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Streetwise Professor

September 17, 2009

SWP at CME

Filed under: Commodities,Derivatives,Energy,Exchanges,Financial crisis,Politics — The Professor @ 11:09 am

I’ll be speaking on a panel on Systemic Risk and Speculation at the CME this afternoon at 2PM Central.  The event will be webcast.  Here’s the link.  Click on the grey box on the right-hand-side of the page to get to the webinar: registration is required.  The panel should be quite interesting.

September 15, 2009

Some Russian Quick Hits

Filed under: Economics,Financial crisis,Politics,Russia — The Professor @ 12:24 am

A few stories that caught my eye:

From Edward Hugh’s Facebook group page:

Russia’s central bank lowered its main interest rates again today – by a further quarter percentage point – hard on the heels of the announcement of a record economic contraction in the second three months of the year and the growing recognition that the country now faces a painfully slow recovery.

Russia’s economy contracted at the fastest rate on record in the second quarter as rising unemployment and stagnant bank credit lead to a sharp drop in consumer demand.Gross domestic product fell 10.9 percent in the quarter from a year earlier, after a 9.8 contraction in the previous period.

The monthly GDP indicator data suggested the Russian economy continued to contract in August. However, the annual rate of decline slowed further from May’s revised record -9.9%. In August the GDP Indicator registered -3.9%, the highest reading in 2009 so far. The Indicator has now spent nine months in negative territory, a longer sequence than the previous seven-month spell from September 1998 to March 1999. The currentaverage rate of decline is also much sharper than in the previous downturn, at -6.4%.

In other words: Not out of the woods yet, by a longshot.  To put things in perspective, Russia’s best monthly reading of -3.9 percent is between the US first quarter contraction of -6.4 percent and the second quarter contraction of -1.0 percent.  In output gap terms, however, the Russian performance is even worse given Russia’s substantially higher pre-crisis growth rate. The unfavorable comparison to 1998–the supposed nadir of Russian economic fortunes, and the standard by which Putin wants to be evaluated–is particularly dreary.

Lest you think that it’s just me, note that the Russian central bank’s rate cut demonstrates quite clearly and credibly that it is concerned by the economy’s state.  Very concerned.

Also keep in mind that Russia’s performance looks especially bad given that (a) oil prices are more than double their lows of the first quarter, and (b) other emerging markets to which Russia is often compared are doing far better.  China is growing at 8 percent–although as I’ve written repeatedly, I consider that to be 9 parts mirage, 1 part reality.  India is growing at about 6 percent.  Brazil is contracting at about a 1 percent rate and may eke out 1 percent growth for 2009.

Another story that piqued my interest is the latest episode in the Russia-Turkmenistan soap opera.  In brief: despite much happy talk, and a Medvedev visit to Turkmenistan, the gas standoff between the two countries is nowhere close to being resolved:

“Most technical issues, related to the usage of pipelines, have been solved… In the next weeks, Gazprom will contact Turkmen authorities to agree on the parameters to continue cooperation,” said Prikhodko.

When asked whether the date of supply resumption has been discussed, he said : “No such task has been set (ahead of talks)”.

. . . .

“As far as the liquidation of this accident is concerned, I would like to say that (Turkmen state firm) Turkmengas will take a time out with its contacts with Gazprom,” Berdymukhamedov told Medvedev on Sunday.

Pipeline blasts are regular on former Soviet Union territory due to the equipment’s age, but it rarely takes more than a week to restore flows.

“I don’t think we have outstanding questions… I think it is obvious that pricing will be done under a formula,” Berdymukhamedov said.

On Saturday, Medvedev and Berdymukhamedov spent a day in a Kazakh Caspian Sea resort of Temberli and on Sunday attended a truck rally in the Turkmen desert.

In spite of the failure to agree on gas flow resumption, both Medvedev and Berdymukhamedov hugged before and after the talks, with the Russian leader talking up bilateral ties.

“Our trade and economic relations are not just good, but very good,” said Medvedev.

Tell me another one, Dmitri.

Through all the diplospeak smog, it is pretty clear that there has been virtually no progress at resolving a standoff that is going into its 6th month.  This is not a technical issue, but an economic one.  Every day that the gas doesn’t flow provides further evidence, as if any was needed, that the explosion was a deliberate economic act by Gazprom to avoid paying for gas that it couldn’t sell in the teeth of the economic slowdown at the prices it had agreed to.

The next story is a priceless tale of the brazeness of corruption in Russia:

Russian prosecutors opened a criminal investigation into the possible embezzlement of funds earmarked for the restoration of Moscow’s  Bolshoi Theater, founded in 1776.

Auditors uncovered violations in a probe of the  Office for Construction, Redevelopment and Restoration, the federal agency that’s in charge of the Bolshoi project, the Investigative Committee of the Russian Prosecutor General’s Office said on its  Web site today.

In August 2003, the agency signed a contract with  ZAO Kurortproekt to design the second phase of the Bolshoi renovation for 98 million rubles ($3.2 million), investigators said. Under an addendum to the contract, Kurortproekt’s fee rose to 164 million rubles.

“From 2003 to 2009, however, the agency paid Kurortproekt three times for the same design work and documents,” investigators said. The agency paid a total of about 957 million rubles, including 581 million rubles for drawing up documents, investigators said.

When something this blatant can occur in one of the most high-visibility projects in the heart of the nation’s capital, just think what transpires in the country’s darker corners.

The last story is an update on the ongoing Telenor saga:

Telenor ASA’s appeal of a $121 million fine in Russia was rejected by a Moscow court, Telenor spokeswoman Anna Ivanova-Galitsina said by text message today.

The fine was imposed on Telenor for not voluntarily paying $1.7 billion in damages to OAO VimpelCom after a lawsuit brought by a minority shareholder, which Telenor is also contesting.

In other words, Telenor is going to get squeezed every which way until it cries uncle.  No relief while the wheels of “justice” turn in Russia.

September 14, 2009

Don’t Get Your Hopes Up

Filed under: Derivatives,Economics,Financial crisis,Politics — The Professor @ 10:04 pm

On the anniversary of the Lehman collapse, Obama gave a speech on reforming the financial system.  Color me underwhelmed.

One solid idea is to create an enhanced resolution authority that would permit the rapid containment of big, systemically important banks.  I think Obama oversells the idea by saying that it eliminates the “too big to fail problem.”  Indeed, this portion of his speech is maddeningly short of detail.  He says the resolution authority he proposes will differ from the existing FDIC approach, but doesn’t say just how.  He said that “So our plan would put the cost of a firm’s failures on those who own its stock and loaned it money.”  Well, in the crisis, the shareholders of Lehman, AIG, WaMu, etc., were wiped out, and for a time, the shareholders of Citi and BofA and other big banks were nearly so.  Lehman bondholders also lost a great deal, but those of other big institutions that did (unlike Lehman) receive government support were spared for the most part.  Therefore, Obama has to be proposing that those who bought bank debt would suffer losses before any government support would be offered.  That would be desirable, but without more detail I don’t know whether this promise is credible.  After all, during the bailouts, Treasury and the Fed could have crammed down bondholders, but explicitly decided not to do so in many instances because it feared the knock-on effects of bondholder losses (e.g., the effects on money market funds, which could have resulted in runs).  So, is the resolution authority Obama speaks of really credible?

Obama also throws some red meat when he says “And if taxpayers ever have to step in again to prevent a second Great Depression, the financial industry will have to pay the taxpayer back — every cent.”

This is at best meaningless, and arguably actually dangerous for it still means that risk is socialized.  ”The Industry” doesn’t make risk-taking decisions.  Individual firms and their managers do.  Sharing the risk among industry market participants still creates a moral hazard.  Although this seemingly tough language has gulled the predictably gullible, it will in fact hardly encourage risk taking discipline.  (“[E]very bank, every banker, every hedge fund manager — . . . a mini-regulator, the eyes and ears of the systemic-risk regulator”?  Get real.)  Why should any individual firm incur an effort/cost to monitor the activities of other financial firms except insofar as it can profit from that information?  Free rider problems are rife here.  Given such free rider problems, no firm has an incentive to be its brother’s keeper.

The top concrete proposal in the speech–a Consumer Financial Protection Agency–doesn’t strike me as addressing a first order problem.

Obama emphasizes increasing capital requirements on banks to control risk taking.  This is the Conventional Wisdom approach to preventing the next crisis.  Unfortunately, it is based on a misdiagnosis of the last crisis, and could in fact have the effect of creating the same dynamic that got us in the current situation.

The 90s and 00s were actually a period in which there was considerable effort devoted to crafting an elaborate set of capital requirements–the Basel I and Basel II rules.  Sadly, these very rules were a major contributor to the financial crisis, as the specific rules, notably the risk weights applied to investments in “AAA” securities encouraged large depository institutions to keep massive amounts of mortgage backed debt (in the form of asset backed securities, CDOs, and the like) on their books, rather than to distribute these securities to non-depository investors.  When the mortgage/real estate bubble burst, in stark contrast to the bursting of the internet bubble in 2000, systemically important financial institutions took huge losses that destabilized the entire financial system.

Moral of the story.  Just saying that you will have higher capital requirements is not enough.  The details really matter.  Actions that were considered the epitome of prudence pre-2007/2008 turned out to be anything but.  Indeed, (a) faulty capital requirements can provide a false sense of security, and (b) higher capital requirements can intensify the efforts to engineer efforts to circumvent them.

Obama sells his plan by saying “[a]nd taken together, we’re proposing the most ambitious overhaul of the financial regulatory system since the Great Depression.”  As I’ve said many times before, the greatest lesson of the Great Depression is that people learned the wrong lessons from the Great Depression.  In particular, most of the regulatory structures put in place in the 1930s were based on a misdiagnosis of the actual causes of the Great Depression.  Methinks that history is about to repeat itself.

September 13, 2009

Bad Karma

Filed under: Economics,Financial crisis,Politics,Russia — The Professor @ 8:04 am

Russia, and Oleg Deripaska’s RusAl, is getting a taste of its own medicine of expropriation.  The government of the African country of Guinea voided the sale to RusAl of a large alumina smelter there.  And Russia is none too happy about it:

“Guinean authorities have made an attempt to expropriate UC RUSAL’s property in court,” the Russian Foreign Ministry said in a strongly worded statement.

The ministry said it hoped Guinea would take responsibility for the “possible consequences of such actions for the general climate of traditionally constructive Russian-Guinean relations, as well as for the social-economic situation in the country.”

Given the cast of characters involved in this on all sides, it’s hard to tell whom to believe.  It could well be that Guinea is treating Russians like, well, the Russians are wont to treat folks whose assets they covet.  It could be that Deripaska cut a corrupt deal with Guinea’s late ruler.  Maybe both.  Who knows?

Regardless of culpability, however, the Russian foreign ministry’s umbrage is beyond rich.  Hypocrisy is seldom found in such pure, unadulterated form.

In other Deripaska-related news, contrary to some reporting and my conjecture that GM’s extreme reluctance to partner up with Deripaska would scupper the Magna-Sberbank/Gaz deal for Opel, the American (taxpayer) auto company has opted to sell to the Canadian-Russian bidder.  Apparently German government money was too good to pass up.  I’ve also read that details of the deal haven’t been released, but that the sale contract runs 1000+ pages, and took some very hard bargaining to complete.  Perhaps GM was able to negotiate enough contractual safeguards to feel immune from Deripaska depredations.  We’ll see.

One of the more interesting–and disturbing–things about the deal is the lengths to which Germany and Merkel were willing to go to ensure that a big piece of Opel went to a Russian buyer. According to the WSJ, Merkel deliberately chose Russia over the US:

If completed, it would represent the biggest Russian investment in Western European manufacturing industry to date, adding a significant economic tie with Russia that until now has been largely based on banking and energy transfers.

“It would mark a milestone in Germany’s de facto disengagement from the U.S. and its strategic shift eastwards,” said Douglas Busvine, an analyst at policy research firm Medley Global Advisors.

And Merkel’s “fellow” Europeans are not too happy either:

The deal to sell General Motors’ European business to a Canadian-Russian consortium raised sparks around Europe yesterday.

Belgium accused Berlin of reverting to protectionism, and the deal was criticised by opponents of Angela Merkel, the German chancellor, and by officials in the UK and Spain.

Didier Reynders, Belgium’s finance minister, said he wanted the European Commission to investigate state aid given by Germany to Magna International, the lead investor.

. . . .

Elena Salgado, Spain’s economy minister and deputy prime minister, said any plan for Opel must recognise that its plant in Zaragoza was GM’s most productive in Europe. Magna plans to shift some production to Eisenach, Germany. Talks are due to be held in Berlin next week on how the government aid needed to finance the spin-off will be shared among the countries where Opel and Vauxhall have plants.

There’s also this suggestion that it may not be over after all:

In Germany, Guido Westerwelle, head of the opposition Liberal party, said Ms Merkel’s government had struck a deal designed to help it in the September 27 federal elections.

“If you ask for the small print, nothing has been fixed yet,” he said. “I dread that after the elections there will be hell to pay.”

Maybe.  Maybe not.  But even if Westerwelle is right, there still remains the question of why Merkel was so intent to save a few thousand jobs and please Putin, even at the cost of alienating a major ally and her alleged European “partners.”  If Deripaska and Russia are experiencing bad Karma (cue Warren Zevon) in Guinea, Angela Merkel should worry indeed about a Karmic rebound from snubbing longtime friends and allies to favor the ruthless and trustworthy lot to her east.

September 12, 2009

Unpredictable Posting Schedule

Filed under: Derivatives,Economics,Exchanges,Financial crisis — The Professor @ 7:40 am

I am in Hong Kong for the next couple of days.  (By the way, what day is it anyways?)  Consequently, posting will most likely be erratic, and certainly phase shifted by about 12 hours.  Day shall become night and night shall become day, at least insofar as the SWP schedule is concerned.

I am in HK speaking about central counterparties/clearing at the SWIFT SIBOS 2009 event.  In my few hours here, the city has impressed me.  The view from my hotel over the harbor is quite amazing.  The SIBOS event promises to be fascinating.

And . . . who will submit comment #3000?  Currently at 2991 and counting.  A free SWP t-shirt (yes, there is such a thing) to the submitter of #3000 (if you are brave enough to reveal name and address, LOL).  Domestic shipping only;-)

There Goes That Damn Russophobe Again!

Filed under: Economics,Energy,Financial crisis,Politics,Russia — The Professor @ 7:32 am

I don’t watch much TV, and medical shows have always been near the bottom of my list of things to watch.  But one show that I find entertaining from time to time is House.  It’s about a quirky (and now, apparently, actually delusional) physician who, along with a team of young doctors whom he abuses continually, diagnoses strange afflictions.  In the couple of episodes I’ve watched, House and his team make several incorrect conjectures, before fixing on the correct diagnosis, thereby saving the patient du jour from a terrible fate.

Dmitri Medvedev is apparently auditioning for the Russian version of the show, and has delivered a devastating diagnosis–complete with medical metaphors–on the state of the Russian economy, and Russian society.  Indeed, it is so damning that if I, for instance, were to make it (and I have) I would be assailed with howls accusing me of the basest Russophobia.  Don’t believe me?  Read it for yourself, right here on the official Kremlin website:

The global economic crisis has shown that our affairs are far from being in the best state. Twenty years of tumultuous change has not spared our country from its humiliating dependence on raw materials. Our current economy still reflects the major flaw of the Soviet system: it largely ignores individual needs. With a few exceptions domestic business does not invent nor create the necessary things and technology that people need. We sell things that we have not produced, raw materials or imported goods. Finished products produced in Russia are largely plagued by their extremely low competitiveness.

This is why production declined such much, more than in other economies, during the current crisis. This also explains excessive stock market volatility. All this proves that we did not do all we should have done in previous years. And far from all things were done correctly.

The energy efficiency and productivity of most of our businesses remains shamefully low, but that is not the worst part. The trouble is that it seems that owners, directors, chief engineers and officials are not very worried about this.

As a result Russia’s influence in global economic processes is, quite frankly, not as great as we would like. Of course, in the era of globalisation the influence of any country cannot be unlimited. That would even be harmful. But our country must have substantial opportunities, as befits Russia’s historic role.

As a whole democratic institutions have been established and stabilised, but their quality remains far from ideal. Civil society is weak, the levels of self-organisation and self-government are low.

Every year there are fewer and fewer Russians. Alcoholism, smoking, traffic accidents, the lack of availability of many medical technologies, and environmental problems take millions of lives. And the emerging rise in births has not compensated for our declining population.

We managed to gather the country together to stop centrifugal tendencies. But many problems still remain, including the most acute ones. Terrorist attacks on Russia are continuing. Residents of the republics in the North Caucasus simply do not know peace. Military and law enforcement personnel are dying, as are government and municipal employees, and civilians. Of course these crimes are committed with the support of international criminal groups. But let’s face up to it, the situation would not be so critical if the socio-economic development of southern Russia were more viable.

To sum up, an inefficient economy, semi-Soviet social sphere, fragile democracy, negative demographic trends, and unstable Caucasus represent very big problems, even for a country such as Russia.

Of course we do not need to exaggerate. Much is being done, Russia is working. It is not a half-paralyzed, half-functioning country as it was ten years ago. All social systems are operating. But this is still not enough. After all, such systems only propagate the current model, and do not develop it. They cannot change current ways of life and therefore bad habits remain.

Achieving leadership by relying on oil and gas markets is impossible. We must understand and appreciate the complexity of our problems. We must frankly discuss them in order to act. In the end, commodity exchanges must not determine Russia’s fate; our own ideas about ourselves, our history and future must do so. Our intellect, honest self-assessment, strength, dignity and enterprise must be the decisive factors.

My starting point while setting out five priorities for technological development, offering specific measures for the modernisation of the political system, as well as measures to strengthen the judiciary and fight corruption, is my views on Russia’s future. And for the sake of our future it is necessary to liberate our country from persistent social ills that inhibit its creative energy and restrict our common progress. These ills include:

1. Centuries of economic backwardness and the habit of relying on the export of raw materials, actually exchanging them for finished products. Peter the Great, the last tsars and the Bolsheviks all created – and not unsuccessfully — elements of an innovative system. But the price of their successes was too high. As a rule, it was done by making extreme efforts, by using all the levers of a totalitarian state machine.

2. Centuries of corruption have debilitated Russia from time immemorial. Until today this corrosion has been due to the excessive government presence in many significant aspects of economic and other social activities. But it is not limited to governmental excess — business is also not without fault. Many entrepreneurs are not worried about finding talented inventors, introducing unique technologies, creating and marketing new products, but rather with bribing officials for the sake of ‘controlling the flows’ of property redistribution.

3. Paternalistic attitudes are widespread in our society, such as the conviction that all problems should be resolved by the government. Or by someone else, but never by the person who is actually there. The desire to make a career from scratch, to achieve personal success step by step is not one of our national habits. This is reflected in a lack of initiative, lack of new ideas, outstanding unresolved issues, the poor quality of public debate, including criticism. Public acceptance and support is usually expressed in silence. Objections are very often emotional, scathing, but superficial and irresponsible. Well, this is not the first century that Russia has had to confront these phenomena.

Other than that, things are just great!!!  And feel free to point out how what I’ve been saying for the last 3 years has differed all that much from what Medvedev is saying today.

Where Medvedev and House part ways, however, is in the cure to the properly diagnosed disease.  House being fictional, he always can come up with the life saving treatment right before the last commercial break.  Medvedev, in contrast, having to deal with reality, can do no more than prescribe a placebo:

I recently identified five strategic vectors for the economic modernisation of our country. First, we will become a leading country measured by the efficiency of production, transportation and   use of energy. We will develop new fuels for use on domestic and international markets. Secondly, we need to maintain and raise our nuclear technology to a qualitatively new level. Third, Russia’s experts will improve information technology and strongly influence the development of global public data networks, using supercomputers and other necessary equipment. Fourth, we will develop our own ground and space infrastructure for transferring all types of information; our satellites will thus be able to observe the whole world, help our citizens and people of all countries to communicate, travel, engage in research, agricultural and industrial production. Fifth, Russia will take a leading position in the production of certain types of medical equipment, sophisticated diagnostic tools, medicines for the treatment of viral, cardiovascular, and neurological diseases and cancer.

. . . .

These goals are realistic. The targets we have set for achieving them are difficult but attainable. We have already developed detailed, step-by-step plans to move forward in these areas. We will encourage and promote scientific and technological creativity.

The chasm between the description of the disease–or more properly, diseases–and the proposed treatment is vast.  And indeed, diagnosis and treatment seem diametrically opposed.  Symptom one of the Russian disease, according to Medvedev, is “economic backwardness and the habit of relying on the export of raw materials.”  But what is treatment one?   Hair of the dog: “First, we will become a leading country measured by the efficiency of production, transportation and   use of energy.”

Now I realize there are some differences here; for instance, Medvedev bewails Russia’s wasteful use of energy, and proposes to fix that.  But still, it seems rather difficult to overcome a crippling dependence on raw material extraction–notably energy extraction–by focusing on energy production and transportation.

The other proposals are fantasy absent some complete revolution in the way Russia works.  Dirigiste, corrupt, “vertical” economic systems with poor protection of property rights–including intellectual property rights–are not going to become leaders in marketable technology.  And for a country with as appalling a health system as Russia’s to become a leader “in the production of certain types of medical equipment, sophisticated diagnostic tools, medicines for the treatment of viral, cardiovascular, and neurological diseases and cancer” is, well, beyond fantasy.  When it comes to healthcare, I suggest that Medvedev should make more down-to-earth goals, like running water in all hospitals and access to basic treatments.

This season’s Medvedev may share something else with this season’s House–delusions.  What other explanation could there be for this?:

Russia’s political system will also be extremely open, flexible and internally complex. It will be adequate for a dynamic, active, transparent and multi-dimensional social structure. It will correspond to the political culture of free, secure, critical thinking, self-confident people. As in most democratic states, the leaders of the political struggle will be the parliamentary parties, which will periodically replace each other in power. The parties and the coalitions they make will choose the federal and regional executive authorities (and not vice versa). They will be responsible for nominating candidates for the post of president, regional governors and local authorities. They will have a long experience of civilized political competition: responsible and meaningful interaction with voters, inter-party cooperation and the search for compromises to resolve acute social problems. They will bring together in one political entity every element of society, citizens of all nationalities, the most diverse groups of people and territories of Russia endowed with ample powers.

The political system will be renewed and improved via the free competition of open political associations. There will be a cross-party consensus on strategic foreign policy issues, social stability, national security, the foundations of the constitutional order, the protection of the nation’s sovereignty, the rights and freedoms of citizens, the protection of property rights, the rejection of extremism, support for civil society, all forms of self-organisation and self-government. A similar consensus exists in all modern democracies.

This year we started moving towards the creation of such a political system. Political parties were given additional opportunities to choose those occupying leadership positions in the federal regions and municipalities. We relaxed the formal requirements for the creation of new parties. We simplified the conditions in place for the nomination of candidates for election to the State Duma. We passed legislation guaranteeing equal access to public media for parliamentary parties. A number of other measures were adopted as well.

Another yawning chasm between word and deed/fact. No need to belabor this point.

Indeed, the vast difference between what Medvedev says, and the facts on the ground and the government’s actual policies is the source of much skepticism, not to say cynicism.  For instance, in a post titled “Medvedev’s call for Reform Rings Hollow” James at Robert Amsterdam writes:

There is a reasonable argument that it is better to have this kind of empty dialogue rather than no dialogue at all, but when the former Chairman of Gazprom is the one voice to complain about the excess influence of the state in the business sector, then we know we have a problem taking it seriously.

Other observers have taken it a bit further.   My thanks to a commenter, who points us to this acerbic reaction to the Medvedev article by  Aleksander Ryklin:

“My first reaction when I read the piece was a desire to copy it and rework it a bit. For example, maybe put it on a pink background and decorate it with flowers here and there. To mark out particular paragraphs with lipstick kisses and others with smiley faces.”

Ouch.

The Ryklin article is brutal:

After all, no grown-up, self-respecting person should appear so pathetic. They shouldn’t so openly and publicly display their own helplessness.

On the other hand, people shouldn’t so brazenly and with such open, unconcealed cynicism demonstrate their complete contempt and spite for the intellectual abilities of the population temporarily under their power. He isn’t taking just me for an idiot, but everyone in the country. So I also felt discomfort on behalf of the country.

Playing For Laughs

As soon as I read it, I was asking myself: What is this? A cry of the soul? A suicide note? A letter to Vladimir Putin? To his wife? To posterity? To historians? No, no, my friends. This letter is addressed first and foremost to idiots. But you and I are not idiots. At least, not all of us.

. . . .

To be honest, I’m not very sorry for Medvedev. Because I don’t believe for a second that he is sincere. He wants to “cooperate”? Then he can start by firing Putin, by dissolving the Duma, and then we’ll see. He can’t, you say? Then what is he pretending for? So that maybe someday something will happen? It would have been better to stick his letter into a time capsule and bury it under the biggest Kremlin tower than to humiliate himself like this in front of all honest people.

I don’t know whether it’s pathetic, or cynical, or what, but the complete disconnect between the gravity of the diagnosis, and the lack of serious effort to treat the diseases doesn’t bode well for the future.

Indeed, after finishing reading Medvedev’s long piece carefully, what comes to mind is not the typical TV doc-drama ending with the patient saved in the nick of time, but the punchline to an off-color joke about a guy who gets bit in an unmentionable place by a poisonous snake: “You’re gonna die.”

September 10, 2009

Let’s See If I Have This Right

Filed under: Economics,Politics — The Professor @ 8:00 pm

The effects of changing medical malpractice rules are so unpredictable and fraught with potential problems that it is necessary to test their effect with a very limited voluntary pilot program.  But the effects of a complete and fundamental transformation of the entire health care and health insurance sectors are so predictable and so obviously beneficial that no such experimentation is required.  Indeed, they must be implemented now! Now! NOW! No half measures!

Or am I missing something?

Re tort reform, Obama fell back on one of his handy logical fallacies:  ”I don’t believe malpractice reform is a silver bullet.”  Uhm, nobody said it was.  Just because it won’t fix all problems with the health care and health insurance systems doesn’t mean that it’s not worth implementing.

Re experimentation.  In fact, we have had some experiments along the lines of the proposed national health care reforms.  For example: Massachusetts and Tennessee.  And we’ve had experiments in other aspects of proposed health care reforms, such as community rating.  None of these can be considered successes, and indeed, it would be more accurate to label them abject failures.

Re experimentation and tort reform: supporters of nationalized health care in the US often speak glowingly of the Canadian system.  Funny they never mention that the medical liability system in Canada is completely different than in the US, and has much going for it.  That seems like a pretty good experiment, with a pretty good result.

September 9, 2009

How Do You Say “CYA” in Russian?

Filed under: Economics,Energy,Politics,Russia — The Professor @ 8:29 pm

The Moscow Times reports that the Russian Federal Audit Chamber had inspected the  Sayano-Shushenskaya dam two years ago, and reported that 85 percent of its equipment needed to be replaced.  The Chamber’s boss,  Sergei Stepashin, said that “the government and the Prosecutor General’s Office were informed about the results of the check at the time.”

This gives the lie to Putin’s post-disaster statement stressing the need to inspect Russian infrastructure to identify problems.  In the particular case that spurred the Putin’s demand, an inspection had been carried out.  The inspection had identified problems.  The government had been informed.  But nothing was done.  So . . . you can inspect all you want, but if you ignore the results of the inspection, what you get is a disaster.

Stepashin’s statement is probably a mere echo of a riot of finger pointing and ass covering going on behind the scenes in Russia.  Putin, by implication, blames the inspectors.  The inspectors reply “we did our job,” thereby directing the blame at the company.  The company (perhaps to the strains of Chuck Berry’s “It Wasn’t Me”) denies culpability:

RusHydro, the state-owned company that owns the plant, said it had studied the auditors’ findings and acted accordingly. “All the necessary measures were taken and reported to the Audit Chamber” after the check, RusHydro spokesman Yevgeny Druzyaka said, Interfax reported.

I guess it depends on what “necessary” means.  And if the report actually says that 85 percent of the equipment needs replacing, is the company saying that it replaced 85 percent of the equipment?  That’s certainly not the case.  So, the company is implicitly refuting Stepashin’s representations, by implying that the repairs the Audit Chamber deemed “necessary” were insufficient to prevent the disaster.

What’s the whole truth?  Who knows?  But whatever it is, it can’t be pretty.  Surely nobody is likely to come out looking good.

But the crucial thing is that it is clear that an inspection was made.  The results were not good.  The government was informed.  And the disaster happened.  Ultimate responsibility for that necessarily lies at the top of the “power vertical.”  Which makes Putin’s post-disaster performance, with its efforts to cast blame elsewhere, and the implicit suggestion he lacked information about Sayano-Shushenskaya, appear all the more craven.  But it appears that Putin wants to be responsible for everything, and accountable for nothing.

Tool Time

Filed under: Economics,Politics — The Professor @ 7:57 pm

As if further proof were needed, Thomas Friedman’s column in today’s New York Times demonstrates what a total, utter, contemptible tool he is:

Watching both the health care and climate/energy debates in Congress, it is hard not to draw the following conclusion: There is only one thing worse than one-party autocracy, and that is one-party democracy, which is what we have in America today.

One-party autocracy certainly has its drawbacks. But when it is led by a reasonably enlightened group of people, as China is today, it can also have great advantages. That one party can just impose the politically difficult but critically important policies needed to move a society forward in the 21st century. It is not an accident that China is committed to overtaking us in electric cars, solar power, energy efficiency, batteries, nuclear power and wind power. China’s leaders understand that in a world of exploding populations and rising emerging-market middle classes, demand for clean power and energy efficiency is going to soar. Beijing wants to make sure that it owns that industry and is ordering the policies to do that, including boosting gasoline prices, from the top down.

Translation: “The Great Unwashed in the United States do not realize the wisdom of the anointed ones–like me.  The ignorant ingrates have pressured their elective representatives to oppose the brave new world their intellectual betters have all planned out for them.  If only the boobocracy would defer the the rule of the Enlightened Ones–like yours truly–we would Save the World.”

Just further documentation of the sad truth that in the chest of every “progressive” [gag] beats the heart of an authoritarian, not to say totalitarian.  So it has been since Plato.

In fact, a large number of Americans know all too well the havoc that arrogant, pretentious, elitist, self-impressed, pseudo-intellectual Thomas Friedman-types can wreak when they get their hands on power.  The intensity of the reaction to the prospect of a massive restructuring of healthcare, and to a lesser degree climate change legislation, is a testament to the deep distrust in which the non-elites–that is, you know, regular people that like work and stuff–hold the self-impressed and self-anointed “elites.”  Distrust that is very well merited.

No doubt Hayek had tools and fools like Friedman in mind when he wrote The Fatal Conceit.

And do these people ever learn?  (That was a completely rhetorical question.)  The “intellectuals’” belief that Italian Fascism, Soviet Communism, Japanese industrial policy, and of late, Chinese authoritarianism, would all leave the capitalist American economy in the dust has been repeatedly refuted, but they inevitably fall for the dirigiste, planned, authoritarian “system” du jour.  In the 1960s and 1970s, I remember that the conventional wisdom was that “rational” Soviet planning would overtake the decentralized American economy.  In the 1980s, we heard ad nauseum–from people like Thomas Friedman, and if memory serves, Thomas Friedman himself–about the miracle of MITI, the Japanese Ministry of International Trade Industry, which through its wise guidance would ensure Japanese economic dominance.

We know how well those worked out.

The drooling adulation of Friedman and his ilk for Chinese authoritarians is only the latest incarnation of this tendency to exaggerate the efficacy of the rule of “enlightened” central planning.  Indeed, this tendency even antedates the enthusiasm for “progressives” for socialism and fascism in the 20th century; “enlightened” despots were quite popular with intellectuals in the 18th century as well.

To which I answer: the only way that any highly centralized, dirigiste country (be it China or another nation) will surpass the performance of the US is that if the US becomes more centralized and dirigiste than this putative competitor.  Which could well happen if Thomas Friedman–and Obama–get their way.

September 7, 2009

Lights, Camera, Action.

Filed under: Economics,Energy,Politics,Russia — The Professor @ 8:25 pm

I don’t know whether to laugh or cry at Dmitri Medvedev’s stirring defense of the sanctity of contracts:

President Dmitry Medvedev on Monday accused Ukraine of seeking changes to a contract for the transit of Russian gas across its territory, the latest row over energy between the two feuding states.

Medvedev told the head of state-run Russian gas giant Gazprom that Russia would not accept any move by the Ukrainian authorities to demand advance payment for the transit of Russian gas to European consumers via its soil.

Gas supplies and transit have been a constant sticking point in relations between Ukraine’s pro-Western leaders and Moscow. A dispute over debts and payments sparked supply cuts which left parts of Europe freezing in January.

Speaking at a meeting at the Kremlin, Alexei Miller, Gazprom chief executive, told Medvedev that Ukraine had sought to change the terms of payment for gas transit fees.

He said that such a change was not stipulated in the current contract.

“As far as an idea of an advance payment for tariffs, then I would like to ask you a simple question — is it stipulated in a contract?” Medvedev asked Miller in televised comments.

After receiving a negative answer from Miller, Medvedev said: “Then don’t pay! There’s a need to act in accordance with the contract that has been signed.

“We’ve specially prepared it, it was born in the throes of pain, has been quite seriously developed and we are currently working in line with it.”

“There’s a need  to act in accordance with the contract that has been signed.”  Amen.  Words to live by:  what’s sauce for the goose is sauce for the gander, no?   Try it some time, Dmitri.

I suggest that Turkmenistan, or any of those who have suffered from Russia’s–and notably Gazprom’s–one-sided interpretations of contracts, throw those words back in Medvedev’s (or Putin’s) face some time soon.  And since this little dialog between Medvedev and Miller was recorded for posterity, the Turkmenis (or whomever) should be ready to do a Warner Wolff “Let’s go to the videotape” complete with slo-mo and reverse action in order to make it as embarrassing as possible.

And speaking of recording for posterity, I find these little dramas acted out in Medvedev’s office, or in Putin’s, to be extremely odd.  (I remember another scene, during January’s Gas War, involving Putin and Miller, that was similarly stagey.)  Can anybody offer an explanation as to why these kind of Kabuki plays are evidently so appealing to Russian audiences?  (I presume that Medvedev, Putin, and others would not repeatedly employ them unless they were effective.)

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