels during the Indian War in Ohio in 1794. Silverheels made the mistake of bragging about his feat to a group of lumbermen, who just happened to include Abel’s son. Silverheels was found dead on a trail in the woods the next day, shot through the heart. Abel (a Revolutionary War vet) was reputedly the last white man slain by Indians in Washington County, OH. His tombstone is on display in the Campus Martius museum in Marietta. The carving on the headstone is very un-PC. It reads:

Here lyes the body of Abel Sherman who fell by the hand of the Savage on the 15th of August 1794, and in the 50th year of  his age.

Here’s a picture of it:

OLYMPUS DIGITAL CAMERA

The stream by which Abel was killed is still known as Dead Run, or Dead Man’s Run.

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July 22, 2014

The Sesquicentennial of the Most Compelling-and Perhaps Most Important-Battle of the Civil War

Filed under: Civil War,History,Military,Politics — The Professor @ 8:14 pm

Today is the 150th anniversary of what I consider to be the most compelling battle of the Civil War: the Battle of Atlanta.

I find it compelling because it was a true soldier’s battle that demonstrated the unmatched martial virtues of the combatants, especially those in the Union Army of the Tennessee.

It was a soldiers battle because it was not fought according to any plan. There was a plan, and a rather impressive one on paper, but one that did not even make it to the point of first contact with the enemy. Instead, Confederate General John Bell Hood’s plan dissolved before a shot was fired due to the confusion of a night march, the fatigue of soldiers who had been engaged in combat for virtually every day of the previous two-and-a-half months, and wooded terrain crossed by watercourses and millponds.

Hood desired to reprise Jackson’s flank attack at Chancellorsville, a mere 14.5 months prior. But whereas Jackson attacked in depth, with three divisions one behind the other, Hood’s four attacking divisions were were strung out in a long, scraggly line scattered across several miles of Georgia scrub pine forest. Due to the trials of the march, the forbidding terrain, and the need to make haste, Hood’s divisions (commanded by Bate, Walker, Cleburne, and Maney) attacked mainly as brigades operating on their own hook, only tenuously connected with each other, if connected at all.

That said, they caught McPherson’s Army of the Tennessee in a very vulnerable spot. They were assailed from the direct flank (like Jackson had done to O.O. Howard’s hapless XIth Corps at Chancellorsville) and from the rear and front. Most Civil War armies would have fled when hit in force from flank and rear. But in one of the most sublime displays of soldiership in any war, Grant’s old army did not panic. Indeed, with little direction from any officer above brigade or division level, its soldiers reacted to the situation with aplomb. When attacked from the rear, they faced to the rear and beat off the attack. When attacked from the flank, they refused their lines and repelled it.

Some units, particularly those in the XVIIth Corps, were attacked sequentially from the flank, rear, and front. Resolutely, they responded to each threat. When attacked from the rear, they jumped to the front of their earthworks and beat off the assault, sometimes hand-to-hand. In one of the fights, Colonel Belknap of the 15th Iowa reached over the ramparts to grab Colonel Lampley of the 45th Alabama, wrestled him over the earthworks, and made him prisoner. Lampley had been screaming at his men for not following him. Belknap berated him: “Look at your men! They are all dead! What are you cursing them for?” (To demonstrate that martial prowess does not imply moral virtue, Belknap went on to become a corrupt Secretary of War under Grant. He resigned before being impeached for peculation in the matter of Indian trading posts.)

After being attacked in the rear, when attacked from their (previous) front (i.e., from the direction of Atlanta), the XVII Corps men cooly jumped to the proper side of their works, and easily drove off the attack.

When the Confederates assaulted from the flank, they withdrew stubbornly, fighting first from one side of the trenches, then the other, until they eventually formed on Bald Hill.

There the climax of the battle occurred. In ferocious assaults that continued into the dusk and then into the dark, the Rebels tried time and again to drive the Federals from their redoubt and trenches on the hill. But every time, the Illinoisans, Ohioans, Iowans, and Wisconsin men drove them back.

I am not aware of better fighting on any battlefield of the Civil War, or indeed of any other conflict.

Although the conflict around Bald Hill (sadly leveled by the construction of I-20 in the ’50s) is the most stirring part of the battle, the conflict is better known for the action around the Troup Hurt House. The Union counterattack that drove the Confederates from their lodgment in the Federal lines near that mansion is memorialized in the Cyclorama which is still on display in Walker Park in Atlanta. This was indeed an inspiring action that again demonstrated the sterling qualities of the soldiers in each army, but in my view pales in comparison with what occurred to the south on Bald Hill.

Throughout the battle, Confederates attacked ferociously, and the Union troops responded bravely and cooly, even when caught in the most exposed and dangerous positions. I defy anyone to identify a battle in which such a large number of troops (on the order of 30,000) responded as marvelously as did the troops of the XVth, XVIth, and XVIIth Corps of the Army of the Tennessee.

For the most part, they did this on their own initiative, and the initiative of company, regimental, brigade, and sometimes division officers. Their army commander, John B. McPherson, was shot dead early in the engagement. His replacement, John “Black Jack” Logan, provided inspirational leadership, but his tactical role was modest at best. The XVIIth Corps commander, Frank Blair, was far to the rear (which led many to question his courage).

Soldiers fought. Soldiers extemporized. Soldiers won.

Such individual initiative has been the hallmark of American soldiers since 1775. The Army of the Tennessee boys were recalcitrant soldiers in the traditional sense, resentful of discipline, and disdainful of spit and polish. But could they fight! They never lost a battle.

The Army of Northern Virginia is usually considered the exemplar of American armies in the Civil War, and it was indeed a marvel. But man for man, officer for officer, it could not compare to the Army of the Tennessee, especially at its July, 1864 apogee.

I have a personal connection to that Army. My great-grandmother’s brother, John Hatfield, fought in the 46th Ohio Veteran Volunteer Infantry. This unit was in Walcutt’s brigade of the 4th Division (Harrow’s) of the XVth Corps (formerly commanded by Sherman, then by Logan). It performed the signal service of defending the Union flank and rear against the attack of Smith’s Texas Brigade of Cleburne’s division. (John’s brother, Eli, had his arm shattered at the shoulder by a Minie ball at the Battle of Dallas on 28 May, 1864. My great-grandmother, who died when I was 4, talked of “Uncle Eli with the dead arm.” Medical records in the archives reveal that Eli was shot too close to the shoulder to permit amputation, so the surgeon removed all the shattered bone in his arm from the shoulder to the elbow. Ever after, the arm hung limp at his side.)

It is particularly inspiring to me at times like to consider the heroism of men like John and Eli Hatfield; their fellows in Sherman’s army; and even their foes in Hood’s Army of Tennessee. Some redeeming things came out of the carnage of the red clay hills of Georgia 150 summers ago, and these things were not sullied by craven politicians: indeed, it redeemed many of the errors and sins of the political class of 1860s America. That battle sealed the fate of Atlanta (though 6 weeks of grueling combat were to come before the city fell), which in turn sealed the fate of the Confederacy, for the fall of Atlanta secured Lincoln’s re-election, and thus the ultimate victory of the Union. And of course, that victory extinguished slavery in the United States. To have participated in such a thing is a credit to any man.

Would that today, we living Americans could be worthy of those who bled and died on a scorching day in the red clay of central Georgia, 150 years ago.

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Obama Laying Groundwork Through Leaks of Charging Putin With the Geopolitical Equivalent of 3d Degree Manslaughter

Filed under: History,Military,Politics,Russia — The Professor @ 6:49 pm

There were disturbing, but not surprising, signs today that the Obama administration is backing away from holding Putin & Russia to account in any serious way for the MH17 Massacre.

First, Obama had a call with Dutch PM Rutte while on AF1 on his way to (wait for it!) a West Coast fundraising junket. (You are shocked, I’m sure.) He said that he was “concerned” about continued Russian infiltration of weapons into Ukraine. Not gravely concerned. Not deeply concerned. That is soooo last week. Just, “Concerned”. Prediction: Next week it will be “meh.”

Second, the AP ran this very disturbing article, which describes a briefing by anonymous “Senior U.S. intelligence officials.” They bend over backwards to minimize Russia’s-and Putin’s-culpability:

But the officials said they did not know who fired the missile or whether any Russian operatives were present at the missile launch. They were not certain that the missile crew was trained in Russia, although they described a stepped-up campaign in recent weeks by Russia to arm and train the rebels, which they say has continued even after the downing of the commercial jetliner.

In terms of who fired the missile, “we don’t know a name, we don’t know a rank and we’re not even 100 percent sure of a nationality,” one official said, adding at another point, “There is not going to be a Perry Mason moment here.”

White House deputy national security adviser Ben Rhodes said the U.S. was still working to determine whether the missile launch had a “direct link” to Russia, including whether there were Russians on the ground during the attack and the degree to which Russians may have trained the separatists to launch such a strike.

“We do think President Putin and the Russian government bears responsibility for the support they provided to these separatists, the arms they provided to these separatists, the training they provided as well and the general unstable environment in eastern Ukraine,” Rhodes said in an interview with CNN.

Note the emphasis on stating what we (allegedly) don’t know, not on what we do. Note the use of the word “direct” in discussing the linkage to Russia. Classical defense attorney tactics in creating reasonable doubt about the truth of a top charge, like capital murder.

High level intelligence officials brief the press anonymously for two reasons: (1) to kneecap the administration in opposition to policies they dislike, or (2) to prepare the ground for future administration announcements or actions. The fact that the statements of the anonymous officials dovetail with what Rhodes says, (1) is highly unlikely. The fact that multiple officials are saying this further undermines possibility (1). So (2) it is.

Briefings like this do not occur by accident. They are planned. They have a purpose. And here the purpose is to shape expectations, and to lay the groundwork for Obama (and the Euros) to  move on from the horrid, ugly scenes in Donetsk and back away from any confrontation with Putin.

I therefore predict that within a very short interval, we shall see Obama sally forth, and deliver an indictment of Putin for the geopolitical equivalent of Third Degree Manslaughter: “causing the death of another person either through criminal negligence or through the commission of an unlawful act not amounting to a felony.”

Obama-with the Euros nodding furiously in agreement-will accuse Putin of negligently creating the conditions that led to the deaths of 298 innocent people, but no more. Since this is a mere misdemeanor, no harsh penalty will be demanded. Putin will be sentenced to a period of isolation from the international community, not to exceed six months. Which Vlad will probably consider this a vacation, given how much he loathes pretty much every European “leader,” not to mention Obama.

Note: this is not even a plea bargain. Putin will have to make no allocution. It is a preemptive surrender by the prosecutor.

I predict this result primarily because I believe Obama and the Euros have zero appetite to confront Putin. They can live with the low-level warfare in eastern Ukraine. (Not so low-level for the Ukrainians, of course, who have a much harder time living with it: indeed, they often die with it. But they should look out for themselves, because Obama, Merkel, Hollande, et al are casting them in the role of Czechoslovakia in a gala production of Munich!) Conversely, they blanch at the prospect of going eyeball to eyeball with Putin, even with economic weapons alone.

Of course the Panic! in the Kremlin Disco gang interpret the AP interview as “an unforced error.” A mistake that mis-states administration policy. They are invested in the belief that a steely Obama will force Putin to capitulate in panic.

Deluded fools. Denial ain’t a river in Egypt. I understand Obama and the Euros. More importantly, Putin understands Obama and the Euros. They will run to form. Meaning that they will run.

I do not write this with joy, to the contrary.

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July 21, 2014

I’m Battling Confirmation Bias, But Obama and the Euros Make It Damned Hard

Filed under: Economics,History,Military,Politics,Russia — The Professor @ 10:45 am

Last night I said to bet on form, and that Putin would be doing so. And indeed, it seems that everyone is reverting to form.

The Euros are talking tough and angry, but when it comes to actually doing something, pretty much nothing. As is their wont, they are squabbling over how to divide the costs. No major country will agree to sanctions that require it to bear a greater burden than other EU members. So the response is, as usual, driven to the least common denominator. Cameron proposes that future arms sales to Russia be stopped: but that conveniently lets the French proceed with the Mistral sale. Other proposals involve adding a few more names to the lists of sanctioned individuals, but no companies, and certainly no level 3 sanctions.

Perhaps taking a cue from the Europeans, to whom he has largely deferred, Obama spoke this morning and just hit the replay button. Russia risks becoming more isolated. Unless Russia acts to de-escalate, “the costs for Russia’s behavior will only continue to increase.” Yadda, yadda, yadda. A remake ofGroundhog Day, with Obama threatening costs and isolation replacing “I Got You Babe” in the soundtrack.

Check out that last phrase. Note the passive voice. Very telling. Just who, pray tell, is going to impose these costs, and how? God? Santa Claus? More seriously: The “international community”? The “community of nations”? What is the US going to do? What are you going to do, Barry?

There is no way this pablum is going to induce panic in the Kremlin. Quite the reverse. Doesn’t Obama realize that repetitions of vacuous statements unaccompanied by serious action only embolden Putin, and are exactly why we are where we are?

That question was completely rhetorical.

The only people who would panic when hearing such empty statements directed at them are those more timorous and craven than those uttering them. If such people exist.

Another disturbing fact that strongly suggests that Obama is shying away from any robust action. His statement focused disproportionately on access to the crime scene, rather than who carried out the crime itself. Although Obama has hinted at Russian culpability in the past, this statement made no connection between Russia and the shootdown. He just made a brief remark about getting the facts out there and holding people accountable.

Look. The public record makes the guilty party obvious for all to see. Obama, with access to US intelligence sources, certainly knows far more. The fact that he continues to be reticent is damning. Five days after KAL007, Reagan had given a national address from the Oval Office (not a quickie on the WH lawn), laid out in detail the case for Soviet guilt, and played tapes of intercepted Soviet communications. We are five days out, and if anything, Obama is being less forthcoming about US information on Russian responsibility.

The crime scene issue is pretty much done with now, anyways. Moreover, it is relatively easy for Putin to make pleasant noises on this issue, now that his thugs have be in control of the place for 5 days.

Further on the panic meme, this article from Bloomberg has gotten huge play. It claims that the Russian economic elite is horrified by Putin’s course in Ukraine. Maybe they are, but the article just quotes some think tank guy who claims that’s what the business class is thinking.

And it’s not as if it matters. Even if they are horrified, will they challenge Putin? Their silence-not a single one was quoted-speaks volumes. If these individuals united in opposition, perhaps they could threaten Putin. But they show no signs of doing so, and some basic game theory says they almost certainly will not. They face a coordination problem. Who will go first in opposition, and lose everything with virtual certainty?: better to stick with Putin, and take a big hit to one’s wealth but be left with something. Including one’s freedom (and maybe one’s life). Everyone  will play Alfonse and Gaston, letting the other guy go first. Trying to conspire secretly is extremely dangerous, given the inability to trust anyone and the omnipresent surveillance and informants.

So even if the business elite is horrified, and indeed panicked, this means exactly squat politically.

One last thing about playing to form. The Russian Ministry of Defense gave its X-Files versions of the causes of the destruction of MH17. The only thing that surprised me is that they did not blame HAARP, for which they have blamed crop failures, earthquakes, and the loss of a space probe. Maybe they’re holding that one in reserve, just in case the other stuff doesn’t pan out.

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July 20, 2014

There’s No Panic! in the Kremlin Disco Because Putin Has Weighed His Foes and Found Them Wanting

Filed under: Economics,History,Military,Politics,Russia — The Professor @ 9:17 pm

As the evidence of Russian guilt for the MH17 massacre mounts and becomes irrefutable, there is widespread conjecture that Putin has been backed into a corner, and that he and the siloviki may be in a state of panic. Color me skeptical. I don’t sense any panic! in the Kremlin disco.

Of course the massacre creates huge complications for Putin. But he will not even begin to panic until he is confronted with something far more threatening than has come out of western capitals in days since the atrocity.

Yes, there have been expressions of outrage. This outrage has been intensified by the desecration carried out by Putin’s thugs on the ground. But outrage is easy. Action is hard.

Here, the signs are much more encouraging to Putin. Merkel made it plain that she still thought it was essential to maintain good relations with Russia, and did not say anything serious about an increase in sanctions. France and Italy have been almost completely silent. Even the nation that suffered worst-the Netherlands-was still willing to give Putin “one last chance.”

Obama and Cameron may actually be playing the role of B’rer Fox to Putin’s B’rer Rabbit. Obama said the US will not provide arms to Ukraine, and again stated-as if this was necessary-US troops would not be deployed. Moreover, he called for an immediate cease fire in eastern Ukraine.

Well guess what. Putin is adamantly opposed to western arms flowing to Ukraine, and is also calling for a cease fire. Precisely because this would buy time and breathing space for his increasingly beleaguered creatures in Donetsk and Luhansk, and precisely because he knows that the obligations under any cease fire would be enforced asymmetrically, with Ukraine being under much more pressure from the west to conform than  the Russian proxy forces would be.

Meaning that Putin might throw Obama just like he did in Syria with regards to chemical weapons. By agreeing to what Obama has demanded, and which Germany and other Euros have demanded-a cease fire-Putin can defuse the pressure for now, and use the respite to bolster the battered rebels, and to give them time to continue to fortify the territories they hold. So by demanding a cease fire, Obama (and other western leaders) are throwing B’rer Rabbit Putin right into the briar patch.

Cameron demanded that Russia guarantee access to the site where MH17 landed. Putin could well grab at this too, and say that the only way he can do that is if Russian “peacekeepers” move in. This is another thing he’s wanted to do. (There are many pictures of armor in Russia with peacekeeping insignia painted on them.) Again into the briar patch.

But the main thing that Putin needs to do is to stall for time. He is no doubt calculating that previous spasms of outrage have dissipated rapidly, especially when corporate champions in Europe ramp up the pressure on their governments, and that this one will too. He has heard the “last chance” mantra before, and his experience is that each last chance is followed by another one. He knows that the Euros have no stomach for a confrontation, even one conducted purely with economic weapons, and that Obama has only little more appetite.

Even while the bodies remain unburied, Europe is divided over intensifying sanctions. Those divisions will only increase as time passes. And you may rest assured that Putin’s connections and agents of influence in the west are working overtime to exploit those divisions, and stoke the well-established tendencies in western governments to procrastinate and avoid confrontation. He saw it after Georgia. He saw it after Crimea. He has seen it repeatedly in the past 3 months over Ukraine.

Certainly Putin could have done without this. The massacre served no military purpose, and has interfered with his schemes in Ukraine. But it has not created an existential, panic-inducing threat to him or his regime. He views it as a setback, but one that he can manage with his usual mixture of double-talk, pacific gestures, and behind the scenes pressure exerted by his corporate allies in Europe and to a lesser extent the US.

The only thing that has the possibility of inducing anything approaching panic in Putin is for Obama and Merkel and the lesser lights in Europe to upset his calculations by playing against type. Impose crippling sanctions with the promise of removing them if Putin essentially capitulates on Ukraine, rather than threatening to impose more costs if he keeps it up.

That is, all the talk about a cornered, panic Putin is so much wishful thinking. It presumes that the shock of the event has caused western governments finally to see Putin as a monster who must be confronted robustly. There’s no evidence that this is the case even while emotions are running their hottest. And past experience suggests that the image of Putin as a monster can actually work to his advantage, because it makes timorous governments all the more intimidated from confronting him.

I would like to believe that the deaths of 298 innocents has not been in vain, and that their murders will resolve western leaders to do what it takes to confront Putin’s aggression. But I’m betting on form. And I am sure Putin is too.  He has weighed his foes, and found them wanting.

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July 17, 2014

What Would It Take For Obama to Cancel a Fundraiser?

Filed under: History,Military,Politics,Russia — The Professor @ 7:53 pm

To further the last sentence of my last post: I am not sanguine about those who hold office in the US and Europe to rise to the challenge that Putin has laid before the world.

Obama, certainly, was less than Churchillian or Reaganesque in his first response to the crime over Donetsk. Sayeth Barry: “It looks like it may be a terrible tragedy.”

First: it was not a tragedy. It was an atrocity.

Second: “looks like”? “May be”?

Go out on a limb there, Barry.

Words fail. Truly.

With that box checked, Barry went on to tell some jokes. And give a banal speech about infrastructure or some such. Then he jetted off to a fundraiser. Or maybe it was (according to CBS News) a “political meeting”, as if that makes it all better.

I have a serious question. I mean it. I ask this in all seriousness: Just what would it take for Obama to cancel a fundraiser? Anything short of Armageddon? For we have yet to see any atrocity sufficiently horrific (Benghazi, Donetsk, the chaos on the Rio Grand) sufficient to deflect Barry from his appointed rounds of feeding red meat to the partisan faithful, and raking in their dough.

I guess we can be grateful that he did not give a shoutout to Joe Medicine Crow. So there’s that. He’s growing in the job.

Some have praised him for being “no drama Obama.” I have a different take. I view his behavior in response to atrocity as revealing a  lack of affect that is deeply disturbing.

Regardless of the psychological roots for his behavior, it is all too clear that Obama is not up to the challenge that Putin poses, because of a lack of ability, a lack of interest, or more likely, both. Narcissist that he is, the only thing that is likely to engage him is if he believes that Putin has insulted or slighted him. But I doubt that even that is sufficient to rouse him to actions appropriate to the circumstances.

There are pros and cons of both parliamentary systems, and the US system. One of the disadvantages of the US system is that we are cursed to endure incompetent chief executives until their terms expire. Think of James Buchanan, dithering in the White House while Kansas bled and the nation spiraled into Civil War. In contrast, Chamberlain was ousted after the debacle in May, 1940. But we-and by that I mean the world, not just the US-have to endure Obama until 20 January, 2017. An incompetent, disengaged, lame duck holds the Office Formerly Known As Leader of the Free World. What havoc can occur in 30 months with such a man holding the highest office in the land, and the most powerful position in the world.

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The KAL Moment of the New Cold War

Filed under: History,Military,Politics,Russia,Snowden — The Professor @ 5:50 pm

I had been planning to write on the latest round of sanctions, but of course that story has been overtaken by an utterly horrific event: the shooting down, by a surface-to-air missile, of a Malaysian Air 777 flying over Donetsk.

This is an unspeakable crime. Unspeakable.

I can state with near metaphysical certainty that this was the work of Russian-supported and inspired rebels from the Donetsk People’s Republic, or perhaps even the Russian military itself. The jet was downed in the same area where two Ukrainian military planes were destroyed by SAM fire in the last couple of days. The ex-FSB (or maybe not ex-) creature Girkin (aka “Strelkov”-the recent event gives new meaning to the word “shooter”) bragged on V Kontakte about shooting down a Ukrainian transport plane today . . . and then scrubbed the site once it was revealed that a civilian airliner had been destroyed. The rebels had bragged about, and Russian state media had bragged about, the rebels possession of an SA-17 Buk SAM system-which they now deny. Ukraine released transcripts of communications between rebels, and between rebels and one of their freakazoid Cossack contacts in Russia, blaming the shootdown on Cossacks rebels stationed near the border.

I could go on, but it’s not necessary.

I would hope that this is the KAL 007 moment of the New Cold War. The KAL 007 moment of Putinism. For those old enough to remember-and my memories are extremely vivid-in the aftermath of the KAL atrocity the Soviets denied, denied, denied. Then Jeanne Kirkpatrick made a presentation at the UN Security Council that played intercepted communications between the Soviet pilots that shot down the plane and Soviet air defense commanders that made it clear beyond all possible doubt that the Soviets had shot down the plane.

We certainly have the national technical means to determine who launched the weapon, and from where. We have the means to intercept communications. Satellites will have recorded exactly where the weapon was launched. Depending on the sensors we have deployed, or the Ukrainians may have deployed, we can monitor and record the radar transmissions of any air defense systems in the area. The radar signature of different systems is unique, so this would permit definitive identification of missile type as well as location.

Let’s put that all out there in the UNSC, and watch the loathsome Vitaly Churkin squirm.

But that should only be the beginning. The crucial task is to lay out information connecting the rebels to the Russian government, military, and intelligence services. Again, we no doubt have such information, even if (as is likely) that Snowden information revealed weaknesses in Russian communications security that they have closed. But I doubt that things have gone totally dark for us. What’s more, we have the means, motive, and opportunity to track movements of equipment from Russia to the Donbas.

This is the time where the NSA, CIA, DIA, and National Reconnaissance Organization demonstrate their true functions and capabilities. It’s not about snooping on Fritz’s Amazon’s purchases: it’s about uncovering Ivan’s evil acts.

Moreover, just consider the fact that the Russians would not be  so nuts as to allow a SAM battery (or even a single launcher) operate right on the border, in an area where Russian military and civilian aircraft are operating and within range, without coordinating with Russian air defense system controllers and Russian air traffic control. Hell, given what control freaks the Russians are, it’s highly likely that the Russians have to give permission for that battery to fire.

We have to lay all this out there. Put Putin on the spot. Show the world just what he has done, and what he is doing, in Ukraine. Of course, anyone who is willing to look at the facts objectively already knows, but that category excludes vast swathes of Europeans and many Americans. Maybe 295 dead, innocent Dutch, French Germans, Brits, etc., including 80 children, will be enough to get them to face reality. There are none so blind as those who will not see. Make them see, and shame them mercilessly if they still resist.

Merkel is now on the spot. France too: if it goes ahead with the Mistral sale after this, we should sink the damn things. And then text Hollande pictures of the dead babies strapped in their seats, lying bloodied in the Ukrainian dirt.

The KAL shootdown was a turning point in the Cold War. It revealed the Soviet leadership to be both evil and drastically out of touch. Their handling of the affair was utterly embarrassing. Indeed, it helped usher in the rise of Gorbachev, and had a dramatic effect on European public opinion: after having resisted, Germany approved deployment of Pershing II missiles post-KAL 007, in large part because of what it revealed about the true nature of Soviet leadership. (Think on that one, Angela. Think hard.)

We should hope that out of this horror something positive like that occurs now. Putin is doing his part, blaming the shootdown on Ukraine for failing to capitulate to the Russian proxy invasion. Russian state media has gone one better, claiming that the Ukrainians shot down the plane while they were targeting Putin’s.

In other words, this event has the potential to be like Napoleon’s assassination of the Duc d’Enghien: as Talleyrand said, “it was worse than a crime. It was a blunder.”

295 innocent people should not have died: or, to be more accurate, 295 innocent people should not have been murdered. But if their deaths hasten the demise of the criminal Putin regime, at least they will not have died in vain. It is the duty-if they understand the meaning of the word-of people like Obama and Merkel to make sure that the innocents’ sacrifice was not in vain.

Are they-are we-”highly resolved that the dead shall not have died in vain”?

I wish I were more sanguine about the answer to that question.

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July 13, 2014

If Angela Merkel is the Bad Cop, Putin Has It Made

Filed under: History,Military,Politics,Russia,Snowden — The Professor @ 8:42 pm

Germany has won the World Cup, which is somewhat annoying because they will become even more insufferable. And that is saying something given their recent behavior, especially with regards to Russia, and the spying imbroglio with the US.

Regarding Russia, it was particularly nauseating to see Merkel being quite chummy with Putin at the Cup final game. The Euros had pressured Ukrainian president Poroshenko to go as well, so that he could have a chat with Vlad. Poroshenko wisely begged off, staying home to direct the counterattack against the Russia-supported, inspired, and supplied rebellion in two eastern provinces. He no doubt realized that he would be sandbagged if he went to Rio, and for that he could have blamed it on Angela.

For despite her reputation as the bad cop in dealing with Putin (earned only by comparison with outright enablers, understanders, and collaborators like Steinmeier and Schroeder), Merkel has been putting much more pressure on the beleaguered Poroshenko than on Putin. The Euros, led by Germany, have been pushing Ukraine to negotiate directly with the freakazoid “leaders” of the “republics” of Donetsk and Luhansk. Moreover, Merkel tutted that Ukraine’s counterattack should be “proportionate.”

Well, “proportionality” is usually trotted out by the friends of those who are losing to stymie the advance of the stronger side that is winning by preventing it from exploiting its advantages. In this instance, moreover, “proportionate” would involve Ukraine sending armor across the border into Belgorod and Voronezh, and supporting separatists in Dagestan and Chechnya. BUt somehow I don’t think that’s what Angela means. I think she means that Ukraine should not fight to win, and that suits Putin just fine.

The Ukrainians are fighting a rebel force that has inflicted large casualties on it; has embedded itself in civilian areas; committed (per the UN) widespread “stomach churning” atrocities; destroyed bridges and rail lines; and deployed landmines and booby traps. Under the circumstances, Poroshenko has been restrained.

But Angela is running interference for her soccer buddy. In other ways as well. For instance, she is resisting the permanent deployment of NATO troops in new eastern European member states, like Poland and the Baltics. She brought up the NATO-Russia Founding Act in order to rationalize her position, but this has absolutely nothing to do with the deployment of conventional troops: it only discusses the deployment of nuclear weapons in former Warsaw Pact states.

Then there’s the spying issue, which contrary to usual practice, the Germans are making into a major public spectacle, culminating in its request that the head CIA official in Germany depart the country.

The Germans really need to get over themselves on this one. As I’ve written before, they have earned the scrutiny they get. Indeed, their heel-dragging on Russia warrants skepticism about them. They have often worked against the US within NATO. The rejection of Georgia and Ukraine in 2008 is one example. Libya is anotherIt has contributed to the rejuvenation of the Russian military (a tradition going back to the 1920s). It is an important country that bears watching. Not just for those reasons, but because (as I have noted before) the country is well-known to have been heavily penetrated by Soviet then Russian intelligence, and its businesses are rather notorious for their use of bribery to get international sales and contracts: this summary of Siemens’ sins over the years makes for enlightening reading. Since the US can have little confidence that Germany will advance US interests, and since the US has strong reasons to believe Germany might actually work against US interests, it is definitely in our interest to know what Germany is thinking and planning.

In other words, Germany wants it both ways, in a very adolescent way. It wants to pursue an independent policy that is often at odds with US policy and interests, but it also expects the US to treat it like a country whose interests are strongly aligned with ours. Sorry. If you want to act routinely contrary to US interests, the US is more than justified in not trusting, and verifying. And that involves espionage.

One of the things that has exercised the Germans most about the current spy scandal is that the man in question, “Marcus R,” passed documents relating to a German parliamentary investigation of the Snowden allegations. Well, that brings up another thing, doesn’t it? Snowden inflicted major damage on the US, and his collaborators (notably Appelbaum and Poitras) are living large in Berlin. A good part of the German establishment has been very supportive of Snowden. All of these things are rather hostile to the US, so what, we’re supposed to shrug and say “whatever”? Given Snowden’s current location, this also plays into the earlier-mentioned problem of German enabling of Putin and Russia. German dealings with Snowden are very much a matter of American national security.

It’s also rather annoying that the Germans are getting so exercised about American espionage, but direct no outrage whatsoever at Russian activities in the country.

The linked article says that public pressure has forced Merkel to act. With respect to the most recent spying issue, that’s not much of an excuse: the public pressure is the result of Germany’s publicizing the episode.

What’s more, Germany made claims that it had uncovered a second US spy, but that story pretty much evaporated on exposure to the sunlight. It now appears that the military officer in question was in touch with the State Department, not the CIA or any other US intelligence agency. Moreover, a search of the man’s home revealed nothing. So the Germans went off half-cocked and inflamed an already difficult situation, rather than acting in a more responsible way in an attempt to tamp down the passions. Another adolescent and self-absorbed political move.

Perhaps the only good thing to come of this is that it has united Congress and the administration on at least one thing. Both are heartily annoyed at the German teenage temper tantrum.

The bottom line for the US is that its interests and those of Germany are not closely aligned, especially on issues relating to Russia. So be it. But this is precisely why Obama’s policy of largely deferring to Europe (which de facto means largely deferring to Germany) on policy towards Russia and Ukraine is so problematic. Yes, the Germans (and Italians and Austrians etc.) will squeal. But doing things their way will embolden Putin, and that will just lay the groundwork for even bigger problems in the future. If Angela Merkel is the bad cop, Putin has it made.

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