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Streetwise Professor

April 8, 2014

Tales From the Crypt of Corruption

Filed under: Economics,Military,Politics,Russia — The Professor @ 7:58 pm

The vicissitudes of life have prevented me from writing-or even reading much-for the last few days. But a few Russia-related things caught my eye.

Most notably: Putin calls for swift action to improve Russia’s business climate.

Talk about low hanging fruit! Give me a hard problem, Vladimir Vladimirovich! If you resign, and take your judo clique and Sechin and the rest of the St. Petersburg gang with you, Russia’s business climate would improve dramatically and swiftly!

No charge for this sure-fire advice. It’s on the house.

The Russian economy is sputtering, but it would be quite easy to crater it. As I’ve discussed before, the US could squash the Russian economy like an overripe grape, but the markets have decided that the US and the west are all bark, no bite. The initial post-Crimea selloff has been largely reversed:

President Vladimir Putin’s pledge not to expand beyond the Crimea peninsula in Ukraine is driving short sellers out of the Russian stock market.

Traders have scaled back bets on declines in theMarket Vectors Russia (RSX) exchange-traded fund to 5 percent of outstanding shares from a record-high 21 percent on March 3. That’s the largest drop for a comparable period since June, according to data compiled by Bloomberg and Markit.

As short sellers retreat, the market is rebounding, with the Bloomberg Index of Russia’s most-traded stocks in New York posting the longest stretch of weekly gains since October. Foreign Minister Sergei Lavrov said at the end of last month that there’s no intention to go beyond Crimea, fueling speculation that tensions with the U.S. and the EU are abating. Putin told lawmakers in Moscow on March 18 that Russia isn’t about to occupy Eastern Ukraine.

Let me put it this way. The article is wrong. The market isn’t taking Putin at his word that Russia won’t invade Ukraine. The market just believes that even if he does, nothing will happen. The west will wuss out. Again.

Yeah. I’m looking at you, Germany. And you, Obama.

Believe me. Putin is drawing the exact same conclusion.

Make sure you are sitting down for this last one. Sophisticated Russian hackers were responsible for mounting a massive attack on Nieman Marcus. But that’s not the shocking part. The US approached the Russian government for help and . . . nothing. Crickets:

Attempts to shut down the criminal network have failed despite international sting operations and secret meetings with Russian intelligence officials, according to two former U.S. officials who asked not to be named because they weren’t authorized to discuss the activities. Federal Bureau of Investigation officials visited their Russian counterparts in 2008 and 2009 to share information that could help locate and stop hackers, one of the former officials said.

“The FBI has tried to get cooperation, the State Department has asked for help and nothing happens, so law enforcement options under the current circumstances are pretty negligible,” said Richard Clarke, special adviser for cybersecurity under George W. Bush.

Law enforcement officials describe Russian stonewalling as just one obstacle as they try to curb the burgeoning theft of credit-card data that has sparked a Congressional inquiry and left banks and retail chains blaming each other for the failures of outdated credit-card technology.

This, no doubt, is because the FSB received a cut of the hackers’ take.  I am sure you are standing there, mouth agape, in shock at this stunning news.

But this corrupt, criminal colossus is twisting the far wealthier, far more powerful west around its little finger. There is a pronounced asymmetry in power, but an even greater asymmetry in the will to use it.

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1 Comment »

  1. Professor
    I wonder whether your exasperation at the brazen venality of the Russian governing class is obscuring a more nuanced assessment of the situation. Yes, our political masters in the West are myopic, feeble and pusillanimous. And to be sure, Vladimir Vladimirovich is opportunistically taking full advantage of every one of his opponents’ inadequacies and shortcomings.

    But let’s take a moment to explore a hypothetical scenario in which the Donbass and Odessa are picked off and incorporated into Russia. We know the hit the German economy took under the strain of unification with the DDR. Can Russia afford the price of incorporating the south and east of Ukraine? Would not the burden cripple the Russian budget?

    Further exploring this counterfactual, let’s examine what the response might be in Germany, Poland and the Baltics. The economic elites generally press for tax cuts and limited Government expenditures. Faced with the threat of a resurgent Russia, however, would not our economic elites agree to higher military expenditures? After all there’s not much point accumulating wealth if V.V. and his heavies can stroll in and grab it like so much low-hanging ripe fruit. Rearmament might be just the fillip our economies need to restore some dynamism. Of course such expenditures are socially wasteful but anything has to be better than existing under the thumb of the Moscow Mafia. An arms race with the Russians would also help contribute to speeding the bankruptcy of Putin’s regime. Russia just isn’t rich enough to bring anything more than a knife to a gunfight.

    A judo strategy for the West if you see what I mean. Perfect for throwing a judoka like Putin flat onto his back :)

    Comment by Simple Simon — April 9, 2014 @ 6:50 am

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