Streetwise Professor

October 6, 2017

Las Vegas, the Liberty-Gun Nexus, and Gun Control

Filed under: Guns,Politics — The Professor @ 11:21 pm

The horrific massacre in Las Vegas has, predictably, led to calls for greater gun control. Or “common sense gun control” as the no-doubt-focus-group-tested Democratic/liberal mantra puts it.

But here’s the thing. Gun control measures (even up to attempted confiscation) will have the least impact on mass shootings a la Las Vegas or Virginia Tech or Aurora or Sandy Hook. Restrictions on guns (like restrictions on drugs, or alcohol) don’t make these things disappear: they raise the cost of acquiring them. The higher cost indeed induces some people not to buy them: but these people are the marginal demanders, those who get relatively low value from them. In contrast, someone like Stephen Craig Paddock is way inside the margin. The likes of him are about as infra-marginal as you get.

Paddock acquired a large number of weapons and a large amount of ammunition. He rented an expensive condominium as his sniper’s nest. He made elaborate plans. He clearly spent lots of time, effort, and money to carry out his twisted plans. Raising the cost or difficulty of obtaining firearms substantially –and far more than the “common sense gun control measures” would– would not have deterred him from his evil plot. He obviously had a high willingness to pay, and an ability to pay.

But there is a perceived need to do something, and hence much time and breath is wasted obsessing on what are in reality trivial details. In the Las Vegas shooting, the focus is on “bump stocks” which allow a shooter to increase the rate of fire of a semi-automatic weapon to near automatic weapon levels: Paddock had such stocks on several of his weapons.

Well, particularly for the kind of shooting that Paddock was doing, it is doubtful that the bump stock (or even a fully automatic weapon) increased his lethality, and quite possibly reduced it. Automatic fire from a non-crew served weapon is notoriously inaccurate: it isn’t referred to as spray and pray for nothing. Although the first models of the M-16 had a fully automatic selection, later models eliminated it. This was in large part due to the fact that the military learned that aimed single-shot fire is more accurate and more deadly than rocking and rolling on full auto.

In Iraq and Afghanistan, it is easy to distinguish fire from American troops from that of jihadis: the Americans fire single rounds, the jihadis blaze away on automatic. Those fighting Americans often find this disconcerting, in part because it communicates discipline and control and training. This can be unnerving. In contrast, firing on automatic often mainly provides a psychological boost to a shaky amateur, or serves to keep an enemy’s head down while other elements of a fire team maneuver to close with the enemy.

Automatic fire–and bump stock quasi-automatic fire–also increases the risks of jamming. Apparently several of Paddock’s weapons were found jammed.

So ban bump stocks, but realize that it is a ritualistic act not one that will make would-be mass shooters less lethal.

Other proposals are even more asinine. Hillary–you’re shocked, I’m sure–was first to the post in asininity, tweeting that just think how much worse things would have been if Paddock’s weapons been equipped with “silencers” (currently heavily regulated, but which some Republicans have proposed making easier to obtain). After all, if his guns been “silenced,” the no one would have heard the shooting and Paddock would have had more stationary targets!

Nice of Hillary to attempt to score political points against Republicans while the bodies were still warm.

Where to begin? This is stupid beyond words. Many have pointed out that even a suppressor (a more accurate term than “silencer”) merely reduces the noise caused by the explosive release of gases from the muzzle of a weapon when it is fired. But that’s not even the most ludicrous thing. A high powered rifle firing a standard cartridge shoots bullets traveling faster than the speed of sound. So the bullet creates a sonic boom–heard as a cracking sound: a suppressor does nothing to reduce the intensity of this sound. A suppressed gun still makes a big noise. Further, downrange, the bullet is still moving through the air, and creates a ripping sound as it passes. Which means that if you are downrange you will hear the bullet passing by before you hear the report of the weapon.

Suppressors can reduce the sound of pistols noticeably–because they fire subsonic rounds. But you ain’t going to shoot people 1000+ feet away with a pistol.  Similarly, if you fire special subsonic ammunition from a suppressed rifle, the report can be substantially reduced. But again, because of the lower power of these rounds, you won’t hit anything beyond 70 yards or so (i.e., smoothbore musket range). (US special operators have sought subsonic rounds for use on raids to enhance stealth, but they would be using this ammunition at close quarters.)

Here are a few videos that illustrate these points. Note to Hillary: 30 seconds on YouTube are all that you’d need to find this information, and loads more. But why let facts get in the way of a good narrative to score some political points, right?

So every one of Paddock’s weapons could have had a suppressor, and it wouldn’t have made a damn bit of difference. (I’d also note that because he was firing in an urban environment with lots of hard surfaces at various angles, the sound would have bounced around so much that pinpointing his location based on sound would have been nearly impossible.)

This all means that the “common sense” gun control proposals are totally senseless, if the goal is to reduce, let alone eliminate, mass shootings, or to reduce the lethality of people like Stephen Paddock.

Thus, more draconian measures–likely including mass confiscation–would be required. And this is something that a large majority of Americans have made it clear that they will not condone. In essence, for most Americans, periodic mass shooting is something that they are willing to accept in order to retain their ready access to guns of pretty much all types.

This the American left, and most of the rest of the world, finds utterly inexplicable, and downright horrifying. The defiant embrace of firearms by a large portion of the American populace, and the tolerance of this embrace by another large portion, is shocking to them.

The embrace, and the understanding even by many of those who do not embrace, reflects the strong connection in the American mind between ownership of guns and individual liberty. In Europe, long before the US was formed, bearing arms was emblematic of autonomy and status. That connection was even more pronounced in America. Free men can bear arms: slaves, serfs, and the otherwise subservient cannot.

An expression, of which there are several variants, expresses this: “God made men, Samuel Colt made them equal.” (The Colt website, perhaps respecting religious sensitivities, has it “Abraham Lincoln freed all men, but Samuel Colt made them equal.”) When armed, in other words, I am equal before all men. Since, as de Tocqueville noted, liberty and equality are paramount to Americans to a degree unparalleled in the rest of the world, restrictions on firearms are deemed a dangerous encroachment on fundamental freedom. It’s not just about guns qua guns. It’s about what guns mean for freedom.

In the American mind, the right to bear arms is fundamental precisely because it is viewed as the thing that makes Americans a uniquely free people: the very horror with which other nationalities view American gun culture in fact reinforces the American attachment. This demonstrates the uniquely robust nature of American freedoms, as opposed to those enjoyed by the citizens of other nations. Similarly, the fact that gun sales actually tend to increase in the aftermath of mass shootings is likely due to a belief that it is at precisely these times that this symbolically potent liberty will be restrained.

Law abiding gun owners are also deeply incensed, and take it quite personally, when their responsible possession of guns is threatened as a means of reducing murder or suicide or even mass shootings because this lumps them with street thugs, drug dealers, the emotionally troubled, and the psychopathic.

Thus, the left is actually acting against its own policy preferences when it ratchets up the rhetoric in the aftermath of a Las Vegas or a Sandy Hook. That rhetoric triggers (yes, pun intended) a passionate reaction against additional controls on guns because many perceive this to be a blow against personal freedom generally, and an attack on their characters.

It is fascinating to note that American support for gun control–any gun control, including measures far less draconian than in place in most of the rest of the world–has decreased in recent decades. I don’t think this is accidental. This has also been a period of increased government power, and increasing encroachments of the state on individual liberty. My argument about the liberty-gun connection predicts exactly such a relationship. Similarly, in the United States, those who are most supportive of an expansive government are most supportive of gun control: those most hostile to or suspicious of the government are most opposed.

To which a good German (or a good liberal) is likely to reply: but look at the carnage that such a sentimental attachment to liberty–and guns-causes! Well, when I look at the carnage that good German subservience to the state causes (world wars, mass murder), I know which is the much lesser of two evils.

By its nature, America always attracted the most independent, most rebellious, and most recalcitrant of the people of Europe. They were attracted by the greater personal liberty, and this in turn generated a kind of turbulence that was and is the source of great creativity and energy, but which had as one of its downsides a greater propensity for personal violence. Life is about trade-offs, and this is a fundamental trade off that has characterized America since even before its founding as a nation.

Thus, to many Americans, guns and liberty are a package deal: you can have both, or you can have neither. Yes, like all things, guns have their cost. But despite this cost, to many the package of both is still vastly preferable, given the value of liberty.

You may find this incomprehensible. You may find this stupid. You may even find this evil. I don’t, but I understand there are those who do. But I believe it is a reality, and in a democracy, you have to deal with the people as they are. And a lot of people–perhaps not a majority, but a strong minority at least–believe in the package deal. Those who do, believe in it passionately, intensely. So if progressives want to change fundamentally the laws on guns, they have to change fundamentally the people–or act in highly undemocratic ways.

The left is of course totally cool with trying to change the people: it is one of their abiding passions. They are also not averse to undemocratic means to achieve their objectives–that was understatement there, folks. But ironically, the harder they push, the greater the pushback. The Trump presidency is probably the most notable result of that pushback.

This is why even horrors like Las Vegas do not lead to major shifts in public opinion, and if anything, lead to a hardening of that opinion. In the United States, for deep historical and cultural reasons, there is a strong nexus between personal liberty and firearms. A threat to the latter is deemed a threat to the former. And since personal liberty is so fundamental to many Americans, a threat to the former is an existential one, or close to it. This is not conducive to compromise: to the contrary.  So the not-so-passionate-about-liberty left will push, and the passionate-about-liberty non-left will push back, leaving us in exactly the same place, but only more hostile and bitter in our division.



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December 24, 2013

How Many Rooms In the Kalashnikov Mansion?

Filed under: Guns,History,Music,Politics,Russia — The Professor @ 2:22 pm

The widow of the heir to the Winchester Repeating Arms Co. fortune, Sarah Winchester, believed that her home in New Haven, CT was haunted by the ghosts of men shot with Winchester rifles.  A medium told her to move west and build a house big enough to house all of the spirits.  So she moved to the Santa Clara Valley in California, and in 1884 began construction of a house.  Construction continued, day after day, for 38 years, as Winchester directed the addition of room after room after room to appease those haunting her. Today the Winchester House is a museum.

Yesterday, the inventor of the Kalashnikov assault rifle, Mikhail Kalashnikov, left this mortal coil at age 94.  It is almost certain that the ubiquitous AK-47 (and its successors like the AK-74) has killed more people than any firearm in history.

Pace Mrs. Winchester, how many rooms would be required in a Kalashnikov mansion to house all of the pour souls slain by Kalashnikovs?  A city of Winchester Mansions, probably.

Kalashnikov himself was disturbed but realistic about what his mechanical genius had wrought:

Mr. Kalashnikov said he regretted that it became the weapon of choice for guerrilla armies. “It was like a genie out of the bottle, and it began to walk all on its own and in directions I did not want,” he told Britain’s Guardian newspaper in 2003. But he added, “I sleep soundly. The fact that people die because of an AK-47 is not because of the designer, but because of politics.”

This is true.  In particular, the politics of the USSR (and the People’s Republic of China), which liberally supplied AK-47s to its clients around the world, and which armed, directly and indirectly, numerous guerrilla forces engaged in conflicts euphemistically known as “wars of national liberation.”  Once millions of AKs were in circulation, as Kalashnikov said, “they began to walk all on [their] own” to every corner of the globe.  The genius of the design is that a child can use it.  And tens of thousands of child warriors have.

Look at the photos from any of today’s most brutal conflicts.  Syria. Central Africa. You see AKs, not FNs or M-16s.

A toxic combination.  A weapon of brilliant simplicity and durability produced by one of the most malign states in history, which had no compunction against indiscriminately flooding the world with them as part of a geopolitical strategy intended to realize the imperatives of a twisted ideology.  Meaning that Comrade Kalashnikov’s mansion would have to have rooms almost without number.

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April 18, 2013

He’s No LBJ

Filed under: Guns,Politics — The Professor @ 8:54 pm

Obama threw a grand mal temper tantrum yesterday in the Rose Garden, lashing out at those he holds responsible for the defeat of the lame, completely symbolic, and utterly ineffectual gun legislation in the Senate.  Such a paradox.   According to Obama, the proposals are wildly popular, not to mention the epitome of “common sense.” (Note: whenever anyone asserts something is “common sense” it’s because they can’t muster a rational argument in its favor.)  Nonetheless, they went down in flames in the Senate.  And they would have had zero chance in the House.  How can that circle be squared?  According to Obama-the malign influence of the gun lobby.

In essence, Obama was admitting that he is no match for Wayne LaPierre.  How pathetic is that?

Obama can’t even get his own party completely on board, let alone Republicans.

Somewhere, probably in hell, LBJ is shaking his head in disbelief.  LBJ knew how to use carrots and sticks to bend the Senate to his will, both as majority leader, and President.  Obama is evidently of the belief that he needn’t deign to engage in such shabby politicking to advance his agenda: the mere expression of his royal desire should suffice to persuade all to fall into line, and implement his will by acclamation.

LBJ made a living out of cajoling recalcitrant legislators  into going along with things that were unpopular in their states and districts: he would have considered it child’s play to persuade them to go along with something as allegedly popular as background checks.  But Obama can’t even manage that.

Primarily because he doesn’t think he should even have to try.

Seriously, I cannot think of a more pathetic confession of political impotence and cluelessness.  Obama truly thinks that making a speech-or speeches-and engaging in agitprop (much of it emotionally exploitive-another indication of the lack of a rational argument) is sufficient to get what he wants.  And when he doesn’t he pitches a public fit.  This is all so revealing.

And I have a sneaking suspicion that there was something more than the defeat of the gun control legislation behind Obama’s foul mood.  That something being Boston.

There is a non-trivial probability-not a certainty, but appreciable odds-that the Marathon bombing was a jihad operation, or jihad inspired.  Which would give the lie to Obama’s assertion that Islamist terror died as a serious problem when a 5.56mm round impacted Osama’s cranium.  Moreover, there would no doubt be a cascade of damaging revelations of intelligence failures, perhaps exacerbated by political correctness, like that which followed the Christmas junk bomber a few years back.  That is, there is a considerable likelihood that there is a sh*tstorm brewing, and that can’t help but aggravate Obama’s already preternatural petulance.

Second terms usually stink.  Early indications are that Obama will exceed all expectations in that regard.  His signature issue down in flames.  A looming controversy over Boston.  The impending Obamacare “train wreck” (in the words of Dem Sen Baucus).  Couldn’t happen to a nicer guy.

Unfortunately, the rest of us are the ones who will really pay the price.

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February 15, 2013

With “Fixes” Like These

Frankendodd runs hundreds of pages.  The regulations written to bring it to life run to thousands more.  Every word on every page has the potential to wreak havoc: hell, apropos the position limit case, even the commas matter.

Case in point, the CFTC’s proposed rule on protection of customer funds, most particularly Section 1.22.  Some of the relevant language:

The Commission proposes to amend § 1.22 by clarifying that the prohibition on the FCM’s use of one futures customer’s funds to margin or secure the positions of another futures customer, or to extend credit to another person, applies at all times.

. . . .

Further, the Commission is proposing language providing a clear mechanism to ensure compliance with this prohibition, which is to require an FCM to maintain residual interest in segregated accounts in an amount which exceeds the sum of all margin deficits for futures customers.

This is very inside baseball, but has seismic implications.

The basic thing is that some customers are late in meeting margin calls.  This gives rise to margin deficits.  Under the traditional omnibus model used in futures markets for donkey years, futures commission merchants (brokers-“FCMs”) can cover customers’ margin deficits with the margins of other customers.  Effectively, customers lend one another money to address the timing issues that the rigorous mark-to-market and variation margin processes inevitably create.  Moreover, the FCM is ultimately on the hook to cover the losses of a defaulted customer.  The FCM’s customers can lose only if there is a default by a customer that the FCM can’t cover (resulting in an FCM default).

That is, customers effectively lend to one another, and thus there is “fellow customer risk”-a solvent customer can lose as a result of the default of another customer. The CFTC rule is intended to eliminate this risk.

Problem: the risk can’t really be eliminated, merely shifted around.  Related problem: the likely reaction to this attempt to shift risk.

The CFTC seems to want to shift the risk to the FCMs: the “residual interest” language means that the FCM has to have enough of its own money on hand to cover any margin deficits.  This will require the FCM to hold substantial precautionary balances, because (a) the magnitude of margin deficits is likely to be quite variable, and particularly will be large in the aftermath of a big price move (that can’t be predicted in advance), and (b) there are serious penalties to being undersegregated.  Alternatively, FCMs are likely to require customers to post margins far in excess of exchange margin levels, thereby reducing the likelihood that any customer’s account will have a margin deficit, and the amount of residual interest the FCM must hold to cover any such deficits.

Either way, there will be a substantial increase in the amount of cash tied up, and the needs for customers and FCMs to have access to contingent liquidity.  The omnibus model was an effective way for customers to supply liquidity to, and obtain liquidity from, other customers.  Yes, there are risks, but there are corresponding benefits: the near universality of the omnibus model in futures markets, and its survival for decades, provides compelling evidence that the benefits far exceed the costs.

But apparently that’s not good enough for GiGi and the Gang.

The clearing and collateral mandates-combined with Basel III and other regulatory measures-are already requiring substantial increases in the amount of collateral-liquid assets-that will be tied up to support derivatives trades.  This will just add to that.  And insofar as being a customer protection mechanism: uhm, customers will pay for it.  Don’t act as if your are doing them a big favor. (Raising the question if its so valued by customers, why hasn’t some FCM adopted voluntarily what the CFTC wants to impose by fiat?  If it’s so great, customers would flock to firms offering that model.)

It also comes at a terrible time for the FCM industry.  The economics of the business are terrible.  ZIRP has blown a hole in a major source of revenue, volume is down sharply, and competition is intense.  A recent Celent study details the carnage:

“The leading FCMs in the US are struggling with falling revenues and profits,” saysAnshuman Jaswal, PhD, Senior Analyst with Celent’s Securities & Investments Group and author of the report. “This puts them in an unenviable position, especially when we consider the overall impact and related costs of various regulatory implementations taking place in the next couple of years.”

Another data point: SocGen just wrote down its investment in big FCM Newedge.  This is not a thriving industry, and ladling more costs onto it won’t help it one bit.

The ostensible purpose of this new regulation is to prevent another MF Global or Peregrine situation.


MF Global broke every rule in the book about segregation and the treatment of customer money.  Peregrine’s owner ran a huge fraud for 20 years. So creating more rules for troubled or criminal FCMs to break will help?  If the CFTC or SROs couldn’t enforce the old rules and thereby prevent losses of customer funds, why should we expect they’ll do any better with the new ones?

It’s also hard to see how these rules, if they had been in place, would have prevented either the Peregrine or MFG situations.  Furthermore, there are other ways of attacking the exceptional-and MFG and Peregrine were exceptional-without imposing crushing burdens on the ordinary day-to-day operation of the markets, FCMs and their customers.  For instance, the Peregrine fraud could not have continued if Peregrines regulator (the NFA) had direct electronic access to the firm’s accounts, thereby preventing Wasendorf from altering the paper statements he sent on to regulators to cover up his fraud.  Hell, in the MFG case, having more excess margin in customer accounts would have just increased the money that Corzine could have tapped to cover the company’s losses and own margin calls: it is just that excess margin that disappeared somewhere, somehow.  I would further note that since an FCM is most likely to be tempted to get at customer funds when it is in financial jeopardy (which is what happened with MF), adding to its financial burdens could create more problems than it solves.

The cost-benefit analysis the CFTC advanced in support of the rule is just the kind of joke I’ve come to expect.  This is actually a problem that is amenable to calculation.  Collect data on the distribution of customer margin deficits under current rules.  Figure out the 99.9th percentile of this distribution.  (Importantly, condition this distribution on market conditions-find out what that percentile is during very volatile periods.)    Given the rigor of the rule, it is plausible to assume that additional funds equal to this 99.9th percentile will have to be held by customers, FCMs, or both will be held to ensure compliance.  Calculate the return on this sum lost because customers and FCMs are required to hold low-yielding assets in order to comply with the rule.  That’s one component of the cost.

Another cost is the additional operational cost required to ensure compliance.  This will not be trivial: indeed, one reason FCMs might require substantial increases in customer margins is to reduce the operational burdens required to maintain compliance.

One cost that is important is hard to quantify.  As I’ve written repeatedly, spikes in liquidity needs during periods of market stress can be systemically destabilizing.  This rule will: (a) restrict one vital source of liquidity, namely, intracustomer loans; (b) result in far more liquid assets being tied up in brokerage accounts; (c) lead to increases in liquidity demand during periods of high volatility, as FCMs will either have to hold more liquid assets, or will force customers to hold more excess margin, during high volatility periods in order to maintain compliance (i.e., the 99.9 percentile is much bigger during high volatility periods, requiring more margin to meet this threshold-the distribution of liquidity demand spikes caused by this could be calculated); and (d) result in position unwinds by those unwilling to incur the cost of the elevated margins.  All of these effects are pro-cyclical, and tend to exacerbate market instability/volatility.  Liquidity problems are what create or exacerbate crises.  Derivatives market “reforms” have already imposed substantial liquidity burdens: this will only add another.  That is systemically risky.

Benefits?  Uhm, hard to ascertain.  As noted above, the rule is ill-suited to address either a Peregrine or MFG problem, even though those are the examples the CFTC repeatedly invokes in their support.  Moreover, it must be noted that reducing the amount of loss arising from the default of fellow customers is not necessarily a benefit.  This is primarily a transfer of wealth from one party to another.  The relevant issue is whether one risk sharing rule is better than another.

This is another example of the pernicious effects of attempts to “fix” high profile problems such as MF Global and Peregrine.  In response to truly extraordinary episodes, we get “fixes” that (a) don’t really do anything to address the problems they are supposed to be fixing, and (b) impose substantial burdens on the ordinary operations of the markets, operations that have gone on swimmingly for decades under the old way of doing business, thank you very much.

As a rule of thumb, I think it wise to be very suspicious of rules designed to prevent recurrence of an extreme event or events.  That is especially true in this case.   Another example of all pain, no gain.

Is that the CFTC’s motto now?

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February 9, 2013

Bootleggers and Baptists, CA Ammo Tax Edition

Filed under: Guns,Politics — The Professor @ 4:38 pm

In its utterly cynical effort to expand control over its citizenry and exploiting the Newtown massacre, California is proposing a slew of restrictions on gun ownership, on top of its already onerous restrictions.

When I was at the range last week, I saw a couple of ordinary looking Springfield Armory 40 cal semiautomatics that had “Not Legal For Sale in California” emblazoned on the box.  I asked the clerk why they were banned in CA.  He said: “The color?  Who knows?”

Back in the 50’s “Banned in Boston” was a great way to juice sales of racy paperbacks.  Now “Banned in California” is doing the same thing for firearms.

But back to the new proposals. One of them is to put a $.05/bullet tax on ammunition. Because, of course, “sin” taxes always work so well.

Let’s consider cigarettes, shall we?  New York has deemed ciggys a major sin, and has imposed a punitive tax on them. To what effect? 61 percent of cigarettes in NY are smuggled, thereby enriching organized crime. Well played!

So what will the bullet tax do? It will be like a shot of steroids to the illegal trafficking of ammunition (and magazines and banned weapons) in CA.  And who will have the comparative advantage in supplying that market? Organized crime.  Drug gangs.  MS-13, etc.

A classic example of the Bootleggers and Baptists phenomenon, where bluenose control freaks and psychopathic criminals are in a symbiotic relationship.  And who gets f’d?  Normal, law abiding people doing nobody any harm.  In CA, normal folks just looking to protect themselves will be disarmed, criminal gangs will be empowered, and dipshit politicians will break their arms patting themselves on the back for their moral superiority.  (Resisted using an Onanistic metaphor there. Such self-control.)

It’s at times like this when the ending refrain from this song seems so fitting:

True fact: I am wearing a tee-shirt with that logo (the cover of Rancid 2000) as I write this, and the poster from that album is right in front of me.

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