Streetwise Professor

In response to the furor over the AP and Rosen investigations, Obama noted the threat that leaks pose to national security:

“As commander-in-chief, I believe we must keep information secret that protects our operations and our people in the field. To do so, we must enforce consequences for those who break the law and breach their commitment to protect classified information. But a free press is also essential for our democracy. “

In a rational world, he would be referring to things like this:

It was the Obama administration that sealed the fate of the Pakistani doctor jailed for helping nail Usama Bin Laden, by divulging key details after the fact and dooming any chance Shakil Afridi’s cover story could win his freedom, according to a confidential Pakistani report.

When former Secretary of Defense and ex-CIA Director Leon Panetta publicly acknowledged Afridi’s role in the ruse which helped the CIA pinpoint Bin Laden’s presence in an Abbottabad compound, any chance that Pakistani authorities could help him get out of the country vanished, according to what some have called Pakistan’s version of the 9/11 Commission, a 357-page report from an independent body set up to probe the aftermath of the 2011 raid by Navy SEALs in which the Al Qaeda leader was killed.

“The statement by the U.S. Defense Secretary Leon Panetta, who was the CIA Director when May 2 happened, confirming the role of Dr. Afridi in making the U.S. assassination mission a success, rendered much of what Afridi told the Commission very questionable if not outright lies,” states the report, which has not been released, but which FoxNews.com has viewed.

As I wrote about a year ago, this administration leaks furiously information that makes it look good, even though these leaks (like the one involving Afridi, or the apprehension of the would-be junk bomber in Yemen, or the US involvement in Stuxnet) are deeply damaging.

In every administration there has been a considerable amount of for-me-but-not-for-thee hypocrisy when it comes to leaking about national security.  But nothing like what we’ve seen in the Age of Obama.

A group of senators from western states, led by Diane Feinstein, have sent Gary Gensler a missive accusing the CFTC of violating the letter and spirit of Frankendodd by failing to register major energy companies (e.g., BP, Shell) as swap dealers.  Each paragraph of the letter is more risible than the one before.

They set the scene by recounting the western electricity crisis of 2000-2001.  This is utterly irrelevant to the swap dealer designation, because swaps had nothing to do with what happened then and there.  Indeed, at its core the crisis was driven by a combination of fundamentals and flawed market design, and even the suspect trading strategies involved physical market transactions rather than swaps.  For instance, none of the Enron strategies like “Fat Boy” or “Ricochet” involved swaps or OTC derivatives generally in any way, shape, or form.  (It’s also rather ironic that one of the things that wreaked havoc with California utilities was that they were precluded by law from engaging in forward transactions to hedge the short position forced upon them by the retail price caps in the restructuring legislation.)

Parts of the letter made me laugh.  Most notably, the senators attack the $8 billion de minimus exemption from the registration requirement.  Their “logic” is that since commodity swaps represent a small fraction (less than one percent) of total OTC derivatives activities, the de minimus level for energy swaps activity should be lower than for financial swaps. Not just lower: “vastly lower.”

They say this “stands to reason.”  Whenever anyone says something “stands to reason” s/he really means: “I can’t give you an actual reason, so I’ll just assert that my conclusion is obvious.”

This gets to the issue of just what the swap dealing designation is intended to achieve.  That’s always been somewhat hazy, but the most charitable interpretation is that swaps dealers are deemed potential sources of systemic risk that require extraordinary regulatory scrutiny.  The risk a particular firm poses to the financial system as a whole depends on its size relative to the entire financial system, rather than to any particular market, so even accepted the premises of Frankendodd the swap dealing designation should not vary by market.  (Indeed, from a systemic perspective, even $8 billion/year on a flow basis is ridiculously small.)

The senators also fret over the possibility that allowing the Shells and BPs of the world to escape the designation will limit the CFTC’s ability to deter manipulation and fraud.  Hardly.  Those things are still illegal, and swap dealing designation will have no impact whatsoever on the CFTC’s ability to detect and deter.  (Which may not be saying much, because all too often the CFTC wouldn’t know a manipulation if it hit the CFTC in the face with a waffle iron.)  (I consider it ironic that these Solons refer to the BP propane manipulation, which was discovered, prosecuted, and punished when the swap dealer designation was not even a twinkle in Barney Frank’s eye.  Bad mental image, I know.)

Relatedly, the senators worry about “transparency”, but all swaps trades will still be reported to central repositories.  The only way the dealer designation matters in this regard is it affects/determines who has to report.  (I shall pass over in silence the fact that the CFTC is at present utterly incapable of utilizing the data reported to the repositories, as Commissioner Scott O’Malia has repeatedly pointed out.)

But most importantly, the senators miss the elephant in the room.  No major energy firm has registered as a swaps dealer because energy firms have shifted trading from swaps to futures.  Another premise (flawed, but there  it is) behind Frankendodd is that swaps are somehow more dangerous to the system than futures.  The legislation and the rules under it imposed more onerous requirements on swaps than futures, in large part to encourage the movement of trading to futures markets.

So if these senators actually applied reason, rather than just hiding behind a stand-in for it, they should be overjoyed that no major energy firm has applied to be a swap dealer.  This should be a feature, not a bug.  It means that market activity has shifted to the venue that these very same senators and others who voted for Frankendodd considered to be the preferred model for trading derivatives: open, transparent, and subject to a rigorous regulatory regime.  Most notably, from a systemic risk perspective, futures are cleared, and one of the major requirements imposed on swap dealers is a clearing requirement.  So the specter of the swap dealing designation, with its associated burdens, has actually led firms to transfer trading activity from the satanic swaps markets to the sainted futures exchanges.  Yay!

But arriving at this understanding would require actual, you know, reasoning.  Not much, but some.

And that is a bridge too far when it comes to the World’s Greatest Deliberative Body.  Which may be a correct description: if so, God save the world.

Those who have been paying attention to Russia’s line on its supplying weapons to Syria for the past two-plus years might recall an early defense, offered by both Putin and Lavrov: “Russia is not supplying any weapons that could be used in a civil conflict.”

The S-300 SAM system has dominated the news lately, but the Washington Post has just published the weapons shopping list that Assad provided to Russia.  It includes AKs, various machine guns, grenade launchers, sniper rifles, grenades, small arms ammunition, mortar rounds, and night vision goggles.

All of which is eminently suited for use in a civil conflict.

The Russian story was self-evidently farcical when Putin and Lavrov told it with straight faces.  Now the evidence of the farce is there for all to see.

Not that it will make any difference.  But this makes it obvious that nothing that the Russians say about their role in Syria has any relationship to reality.

My friend and accomplished economist, Sergei Guriev, has left Russia.  He has been targeted by the authorities.  Things came to a head when the mouth-breathers from the Investigative Committee (the new Oprichnina that is leading the attack on any and all opponents of the regime) raided the New Economic School where Sergei was Rector.  (He resigned that post, and withdrew his name from consideration for re-election to the board of Sberbank.)

Sergei’s sins (in the eyes of the Putinists) were many.  Most notably, he had defended Khodorkovsky publicly and frequently.  He called for Khodorkovsky’s release: in the same remarks, he said everyone involved in the Magnitsky case should be fired.  Most critically, he was one of a group that evaluated the Khodorkovsky conviction, and concluded that the verdict was a sham.

And this provided the pretext for his current predicament: he affirmed that he had not received any financial support from Khodorkovsky, but the authorities allege that he and the New Economic School had received money from foundations associated with and funded by Khodorkovsky. Some reports also indicate that the authorities were relying on that old standby-a tax investigation.

Does it really matter?  They would have found something.  Anything.

Sergei was very outspoken in his criticism of the Putin economic model.  His views are quite similar to mine, and he expressed them cogently and calmly in many public forums.  This interview from 2011 provides a good example of his critique of Putinism.  Particularly chilling his is demurring from answering the question about whether Russia could collapse: he says that expressing such views could lead to an extremism charge.  However, in 2012 Sergei honestly and bravely stated that Russia could collapse-and in a bloody way.  He associated himself publicly with Navalny.

Like I said.  His sins were many.  Given the growing oppression in Russia, it was perhaps inevitable that he would fall victim to it.

Sergei was closely affiliated with Medvedev.  This is another indication that Medvedev and his circle are being slowly squeezed out of the way.

Sergei is a very brave man.  Fortunately, in this era of the Soft Purge, and perhaps because of his association with Medvedev, he was permitted to leave the country.  Fortunately for him.  Unfortunately for Russia.

Sergei’s departure comes hard on the heels of the announcement that another prominent opposition voice, Masha Gessen, is leaving Russia.

This is disgusting, and leaves me in a cold fury.  It is quite clear that there is no place for smart and decent people in Russian public life, and those who dare speak out against the new tsar and his oprichniki are hounded by “legal” means.  Legal nihilism writ large.  The law as a sword.

Putin the Python is squeezing, squeezing, squeezing, and civil society is suffocating in Russia as a result.   Soon the only people left in Russian public life will be thugs, crooks, and toadies.  And when that day comes, Putin will smile and congratulate himself on a job well done.  For those are his kind of people.  That meddlesome economist, Sergei Guriev, is definitely not.  And that speaks volumes of good things about Sergei.

Not much about Russia late, because not much is new.  Putin is increasing his python-like stranglehold on civil society.  The economy is sputtering.  Both foreshadow a period of social and economic stagnation.  This stagnation, in turn, will put pressure on Putin and Putinism.  Putin has always been the equilibrator of the elite, and his ability to do so has depended on the perception that he is popular, and his access to a stream of rents that he can dole out to buy support, and withhold to punish those who cross him.  His crackdown indicates that he realizes that he is no longer broadly popular, and is dependent on the support of the most reactionary elements of Russian society: the elites can see that too, and calculate accordingly.  Further, economic stagnation constrains the ability to use rents to buy support.  Both of these developments can be expected to lead to intensifying conflicts among the elite as Putin’s grip slips, and there is evidence of this: they mysterious departure of Surkov, and the attack on anyone attached to Skolkovo (Medvedev’s pet project) being the most prominent examples.

In other words, the stagnation dynamic is progressing inexorably, and there is little in prospect that will change that.

But Putin will hang on.  What choice does he have?  He is like Midas.  He has, according to credible reports, and in accordance with basic logic, accumulated huge sums of wealth.  Sums that he cannot enjoy fully while President, but which he would lose in a trice if he were to leave power.

There is one story that did catch my eye.  Echoing Putin (more on that below), Rogozin the Ridiculous is sounding the alarm about the parlous state of the Russian naval building program.  The naval rebuilding is the centerpiece of Russia’s exhorbitant rearmament program (accounting for a full 25 percent of expenditures on new equipment), but it is in the hands of state-owned behemoth Russian Shipbuilding Corporation, which mashed together virtually all of the multiple shipyards and design bureaus inherited from the USSR.  The company has proved utterly corrupt and incompetent, and cannot deliver the ambitious shipbuilding program:

The Russian government is ready to step in to sort out the crisis in Russian naval shipbuilding which is threatening to derail the defense procurement program, Deputy Prime Minister Dmitry Rogozin said on Friday.

The government’s direct intervention in the situation is the only way of averting further problems, he said at a meeting with shipbuilding company heads.

“I can see only one option: Direct dialog between the government, the United Shipbuilding Corporation, and private companies working in this field to ensure that all plans are implemented and all problems that have emerged recently are rectified,” said Rogozin, who oversees the defense industry.

“We are planning to sink, and have already sunk big money into shipbuilding but I can’t see any payoff yet,” he said.

Rogozin made his comments the day it was revealed the United Shipbuilding Corporation (USC) is looking for money that was allocated to complete the Nerpa nuclear submarine for India’s Navy. A total of 500 million rubles ($15.9 million) has been lost.

He urged shipbuilders to employ specialists from abroad if they cannot find enough at home and promised to facilitate the granting of Russian citizenship to experts from other countries.

The fact that Rogozin-a pugnacious nationalist-is urging the employment of foreigners tells you everything you need to know about how desperate the situation must be.

There are other signals.  Medvedev just announced that USC would receive state guarantees amounting to billions of dollars to permit it to secure credit for working capital needed to deliver on contracts:

The Russian government will provide 265 billion rubles ($8.5 billion) in state guarantees to defense industry enterprises this year, to ensure weapons are delivered on time in accordance with the national procurement program, Prime Minister Dmitry Medvedev said on Monday.

“The resolution [signed by Medvedev] provides for the allocation of 40 state guarantees worth 265 billion rubles for loans which will be granted to 26 companies from the defense and industrial complex,” Medvedev said.

The provision of state guarantees is the first this year, Medvedev said, and stressed the beneficial effects it would have on the economy as a whole.

“Everything invested in the defense industry has an influence on industry. Actually, the defense sector helps boost adjacent industries,” he said.

State guarantees allow defense enterprises to obtain loans at a time when they face a shortage of working capital and have no other sources of financing, Medvedev said.

Over a half of the state loan guarantees for defense producers this year will go to shipbuilders and developers of intercontinental ballistic missiles, according to the government resolution.

Working capital, folks.  Meaning that the firms don’t have sufficient cash flow and short term financing to deliver on contracts.  That is a sure sign of sick companies.  No other source of financing.  Need I say anything else?

Last Tuesday, Putin delivered one of his hissy fits, this one directed at United Shipbuilding:

Russian President Vladimir Putin criticized the United Shipbuilding Corporation (USC) on Tuesday for delays in delivery of warships to the Russian Navy and demanded the shipbuilders improve efficiency.

“Problems still remain with deadlines and the quality of implementation of orders, including defense projects. In particular, the construction of a number of nuclear submarines and surface ships and their delivery to the navy has been unjustifiably delayed,” Putin said at a meeting with USC officials.

Putin also encouraged the hiring of foreign experts.

This is a pattern for Putin.  He issues ukasi. They are ignored.  So he calls the delinquents together, gives a stern lecture that they must get their act together . . . and nothing changes.

Here’s the irony, which none of the reporting on the subject points out (imagine that): USC is a Putin creation.  It is one of the state owned behemoths that Putin created during the mid-2000s: others include United Aircraft and Oboronoprom.  In his construction of the vertical, Putin created several state-owned monopolies that were intended to be national champions, and achieve efficiency by exploiting economies of scale.  Instead, they have proven to be efficient only at their parasitical ability to extract resources from the state.  They have become black holes, sucking in money, spitting out very little in the way of ships or planes.  Putin’s creations are obstacles in the way of achieving Putin’ ambitions.

The irony is too rich.  Putin is reaping precisely what he sowed.  Couldn’t happen to a nicer guy.

Okay.  I admit it.  I was wrong.

You’re shocked, I’m sure.

About what, you’re asking?

Well, I said that the RFQ provision of the SEF regulation was the worst of the worst of Frankendodd.  After further review, I’ve decided this is incorrect.  Instead, the “available for trade” rule is the worst of the worst.

The basic idea is that a swaps execution facility applies to the CFTC to list a swap contract as “available to trade.”  If the swap meets one (or more) of six rather vague factors, after receiving comments from other market participants, the CFTC will designate the swap as available.

That would be fine, I guess, if market participants had the choice to take advantage of this availability . . . or not.  But no choice is allowed.  (Choice, it is evident, is an anathema in Frankendodd.  DFA is all about making you eat your Brussels sprouts.)

Thus, once the CFTC designates something as available to trade on a SEF, all market participants subject to the SEF rule (i.e., pretty much everyone other than certain end users) must trade the contract on a SEF, or not trade it at all.  Thus, a SEF can effectively force all market participants to trade a particular instrument on a SEF, or eschew trading it altogether.

Great work, if you can get it.  The ability to make people use and buy your services.

This is beyond bizarre. The ultimate transactors internalize most of the costs and benefits of alternative means of executing a transaction.  But under the available to trade rule, they are not able to make the trade-off between these alternative means: once someone else lists a contract as available for trade, they must trade it on a SEF.  Note, moreover, that this someone else-the SEF operator-has an incentive to try to force business his way.  So the entity making the decision does not bear the full costs  and benefits of its action: indeed, it can profit from compelling others to do something that is against their interests.  That’s always a recipe for error.

Of course, the whole theory behind Frankendodd’s SEF mandate is that there is some sort of externality that leads transactors to choose inefficiently to trade bilaterally rather than on a transparent, order driven market. Just what that externality is is not obvious, to say the least: transparency is apparently a big part of that.  But even if you believe that theory, the SEF operator (a) is not going to internalize that externality, and (b) is not going to internalize the other  costs and benefits of forcing the ultimate transactors to use a particular mode of execution.  Thus, the incentives of the party that Frankendodd empowers to make the decision regarding how to trade are not aligned, even remotely, with the interests of the parties its decision affects.

Of course, a SEF must specify contractual terms of what it will make available to trade.  Market participants may try to avoid transacting something ill-suited for trading on a SEF by trading something similar, but with different terms.  But that can fall afoul of the anti-evasion provisions of Dodd-Frank.  Thus, the available to trade provision will result in (a) the coerced trading on SEFs of contracts unsuitable for it, (b) reduced trade (because market participants decide to trade less rather than trade in an inefficient way), (c) regulatory wrangling over whether some market participants are trying to evade the SEF mandate, or (d) all of the above.

Great.  Just great.

The economic justification for the SEF mandate is extremely shaky: that’s why I consider it the worst of DFA.  The implementation details only make it  worse.  These details presume either that (a) market participants don’t know their own interests, or (b) their interests are contrary to broader “social” interests.  (a) is risible, and (b) is highly dubious.  It is even more dubious to delegate to an agent that does not internalize these social interests the power to compel others who certainly bear many of the costs of the agent’s decisions to make choices they would not make voluntarily.

One last thing about the SEF mandate.  It will apparently determine the future leadership of the CFTC.  Gensler will not be reappointed, evidently.  (I shall pass over that in silence.  Need I say anything?) Relative newcomer Mark Wetjen had apparently been the frontrunner to replace him, but Wetjen’s opposition to Gensler’s obsession with RFQ5 has apparently killed his chances at becoming chairman.

My impression is that Wetjen is a serious and conscientious guy who arrived at his opposition to RFQ5 only after serious thought and efforts to determine whether the rule made any sense.  (Of course, since I think the idea made no sense, I believe he made the right call.)  But for some inexplicable reason, the RFQ rule became identified as a blow against banks, so opponents to it have become perceived as tools of the banks.* And that apparently sank Wetjen’s prospects for the chairmanship.

It’s a mad, mad, mad, mad world, folks.   A risible provision of the most inane aspect of Frankendodd will determine the leadership of a regulatory agency that wields incredible powers under that act.

Update: A shout out to Single Dealer Platforms (which is quite generous in linking to SWP), which expressed similar skepticism about available-to-trade before I posted this.

* The episode of my report on commodity trading firms shows pretty clearly that I don’t dance to the tune of big banks: indeed, a reporter told me that the banking group that hired me to do that report is “furious” that my report that contradicts their position has leaked out.  Yet I criticized heavily the RFQ provision.  Thus, being a bank apologist is neither necessary nor sufficient to explain opposition to the RFQ rule.

Last week it looked like the Obama administration had decided to be sensible on at least one energy issue-the export of LNG.  It approved a new license (for Freeport LNG) for export to countries with which the US has no free trade agreement.  But the WSJ reports that new Energy Secretary Ernest Moniz is thinking of putting on the brakes again.  Because we need more studies.  No.  Seriously:

Mr. Moniz showed caution about the existing studies. Speaking to reporters after a speech to an energy-efficiency conference here, he said he was “committed to doing a review of what’s out there in terms of impact analyses” before approving more applications to export U.S. natural gas. Critics have said last year’s study didn’t rely on the best data available.

“Right now we have no plans of commissioning new studies, but everything is on the table until I have done my analysis,” Mr. Moniz told reporters after his first public remarks as energy secretary

Sorry.  We don’t need no steenkin’ studies.  The whole idea smacks of central planning.  The presumption should be that if firms are willing to risk their private capital, the benefits exceed the costs.  Any analysis should be restricted to potential externalities.  Real externalities.  Not pecuniary ones.

But these “impact studies” are all about pecuniary externalities.  Namely, they focus on the effects of exports on prices of natural gas, and the effects of natural gas prices on consuming industries (like petrochemicals).  But these price effects are not true externalities that lead to inefficient allocation of resources.   Indeed, restricting exports because of these effects would cause a misallocation of resources.

Pecuniary effects do have distributive effects.  In the case of LNG exports, they affect the distribution of rents between gas producers in the US and foreign consumers on the one hand, and domestic gas consumers on the other.

And that’s what the need to get an export permit does: it permits the government to affect the distribution of rents.  That, in turn, gives rise to rent seeking.  And corruption.

In this context John Cochrane mentions the Indian “permit raj”: there you need to get a permit for everything.  This gives those with the authority to grant permits incredible power.  Power they use to enrich themselves and secure political support.

That is exactly what can go on here.  Those hoping to get a permit have an incentive to exert influence, through lobbying, campaign contributions, and supporting public campaigns on issues favored by the administration.  They also realize that they face substantial risks if they oppose the administration on other issues: “Nice little LNG terminal proposal you have here.  Would be a tragedy if something happened to it.”

The government has no business being in this business, beyond perhaps-perhaps-addressing real externality issues.  But even there, other mechanisms (e.g., liability for pollution) may be preferable to a permitting process.  (Look at how Russia used environmental regulations to drive Shell out of Sakhalin II: any power to permit can be used to expropriate of hold up the party seeking the permit.)

In the US, energy, and particularly the international trade of energy, is particularly raj-like: Keystone II is another example.  This destroys value in myriad ways.  Beneficial investments are delayed, or not made at all, either because the government stops them directly, or the risks and costs of getting approval undermine the economics.  Real resources are used to influence policy.  Since energy investments involve big dollars, the losses can be big too.

People often lament the lack of an American energy policy.  I disagree.  We do have an energy policy, and the Energy Raj is a big part of that policy.  A better policy, by far, would be no policy at all.  Would that the DOE adopt the motto: “Don’t just do something! Stand there!”

I’m not holding my breath, though.  The benefits of the raj to the rajahs are far too great.

My main beef with Tesla Motors is that it is a major beneficiary of government largesse masquerading as a free market success story.  The company received a $450 million loan from the Federal government to set up operations.  It has just paid back that loan, but does not justify granting the loan in the first place: indeed, it illustrates the heads-Musk-makes-a-lot-of-money-tails-the-taxpayers-eat-it aspect of the loan.  It socialized the risk of loss, and privatized the gains.  That’s bad, on principle.  (Things might have been ameliorated had the warrant the government received allowed it to participate in the upside, but the exact opposite happened: the warrant went away precisely when the stock price went parabolic.)

But the loan isn’t the biggest source of government support. The $7500/vehicle federal subsidy to purchasers and California’s Zero Emissions Vehicle (ZEV) credit program are.  When you look at the value of these subsidies, they dwarf the much ballyhooed profit Tesla reported for the first quarter (and those profits were driven by the write-down of the warrant and non-repeatable gains on yen exposure).

I’ve done some back of the envelope calculations to estimate just how much these subsidies benefited Tesla’s shareholders.  The basic idea is to calculate profits with and without the subsidies based two assumptions about the demand for Teslas: a constant elasticity demand curve and a linear demand curve.

The linear case is easiest to explain.  The equation is P=A-bQ, where P is price and Q is quantity sold.  A and b are constants that need to be solved for.  P and Q are known for the first quarter: I’ll use $75K for P (the average price of a Model S) and Q is 4750.  If Tesla was maximizing profits, it would set its marginal revenue equal to marginal cost, where the marginal cost nets out the subsidies.  The relevant equation is C-S=A-2bQ.  I derive C from the cost of generating revenue reported in the 10Q.  I divide this sum by Q, and then multiply by .6 because the cost number includes some fixed costs (e.g., tooling) and I want marginal cost: it turns out that the results I derive aren’t that sensitive to the multiple.  For S I add $7500 and Tesla’s ZEV credit revenues (reported in the 10Q) divided by the number of vehicles sold.  I now have 2 equations, and can solve for the unknown constants A and b.

I now have all I need to know to figure out revenues (including subsidy payments) net of variable costs.  This totals $206 million.  I can also figure out the price and quantity of Teslas sold without the subsidy.  Absent subsidy, Tesla would choose Q to satisfy: C=A-2bQ, which gives Q=(A-C)/2.  This can be plugged back into the price equation.

Doing this gives a no-subsidy quantity of 3558 (about 70 percent of the with-subsidy sales) and a price of $91K.  Using these numbers, and the assumed unit cost gives a no-subsidy profit (before fixed costs, etc.) of $116 million.

In other words, in this specification, Tesla pocketed about $90 million due to subsidies in one quarter alone.  That represents about 18 percent of its auto sales revenues, and dwarfs its profit even including the one-time boosters.

In the constant elasticity specification, I need to solve for the demand elasticity and the constant multiplying the Q raised to the elasticity.  Given the price, quantity, cost, and subsidy numbers, I can solve for these two constants using the demand equation and the marginal revenue equals marginal cost equation.  Given these constants, I can figure out profits with and without subsidies.

In the constant elasticity case, profit with subsidies (before fixed charges) is again $206 million, and profit without the subsidies is estimated to be $139 million.  So in the constant elasticity specification, subsidies pad Tesla’s profits by $67 million.

These are numbers for one quarter, folks.  This is money out of your pockets, or the pockets of shareholders of Ford, Toyota, etc., who have to buy ZEV credits.  Tesla would still be drowning in red ink absent the fat subsidies.

I sure hope you are enjoying Mr. Musk’s Wild Ride at your expense.  Your enjoyment being completely vicarious, of course, expect for the paying for it part.  That’s something you experience personally.

I would hope that these figures put the hype in perspective.  Tesla cars are fueled by electricity.  Telsa Motors is fueled by government money.  Your money.

One more thing.  Tesla and Musk are neck deep in a relationship with Goldman-Sachs, aka Government Sachs.  Think that it’s just maybe possible that Goldman will deploy its notorious political heft to keep the rain of government manna going?  If you doubt that, can I interest you in a bridge connecting two boroughs in NYC?  Which makes it doubly ironic-and nauseating-that many of the Tesla Kool Aid Gang also declaim against crony capitalism.  Well, so do I, except I at least do so with a modicum of consistency.

The fecklessness of the Obama administration’s approach to Russia beggars description.  Suffice it to say that the more earnestly Kerry implores the Russians to facilitate some less messy (not neat, just less messy) transition in Syria, the more abusively Putin and Lavrov behave.  The Moscow “spy” fiasco is part of that.  So are many other things-which I’ll discuss in a bit.

Kerry and Obama should wear “kick [or something more vulgar] me, Vlad” pinned to their backsides.  Hell, maybe they already do.  That would be consistent with the evidence, because Putin and Lavrov are kicking hard, kicking fast, and kicking often.

Look.  The Russians are doubling down on supporting Assad.  They are deploying large pieces of their ramshackle navy to the eastern Med.  (Including tugboats!  There must be tugboats! And I mean plural!) There is one reason and one reason only to do this: to make it virtually impossible for the US to use naval assets to do anything in Syria, including enforcement of a no-fly zone, or more drastic measures.  It is a tripwire.  The extensiveness of the deployment, given Russian naval capabilities, is such that even the blind should see that the Russians are making a major commitment to Assad.

What’s worse, in addition to sending Syria advanced S-300 and Pantir AA missiles, the Russians are supplying Syria with advanced Yakhot supersonic anti-ship missiles.  The Yakhot is a capable system.  The US has been aware of it for some time and presumably has many countermeasures in place, but they do represent a substantial increase in Syria’s capability and will dramatically increase the difficulties of any carrier operations in the eastern Med.

The Pentagon went ballistic at the news. Even Hagel bestirred himself to criticize the move.

But that’s what gets us to what’s worst: the State Department response.  According to Foggy Bottom, there’s no problem because these are not “new sales”:

Jennifer Psaki, a State Department spokeswoman, said Russia had disclosed the sale of the Yakhont missiles in 2011, and she added that U.S. and Russian diplomats were still planning the Geneva conference next month.

FFS.  That’s exactly the Russian line.  Exactly.  Gee, Jennifer, great job you got there, being Sergei Lavrov’s parrot.

I am sure the Navy (and the Israeli Navy) is so pleased that they will only be targeted by previously contracted for weapons, not new sales.  And John “Reporting for Duty” Kerry isn’t the one who will be painted by the Yakhot’s terminal guidance system.  Maybe he should think about those who could be, rather than sucking up to Sergei.

And all this BS about “defensive weapons” is just that.  They provide Assad a shield behind which he can slaughter the opposition with substantially less fear of any intervention.

And insofar as the sanctity of contracts is concerned.  First, since when have contracts ever meant jack to the Russians?  Second, to give an example of how this can be done, just look at how the US stiffed Pakistan for years over F-16 sales.  Where there’s a will, there’s a way.  Russia isn’t delivering weapons because their compelled to: they’re delivering weapons because they want to.  (Uhm, and how would the Syrians enforce a breach, anyways?)

Meanwhile, Kerry and the Brits and the UN are nattering on about some meeting in Geneva between the contending forces in Syria.  Yeah, like meetings in Geneva ever accomplish squat where existential and brutal civil wars are involved.

The Russians are making it very clear they are doubling down on Assad, and will defend his regime to the last.  Their deeds speak volumes.

I’m not advocating or even supporting US action in Syria.  Obama frittered away that opportunity a long time ago.  When wars get to the eating the eating your enemy’s hearts stage (and this by the “moderates” no less), the situation is pretty much beyond salvage, even by Russian tugs.

But it’s best to recognize what Russia is up to here, and state that forthrightly.  Make it plain who is ultimately responsible for the horror that is occurring in Syria.  Chasing after Putin and Lavrov like some pitiful suitor, and regurgitating the Russian party line in a way that undercuts our own military’s serious concerns, is just nauseating.  It’s worse than that.  It’s craven.  Cosmically craven.  And Putin will note that, and act accordingly in other things that matter.

I’m sure you’ve read all about the bizarre “spy” scandal in which a US State Department employee attached to the embassy in Moscow was arrested for espionage and thrown out of the country.

Everything about the story is risible.  The wigs. The map.  The Boy Scout compass (I had one like that decades ago.  Maybe we don’t trust Glonass!) The cash: umm, wouldn’t wire transfers to offshore bank accounts be more reliable and safer?  The location: why meet in Moscow, and not overseas?  Most notably letter detailing fiendish American plot to bribe Soviet . . . I mean Russian intelligence officer.  Yeah, you’re going to spell all that out in plain text?  Heck, the Hardy Boys would have known to use invisible ink.  And code.

No, this was theater.  My guess is that the FSB compromised Mr. Fogle, the alleged spy in some way.  My initial guess was a honey trap, but it may well be something seedier, like cruising.

Under either of those scenarios,  the FSB would have had considerable control over the timing of the big announcement.  No doubt Fogle was under surveillance, and if he was doing something compromise-able, the Russians had the ability to choose when to compromise him.  They also had the ability to do it quietly, or in the way they did it: an over the top spy spoof, that was deliberately absurd.

By choosing to compromise him now, and in such an outlandish way, the Russians were sending a message: indeed, the outlandishness was part of the message.  Pushback over our criticism of their handling of Tsarnaev?: they made a big deal that the FSB agent Fogle was allegedly recruiting was an anti-terrorism specialist from the North Caucasus.  Something related to Syria, Kerry’s visit, etc.?: Trying to embarrass the US during a period of time the US is trying to pressure and cajole Russia into dumping Assad?  Dunno.

Whatever it is, the real story is hiding behind a wig.  Almost quite literally.  But I’m pretty damn sure Fogle or the CIA weren’t the ones who bought it.