Streetwise Professor

November 29, 2015

Erdogan Actually Does What Putin’s Enemies Implausibly Accuse Him of Doing: Exploiting the Syrian Refugee Crisis

Filed under: History,Military,Politics,Russia — The Professor @ 7:56 pm

One theme pushed very hard by Putin oppositions, including people like Gary Kasparov and numerous Ukrainian bloggers and tweeters, is that Putin is deliberately creating the refugee crisis in the EU. There is no doubt that he is benefitting, but there is no evidence that he is doing anything to create it. He gets it without having to lift a finger.

The refugee crisis is indeed creating huge political stresses in the EU that are benefiting rightist opposition parties (e.g., the National Front in France) that are sympathetic to (and in some cases, partially funded by) Russia. This redounds to Putin’s benefit, but he didn’t create the problem. The problem is largely due to the Syrian civil war, but not completely: only about one-half of the migrants swarming into Europe are Syrian. The other major contributor is European policy, notably Merkel’s grandiose humanitarian gesture, which served to open the flood gates.

No doubt Putin is pleased, but I cannot identify anything that he has done, that he wouldn’t have done anyways: for him, the refugee fallout is a happy unintended consequence. He has been all in for the Syrian government from the get go, and has supported its ruthless campaign. This has contributed to the refugee flow, but Putin would have done the same regardless.

One country that has definitely leveraged the refugee issue to its advantage is Turkey. Today, with great fanfare, Turkey and the EU announced a grand bargain whereby the EU would pay Turkey €3 billion, grant it visa free travel, and reopen Turkish accession talks. The €3 billion is to be used to improve conditions for Syrian refugees in Turkey. In return, Turkey will slow the flow of refugees to Europe.

In other words, Erdogan successfully blackmailed Europe. Unlike Putin, Erdogan can exercise considerable control over the flow of Syrians to Europe. He has basically exercised no control heretofore, and Europe has been overwhelmed. They have now agreed to pay Turkey to keep them, and also given Turkey other very important concessions to make it worth Erdo’s while.

This is bad news for Putin. Putin has been trying to leverage his role in Syria to get concessions from Europe on other issues, but as I have written before, he really doesn’t have that much leverage. Erdogan has leverage, and has just demonstrated that he can and will use it. He can also use it to make the Europeans think twice about making any concessions to Putin that would compromise Turkish interests in Syria. And since Turkish interests and Russian interests are close to zero sum there, this means that he wins, and Putin loses when he uses that leverage. Erdogan has therefore proved to Putin who has the whip hand in dealing with the Euroweenies.

When it comes to Syria, Erdogan’s policy is deeply problematic, to put it mildly. His policy towards ISIS can most charitably be described as ambivalent. He is certainly not an ardent foe, and is arguably an enabler–or worse. He is far more interested in crushing the Kurds, who happen to be the most reliable anti-ISIS force in the region. In that respect, Erdogan is objectively pro-ISIS. There is a colorable case that he is subjectively pro-ISIS as well. Furthermore, Turkey has been the main supporter of the Islamist forces–including al Qaeda-forces–fighting Assad. Once upon a time, supporting groups like this would have earned a star turn in the Axis of Evil.

Domestically, Erdogan is doing his best Putin imitation of crushing domestic opposition, including the arrest of journalists. Some antigovernment figures have been murdered (e.g., the Kurdish lawyer killed over the weekend), another similarity to Russia.

Thus, there is little to choose from between Erdogan and Putin in Syria. Indeed, as bad as Assad is, the Islamists fighting him are worse, so the nod goes to Putin here.

Unfortunately, the Kasparovs and Ukrainians who are so obsessed with Putin are completely in the grips of the enemy-of-my-enemy mindset that they are going all in for Erdogan and the Islamists for Syria. They are fighting Putin, so they must be great, right?

Wrong. They are dangerous and despicable, and Erdogan does a pretty good Putin doppelgänger impression.

It is possible to oppose Putin and Russia in Ukraine and elsewhere in Europe, without embracing his enemies in Syria. It is not only possible, it is necessary. Putin’s actions in Ukraine challenge the entire post-War order in Europe, and are deeply destabilizing. Indeed, they deeply challenge the Westphalian system that Putin and Russia claim to defend in Syria, Libya, the Balkans, and elsewhere, and constantly lecture the world about in the UN and elsewhere. So those actions should be opposed, and Europe and Nato in particular have to raise their games.

But that issue is completely separable from what is going on in Syria. And those whose hatred of Putin leads them to whitewash (and worse) Erdogan and the murderous Islamist anti-Assad forces in Syria are wrong as a matter of policy. This also deeply compromises their moral authority and undercuts their opposition to Putin in Russia and Ukraine.

Enemy-of-my-enemy logic almost always leads to a dead end, or worse. It prevents critical thinking, the ability to discriminate between threats, and between degrees of evil. All of that is particularly true in Syria, because siding with Putin’s enemies means siding with murderous Islamists, and a megalomaniacal would be emperor who is actually doing what Putin is only accused (rather implausibly) of doing: exploiting the refugee crisis in Syria in order to obtain political benefits from Europe.


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November 25, 2015

Let’s You and Him Fight

Filed under: History,Military,Politics,Russia — The Professor @ 11:28 am

There should be no shock or surprise at Turkey’s destruction of a Russian Su-24. Russia and Turkey have been in a state of undeclared war for a long time. Turkey has long supported rebels, most notably Islamist rebels, fighting to topple Assad. Russia intervened to prop up a tottering Assad, and has directed the bulk of its operations against the rebels Turkey supports. Many of these airstrikes have occurred close to the border, and are directed specifically at rebel ratlines running back into Turkey and at the front lines of the fighters Turkey supports.

This has made Erdogan furious. The shootdown was, as Lavrov said, clearly deliberate. Just as Putin’s intervention was a clear signal that Assad was losing, this incident is a clear signal that Erdogan believes that his forces are now losing. This is his way of hitting back and trying to get Putin to back off.

Russia says that it is striking ISIS. This is largely, though not completely, a lie. But Russia is striking Islamists. Today Putin pointedly criticized Erdogan, saying that he is Islamizing Turkey. Putin is correct.

To see the kind of people Erdogan is supporting, consider the fact that the rebels shot at the Russian air crew as they were parachuting after bailing out, killing one of them. They then gloated over the corpse.

All of this makes it beyond strange that so many on the right in the US are apoplectic about Russian intervention in Syria, and that this apoplexy has only intensified with the destruction of the Su-24. Senator Tom Cotton (and others) claim that we are in a proxy war in Syria, and that Russia has intervened against our “allies” in this war.

Why are we in a proxy war? What compelling US interests exist in Syria? And why are we allying ourselves with Salafists who are just branded affiliates of either Al Qaeda or the Muslim Brotherhood, and who are striving to kill us everywhere else in the world? If “our side” “wins”, what do we get? A Salafist stronghold and safe haven from which to attack us? If “our side” “loses”, what does it cost us? We’ve lived with the Assads  for almost 50 years. They are not going to be much of a threat to anyone, given the wreck the country has become (not that it was ever anything but a typically shambolic Arab dictatorship).

People like Cotton also speak in concerned tones about Turkey as a Nato ally under threat from Russia. This should be turned on its head: we need to reconsider quite seriously whether an Islamist country that provides material support to Islamist groups (including Hamas), and which is led by an increasingly erratic autocrat, is a suitable member of Nato.

This is particularly true given that Erdogan does not have clean hands, by any means, in the fight against ISIS. Erdogan has unleashed his air force against the Kurds, but not against ISIS. ISIS supply lines stretch into Turkey. ISIS members use Turkey as a safe area and a transit zone (including to Europe). He fought mightily to deny aid to the Kurds in Kobani when they were fighting for their lives. Furthermore, there is considerable reason to believe that Erdogan’s family facilitates the sale of ISIS oil. (This last detail raises questions about the US forbearance in attacking ISIS oil convoys, despite the fact that oil revenues are vital to ISIS’s financing. We have given excuses like protecting innocent truck drivers’ lives, or even “environmental concerns“, FFS, to explain the lack of attacks on the oil rat line. The Erdogan connection quite plausibly is a more important reason.)

The main issue for the United States is that this greatly complicates the US air campaign against ISIS, especially in Syria. In response to the downing of its jet, Russia has announced that it is deploying long range S-400 surface-to-air missiles to Syria to protect its aircraft. (Russia denied earlier reports that it had already deployed the missiles. There was some photographic evidence–of the distinctive radars–that they had, so perhaps they are using this as an excuse to announce something they had done before but denied.) Russia does not want to shoot down US planes, but accidents will happen, and the greater the envelope of the missiles, the more scope for accidents, especially given that US aircraft are operating out of Turkish bases.

There are reasons to be concerned about Putin and Russia. But Syria is not among them. Better to devote our efforts to proving a bulwark and deterrent against Putin where it matters to us, than tangling with him in a place where it doesn’t. As I’ve said, if anything, it’s better to have him stuck in Syria than running amok in eastern Europe.

There’s an old joke about “let’s you and him fight.” That seems about right here. Let Putin and Erdogan fight, if that’s what they want. We should want no part of it.

Further thoughts: There has been much blather post-Sharm al Sheik and post-Paris about a “grand alliance” between Russia and the West to fight ISIS. This was always a chimerical hope. First, Russia’s priority has never been ISIS, and even though it did intensify strikes on ISIS post-Metrojet, its efforts were still focused on the non-ISIS groups fighting Assad.

Second, what was the basis for  a bargain? What really can Russia contribute to an anti-ISIS campaign that the US (aided by France and maybe the UK) could not do without its help? The lame Western effort has not been due to lack of capability: it has been due to a lack of will. And if Russia rally desires to strike ISIS (because is it is allegedly in its own interest), why would the West feel obliged to offer it any inducement?  In particular, why would they offer what Putin really wants (concession on Assad, and in particular, elimination of sanctions and a free hand in Ukraine) when Putin really can’t offer anything material in return, especially since these concessions would be humiliating for Obama and the Europeans, and completely undermine Western credibility?

Third, differences over Assad’s fate appear reconcilable. The West–including Hollande, who has been most insistent (and pathetic) importuning Russia for help–has continued its insistence that Assad must go. Russia has been most insistent that he must stay. That gap cannot be bridged.

The downing of the Su-24 and the subsequent escalation (Putin has intensified the bombing of the groups Turkey supports, including the Turkmen) make any deal even less likely. This would involve throwing a Nato member over the side, and although Nato should be looking for ways to reduce commitments to Turkey, to do so under the current circumstances would be disastrous to the alliance, and would likely goad Erdogan (who doesn’t need much goading) into taking more provocative actions in Syria, and against Europe and the US. (For instance, if Europe thinks it is overwhelmed by refugees now, just think of what could happen if Erdogan put his mind to pushing Syrians into Europe.)

This may well be part of Erdogan’s thinking. If his action makes an already unlikely deal impossible, he wins.

Hollande is in Moscow today, looking awkward as Putin blasts Turkey. Putin also blamed the US for providing the intelligence about the aircraft that the Turkish F16s shot down. Especially with accusations like that, there is no way that there is going to be any deal. There may be words and promises, but nothing of substance, and Putin will certainly not be able to leverage the situation to his advantage.

If anything, he is in a weak position. Most of the non-military retaliatory actions he can take (e.g., cutting off food imports from Turkey, and shutting down tourism) are very damaging to an already economically isolated Russia. Cutting off gas sales would hurt Turkey, but at a large cost to Russia and Gazprom, which is already in bad shape. (The cancellation of Turkish Stream would be a potential benefit, as it would prevent Gazprom from wasting $10 billion.)

Militarily, Putin can intensify action against Turkish creatures in Syria, but Turkey can respond by escalating against the Syrian regime. What’s more, Turkey has a trump card: control of the Bosporus and Dardanelles. In the event of conflict between Russia and Turkey, Erdogan could close the Straits and leave Russian forces in Syria high and dry. Putin’s only escalatory option after that would be the unthinkable one.

In sum, I didn’t see much possibility for Putin to leverage Paris into a deal that would give him sanction relief or Western acquiescence on Assad before, and see even less now. Moreover, Putin’s position in the struggle with Turkey is relatively weak. In particular, he does not possess escalation dominance. Within the range of the thinkable, Erdogan does.

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November 20, 2015

Islam in Black and White: A Vicious Cycle of Counterproductive Debate

Filed under: History,Politics — The Professor @ 10:15 pm

In addition to promulgating her vacuous “strategy” for vanquishing ISIS, Hillary has been making other foreign policy news. In part to push back on a potential source of criticism, she has defended her part, and the administration’s part in pushing the “Arab Spring”, and the uprising in Libya in particular:

Well, he has a very short-term view of history, because it is not at all clear what the final outcome will be in the places that you named. As I mentioned in the speech, I spoke about the foundations of the region sinking into the sand just as the Arab Spring was breaking. And I did so not knowing about the Arab Spring coming to full bloom, but because it was so clear that what was being done by dictatorships, by the denial of opportunity, by the repression, by the sectarian divide just could not stand. It was going to explode at some point or another.

And with the developments in Libya, for example, the Libyan people have voted twice in free and fair elections for the kind of leadership they want. They have not been able to figure out how to prevent the disruptions that they are confronted with because of internal divides and because of some of the external pressures that are coming from terrorist groups and others. So it’s — I think it’s too soon to tell and I think it’s something that we have to be, you know, looking at very closely.

She’s right, actually. We don’t know what kind of hell it will end up being, or which terrorist group(s) will end up in charge of which part of the “country.” We don’t know how many people will be slaughtered.

Apropos Nancy Pelosi’s defense of Obamacare, we’ll just have to wait to see what’s in it! Oh joy.

Hillary is basically saying we can only judge on the basis of what happens in the long run. This brings to mind Keynes’s quip “in the long run, we’re all dead.” In some places, that long run arrives sooner than others. Libya being one prominent example.

The administration played Sorcerer’s Apprentice in Libya, and in the Arab Spring generally, and brought chaos and destruction in its vain attempts to control the forces it unleashed.

Hillary also made news because her doubling down on her refusal at the Democratic debate to condemn radical Islam:

The bottom line is that we are in a contest of ideas against an ideology of hate, and we have to win. Let’s be clear, though, Islam is not our adversary. Muslims are peaceful and tolerant people, and have nothing whatsoever to do with terrorism. The obsession in some quarters with a clash of civilization, or repeating the specific words radical Islamic terrorism isn’t just a distraction, it gives these criminals, these murderers more standing than they deserve. It actually plays into their hands by alienating partners we need by our side.

It is quite remarkable how progressives, who adamantly support the idea that someone with a Y-chromosome can self-identify as a woman deny ISIS, etc. can self-identify as Muslim. As Orwell said, there are some ideas so stupid only an intellectual can believe. Or, in Hillary’s case, an intellectual poseur.

Not that the Republican presidential candidates, and many Congressional Republicans, are better, for they’ve veered to the opposite extreme, with Trump calling for registration of Muslims in a national database, Carson comparing refugees to rabid dogs, and indiscriminate condemnations of Muslims by many on the right.

Clinton is wrong: our adversaries–enemies, really–are avowed and chauvinistic Muslims. Those on the right are wrong: not all Muslims are a threat.

The problem is with Salafism, and in particular the virulent supremacists and eliminationist creed of Wahhabism. The wellspring of Salafism is the Gulf countries, notably Saudi Arabia, Qatar, and the UAE. From the time of the first oil shock in 1973, oil money (or gas money, in the case of Qatar) has flooded the world, and supported the spread of this uncompromising and violent creed.

The United States is by no means immune. Many mosques (not all, but too many) have been created and supported with Saudi money, and have served as outlets for Salafist proselytizing–and worse. This deserves to be the focus of criticism and pushback. (To her credit, Hillary did so the other day, even though the Clinton Foundation has accepted about $40 million in Gulf government money.)

Focused on Iran and Assad, many on the right (notably McCain, who exercises great influence over Rubio) have made common cause with Iran’s enemies in the Gulf. They have also forgotten-or chosen to ignore-the fact that the attack on the USS Cole, 911 and the vast bulk of terrorism directed against the United States had originated on the Arabian Peninsula.

Perversely, by attacking Muslims indiscriminately, too many on the right are alienating non-Salafist Muslims, and moderate non-Muslims, and driving them into the embrace of the insidious and subversive public face of the Muslim Brotherhood in the US, CAIR. Reprising its post-911 role, CAIR is again claiming to be the voice of oppressed American Muslims. This is extremely disturbing, because CAIR is very much part of the problem, but because of overreaction on the right, it can successfully pose as the victim, and represent itself as the voice of all American Muslims. The right is therefore empowering the very elements of Islam that they should be fighting.

Left and right are locked in a sick dynamic right now. Denial on the left that terrorism generally, and ISIS and Al Qaeda in particular, are an Islamic phenomenon, and that there is a civilizational clash between parts of Islam and the West is driving the right to be indiscriminate in its criticism of Islam. The right’s intemperate criticism gets the left to double down on its indiscriminate defense. And the cycle goes on and on.

In some respects I get it. Political rhetoric tends towards the black-and-white, especially when a message has to be delivered in a short time to an audience with divided attention. I also get that a lot of this rhetoric is signaling and affiliation. It is hard to articulate to a (rationally) uninformed electorate the distinctions within a religion that is almost completely alien to most Americans.

But until we do, we are going to be trapped in this vicious and unproductive cycle. And the biggest winners will be the retrograde and violent parts of Islam who do not get the focused attention-and opposition-that they richly deserve.



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November 19, 2015

Steve Martin & The Underwear Gnomes Are Apparently Hillary’s Military Advisors

Filed under: Military,Politics,Russia — The Professor @ 7:51 pm

Taking time out from attempting to silence comics who mock her, Hillary Clinton gave a speech setting out her grand strategy for combatting ISIS:

Our strategy should have three main elements. One, defeat ISIS in Syria, Iraq and across the Middle East; two, disrupt and dismantle the growing terrorist infrastructure that facilitates the flow of fighters, financing arms and propaganda around the world; three, harden our defenses and those of our allies against external and homegrown threats.

The first one in particular is a real eye-roller. We will defeat ISIS by defeating ISIS. It brings to mind the old Steve Martin bit:

You.. can be a millionaire.. and never pay taxes!  You can be a millionaire.. and never pay taxes! You say.. “Steve.. how can I be a millionaire.. and never pay taxes?” First.. get a million dollars.

Or the South Park Underwear Gnomes:

Plan for defeating ISIS:

  1. Fight ISIS.
  2. ????

This is Hillary trying to sound all tough and butch, but uttering vacuities.

Not that Republicans are much better. Marco Rubio said: “When I am president, I will tell my commanders that the mission is the total destruction of ISIL and will send them the forces necessary to succeed.” Even if those forces total 50,000? 100,000? 150,000? And what about dealing with the aftermath?

Then there is Trump (who publicly self-identifies as a Republican, though I think his equipment is about as genuine as Kaitlyn Jenner’s), who says, simply, “I will bomb the shit out of them.”

The fact is, there are no good options right now. By 2009, the predecessor of ISIS had been ground down to what Rumsfeld had prematurely declared in 2004: a few dead enders. CIA Director John Brennan (ugh) recently admitted that ISIS was down to “700 or so adherents.” Now it numbers in the tens of thousands, and like Xerxes’s immortals, replaces those killed with a stream of new recruits.

By declaring victory and getting out of Iraq, Obama snatched defeat from the jaws of a hard won victory, and let a dying threat return to life far stronger than before, like an infection after the premature termination of an antibiotic regimen. When ISIS was running amok in May-June, 2014, Obama declined to attack them when they were vulnerable and in the open. Now they are dug in deep in Mosul and Ramadi and Raqqa, and it is beyond the capability of the Iraqi Army, or whatever ragtag force can be assembled in Syria, to root them out.

And despite ISIS’s clearly demonstrated ability to strike outside its core areas, it is dubious in the extreme to argue that the cost of rooting them out of these core areas, and keeping them or some successor Islamic freakazoid group out, is worth it.

The French are bombing. The Russians are bombing. We are bombing more. It will have little effect if not joined with a robust ground force. A robust ground force would entail large casualties. And to what end? To win Syria? Let Putin have it.

All of the major candidates feel obliged to sound tough on ISIS, but shrink from doing what would really be required to destroy it. So they essentially advocate doing what Obama is doing, only a little bit more. This is futile, and ultimately deceptive (and likely self-deceptive).

The reality is that the situation is pretty much irretrievable. We have to look at building firewalls. That will be hard for the US to do, but achievable. For Europe, it will be much harder, because their cities are infested with nests of Islamic radicals, and they are hell bent on admitting more.

In a sick twist on Casablanca, we’ll always have Paris. Sadly, it will be Paris, circa 13 November, 2015.

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November 15, 2015

Terrorist Fish Swimming in a Refugee Tide

Filed under: History,Military,Politics — The Professor @ 10:43 pm

One of the most revealing, and bizarre, aspects of the Paris aftermath is the frenzied attempt to explain away the reports that a Syrian passport had been found near the pieces of one of the suicide bombers. This would raise the possibility that terrorists were infiltrating Europe under the cover of the flood of refugees. This would pose a serious challenge to those invested in the grandiose humanitarian gesture of opening Europe’s borders.

The straw that most of the rationalizers grasped was that the passport was evidently forged, and not well.

How this somehow undercuts the possibility that a terrorist made his way from Syria is beyond me. All that matters is whether the passport was used to secure entry into Europe. And apparently it was. Greek officials verify that the passport was so used. Indeed, the Greeks now report that it is likely that a second attacker passed through Greece.

If a terrorist used a (bad) forgery to obtain entry to Europe, that would make things worse, not better. It would mean that European borders can be breached by amateur counterfeiters.

One of the most risible attempts to deny the possibility that a Syrian cell infiltrated Paris was made by the appalling Anne Applebaum. Applebaum argues-in all seriousness, apparently-that terrorists couldn’t have come from outside, because they knew Paris too well.

Um, it’s known that hundreds, and perhaps thousands, of French Muslims have traveled to Syria, many to fight with the Islamic State. Many of these would be from Paris, and know the city quite well, thank you. Francophone fighters familiar with Paris trained in the heart of darkness of Syria would be the perfect perpetrators of mass terror in the City of Light.

And how the hell were they supposed to get back to France? Flying Air France on their French passports (likely known to French authorities)? No, obviously. But submerging themselves in the tide of migrants and traveling on false documents would be the perfect way to move from Syria to France.

What’s more, having a core team move from Syria would reduce the amount of communication needed to carry out the operation. All the planning could be done in the security of Raqqa, and those coming from Syria could confer face-to-face with their collaborators in France once they arrived. Much reduced need to send orders or plans over communication channels that could be monitored by the DGSE or NSA or GCHQ.

There have been warnings for months about the risks posed by returning jihadis. Those risks have apparently been realized, and it is just disgusting that those invested with accommodating the refugee flood refuse to accept that reality, because their unicorn dreams are so much more important.

This is not to say that all of the attackers came from abroad. Several were apparently French and Belgian. The irony that the Arab neighborhoods of Brussels are out of control of the authorities is too rich (though sick). As if on cue, European Commission President Jean-Claude Juncker said (presumably between drinks), that EU immigration policy would not change as a result of Paris.

So Brussels, the capital of the nanny superstate that claims competence over the most minute aspects of human existence is incapable of performing the most basic function of a state: securing the physical security of its residents. And it is unwilling to admit its failures, and indeed, is committed to compounding them.

Merkel is doubling down too, despite a swelling rebellion in her own party, and Germany at large. Yet another example of the complete disconnect between the European “elites” and the hoi polloi they deign to rule.

Yes. There is a humanitarian catastrophe in Syria. But there are well known ways of addressing it that do not involve throwing open Europe to all comers, terrorists included. Refugee camps could be expanded in Turkey, Lebanon and Jordan. They could be funded much more liberally.

And here’s a wild idea. Why not force the Gulf state oil ticks, the Saudis, Emiratis, Kuwaitis, and Qataris, to (a) pay to support refugees, and (b) actually take in refugees, something they have adamantly refused to do?

They are pouring money into Syria to arm fighters. They should spend even more money to deal with the fallout of their actions.

And it is not just Europe that is willing to take on huge numbers of refugees. The US is as well. Speaking through the appalling incompetent throne-sniffer and toady Ben Rhodes, the administration says it is not reconsidering plans to admit 10,000 refugees from Syria.

“We have very robust vetting procedures for those refugees. It involves our intelligence community, our national counter-terrorism center, extensive interviews, vetting them against all information.”

“What we need to be able to do, frankly, is sort out that foreign fighter flow, those who have gone into Syria and come out and want to launch attacks or those who have connections with ISIL in Syria,” Rhodes said. “We need to be able to have the intelligence base to identify and target those people.”

Why should we have the slightest confidence that the US government will have the ability to do this? It only takes a few errors by the magical intelligence sorting hat to create a Paris-like disaster here in the US.

Europe (and the US) can deal with the way things are, or the way they wish they could be. Grasping at straws about forged passports would mean they are doing the latter. Keep that up, and there will be many more Parises to come.




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Reaping What Obama & Europe Have Sown: The Price of Military Idiocy and Political Fantasies

Filed under: History,Military,Politics — The Professor @ 2:52 pm

The Paris attack is obviously dominating the news. It has been claimed by ISIS and the French have formally blamed ISIS.

It of course cannot be determined definitively whether the desultory US campaign against ISIS contributed to the onslaught (to which must be added the downing of the Russian jet, in all likelihood), but it cannot have helped. The first principle of war is The Offensive. Maintain the initiative. Dictate to your enemy, not the other way around.

But for some reason that altogether escapes me, this administration and the Pentagon think it is a virtue to forego the initiative, and implement a “slow burn” strategy. Slowness–a cardinal military sin, according to Napoleon (“The reason I beat the Austrians is, they did not known the value of five minutes”), is somehow part of the Obama plan:

Administration officials described the battlefield additions as incremental boosts to a strategy that remains focused on slowly degrading the Islamic State in its heartland and continuing the slow process of building up local forces that can ultimately defeat the group.

Slowly twice in one paragraph. Incremental. ISIS has seized the initiative. The consequences are predictable.

That is a military abomination.

But let the boss speak for himself. Mere hours before the Paris attack, Obama said that the campaign is working, and that ISIS is contained:

President Barack Obama said that the U.S. strategy against ISIS has “contained them,” but not yet succeeded in its effort to “decapitate” ISIS leadership.

This is his idiocy in a nutshell. Containment has obviously not worked. They have broken out from their sanctuaries in Iraq and Syria to Egypt and Libya and to the heart of Europe.

Further, note the focus on “decapitation.” This is his measure of success.

Decapitation of the ISIS leadership is not a sufficient condition for its defeat. It is also unlikely to be a necessary one. Leaders can be replaced. Decapitation can be part of an operational plan if  an attack takes advantage of the disruption of leadership. But just killing one guy, then killing his replacement, then killing his replacement, accomplishes squat.

Truth be told, our options were highly limited once ISIS rolled into cities. During May-June 2014, they were vulnerable, but Obama, dismissing them as the JV with no extra-regional ambitions, stayed our air power.

Now, since a major ground commitment is not a realistic or desirable option, only an intensified air campaign that will result in substantially more civilian casualties, combined with Kurdish forces, is the only real option to expedite the process of the war. And even that will be unlikely to wrest the initiative away from ISIS.

The West is reaping what it–and most importantly, Obama–have sown.

The Europeans are also confronted with a consequence that many warned against: the possibility that a few terrorist fish would swim in with the sea of refugees. Initial reports imply those fears were realized. But many Europeans are so invested in the refugee narrative that they are unwilling to admit that opening the borders was an insane idea. They cling to the fantasy that humanitarian good motives produce desirable results.

And so they too are reaping what they have sown.



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November 12, 2015

Big Sister on the Warpath Against Commodity Derivatives

Filed under: Commodities,Derivatives,Economics,Financial crisis,Politics,Regulation — The Professor @ 3:27 pm

Elizabeth Warren’s panties were in a bunch the other night because of an ad that portrayed her as a “Commie dictator” (her description). (Liz’s panties always seem to be in a bunch, but they were bunchier than usual on Tuesday.) The ad, which blasts Warren’s anti-Constitutional monstrosity, the Consumer Financial Protection Bureau is actually somewhat amusing. Warren’s image appears in the background on a Big Brother-ish–or would that be Big Sister-ish?–banner.

I agree with Warren. She is not a  Commie dictator. She is a wannabe Commie dictator.

Her anti-market efforts are not limited to birthing and defending the CFPB. She is also a virulent critic of derivatives, especially when banks trade them. Pre-commercial, her ire this week was focused on the repeal of the swaps pushout rule, the brainchild (and I use that term very loosely) of fortunately ex-Senator Blanch Lincoln (D-for-dim, Arkansas). Warren fulminated that as a result of the repeal, banks were able to keep $10 trillion notional in particularly risky swaps in their deposit-taking units, rather than spinning them off into separately capitalized subsidiaries that cannot benefit from deposit insurance.

This rule was targeted at swaps that were deemed especially risky, including most notably, commodity swaps. But commodity swaps, and many equity derivatives, are not especially risky. Risk depends on whether the positions are hedged or hedgeable, the creditworthiness of the counterparty, and the credit support (e.g., collateral) in the transactions. And notional principle is certainly not a measure of how much risk is in a derivatives book. Therefore, putting commodity swaps, equity swaps, etc., in a ghetto does not make economic sense. There is no reliable mapping between the underlying of a derivative and the risk it creates.

Furthermore, risk has to be evaluated on a portfolio basis. Segmenting derivatives books can reduce diversification benefits, and crucially, breaks netting sets. Breaking netting sets tends to increase counterparty risk, or require more costly collateral to keep counterparty risk the same. (As I’ve written many times, the systemic effects of netting and collateral are ambiguous because of their main effect is redistributive. But if you are concerned about the counterparty risks that banks face, you should prefer more netting to less.)

Frankendodd is chock-full o’ stupid and dangerous, but the swaps push out was in the running for the title of dumbest and most dangerous. It makes no economic sense as a way of achieving the purported purpose of reducing the risks that banks pose to taxpayers. But Warren and other progressives have made it a litmus test for determining which side you are on, that of the angels, or the banksters? This is a false choice.

But expect Big Sister Liz to remain on the warpath against derivatives. Which is exactly why the 1984-esque portrayal of her in that commercial is spot on.


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November 4, 2015

I’m Not Spoofing You About Judicial Overkill

Filed under: Commodities,Derivatives,Economics,Energy,Exchanges,Regulation — The Professor @ 11:02 pm

Yesterday in a federal court in Chicago, Michael Coscia of Panther Energy Trading was convicted of six counts each of commodity manipulation and fraud for “spoofing.” Coscia faces decades in prison.

I haven’t seen the evidence, so I cannot judge whether Coscia did manipulate. For the purposes of this post I will stipulate that he did. But even given that stipulation, this entire exercise was judicial overkill and a travesty that can do serious damage to the markets.

What is spoofing? A trader puts in a large order (an offer, say) several ticks away from the best price in the market. He also places a small limit order on the other side of the market (a bid, in this example). If the market moves towards the large order, the spoofer cancels and replaces the order several ticks away from the new inside market. It is this cancellation that attracts all the attention. Much of the coverage says that the spoofer submits orders with the intent of canceling them.

That’s not the whole story though. The point of spoofing is to increase the odds that the small order is executed. After all, what would be the point of submitting orders that are never executed?

In the example, the large sell order is intended to convince others that the current price is too high. This may induce some bidders to cancel their bids, and others to cross the market and hit the bid. Both of these actions increase the odds that the spoofer’s small order will be executed.

So how does he make money? It can’t be by driving down the price persistently. The spoofer has bought: to profit, prices must rise subsequently. So, often the spoofer will reverse direction, putting in a big bid away from the market, and a small offer.

If spoofing works, the spoofer will repeatedly buy at the bid and sell at the offer, making the dealer’s turn. This will not cause the price to diverge persistently from where it would be, absent this conduct.

That’s apparently what happened with Coscia. He made a whopping $1K on the six episodes for which he was charged and convicted. He was just making a tick here and a tick there. And crucially, unlike the kinds of manipulation that cause real damage-corners, in particularly-he is not causing the price to be persistently inflated or depressed.

So who is hurt? Some people may be induced to trade when they wouldn’t have absent the spoofing. Their losses are approximately equal to the spoofers gains, on the order of a tick. And since some might have hit the spoofer’s bid even absent the spoofing, only a fraction of those with whom the spoofer trades are damaged.

Others who might be damaged are those who are fooled into canceling orders, and see the spoofer execute a trade they would have liked to if they hadn’t been fooled. The spoofer takes some of the profit they would have earned.

I find it hard to believe that these damages are are all that large. (They would also be hard to estimate because it is virtually impossible to identify who traded because of the spoofing, and who pulled a quote because of the spoofing, and gave up the opportunity to trade.) And regardless, this is exactly the kind of conduct that can be deterred using monetary fines.

This brings me to another bizarre aspect of these spoofing cases. Many of those who scream loudest about spoofing, like Eric Hunsader of Nanex, say: “SPOOFING IS SO OBVIOUS!!!! JUST LOOK AT THE DATA!”

As another case in point, I saw a Tweet embedding a .gif of someone’s TT trading screen, in which the quoted depth a couple of ticks above the inside market would rise and fall by 800 contracts or so. The Tweeter (I can’t find the Tweet) said something to the effect “look at this obvious spoofing.”

Well, I agree with the obviousness of it, but the implication of that is exactly the opposite of what Hunsader, the Tweeter, and presumably the DOJ and CFTC believe: If it so obvious, nobody is fooled. If nobody is fooled, it can’t affect trading behavior or prices. If it doesn’t affect trading behavior or prices, there is no economic harm. If there is no economic harm, it shouldn’t be prosecuted.

There is a law and economics take on this too. Classic Gary Becker analysis shows that draconian penalties-like 25 years per fraud charge and 10 years per manipulation charge-are justifiable if the probability of detection of a harm/crime is small. This is necessary to make the expected cost paid by the offender equal to the cost of the harm. But if the conduct is obvious, even only ex post, the probability of detection should be high, so penalties far greater than any harm are excessive. In this case, grotesquely excessive. (Furthermore, again pace Gary Becker, incarceration of a defendant who can pay the monetary value of the harm caused is a social waste, in the form of the cost of imprisonment, and the lost output of the convict.)

But it gets worse. The Coscia prosecution-and the popular condemnation of spoofing-focuses obsessively on the large rate of order cancellation. But perfectly legitimate market making strategies involve large rates of order cancellation, especially in volatile markets. They also involve buying frequently at the bid and selling at the offer. Given the Javert-like zeal of prosecutors, their dim understanding of trading, and the difficulty of explaining market making to a jury create the very real risk that a market maker could be charged, and convicted, and be punished severely, because he cancelled a lot of orders, and made the dealer’s turn all day long. This huge and very real risk will no doubt lead to less aggressive quoting (a market maker is less willing to quote aggressively if he is reluctant to cancel too often for fear of being accused of spoofing).

And who pays for that? Market users, including both institutional and retail traders, who take the liquidity market makers supply. Thus, you and me are harmed by overzealous prosecution of spoofing that threatens to demoralize legitimate, efficiency-enhancing trading.

This raises the very real possibility that the prosecution of actions that produce little economic harm will inflict a far larger harm. That is perverse.

What is particularly infuriating is that enforcement authorities are apparently incapable of prosecuting much truly damaging market conduct. Federal prosecutors are crowing over getting Coscia’s scalp, and the Chairman of the CFTC is using the verdict to intimidate would-be spoofers, but 6 years ago Federal prosecutors in Houston utterly botched the BP propane corner case (US v. Radley). That was a real manipulation that caused real damage. But the prosecutors totally flubbed the case, and the perps walked. Then there are those obvious manipulations that the Feds haven’t even bothered to prosecute (perhaps to spare themselves the embarrassment of flubbing another one.)

It reminds me of the old joke about the lawyer who said: “I lost the cases I should have won, and won the cases I should have lost. Therefore, on average, justice was done.”

No, actually, Mr. Lawyer: justice is never done if the guilty walk free and the innocent are punished. And sad to say, US manipulation law is perilously close to embodying that cynical joke.



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November 3, 2015

Dogs Fighting Under the Carpet in Iran

Filed under: History,Politics — The Professor @ 9:41 pm

“Supreme Leader” Ayatollah Khamenei has been on the warpath since the signing of the Iran nuclear deal. He has ramped up the vitriolic anti-US rhetoric. He is demanding that all sanctions be lifted before Iran will comply with the terms of the Iran deal. Several Americans-including notably a strong supporter of the Iran deal-have been arrested. He has announced a blockade against US imports. Perhaps most importantly, he is apparently mounting an offensive against President Rouhani, and Foreign Minister Zarif, who were the point men in negotiating the nuclear deal. Khamenei and the mullahs have rejected many pro-Rouhani candidates for the legislature, and made it plain that the Guardian Council has an executive role, rather than merely an advisory one, as Rouhani stated.

So much for Obama’s and Kerry’s publicly stated hope that the nuclear deal would be the first step to moderating Iran’s revolutionary fervor and transforming it from a revisionist power to a responsible one.

But (as @libertylynx has suggested) that may be exactly what is driving Khamenei’s stridency and aggressiveness. Obama and Kerry have clearly placed their bets on Rouhani and other alleged moderates in Iran. Rouhani and the alleged moderates may be indeed making a play for power.

To someone like Khamenei, a dedicated Islamist revolutionary who hates the United States and everything it stands for, this is an anathema and a mortal threat. Furthermore, the US’s role in fomenting the uprisings in Egypt (with some temporary success followed by a Thermidor that still rankles Obama) and Libya and Syria (with catastrophic results) would immediately lead Khamenei and his ilk to conclude that the United States is up to the same thing in Iran. Indeed, a paranoid revolutionary steeped in a belief that the United States controlled Iran prior to the 1979 revolution (and was behind the anti-Mossedegh coup in 1953) likely views an American plot lurking behind every bush.

And he may well have grounds for these beliefs. Obama has repeatedly played the the role of the Sorcerer’s Apprentice in the Middle East, and even though (like the Sorcerer’s Apprentice’s efforts), Obama’s machinations have turned out disastrously, Obama is not known for admitting failure and changing course.   (To Iraq, Syria, Libya, and Egypt, one could also add Turkey, though with a twist: there, Erdogan, with whom Obama claimed to share a bond, is descending into Islamist fascism.) One last grandiose, world-changing scheme may be his last, best hope for a legacy.

But Khamenei’s Iran is not Mubarak’s Egypt. Khamenei, the ayatollahs, and the Iranian Revolutionary Guard Corps are hardened totalitarians and revolutionaries, not corrupt autocrats. They know that the first rule of the dictator is crush the opposition, and that hesitation and weakness are usually fatal. In these circumstances, bet on the hard men with the guns and money (no lawyers necessary) to prevail. And that would be Khamenei, the ayatollahs, and the IRGC.

Churchill is quoted as saying that following Russian politics was like watching dogs fight under the carpet. Churchill may not have actually said that, but even if he didn’t, it is a good description of what seems to be going on now in Iran. I know which dog to bet on, and his name ain’t Moderate.

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October 31, 2015

On the Spot: How a Surfeit of Supply is Transforming LNG Trading

Filed under: Commodities,Derivatives,Russia — The Professor @ 6:22 pm

In September of last year, I gave the dinner speech at the CWC LNG Asia Pacific Summit conference in Singapore. The dinner was held at the Singapore Aquarium, and I spoke in front of the Aquarium’s giant shark tank. I couldn’t help but think of the scene with Kim Jung Il and Hans “Brix” Blix from Team America. Especially after the way my remarks were received, which ranged between cool and rather hostile.

I predicted the demise of oil-based pricing, and increased reliance on the spot market or long-term contracts indexed to spot prices. There were three basic parts to my argument. The first was that the large increase in supplies coming online in 2015-2017 combined with the even-then apparent slowdown in demand in China, and the likely decline from Japan due to the restarting of its nuclear plants, would lead to a large overhang of cargoes that would need to find a home. The trading of these cargoes would lead to increased spot market activity.

The second part of my argument was that the dynamics of liquidity would then take over. Liquidity creates liquidity. More spot market activity reduces the transactions costs of trading spot, which leads to more spot trading. There is a virtuous cycle in liquidity, and the increase in spot trading to dispose of contracted of but now unneeded cargoes would start the cycle.

The third part of my argument was that a robust spot market would support gas indexing, as opposed to oil indexing, in term contracts. Oil indexing is akin to the drunk looking for his wallet under the lamppost, because the light is best there, not because he lost it there. LNG buyers and sellers looking for a price benchmark looked to oil in the early days because in the 70s oil was a substitute for gas in power generation, so there was some connection between the markets, but mainly because oil was the only lamppost around. But especially now, with gas and oil having little fundamental connection in either consumption or production, oil prices are not closely correlated with the marginal value of a ton of LNG. The development of a liquid LNG spot market would-will, in my view-allow contracts to be indexed to a price that reflects gas values. This would also permit the development of a paper hedging market.

My unpopular prediction is now looking much better, though not all are persuaded. There is a huge LNG overhang, with Australian and US supplies about to come on stream. This supply increase is occurring simultaneously with a protracted decline in demand growth. Much of this overhang will find its way to the spot market. That, in turn, will start the virtuous cycle.

The supply overhang will have other consequences. It will force down prices world-wide, and lead to a redirection of supplies from Asia to Europe. One of the biggest losers from this will be Russia, which will face more intense price competition in its biggest export market in Europe, and a reduced Chinese appetite for the gas it had hoped to send east. Another will be Qatar, at present the world’s largest supplier.

Making things even more interesting is that Russia and Qatar are adversaries in Syria. (And by the way, those conspiracy theorists who think that the Syrian civil war was started by Qatar because Assad would not allow the construction of a pipeline to bring Qatari gas to Europe-spare me. Qatar’s big LNG investment dramatically reduced its need for a pipeline, and it anticipated being able to sell all it could to a growing Asian market.)

The next few years will be interesting in LNG. I am even more convinced that in 3 to 5 years the market will look nothing like it does today. It will look more like the oil, iron ore, and coal markets. Furthermore, in the near-to-medium term it will be more of a buyer’s market, and indeed, these things are connected. The surfeit of supply that makes it a buyer’s market will catalyze the development of a spot market.

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