Streetwise Professor

December 20, 2014

Can a Money Launderer Truly Come Clean?

Filed under: Energy,History,Politics,Russia,Uncategorized — The Professor @ 8:07 pm

During his press conference, Putin made a very arch reply to a question about Khodorkovsky’s ambition to be president: “Of what country?”

Well, Khodorkovsky is making it clear that the answer to that question is “Russia.” He gives voice to his ambitions in an extended interview in the FT, and repeats his forecast that Putin’s main danger comes from within his “entourage”.

In some respects, Khodorkovsky’s re-emergence and frank statements of his political ambitions and his vision of himself as savior of Russia are a favor to Putin. Especially in times that bring back uncomfortable memories of the 90s collapse, the most notorious oligarch from that era makes a perfect foil for Putin. Breaking the oligarchs was one of the primary foundations of Putin’s reputation and popularity (with the war in Chechnya being another). What better way for Putin to remind Russians of why he is needed than the reemergence of Khodorkovsky?

And Khodorkovsky is definitely a very flawed vessel. Even if his prosecution and imprisonment was a travesty of justice, that’s not to say that he couldn’t have been convicted in a fair trial. For contemporary reporting, both Russian and non-Russian, makes it clear that Khordorkovsky was a ruthless operator who used every trick in the book to avoid taxation, and expropriate minority shareholders and creditors. This article from April, 2000 provides the chapter and verse.

Most of these tricks involved offshore shell companies that he owned. For instance, Khordorkovsky would engage in asset stripping, whereby assets of his Russian enterprises were transferred to the shell companies he owned. Another trick was stock watering, whereby his entities would issue large numbers of new shares of stock that were sold to his shell companies, thereby diluting the ownership of outside investors. He used these devices to great effect in the immediate aftermath of the  financial crisis. Non-Russian banks who had made loans to Khodorkovsky’s Menatep Bank collateralized by Yukos shares saw the values of these shares plummet when he stripped Yukos assets and watered the stock in a way that would have made Daniel Drew and Jay Gould blush.

Khodorkovsky was also the past-master at transfer pricing schemes, whereby output of his Russian companies would be sold to offshore entities at a fraction of the world price; the offshore entities would then sell at the world price. According to the Foreign Affairs article, during the first nine months of 1999, Yukos sold 240mm barrels of oil at about 10 percent of the world price to offshore entities, pocketing $800 million.

And of course, there is the way that he acquired Yukos, via the Loans for Shares deal, and the rigged auction that followed the (inevitable) government default on the loans.

Khodorkovsky was definitely not the hero of western investors back then. In fact, he was a villain.

For all this, Khodorkovsky exhibits little remorse. Arguably none:

I ask about the “loans-for-shares” auctions in 1995 when a handful of businessmen — the oligarchs — lent money to the near-bankrupt Russian state and received stakes in state businesses as collateral. When the state failed to repay the loans, the oligarchs sold the stakes to themselves at knockdown prices. Today the auctions are seen, I remark, as a kind of “original sin” hanging over Russian business.

“I wouldn’t entirely agree,” Khodork­ovsky says. At the time it looked, he continues, as if a Communist candidate would beat President Boris Yeltsin in the elections, which would have spelt the end of private business. Given the risks, no foreign investor was interested. So the shares were worth only what Russian investors would pay — in Khodorkovsky’s case, about $300m, for just under 80 per cent of Yukos.

. . . .

The tax “minimisation” schemes — selling oil through onshore tax havens — at Yukos that were the heart of the trials against him were known to the authorities and even senior ministers, he insists. “In tax law, it’s a crime in most countries if you’ve hidden something. But we didn’t hide anything.” [This remark is particularly disingenuous.]

Note that his justification of the loans for shares fails altogether to address the issue of the rigged auctions. If no other investors were interested, why were the auctions rigged in order to ensure that none could possibly win?

The unapologetic attitude towards not paying taxes is not new:

Khodorkovsky was robustly unapologetic. ‘ As long as the tax regime is unjust, I will try to find a way round it.’

What complicates the Khodorkovsky story is his apparent conversion in around 2000, when Yukos adopted GAAP accounting and western governance standards, and began hiring American managers, including Bruce Misamore as CFO. Was this a Road to Damascus conversion, or a calculated strategy to make the company attractive to western supermajors? Certainly this was the effect: at the time of his arrest, he was on the brink of selling a large stake in Yukos to either Exxon Mobil or Chevron.

His late-in-the-day embrace of western business practices and his persecution are relevant in evaluating his character and motives today, but his history cannot be overlooked. I for one am very skeptical that he has undergone a fundamental change. The failure to repudiate some of his more outrageous actions certainly raises doubts. Someone should address them.

There’s a possible candidate. One of the initiatives that Khodorkovsky funds in order to advance his agenda is Interpreter Magazine, edited by Michael Weiss. This is beyond passing strange, because Weiss has crusaded against Russian money laundering through the use of shell companies and transfer pricing schemes-the very techniques that his paymaster refined into an art 20 years ago. Interestingly, I can find no evidence that Weiss has subjected his patron to similar scrutiny. Not even an acknowledgment that the denizens of Londonograd that he excoriates are pikers compared to his pioneering patron, let alone an inquiry that could attempt to determine whether the man who emerged from prison a year ago is different from the man who went into prison in 2003, and who did the things that put him there.

This would be a truly valuable investigation, far more important than anything Weiss or Interpreter has done. This is particularly true given Khodorkovsky’s return to political life.

There is another strange twist here. Khodorkovsky has come out in opposition to sanctions, and in support of Russia’s annexation of Crimea: he claims that returning it would be undemocraticthe act of a dictator. Given that Putin also claims to be carrying out the public will, this raises questions about how differently Khodorkovsky would act if he were in Putin’s place. It also raises questions about his commitment to the rule of law, which he claims to support.

In sum, Khodorkovsky is playing a political role. Indeed, he is holding himself out as the man who can put Russia on the path away from autocracy towards the rule of law and respect for civil society. He has a past. A very disreputable one, though one perhaps redeemed by reform and punishment. But one can never be sure that the past is truly gone. Given that the most scurrilous acts in the past involved money laundering and shell companies, you’d think that a journalist who has crusaded against those things would be the man to find out.

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December 19, 2014

Obama’s Press Conference: Bad Economics, Dissing a Friend, Embracing an Enemy

Filed under: Climate Change,Economics,Energy,History,Politics — The Professor @ 9:43 pm

Hard on the heels of Putin’s press conference, Obama held one of his own. Blessedly, it was shorter. That’s the only good thing I can say about it.

At least Putin’s pressers offer some entertainment, some of it intentional, some of it accidental. Obama’s appearances are as entertaining as a root canal performed to the accompaniment of fingernails on a blackboard.

I will limit myself to comments on two issues.

First, yet again Obama slagged on Keystone XL. And yet again, he delivered a disingenuous, economically ignorant attack on the pipeline:

“There is very little impact – nominal impact – on U.S. gas prices, what the average American consumer cares about,” Obama told reporters during an end-of-year press conference.

. . . .

“It’s good for the Canadian oil industry, but its not going to be a huge benefit to us consumers,” he said.

Obama stressed that the issue at hand for Keystone is “not American oil, it is Canadian oil.”

“That oil currently is being shipped out through rail or trucks and it would save Canadian oil companies, and the Canadian oil industry enormous amounts of money if they could simply pipe it all the way down to the Gulf,” Obama said during his final press conference of 2014.

“It’s very good for Canadian oil companies, and it’s good for the Canadian oil industry but it’s not going to be a huge benefit to U.S. consumers, it’s not even going to be a nominal benefit to U.S. consumers,” Obama said.

Where to begin?

  1. What the hell did the Canadians ever do to him? Does he hate them because they are members of the British Commonwealth? (And we know he loathes Britain.) It is truly astounding to see a president who is so solicitous of many thuggish regimes be so dismissive of a longtime friend and ally. Speaking about Keystone, Obama turns into an American Firster nativist, rather than his usual pose as Citoyen du Monde.
  2. Last time I checked, the oil would be refined-and value added to it-in American refineries.  That would benefit American oil companies, American workers, and the owners and employees of companies that supply the refineries. The money savings would be split between American and Canadian companies. But maybe because the refineries are located in Texas and Louisiana, which have repudiated Obama massively, that’s a bug not a feature. Or maybe Obama doesn’t understand that oil doesn’t magically transform itself into gasoline, diesel, etc.
  3. Or maybe Obama persists in the delusion that the oil will be exported, disregarding basic economics, common sense, and the analysis of his own State Department.
  4. There would be no impact on gas prices only if the supply of Canadian crude is completely inelastic: in this case, the quantity of oil produced and refined would be the same, regardless of how costly it is to transport it to market. If supply is somewhat elastic, lowering transportation costs increases output, which lowers product prices; moreover, holding output fixed, reducing transportation costs reduces the final product price. And perhaps most importantly, the alleged justification for stopping Keystone is the environmental damage Canadian heavy crude inflicts. But if supply is perfectly inelastic, there is no environmental benefit of raising transportation cost, because this will not affect the amount of oil produced, and hence will not affect the amount of CO2 it produces. (Not to mention that pipelines are a safer, more environmentally sound way of transporting this oil.) So if Obama is right about gas prices he is wrong about environmental benefits, and vice versa.

Unbelievable.

Come to think of it, I think that Obama’s real reason for opposing Keystone XL is that the Venezuelans would be the biggest losers. I am pretty sure he has much more of an affinity with Chavistas than Canucks.

Which brings me to the other issue: Cuba.

I am ambivalent about the embargo, or the lack of diplomatic recognition. I can argue either side. But there are many things about this initiative that make me uneasy.

For one thing, Cuba is in dire straits. This is where Venezuela comes in. The Bolivarian paradise has been carrying the Castros’ shambolic regime for years, but is now itself on the verge of economic collapse. Default is imminent, and at the current level of oil prices economic collapse is a real possibility. Venezuela is already cutting back support to the Cuban regime, and will cut it back further. Given that, the Castros are desperate, and Obama could have extracted a much better deal. A deal that would have given some benefit to the Cuban people, rather than bailing out the regime and allowing to continue its repression and depredations.

Obama’s rhetoric was also offensive, and at times historically ignorant. He characterized the embargo as a “failed policy.” Pretty rich for a serial failure to insult 9 previous presidents and 26 Congresses. He could have made an affirmative case for a new policy, and recognized the reasons for the previous policy, without such condescension.

Moreover, he made mention of the need to move beyond “the legacy of colonialism and communism.” Communism isn’t a legacy in Cuba: it is a daily reality. Insofar as colonialism is concerned, is Obama referring to Spain? Because he sure as hell can’t be referring to the US: Cuba was never an American colony. The Teller Amendment to the declaration of war against Spain in 1898 forbade the US from annexing Cuba. It was under US administration for four years, but achieved full independence in 1902. (Obama made the colonialism/communism remark in a discussion of Latin America generally, but this doesn’t really save him. Cuba is the only longstanding Communist country in Latin America; colonialism ended in Latin America in the 1820s; the US-via the Monroe Doctrine-kept out colonial powers in the 19th century; and colonialism is the least of Latin America’s problems, which tend to be very much home grown. In mentioning colonialism, Obama was just regurgitating a standard prog trope.)

Obama also engaged in his self-indulgent habit of making history all about him. He noted that Fidel Castro assumed power two years before Obama’s birth, and the Bay of Pigs invasion occurred soon before he was born. (Interesting that he uses the “I” word to refer to Bay of Pigs, but not Ukraine.) Who cares? What does this have to do with anything?  Does he have to bring himself into everything?

I’ve therefore decided that I will hereafter designate all dates by BO and AO: Before Obama and After Obama. Castro assumed power in 2BO. Bay of Pigs occurred in Year Zero. Obama elected in 47 AO.

The means by which Obama pursued this policy was also typically high handed, and failed to include or consult with anyone in Congress. And no, I don’t include corrupt tax scofflaw Charlie Rangel, who was photographed lounging like a beached whale in the Cuban sun after helping in the negotiations.

The means and the outcome of the Cuban opening also make me uneasy about deals with Iran.

I could go on, but I’ll close with one point. People have compared this to Nixon’s opening of China. Superficially, this is plausible. But there is a major difference.

Nixon could go to China because his stalwart anti-Communist credentials (which had won him the intense enmity of the left) made it credible that Nixon was acting in the interests of the US, rather than indulging his ideological preferences: if a McGovern or a Henry Wallace had attempted the same there would have been justifiable suspicions of their motives and the benefits to the US. In contrast, Che is worshipped has a hero rather than condemned as a psychopathic murderer in Obama’s political circles. His administration has taken a very benign approach to leftist Latin American regimes, including Venezuela and Nicaragua. This raises doubts about what his Cuba initiative will entail, and whether it will advance American interests or benefit the long-suffering and repressed Cuban people.

So to summarize Obama’s last press conference: he slammed a long-time ally and sucked up to a long-time enemy. Which pretty much summarizes his foreign policy, generally.

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December 15, 2014

Ruble Rocket to Russia

Filed under: Economics,Energy,Politics,Russia — The Professor @ 7:55 pm

What a wild day. The Ruble weakened dramatically from the open this morning (15 December), falling about 2.5 percent. Then the Russian Central Bank intervened, spending a rumored $1 billion to prop up the currency. This caused about an 86 pip rally, but this lasted for mere moments, and then the Ruble rocketed lower, reaching 64.24 by the end of the day. That’s down a mere 10.22 percent boys and girls. (The weird thing about currencies quoted like the Ruble is that up is down.)

Here’s the ugly picture. You can see the little bitty (and very temporary) impact of the intervention at a little after 8am.

Screen Shot 2014-12-15 at 7.26.48 PM

In other words, the RCB blew $1 billion for a blip. A billion here, a billion there, and you’re talking real money. In so doing, the RCB gifted those evil speculators whom Vlad inveighed against about $65 million in a few short hours. Merry Christmas!

Ominously, this decline was not a response to a similar decline in the price of oil. Although oil ended down on the day, it was rallying on news from Libya at the time that the Ruble was plunging. What precipitated it? One leading candidate is Friday’s announcement that Ru626b in Rosneft bonds could be used as collateral at the RCB: this approval came much more rapidly than normal. Thus, in effect, the RCB was lending rubles to Rosneft, using bond investors as cutouts. Rosneft felt obliged to issue a press release saying that “not a single ruble, raised within the bond issue, will be used to buy foreign currencies.” Note the weasel phrase: obviously rubles are fungible, so the loan frees up other rubles for Rosneft to sell. Meaning that this smacks of an RCB bailout of Rosneft. This is bad enough, but it could also foreshadow similar actions for other beleaguered Russian companies.

Then, in the very early hours of the 16th, Moscow time, the RCB announced a whopping 650 basis point increase in the interest rate, from 10.5 percent to 17 percent.

The initial effect has been to bring the Ruble back under 60. There is reason to doubt that this will last. First, previous rate increases-though not as big as this-had only a temporary effect on the relentless decline in the currency. Moreover, the rate rise will be highly contractionary, and a weakening economy will put downward pressure on the Ruble. Further, people draw inferences from central bank actions: perhaps the RCB is signaling a very serious fundamental weakness or an impending bank run or its belief that many Russian corporates will be dumping rubles to raise dollars and Euros; any of these signals would mean that its intervention could have the perverse effect of fueling a further decline. In addition, the rate rise does nothing to eliminate the need of Russian firms to obtain dollars to repay maturing debts.

Even if the rate intervention works in the sense of stabilizing, or even reversing, the collapse in the currency, this will come at a cost. As I noted, the effect of the rate rise will be highly contractionary. The government had already been predicting a recession. That is now a certainty, and it is likely to be a severe one. Especially if oil continues doing the limbo.

The RCB action reminds me of a fox chewing off its snared leg. The best of some very bad options.

The situation is obviously volatile, with many things going on (including pronounced weakening in other emerging market currencies and stock markets as well as the oil situation). Moreover, it will no doubt engender a political response, which will feed back onto the markets. How it will affect the increasingly paranoid Putin is hard to know. A climbdown (if credible) in Ukraine would do wonders for the Ruble, but methinks Putin is more likely to double down than climb down.

One prediction is safe: the next days will be memorable. Deserving of some memorable music: Rocket to Russia, by the Ramones.

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December 10, 2014

Judo Pays, Even When the Torrent of Rents Turns Into a Trickle

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

As the capo di tutti capi of the natural state that is Russia, Putin’s primary responsibility is to distribute rents in order to secure political support. This is a relatively easy task when oil prices are high and the money is cascading in. Things are somewhat more challenging when the torrent turns into a trickle, as now.

Those closer to the tsar get taken care of: those less favored have to get by on scraps. Putin’s judo buddies-Gennady Timchenko and the Rotenbergs-are the closest to him, and they are continuing to live off of state largesse:

Having grown rich on government contracts during the boom in Putin’s Russia, friends of the president are benefiting anew as times grow tough. Lucrative orders keep rolling in for the favored few even as western sanctions and a collapse in oil prices push the economy to the brink.

The development has polarized Russia’s oligarchy and pitted Putin’s small circle against less well-connected rivals in a battle for money and privilege.

Companies linked to Rotenberg and another Putin confidant, Gennady Timchenko — both targeted by U.S. sanctions for their ties to the president — are landing a growing amount of state contracts. Together, they have won at least 309 billion rubles of work since U.S. sanctions were imposed in March, filings show. That figure — which works out to about $8.1 billion at the average exchange rate over the period — is 12 percent more than they received in all of 2013.

A Rotenberg-affiliated company is also about to secure a 228-billion-ruble order to build a bridge to Crimea, which Russia annexed in March, according to a high-ranking government official, who spoke on the condition of anonymity because the contract hasn’t been officially awarded.

Since the judo gang (and Sechin too) is getting a bigger slice of a shrinking pie, others are becoming resentful:

Executives who are used to prospering from government ties complain privately they are being elbowed aside. One Russian billionaire said Rotenberg and Timchenko have all but cornered the market in government contracts. He spoke on the condition of anonymity to avoid jeopardizing his companies’ chances of winning business.

The question is whether this discontent will coalesce into a an opposition that can challenge Putin’s rule. At present, I think that is not much of a threat, because if Putin is saving all the carrots for his friends, he keeps a tight grip on the knout to bash anyone who might dare to oppose him. The fate of Vladimir Yevtushenkov and Bashneft serves to concentrate the mind of anyone thinking of challenging Putin, and coordinating opposition from several grasping, suspicious, and short sighted oligarchs is extraordinarily difficult.

So the Putin system will wheeze along, making some enormously wealthy, and letting the devil take the rest.

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December 8, 2014

VVP: Not Getting His Kicks On Brent $66

Filed under: Economics,Energy,Music,Politics,Punk,Russia — The Professor @ 9:19 pm

Brent traded with a 66 handle for most of today. I am sure that Putin was not getting his kicks on Brent 66.

But no worries. It didn’t stay there long: it’s now trading at a 65 handle.

Going down, down, down, in a ring of fire.

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November 27, 2014

Transparency Incoherent. Gazprom & Rosneft Paragons of Anti-Corruption? Ha!

Filed under: Economics,Energy,Politics,Russia — The Professor @ 11:54 am

The Soviet Constitution was full of guarantees of individual rights and democratic political processes. But of course it was honored far more in the violent breach than the promise.

This comes to mind when reading Transparency International’s most recent rankings, which put Rosneft above ExxonMobil and Gazprom on a par with Chevron. The main reason for the Russian companies’ high ranking is their formal, written anti-corruption rules.

This is so farcical that I am tempted to demand transparency from TI: How much money did you get from the Russians?

If you want to understand Gazprom’s transparency and the complete disconnect between its formal anti-corruption policy and its corrupt deeds, this Reuters report is a must read. It details how Gazprom entered into completely opaque deals with Ukrainian oligarch Dmitry Firtash. In these deals, Gazprom sold to Firtash entities at very low prices, and Firtash then sold at huge markups to Ukrainian companies:

According to Russian customs documents detailing the trades, Gazprom sold more than 20 billion cubic meters of gas well below market prices to Firtash over the past four years – about four times more than the Russian government has publicly acknowledged. The price Firtash paid was so low, Reuters calculates, that companies he controlled made more than $3 billion on the arrangement.

There is a huge omission in the Reuters report: it doesn’t trace where the money went. Gazprom did not do this because it was inordinately fond of Dmitry Firtash. The $3 billion was certainly split between Firtash, and people connected to Gazprom. (One wonders if the initials of the person getting the biggest cut are VVP.)

This isn’t a slam on Reuters: I am sure that they tried to follow the money, but it proved impossible in the utterly dark world of Cypriot, Russian, and Ukrainian companies. Which demonstrates just how farcical the TI report is.

It’s not like no one knew that there were murky dealings between Gazprom and Firtash, even though Reuters has provided valuable detail. Enough was known to conclude that Gazprom’s formal anti-corruption policy was the corporate equivalent of the Soviet Constitution. Fine sounding words on paper bearing no relationship to reality whatsoever.

Update. Jake Barnes points out in the comments some other things that show how risible this list is. It ranks ENI number one: Italy is notorious for corruption at all levels, and for further confirmation see Nick’s comment about investigating corruption in Italy. Also, TI ranks Petrobras above Exxon, Shell, and Chevron. You know Petrobras. It’s the company that is eyes deep in a corruption scandal that threatens to blow up the entire Brazilian political class.

Siemens is also high on the list. Siemens paid the highest Foreign Corrupt Practices Act fine in history, and has been enmeshed in what has been called A World Wide Web of Corruption Just Google “Siemens corruption” and you’ll have hours of reading fun! It is involved in corruption in Brazil. And of course it is deeply enmeshed in Russia. Take that into account whenever you hear German execs, and especially Siemen’s execs, whinging about sanctions against Russia.

Which makes this truly hilarious. Siemens runs the International Anti-Corruption Academy:

Project Summary

The International Anti-Corruption Academy (IACA) is an international centre of excellence for a new and holistic approach to fighting corruption.

This, plus the TI report, makes it clear that hypocrisy and corruption go hand-in-hand.

The bottom line is quite clear: the Transparency International rankings are an utter travesty that bear no relationship to reality.

 

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November 23, 2014

Obama’s FOF Foreign Policy

Filed under: Energy,Military,Politics — The Professor @ 12:36 pm

The Marines have a saying: “No better friend. No worse enemy.” Obama is hell-bent on reversing that formulation.

One leg of his foreign policy could be dubbed FOF: F’ Our Friends. I’ve discussed one example of that recently: Obama’s inveterate opposition to the Keystone XL pipeline, and his fact free defense of his indefensible position. In adhering to this position, Obama is giving Canada the back of his hand.

The Australian reports of another example. Obama spurned the advice of the US ambassador to Australia, and delivered a truculent speech that directly attacked the Australian government’s climate change policies:

The US embassy, under the leadership of ambassador John Berry, advised the President, through his senior staff, not to couch his climate change comments in a way that would be seen as disobliging to the Abbott government, sources have revealed.

When The Weekend Australian put this information to the US embassy, a spokesman said: “As is the case with all presidential speeches, President Obama’s remarks at the University of Queensland in Brisbane were prepared by the White House.”

It is normal practice when the US President makes an overseas visit that the ambassador in the country he is visiting is consulted about the contents of major speeches. It is unusual, though not unprecedented, for an embassy’s advice to be ignored.

The Obama speech in Brisbane was added to the President’s program at the last minute. During his extensive talks with Tony Abbott in Beijing at APEC, Mr Obama did not make any mention of a desire to make a speech, or of any of the contentious climate change content of the speech.

Only in Naypyidaw, in Myanmar, immediately prior to the leaders travelling to Brisbane for the G20 summit, did the US party demand that the President make a speech and that it be to an audience of young people. At the speech, the President did not ­acknowledge the presence of Governor-General Peter Cosgrove.

Despite repeated Australian requests, White House officials refused to provide a text of the speech to their Australian hosts in advance, and did not provide a summary of what would be contained in the speech.

Mr Obama’s repeated references to the climate change debate in Australia, his accusation that Australia was an inefficient user of energy and his repeated references to the Great Barrier Reef, which has figured heavily in the climate change debate, have led observers to conclude that the speech was a deliberate swipe at the Abbott government.

Historians of the US-Australia relationship are unable to nominate a case of a visiting president making such a hostile speech for the host government.

That’s our Barry. Always the gracious guest, always making history.  (If you can’t access the article through the previous link, you should be able to get there from here.)

Canada and Australia have been stalwart allies for years. Both are fighting beside the US against ISIS and Afghanistan. The Australians fought with us in Viet Nam. Of course both made huge contributions in WWII, especially once their sizes are considered. Both are highly responsible and constructive nations. To a considerable degree, they share a common heritage with us, and a common belief in liberty and representative government.

Maybe it’s something about the Anglosphere. Obama’s animus against the UK (which has also fought shoulder-to-shoulder with America in Afghanistan, Iraq, Kuwait and now against ISIS) is well-known.

And for what is Obama slagging our allies? A farcical war on CO2.

While the FOF campaign is in full swing, Obama continues his Ahab-like pursuit of a deal with a nation that has been assiduously killing Americans for 25 years.

That’s Obama’s America. No worse friend. No better enemy. Two years cannot pass quickly enough.

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November 19, 2014

Vladimir Putin, Anti-Corruption Crusader?

Filed under: Economics,Energy,Politics — The Professor @ 7:30 pm

Bloomberg reports that Putin “stunned advisors” by backing an anti-corruption campaign:

Vladimir Putin sat motionless as the minister, seizing on the Russian leader’s first major meeting with his economic team in months, itemized the challenges.

A recession is imminent, inflation is getting out of hand and the ruble and oil are in freefall, Economy Minister Alexei Ulyukayev told Putin, according to people who attended the meeting at the presidential mansion near Moscow in mid-October. Clearly, Ulyukayev concluded, sanctions need to be lifted.

At that, Putin recoiled. Do you, Alexei Valentinovich, he asked, using a patronymic, know how to do that? No, Vladimir Vladimirovich, Ulyukayev was said to reply, we were hoping you did. Putin said he didn’t know either and demanded options for surviving a decade of even more onerous sanctions, leaving the group deflated, the people said.

Days later, they presented Putin with two variants. To their surprise, he chose an initiative dubbed “economic liberalization,” aimed at easing the financial burden of corruption on all enterprises in the country, the people said. It was something they had championed for several years without gaining traction.

The policy, which Putin plans to announce during his annual address to parliament next month, calls for a crackdown on inspections and other forms of bureaucratic bullying that cost businesses tens of billions of dollars a year in bribes and kickbacks, the people said. It entails an order from the president to end predatory behavior, with prosecution being the incentive for compliance, they said.

A few comments.

First, Putin’s resignation to the persistence of sanctions means that he has no intention of backing down in Ukraine or elsewhere. No surprise there.

Second, the motives behind the anti-corruption campaign are much more equivocal than the article suggests. Although the ostensible reason for it is to ease burdens on the Russian economy, there is obviously a political dimension too. Such campaigns can be a way of asserting power over the bureaucracy, maintaining political discipline, and strengthening the vertical of power. Putin is obviously paranoid about asserting control throughout Russian society, especially now, and especially in times of economic difficulty, and maintaining a tight rein on the bureaucracy can advance that objective. “Maintaining party discipline” through draconian measures has a long history in Russia and the USSR. Does the word “purge” come to mind? And Putin has a contemporary example as well: China’s Xi is using an anti-corruption campaign to achieve dominance over the Chinese political and economic elites.

Third, this will no doubt be popular, because it is directed at the kinds of corruption that plagues Russians in their everyday lives and business. This very fact could mean that Putin’s move betrays a certain uneasiness about the durability of his popularity, currently at stratospheric levels (if polls are to be believed). This is a way of shoring up his popular flank.

Fourth, these things said, the prospects for success are rather dim. Corrupt bureaucrats and police are like cockroaches. Yes, you can squash or poison quite a few, but the species will survive and even thrive. Indeed, these campaigns paradoxically create new corruption opportunities: the enforcers can extort from the targets in exchange for turning a blind eye. Thus, any initial burst of popular enthusiasm is likely to lapse into cynicism and resignation.

Fifth, even if retail corruption is targeted, I seriously doubt that wholesale corruption at the elite level will be touched, at all, except as a weapon to destroy political enemies, or those who Putin believes have ideas about grabbing for political power, or who hold assets that more favored individuals covet.

Sixth, Putin apparently rejected a “mega-projects” alternative advanced by Timchenko. This only shows that Putin is not completely delusional. For given that he realizes that as a result of sanctions and low oil prices the Russian economy is in a precarious state, he knows that mega-projects are unaffordable. As a great illustration of that, after canceling five previous auctions, today Russia tried to auction $100 million in government debt. It ended up selling $10 million.

In other Putin news, he whined about American attempts to subdue Russia. Yeah, as if Obama is obsessed with exerting American hegemony, and as if Obama gives a damn about Russia (being in this way, any was, at one with the vast majority of Americans). Putin (and Russians) are so convinced of their importance, that they imagine that others must be too. Putin also demanded that relations be based on “respect.” Mobsters and gangstas are obsessed with respect, so Putin is only acting according to type.

Lastly, Putin’s mouthpiece Peskov demanded that  Nato give Russia a “100 percent guarantee” that the organization would not admit Ukraine. Apparently Nato’s approach to the Russian border makes the poor dears “nervous,” notwithstanding that Nato’s capability to and interest in projecting force into Russia is zero. Truth be told, other than the US, Nato’s military capability is zilch: with the exception of the (shrinking) British army and parts of the French, European Nato troops couldn’t fight their way out of a “piss-soaked paper bag” (in Patton’s graphic but timeless phrase). And perhaps someone should remind Peskov and his boss that Ukrainians had shown zero interest in joining Nato until Russia invaded. Go figure.

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Science!©, KXL Edition

Filed under: Climate Change,Commodities,Economics,Energy,Politics — The Professor @ 4:04 pm

When he said that oil shipped from Canada to the Gulf Coast would be “sent everywhere”, Obama was regurgitating a mantra of the enviro left and mainstream media outlets (but I repeat myself). Remarkably, his own government disagrees.

The State Department’s very detailed analysis of KXL addressed this specific issue in the market analysis chapter of the Environment Impact Statement. The relevant section, on  page 1.4-140 specifically notes that it had received comments throughout the review process claiming that KXL-shipped oil would be exported, and that it felt obliged to respond to these claims. It did so, and delivered a smackdown:

However, such an option appears unlikely to be economically justified for any significant durable trade given transport costs and market conditions.

. . . .

In short, while it is possible that some cargos of heavy WSCB crude could be exported, it is unlikely for a range of economic factors that any such trade flows would be significant or durable in the long run

The supporting analysis basically repeats and supports the arguments I made in my Keystone posts. This analysis is based on an exhaustive review of available data and a firm grasp of refining and transportation economics. Unlike Obama’s, in other words. The analysis states that two alternative models, including one from the EIA (another part of the government) predict no appreciable exports of Canadian heavy crude piped to the US via Keystone, and that this conclusion is robust to various assumptions about available transportation options.

To summarize, President Science!© did not perform, or rely on, any systematic economic analysis when he delivered his verdict on the economics of KXL. He just parroted claims from NRDC, Earth First! and the like that had been thoroughly debunked by a careful analysis of US government economists.

Why does anyone pay the slightest attention to anything he says? He speaks authoritatively about things of which he knows nothing. He is not just ignorant, he is willfully ignorant. His own government did the work that definitely demonstrates the falsity of his arrogantly-delivered claims. Yet he and his acolytes presume to lecture the hoi polloi about Science!©

As an aside, a bill to authorize KXL went down in the Senate yesterday, delivering a likely final blow to the dead parrot candidacy of Louisiana’s Mary Landrieu. Her soon to be erstwhile colleagues preferred to kick her to the curb, rather than force Obama to veto KXL. Now, anyways, because the Republicans will almost surely pass the bill in January, after Mary has moved back to Louisiana, that is if she can bear to leave her DC mansion.

The best part of the day was that a group of Rosebud Sioux (you read about them here first!) interrupted the session with protest chants while Elizabeth Warren was presiding. Senator Warren was not amused. Perhaps if they’d chanted in Cherokee she would have been more sympathetic.

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November 15, 2014

Perhaps Fittingly, a Post on the Land of the Looney Brings Out the Lunatics

Filed under: Climate Change,Commodities,Economics,Energy,Politics — The Professor @ 7:59 pm

Tweeting my post about Obama’s Keystone mendacity unleashed a vortex of leftist idiocy that was stunning even by Twitter standards. Between a visceral and unthinking hatred of Keystone, and the need to rally to the defense of their cult leader (who also has a visceral and unthinking hatred of Keystone), the lunatics felt compelled to swarm from the hive.

One idée fixe was that Obama was right, and the oil is just going to travel down Keystone (spilling huge quantities all the way!), be put on tankers, and sail on its merry way to furriners abroad, especially the Chinese. The fact that the terminus to KXL is located at the heart of the largest concentration of refineries in the US, and refineries tailored to refine heavy crude to boot, could not shake them from their conviction. Apparently refiners in Texas are just going to stand by the Houston Ship Channel and wave as tanker after tanker of oil that they could be refining passes them by on its way to distant markets with much less efficient refineries. It’s rather amusing that some people believe (I won’t say think) that 830kbd is somehow supposed to sneak past the world’s largest concentration of sophisticated refineries tailor-made to process it, and end up in China.

Nor could they be budged by the fact that large quantities of Canadian crude, including oil sands, are already being shipped (via rail, barge, and rail then pipeline) to PADD 3 refineries and refined here. (Canadian oil sands already represent the largest single source of crude imported to, and refined in, the US.) Nor could geography sway them: if you want to ship oil from northwestern Canada to China, going via the Gulf would be a pretty stupid way to do it. Far better to pipe it to Canada’s Pacific coast: indeed, Canada has suggested that’s what it will do if KXL is blocked, which indicates that even that is the 2d best alternative, the best being to refine it in the US. If heavy oil is to go to China, it’s cheaper to substitute Canadian oil for Venezuelan, and have the Bolivarians ship it to the Maoists. (One Einstein said that the expansion of the Panama Canal proves that the oil is destined for China. Er, no. Even after expansion, the Canal can handle only  ships with about 1/2 to 1/3 of the capacity of a VLCC that is the most efficient way to ship crude long distances.)

A few grudgingly conceded that it would be refined in the US, but that wouldn’t benefit Americans, because then the refined products would be snapped up by the voracious Chinese. That there is EIA data showing that 80 percent of US refinery output is consumed domestically, and that less than 4 percent of US refinery exports (and hence less than 1 percent of refinery output) goes to China (and most of that from PADD 5 on the West Coast) made not a dent. And irony is apparently lost on some people: Canada is the 2d largest importer of US refined products. Meaning that a gallon of Keystone crude is far more likely to wind up in a Canuck gas tank than a Chinese one.

One genius Tweeted a Guardian article saying that most of Keystone oil would be exported. Obama is right! QED! Except that the article clearly meant that it would be exported from Canada. Or would that be Cana-duh?

Nor did the fact that transport of oil by rail  is much more dangerous, and poses far greater environmental hazards have the slightest impact on those who are allegedly so sensitive to the fraught state of the planet.

Then it got really nuts. It became all about the Indians. Apparently the ogichidaag* of the Rosebud Lakota Sioux tribe have stated that the House’s approval of Keystone was an act of war:

“The House has now signed our death warrants and the death warrants of our children and grandchildren. The Rosebud Sioux Tribe will not allow this pipeline through our lands,” said President Scott of the Rosebud Sioux Tribe. “We are outraged at the lack of intergovernmental cooperation. We are a sovereign nation and we are not being treated as such. We will close our reservation borders to Keystone XL. Authorizing Keystone XL is an act of war against our people.”

In February of this year, the Rosebud Sioux Tribe and other members of the Great Sioux Nation adopted Tribal resolutions opposing the Keystone XL project.

“The Lakota people have always been stewards of this land,” added President Scott. “We feel it is imperative that we provide safe and responsible alternative energy resources not only to Tribal members but to non-Tribal members as well. We need to stop focusing and investing in risky fossil fuel projects like TransCanada’s Keystone XL pipeline. We need to start remembering that the earth is our mother and stop polluting her and start taking steps to preserve the land, water, and our grandchildren’s future.”

Yes. The Indians hate oil as a despoiler of land. They are all about sustainability and alternative energy. They would never have anything to do with the stuff. Never mind the 30mm bbl of oil produced on reservations, an amount that has spiked up in recent years, primarily because of the fact that the Three Affiliated Tribes on the Fort Berthold Reservation have been major beneficiaries of the Bakken boom.

Keystone’s alleged oppression of Indians brought forth a torrent of race-based idiocy, culminating in this gem.

And I thought Custer died for my sins.

It is also bizarre that Keystone turns prog Citizens of the World into ranting America Firster nationalists. Keystone just helps the Canadians! The Chinese! Apparently, the Chinese get the oil, the Canadians get the money, and ‘Mericans get the pollution. When @libertylynx pointed out that some good ol’ made in the USA Bakken oil would be shipped on Keystone (a true fact, as there will be a Bakken MarketLink on-ramp that will pump US oil into KXL), someone responded, YOU LIE!!! (yes, complete with caps and exclamation marks). Some people just can’t handle the truth.

And yes, of course I was accused of being a Fox News watching (not), Tea Party (not), Koch Brothers shill (not). And a racist by implication.

I was almost tempted to see if I could make things truly nuts by figuring out some way to bring gold bugs into the conversation. I decided against it, figuring that it would risk creating a singularity of stupidity that could destroy the universe. (I will tempt fate, probably tomorrow, by writing a post on recent Russian gold purchases, which will  bring out the gold bugs and the Russian trolls.)

I have very low expectations on the level of debate on Twitter. Subterranean expectations, in fact. But even given that, I was stunned at the level of insanity, stupidity, ignorance, and venom that the topic of Keystone unleashed. I guess it represents a convergence of prog bugbears (oil, capitalism, “climate change”, criticism of Obama), compounded by the trauma of a rout at the polls.

This may seem like a small thing, but I regretfully conclude that it is a harbinger of something bigger. Obama will spend the next two years dog whistling and throwing red meat to his rabid progressive pack as a part of his post-election, lame duck (or would that be lame loon?) guerrilla campaign. Since he can no longer play Moses, he will become Sampson. Keystone is just one of the columns that he will use to pull down the temple around our ears.

It is going to be ugly, ugly, ugly. And Elizabeth Warren is waiting in the wings.

*This is weird, since this is apparently an Ojibwe (Chippewa for you old timers) word for warrior, and not a Lakota word. The Ojibwe are/were a helluva long way from the Great Plains generally, and Nebraska or the Dakotas specifically. Indeed, it gets better! The Ojibwe and the Lakotas were inveterate enemies. (I am always amused at the romanticization of Indians by prog peaceniks: just who the hell were those warriors and braves fighting before the arrival of Europeans? Other tribes, of course.) The Ojibwe got firearms before the Lakota, and drove the Sioux into the Dakotas.

 

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