Streetwise Professor

July 23, 2017

Robert Mueller: Destroying the Village to Save It

Filed under: Politics,Russia — The Professor @ 7:01 pm

The office of Special Counsel (like its predecessor, the Special Prosecutor) is a Constitutional monstrosity, and hence must be tightly constrained in order that it not run amok, like Frankenstein’s monster.  It must be used in only the most exigent circumstances–circumstances bordering on the existential–because the potential for misuse is so grave.

The dangers of such a position are many.

First, a Special Counsel is likely to be appointed only because deeply political considerations make ordinary prosecutorial and judicial procedures unworkable. Thus, the office is always at risk of becoming intensely politicized, and the instrument of partisan warfare.

Second, even ordinary federal prosecutorial functions are often problematic because of their great power, and the lack of accountability: these problems are even more acute for a Special Prosecutor. The power to prosecute–or even investigate–is the power to destroy: remember Ray Donavan’s lament, “where do I go to get my reputation back?” But prosecutors can–and often do–misuse this power in pursuit of personal agendas including political ambition and an overweening belief in their role as righteous defenders of public integrity (which often leads them to pursue, Javert-like, campaigns against those who offend their sense of justice). This problem is exacerbated by the lack of accountability for overreach. At times even grave misconduct results in little more than a wrist-slap, creating a huge asymmetry: overreach can greatly increase the likelihood of winning a career-advancing victory, but there is very little downside from getting called on it. (Check out how prosecutors behaved in the Ted Stevens case, and how little price they paid for their egregious misconduct.)

This problem is even more acute for a Special Counsel, for which there are virtually no ex ante or ex post accountability measures. The SC is free from any real oversight from the DOJ (like ordinary prosecutors) and runs little legal jeopardy from overreaching. Besides, it’s a temporary job, so getting fired means returning to the sinecure from which one came.

All of the recent uses of this office or its predecessor–Whitewater (something in which I was conscripted into a bit role) and Scooter Libby–give ample evidence of the risks.

Given these fundamental dangers in the office of Special Counsel, if one is to be appointed, his (or her) charge should be drawn extremely narrowly. If during his investigation of that particular matter, the SC finds evidence of other misconduct that is incapable of being addressed by the normal procedures of justice in the US, the burden should be on him to demonstrate a need to expand his authority beyond the originally authorized scope.

Indeed, to mitigate incentive problems, if a SC presents such evidence, unless the new potential offense is extremely closely related to the one in the SC’s original authorization, a new SC should be appointed. This would constrain an SC’s incentive to engage in fishing expeditions with the goal of expanding his power.  By no means should the SC have the ability to determine, by himself, what falls within the scope of his charge.

The early days of the Mueller investigation are providing ample evidence of the dangers of the SC. He was appointed to deal with a matter that is the subject of the most intense partisan controversy in recent memory. His hiring of numerous attorneys who donated to the Democrats does nothing to undercut, and indeed reinforces, fears that he may be partisan. His friendship with a principal player in the controversy who has an axe to grind–Comey–is troubling, and even more so is his refusal to recuse himself from any matter involving Comey. The unending stream of prejudicial leaks also does not speak to investigative integrity, but instead suggests a fundamental unfairness, and a belief that all’s fair in this fight.

But the (leaked!) decision to expand the investigation to matters that have no bearing whatsoever on the supposed subject of the investigation–collusion between the Trump campaign and the Russians to influence the 2016 election–is the true indicator of how perverse Mueller’s inquiry has become. Apparently anything that Trump, or a Trump associate, ever did is fair game. What, exactly, do Trump’s dealings in 2008 have to do with Russian hacking of the 2016 election, or Trump’s possible complicity therein?

Absolutely nothing. Oh, no doubt Mueller will be able to play some Six Degrees–or Ten!–From Vladimir Putin game to establish a “nexus” between Trump dealings in Florida in 2008 and the 2016. But if that’s the standard, there is effectively no limit on investigation at all. And that’s exactly the problem.

Assistant AG Ron Rosenstein did Trump–and the American people–a grave injustice with his already vague and sloppy charge to Mueller. It gave the ex-FBI head plenty of room to run. But Mueller is already going far, far beyond that.

And what’s to stop him? That’s exactly the problem:  Nothing. He is really accountable to no one, so there is nothing to stop him, short of the political equivalent of a nuclear second strike by Trump, such as firing Mueller or perhaps pardoning himself. Yes, those might permit Trump to survive, but they would be catastrophic for his presidency, and for the governing of the country until 2021.

Mueller for all the world is giving an Oscar winning performance of a SC run amok. I don’t see any evidence to reject the hypothesis that he is an agent of the establishment tasked with bringing down the establishment’s bête noire, by any means necessary. There is considerable evidence that confirms that hypothesis, the expansion of the investigation most notably.

And mark well: the fact that Mueller apparently has to expand his investigation strongly indicates that he found nothing whatsoever to support the suspicions that led to his appointment. If he was hot on the trail of Trump-Russia collusion, there would be no need to climb into the Wayback Machine to look into things that bear no relationship, or at best extremely remote relationship, to what he was supposed to be investigating.

No, it looks like Mueller’s motto is “For my friends, anything: for my enemies–the law!”

Maybe I’m wrong. But here appearances are a form of reality. Unless Mueller can show credibly, and indeed, demonstrate beyond challenge, that his actions are not driven by political animus, and a desire to purge DC of an unwelcome invader, if he does take action against Trump it will rip the country apart and inflame all of the divisions that made Trump president in the first place. The 60 plus million Americans who voted for Trump, in large part because they believed that the system was run by self-serving apparatchiks and was inimical to their concerns and interests, will believe that their darkest suspicions were confirmed.

If you think the country is divided now, wait for that. If you think the country is nearly ungovernable now, wait for that.

This represents another category error by the establishment, the elite. They think that Trump qua Trump is the problem, and that if he goes away, life can return to normal for the establishment. As I’ve written since well before the election, that’s complete, utter, bollocks: Trump is a symptom of elite failure and popular alienation caused by elite failure. Destroying Trump will not make it safe for the establishment to go out again. It will intensify the conflict–and crucially, signal that any means fair or foul is acceptable.

In their Trump obsession, and in the appointment of a Special Counsel who appears eager to do their bidding, the establishment is reenacting an infamous moment from Vietnam: they are destroying the village, supposedly to save it.

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Ending CIA Arming of the Syrian Rebels Sparks More Zero Sum Thinking on Russia

Filed under: Military,Politics,Russia — The Professor @ 5:14 pm

The latest establishment freakout is over the Trump administration’s decision to terminate the CIA’s program to arm anti-Assad rebels. This episode displays prominently all of the establishment’s mental defects and psychological obsessions.

The first question relevant in appraising the wisdom of the CIA program is whether it is in America’s interest. The objective of the program was to assist in the overthrow of the Assad regime. Which benefits the US how, exactly?

Overthrowing is merely the first–and in some respects, the easiest–step. What comes next? Who/what replaces the existing regime? We’ve seen this movie in the Middle East, and it has never ended well. The aftermath of Khaddafy’s fall is probably the most illuminating example, and anyone who contemplates it for a moment should be very dubious about what wold happen in Syria post-Assad. After all, many of those the CIA was arming in Syria were either jihadists or inferior in combat power and will to jihadists: a post-Assad Syria would likely either be a jihadist state, or a collection of warring statelets, many (if not most) of which would be dominated by Salafists and provide operational bases for anti-western terrorism.

How is that in American interests? We are approaching our 17th year in Afghanistan, the objective of which was originally, and largely remains, to deny Islamic terrorists a base: so why would we want to pursue a policy that would likely give them one that is much more proximate to vital US interests?

The second question is: even overlooking whether the mission objective is wise, has the operation been successful? Here the answer is a resounding “no!” The anti-Assad forces have been losing ground steadily on the battlefield, and have no prospect of winning going forward. Why reinforce an obvious failure? Especially when many of the weapons supplied could well be turned against the US?

AHA! The establishment responds: the opposition lost because the Russians intervened! We are therefore advancing Russian interests by terminating the program!

This is indeed the focus of most of the establishment criticism: yet more evidence of Trump’s pro-Russian stance!

This argument epitomizes zero sum thinking: something that makes Russia better off makes the US worse off, and vice versa. Therefore, we should do something that (a) is unlikely to “succeed”, and (b) even if it “succeeded” would likely be adverse to US interests, because stopping it pleases Putin.

This is exactly what I mean by “mental defect” and “psychological obsession.” This is not strategic thinking: it is dangerous foolishness driven by a monomaniacal focus on Russia.

There is a sick irony here because zero sum thinking is one of Putin’s defining characteristics. His obsession with the US leads him to pursue things which either are adverse to Russian interests, or which utilize resources that could be much better deployed elsewhere, because he believes inflicting pain on the US somehow helps Russia. Thus, those who criticize the end of the CIA program because it will help Putin are mirroring the object of their hatred.

Bizarre.

And so what can Putin “win”? He maintains influence over a country that was a dung heap and economic basket case even before it was all but destroyed by six years of civil war. Check out how much the USSR threw down the Syrian rathole–fat lot of good that it did them. Putin has basically added another wrecked country that will be a dependent on Russia for economic support for decades to his collection of stellar allies. (Note too Putin’s efforts to make deals with Venezuela, which is hurtling into chaos and destruction.)  It is an ulcer.

If that’s what he wants to do–why get in his way? This seems to e a classic case of “never interrupt an enemy when he is making a mistake.” Oh! He will be able to retain an expand a naval base! Which, (a) he could never support in the event of a shooting war involving the US, and (b) could be obliterated in  a trice. It makes him feel important, but has zero strategic value.

Further, insofar as proving he’s a playa in the Middle East is concerned, this has also come at a cost which hardly seems worth it. He has alienated the Saudis and other Sunni states, and has enmeshed himself with the ally from hell–Iran. Good luck with that, Vlad.

And indeed, Iran seems to be the main beneficiary of Assad’s survival. For this reason, if the debate over supporting the anti-Assad forces takes into consideration his survival’s effect on the balance of power, the focus should be Iran, not Russia. In particular, Assad’s Syria is the vital link between Iran and Hezbollah. Hezbollah’s fortunes would take a serious blow if an anti-Iran regime rules Syria. Which explains why Hezbollah has spent much blood, and Iran has spent much treasure and blood, in fighting for Assad.

Well, truth be told, Hezbollah is not primarily an American concern. Yes, we have unfinished business with them (e.g., the Marine barracks bombing, among other things) but it is not high on the list of threats to the US. Hezbollah is first and foremost an Israeli problem, and arguably is an existential threat or at least a potential one, to Israel.

But if you’ll notice, Israel has pretty much stayed out of the Syrian war. It certainly has not publicly called for his ouster, nor is there evidence that they have worked to support the opposition or to undermine him. Indeed, Israel’s behavior suggests that they think he is the devil they know, and better than the alternative.

Israeli involvement in Syria has been primarily focused on striking direct support for Hezbollah, such as missile shipments from Iran destined for Hezbollah in Lebanon. But Israel has attacked these directly, rather than indirectly by going after Assad.

Note too that the Israelis have not been exercised with Russian intervention in Syria. In fact, Putin and Netanyahu have engaged in several businesslike meetings, and the two countries seem to have an understanding about Syria.

The US should take a clue from the Israelis. If they can live with Assad, the US can too. Yes, Assad is a butcher, and a man who has shown he will commit pretty much any crime to survive. But given that Jeffersonian democracy is not on offer as a successor, and indeed, any successor is likely to be virulently anti-American, a source of terrorism, and as big (or bigger) butcher than Assad, why continue an intervention that has proved a failure on its own terms? And no, “because continuing to arm the rebels angers Putin” is not the answer to that question. At least, it’s not for anyone in possession of his/her faculties, and not gripped zero sum thinking and an unhealthy obsession with Putin. Conditions which, alas, do not characterize the American political class at the moment.

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July 20, 2017

Hyperloop Hype. What Else Do You Expect From Elon?

Filed under: Energy,Politics — The Professor @ 6:59 pm

The classic sign of a con man is that he always responds to information or developments that undermine his previous promises with new!, better! promises. Elon Musk fits this template to a T.

Most of the news from Tesla lately has been less than favorable, and all of it contradicts previous pronouncements. Vehicle shipments have failed to make forecast, and it is  trying to manage expectations about Model 3 production and sales. It is becoming clear that Tesla will face considerable competition in electric cars, and from companies that have a proven ability to build automobiles in quantity with quality–both of which Tesla has yet to do. As a result, the price has cracked considerably in the past few weeks.

So Elon needs a distraction, and another fantastical statement about Tesla would probably be ill-advised. So what to do? Tweet tantalizing trash about Hyperloop, of course! (I have to rely on press reports, because Elon blocked me long, long ago. I’m so proud.)

Musk stated that he had received “verbal govt approval” to build the NY-DC Hyperloop.

Approval from whom, exactly? Elon didn’t say. Approval to do what, exactly? Elon didn’t say.

Forget the what: the whom question is amusing enough. I can imagine a conversation between Elon and an alderman in say, Applegarth, NJ. “Hey. I’d like to drill a tunnel under your town and run high speed capsules carrying passengers underneath it. What do you think?” “COOL! Go for it!” Then Elon whips out his iPhone and tweets that he got “verbal govt approval.”

Just think how many jurisdictions there are between New York and DC. (And how many of those are corrupt as hell.)  This is also the Land of NIMBY. So unless there is some supersecret Regional Subterranean Construction Authority that can approve–verbally, no less–the building of something like Hyperloop, can override local government in NY, NJ, PA, DE, and the Federal government as well, there is no single body to give the approval that Elon claims he has.

But reality doesn’t matter in ElonWorld. He needed something to feed the fanboyz, and he did. And non-fanboyz (e.g., the WSJ) actually treat these utterances seriously.

Note that Elon’s Hyperloop Tweet gets wall-to-wall coverage, but the fact that his brother-in-law Peter Rive has left Tesla to–wait for it–“spend more time with his family” has barely registered in the news.

Rive was a co-founder of Solar City, and was in charge of one of the projects that Elon had hyped earlier–the Solar Roof, which was supposedly about ready to be installed en masse.  Has anyone actually seen such a roof? I thought not. Yet more hype, the failure to deliver on which requires hyping Hyperloop.

Musk has gone through execs like Kleenex during a bad cold. And now he can’t even keep his relatives.

But Elon always has rent-seeking to fall back on. Of all his bullshit, the biggest is his claim that the company does not depend on government largesse: “And I should perhaps touch again on this whole notion of – it’s almost like over the years there’s been all these sort of irritating articles like Tesla survives because of government subsidies and tax credits. It drives me crazy.”

So I presume you sent back those CA ZEV and US subsidy checks, right Elon? For the sake of your sanity.

Thought not.

Take Elon’s pronouncements at face value (I know, I know) and you would think that the impending phase out of Federal subsidies would be great news for his mental health. But given the fact that EV sales have this tendency to collapse when subsidies go away (recent examples being Hong Kong, China, and Denmark), the loss of this revenue stream is a grave threat to the company. But never fear, California, which hasn’t met an idiotic green technology that it won’t throw money at, is getting ready to throw large green Elon’s way:

The California state Assembly passed a $3-billion subsidy program for electric vehicles, dwarfing the existing program. The bill is now in the state Senate. If passed, it will head to Governor Jerry Brown, who has not yet indicated if he’d sign what is ostensibly an effort to put EV sales into high gear, but below the surface appears to be a Tesla bailout.

. . . .

This is how the taxpayer-funded rebates in the “California Electric Vehicle Initiative” (AB1184) would work, according to the Mercury News:

The [California Air Resources Board] would determine the size of a rebate based on equalizing the cost of an EV and a comparable gas-powered car. For example, a new, $40,000 electric vehicle might have the same features as a $25,000 gas-powered car. The EV buyer would receive a $7,500 federal rebate, and the state would kick in an additional $7,500 to even out the bottom line.

And for instance, a $100,000 Tesla might be deemed to have the same features as a $65,000 gas-powered car. The rebate would cover the difference, minus the federal rebate (so $27,500). Because rebates for Teslas will soon be gone, the program would cover the entire difference – $35,000. This is where Senator Vidak got his “$30,000 to $40,000.”

The Tesla Model 3 would be tough to sell without the federal $7,500. But this new bill would push Californian taxpayers into filling the void. It would be a godsend for Tesla.

AB1184 would be a huge expansion of the current Clean Vehicle Rebate Project which has doled out 115,000 rebates for $295 million to buyers of EVs and hybrids since 2010, averaging about $2,550 per rebate.

Under AB1184, hybrids and hydrogen powered cars are not included, and rebates for plug-in hybrids are slashed – perhaps to keep Toyota’s technologies at bay.

Even the current, relatively small Clean Vehicle Rebate Project has been lambasted as a subsidy for the wealthy who can afford to spend $100,000 on a set of wheels. A study, cited by the Mercury News, showed that of nearly 100,000 rebates, over 80% went to Californians with incomes over $100,000. This notion of a subsidy for the wealthy also applies to the federal rebate.

So of course Elon threw himself across the Assembly door in Sacramento, right? He’s bombarding Jerry Brown with calls begging him to veto right?

Yeah, sure. No this smells for all the world like California doing a solid for a local company (and the wealthy Californians that buy its cars). And we know how Elon can work governments to get him to shovel money his way.

In some ways, you can’t blame Elon. As transparent as his shtick is, it seems to work. P.T. Barnum’s dictum about a sucker being born every minute seems to be a low-ball estimate when it comes to Musk’s con. So until it doesn’t work, he’ll keep doing it. Given that reality isn’t an option, what else is he going to do?

If Elon fools you once, shame on him. If he fools you twice, three times, four times . . . shame on you.

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July 17, 2017

Alphonse and Gaston Meet LMEshield–and Provide a Cautionary Tale for Blockchain Evangelists

Filed under: Blockchain,Commodities,Derivatives,Economics,Politics — The Professor @ 7:28 pm

This article isn’t explicitly about blockchain, but in a way it is. It describes the halting progress of the LME’s LMEShield digital warehouse receipt system, and ascribes its problems to the Alphonse-Gaston problem:

“It’s all about liquidity and a tipping point,” said an executive with a warehouse company.

“If Party A is using the system, they can’t trade if Party B is not using the system. It’s a redundant system until market masses are using it.”

After you, Alphonse. No! After you, Gaston! I insist! (Warning! Francophobia and Mexaphobia at the link!)

In essence, LMEshield is attempting to perform one of the same functions as blockchain–providing a secure, digital record of ownership. LMEshield’s technological implementation is not blockchain or distributed ledger, per se. It is a permissioned network operated by a trusted party, and does not employ a distributed ledger, rather than being an unpermissioned network not involving a trusted party, run on a DL.

But it is not that technological difference that is causing the problem: it is the challenge of coordinating the adoption of the use of the system. This coordination problem exists here even though there is an entity–the LME–that has an incentive to promote adoption and build a critical mass so that tipping takes over. Despite a promoter, the virtuous cycle has not taken hold. The adoption problem is even more challenging without a promoter.

This problem will be present in all attempts to create a secure digital record of ownership, regardless of the technology used to achieve this goal.* There is more than one technology to skin this cat, and it is not the technology that will in the end determine whether the cat gets skinned: it is the ability to overcome the coordination problem.**

And as I’ve noted before, if tipping does occur, that just creates another conundrum: tipping effectively creates a natural monopoly (or at best a small numbers natural oligopoly), which raises questions of market power, rent seeking, and governance.

Bitcoin world is providing an illustration of the challenges of governance (as well as raising questions about the scalability of blockchain). Block size has become a big constraint on the capacity to process transactions, leading to a spike in transactions charges and long lags in processing transactions. There are basically two proposals to address this issue: expand the size of blocks, or allow some processing to occur off the blockchain. This has divided Bitcoin world into camps, and raises the possibility that if the dispute is not resolved Bitcoin could experience a hard fork (i.e., split into two or more incompatible networks). Miners (mainly Chinese) want to expand block size: Core (the developers who maintain the software) want to externalize some processing. Both sides are talking their book–go figure–which illustrates that distributive considerations and politicking, rather than efficiency, will have an outsized effect on the outcome.

Keep both LMEshield and the Bitcoin block size debate in mind when somebody offers you pie-in-the-sky, techno-evangalist predictions of how blockchain/DLT Is Going to Change the World. It’s not the technology alone that matters. Indeed, that may be one of the least challenging issues.

Also keep in mind that there is nothing new under the sun. The functions that blockchain/DLT are intended to–or dreamed to–perform are inherent in all transactional settings, including in particular financial and commodity transactions. Blockchain/DLT is a different way of skinning the cat, but the cat has been skinned one way or ‘tother since the dawn of these markets. Maybe in some cases, blockchain/DLT will do it more efficiently. Maybe elements of blockchain/DLT will be blended into more traditional ways of performing these functions. Maybe some applications will prove resistant to blockchain/DLT.

But the crucial thing to keep in mind is that blockchain/DLT will not banish the fundamental challenges of coordinated adoption and governance of a system that scales. And note that if it doesn’t scale, it won’t replace existing systems (which do), and if it does scale, it will pose the same organization, governance, and market power issues that legacy systems do.

*There is no guarantee that DLT is even a technological advance on existing technology. As I discuss further on, some implementations (notably Bitcoin) have exhibited severe problems in scaling. If it don’t scale, it will fail.

**I own a cat. I like my cat. I like cats generally. If colloquialisms offend, this is not the place for you. Particularly colorful if somewhat archaic American colloquialisms that I learned at my grandfather’s knee. Alphonse and Gaston is also something I picked up from my grandfather. Today it would cause an outbreak of fainting, shrieking, and pearl clutching (though maybe not–after all, the characters are Europeans), but if you can’t separate the basic comedic idea from what was acceptable in 1903 (the year of my grandfather’s birth, as well as the date of that clip) but isn’t acceptable today, you’re the one with the issues.

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July 15, 2017

Remember Chinagate?: Trump Jr. Was Betting on Form

Filed under: Politics,Russia — The Professor @ 7:17 pm

The hyperventilating over the Trump Jr.-Veselnitskaya meeting continues. The latest revelation is from a Russian also present at the meeting, lobbyist Rinat Akhmetshin, who claims that Veselnitskaya gave the Trump Jr. party a “plastic folder” (why not a plain brown paper wrapper?) containing “printed documents” (as opposed to what, unprinted documents?) revealing a flow of dirty foreign money into Democratic Party coffers.

According to just about everybody, including the likes of Charles Krauthammer, this is utterly damning. Not only did Trump go to the meeting under the belief he would get damning documents, he actually got them! Proof of collusion!

Did I say hyperventilating earlier? I should have said “paint huffing”: the sound is the same but huffing leads to intoxication and brain damage, which is manifestly evident here. Because it is delusional to think it is somehow scandalous to pursue allegations of foreign money flowing illegally to the DNC during a campaign with someone named “Clinton” at the top of the ticket. It is delusional precisely because allegations that the Clintons and the DNC could be the beneficiaries of illicit foreign donations is hardly beyond the realm of possibility: It is a historical fact. Hello? Remember Chinagate? You know, Johnny Chung. John Huang. James Riady. Maria Hsia. Charlie Trie. Fundraisers in Buddhist temples. The Chinese embassy in Washington coordinating campaign contributions to the DNC–a story broken by the Washington Post, by the way. Veselnitskaya’s claims were not something wildly implausible: they were deja vu. (Which may be precisely why that was her come on.) (And by the way–could you imagine the Category 5 shitstorm that would be raging were there allegations that the Russian embassy in DC had been coordinating donations to the RNC?)

Note that such allegations and the information to substantiate them are not likely to emanate from the Vatican. It is almost inevitable that they would come from a potentially dodgy source with an axe to grind. And the source is ultimately irrelevant as to the truth or falsity of the documents or allegations that the source provides. Reducing all questions of fact to issues of motive-which is true of most of the arguments about Russian influence attempts -is a disreputable tactic, and one that usually means that the facts are pretty damning.

As it happened, Trump Jr. quickly judged that Veselnitskaya could not back up her claims, so he did not pursue the matter.

The nature of Trump Jr.’s supposed sin also sets the head spinning. It is somehow an unpardonable foreign manipulation of US elections to hear out someone claiming to have evidence that one’s opponent is the beneficiary of foreign manipulations? It is foreign interference to receive purported evidence (from foreign sources) about foreign interference?

And that’s somehow worse than accepting–and passing on to law enforcement–unsubstantiated allegations about Trump obtained from a foreign source? John McCain did that with the Steele dossier, which was paid for by (a) at least one of Trump’s Republican opponents, and (b) an as yet unnamed Democratic Party source. Trump Jr. didn’t pay to dig up the alleged dirt: it was brought to him. Trump Jr. rejected what was proffered. McCain (and perhaps others) passed on what they had like the clap.

The Steele dossier was opposition research, meaning that by design it was intended to influence the US election. It was circulated with that intent. It originated from a foreign source, motives unknown. All things which allegedly make the Trump Jr.-Veselnitskaya meeting wrong. Yet the amount of curiosity about the dossier pales in comparison with this Trump Jr. meeting. Do you think Trump Jr. will be able to get away with stonewalling the way Fusion GPS, the intermediary in the Steele dossier, is doing?

No. If the Trump  Jr. meeting demands a full public inquiry, so does the entire genesis and history of the Steele dossier. And I would surmise that the Steele dossier story is far more sordid and damning than Trump Jr.’s ultimately barren dalliance with Veselnitskaya. Which is exactly why a cynic like me believes an examination of the dossier’s provenance is being avoided like the plague–it would not reflect well on many, many members of the political class and federal law enforcement.

Trump Jr.’s meeting was extremely unwise because of the optics, rather than the substance. The dangers of Russian connections were already apparent, although on 9 June 2016 they were not nearly as radioactive as they would become after the Wikileaks release of the DNC emails and subsequently the Podesta emails, let alone after Hillary’s crushing loss and the consequent need for a scapegoat and a means of kneecapping the Trump presidency. It was rash for Trump Jr. (and Kushner) to meet on the basis of such sketchy hints passed on via Z-list promoters: they should have dispatched an intermediary to do a preliminary check, which almost certainly would have led to the same result as the actual meeting did, but which would have avoided the risk–which ultimately crystalized, long after the election–inherent in a face-to-face meeting between a Russian and Trump’s two closest confidents.

But facts are facts, regardless of the source. And if Veselnitskaya indeed had factual evidence of a foreign attempt to influence the US election, her dubious background would not have gainsaid those facts. And given the DNC’s and the Clinton’s history with dirty foreign connections, it was hardly wrong to entertain and investigate assertions that history was repeating.  And if the allegations were proven, they would have demonstrated what is supposedly a horrible sin–foreign interference in the US election. Trump Jr. was betting on form, and by the standards now advanced by his father’s political opponents, performing a public service of policing American elections.

 

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July 11, 2017

I Don’t Think He’ll Be Very Keen. He’s Already Got One, You See

Filed under: Politics — The Professor @ 8:23 pm

If some stranger had offered the Trump campaign the Holy Grail of Hillary Kompromat, when a conspiracy was already in place, the reaction probably would have gone something like this (at the 30-40 second mark).

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Why Would You Meet With a Nobody Promising a Watch, If Putin Already Gave You a Rolex?

Filed under: Politics — The Professor @ 8:06 pm

I presume you have heard, ad nauseum, the hyperventilating about the Donald Trump Jr. meeting with a Russian lawyer, and the email correspondence leading up to it, in which Trump Jr. expressed intense interest in the possibility that the lawyer might be able to pass some dirt on Hillary originating with the Russian government.

I think my rule of thumb that the true significance of a Trump-related revelation varies inversely with the frenzy it sets off holds here. Maybe I need to revise the rule to say the significance varies inversely with the exponential of the cube of the frenzy.

For starters, what campaign wouldn’t check out an offer of compromising material on an opponent–especially one like Hillary? And do you think that Hillary or her campaign would have passed up a similar offer? Hardly. This is the way the game is played. This is the way the game has always been played–by the Clintons in particular. Like Tip O’Neill said: politics ain’t beanbag.

And let’s not forget that the Steele digging expedition, which originated with Republican opponents to Trump but which continued with funding by as yet unnamed (why not? why no curiosity here?) Democratic operatives after Trump and Hillary had clinched their respective nominations, involved paying to get Russian dirt on Trump. So the Black Earth of the Russian steppes is open for the Democrats to plough, but is off limits to Republicans?

If the Democrats (and the media) didn’t have double standards, they’d have no standards at all.

But these things are not the biggest thing. I have yet to see anyone point out the obvious here. Namely, if in June the Trump campaign was openly interested in compromising material allegedly supplied by the Russian government, would completely undermine the dominant collusion narrative. Why meet with a Russian walk-in on the possibility she would produce official Russian kompromat if there was already an active conspiracy between the Russian government at the highest levels and the Trump campaign to obtain such information? Why meet in a public place with some woman off the street whom you don’t know from Adam’s off ox offering you a watch, when Putin has already given you a Rolex?

Yes, there are possible ways to reconcile these possibilities, but they make the story even more convoluted and baroque, and therefore less plausible.

Then there are the inconvenient realities that the woman lawyer wildly exaggerated her connections, and lied about having information. She was not a Russian government lawyer, of one thing. She was a private attorney dangling this bait solely to get a meeting, in order to importune Donnie Jr. on behalf of a sanctioned client to relax the Magnitsky Act. She then blathered about some deal involving adoptions (which she clearly had no ability to swing). Manafort–whom we are told, repeatedly, has been around the Russian block many times–realized she was a fraud: no doubt he has met her kind many a time. The meeting ended quickly, and crucially, there was no second meeting.

In other words, Natalia Veselnitskaya told a tall tale in order to break the ice. Which she then proceeded to fall through.

Veselnitskaya denies telling Trump that she was dishing dirt on Hillary. She could be right. That bait came from the intermediary to set up the meeting. Maybe he was the fabulist. Who knows? Who cares? What we know is that whoever spun it, it was a fable, and the moral of the story is that grifters lie in order to get face time with powerful people. Who knew?

So we know Trump Jr. was open to getting compromising information from Russians. Not shocking. At all.

We also know that he didn’t get any.

We also know that if he was open to it on 9 June, it is highly unlikely that there was at that time a conspiracy between the campaign and the Kremlin to discredit Hillary.

One interesting coda. Trump Jr. released the email chain related to the meeting. This set reporters, including notably one of the four (!) NYT reporters (Adam Goldman, AKA @adamgoldmanNYT) on the story and CNN’s bald, chubby, budding Kurt Eichenwald-lookalike, Hillary pom-pom squad member (I add the personal details so that you can distinguish him from the other members of the CNN cheerleading team) Brian Stelter (@brianstelter), into a foot stomping, breath holding tizzy. How dare he preempt them?!? How dare he make it impossible for them to quote selectively from the emails?!?

Goldman was shocked! Shocked! That personal emails were released. Again: if they had no double standards, they’d have no standards at all.

And by the way–how did the NYT get the emails in the first place? Seems to me that the fact that they did lends credence to Trump’s March assertion that his team was under government surveillance. But that possibility to has escaped attention. Because it doesn’t advance the mission, and indeed undercuts it.

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July 9, 2017

Trump Throws Down the Civilizational Gauntlet In Warsaw

Filed under: History,Politics — The Professor @ 9:15 pm

Trump’s speech in Poland was like a political Rorschach Test, or a word-association exam. If you hear the word “will”, and think Leni Riefenstahl, you just might be a leftist! If you hear the phrase “Western civilization,” and think “white supremacism”, you just might be a leftist! If  you hear the word “God”, and think “Nazi”, you just just might be a leftist!

Trump uttered all these words, and people on the left responded in exactly these ways.

On the right, the reaction was much more favorable. Trump’s themes have been staples among many conservatives and some libertarians for decades, dating back to the Cold War. Now the main perceived threat is not the godless Soviet Union, but the hyper-militant strains of a religion. But most conservatives believe that an ideology inimical to the Western heritage and Western beliefs is on the march now as it was then. Further, there were serious doubts about the will of the West to resist, then as there are today. The past does not repeat itself, but it rhymes, and Trump adapted an old tune to a new day.

Insofar as other issues that exercise some Republicans and allegedly many Democrats are concerned, Trump even criticized Russian actions in Ukraine and Syria. No, not as vigorously as John McCain and his ilk would like, but to McCain anything short of a nuclear first strike against Russia is lily livered appeasement so he can be discounted. Trump also forthrightly committed to Nato Article Five. So that should have put paid to, or at least represented a substantial down payment on, the soft-on-Russia narrative.

But those issues were largely drowned out by the shrieking on the left, and among many Europeans. And the reason why is straightforward. In reality, the left doesn’t care all that much about Russia or the Paris Accord or the like. What it is most heavily invested in, by far, is the culture war. And arguably the most important motivating belief driving the left in this war is the conviction that not only is there not anything special, valuable, or uniquely worth defending about the West, but that the West is actually a malign force that has been and continues to be the source of great evil in the world. The legacy of the West isn’t individual freedom, political democracy, the rule of law, economic and technological progress, and great works of art and literature: it is racism, sexism, colonialism, oppression, and cultural appropriation. It doesn’t need defending–it needs to be transformed past recognition, if not destroyed altogether.

About twenty years ago, a popular chant on college campuses was “hey, hey, ho, ho, Western Civ has got to go.” Ostensibly the chant was about mandatory classes in Western Civilization. But in reality, then and especially now, among many on the left it is Western civilization itself that has to go.

The seemingly strange affinity of the left for Islam, despite its diametrically opposed beliefs on women, gays, family, and the role of religion in society, is more readily understood when you grasp the left’s real enemy–the civilization that Trump stood up for. Islam is a useful ally in the war on that enemy. Given the utter incompatibility in beliefs it’s an insane alliance in the long run, but one can see the short term method in this madness. The enemy of my enemy. And this alliance reveals how the left prioritizes its enemies.

And in Warsaw Trump threw down the gauntlet and rejected all this. He not only refused to surrender, he vowed to fight, and said that there is something worth fighting for. All of which is an anathema to the left, hence the hyperbolic–and Pavlovian–response.

It’s also a very clarifying response. It shows just what the real fault line is. The supposed pressing issues of the day–Russia, climate change, trade–are really just stones that lie within easy grasp to be flung in the fight. What the fight is really about is a much deeper conflict of visions (to lift a phrase/title from Thomas Sowell) about the Western inheritance. Is it something to be conserved (recognizing that a crucial aspect of that inheritance is a capacity for great and rapid change), or is it something to be razed? Trump said the former: the frenzied reaction on the left tells you that they believe the latter.

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July 6, 2017

Once Upon a Time in Annapolis

Filed under: History,Military — The Professor @ 7:20 pm

Please indulge me with a trip down memory lane. Forty years ago today I was inducted as a Plebe at the United States Naval Academy. I’m sure all you all* find that hard to believe. No, not that I went to Navy–the 40 years part 😉

Plebe Summer was a grind, but I can’t say that it was that difficult. There were in fact some high points. I can still get some yucks (not just from myself, but from others) with stories from that summer. Most related to my battles with authoritah! As I’ve often said–including under oath (when some attorney digging for dirt during a deposition asks why I left the Academy–but that’s getting ahead of the story)–Navy is where I learned that I had issues with authority, and that I was a libertarian rather than a conservative. During Plebe Summer I expected a lot of Mickey Mouse, and got it. But I was operating under the false belief that after the ritual was over, things would get serious and the Mickey Mouse would end. Wrong!

I soon learned that the BS was 24/7, and that standing out in any way attracted unwanted attention and harassment from some pretty twisted people. And I do mean twisted. Perhaps my experience was an outlier, but the upperclassman (along with his roommate) who took a special dislike to me was really twisted. How twisted? Killing his entire family in their sleep twisted. I really didn’t want to spend my 20s (and perhaps beyond) having to be subordinate to the likes of them.

During my years at Navy I also became sufficiently confident in my ability that I knew I could make it in many different careers and didn’t need the structure and security of the Navy. My dad was aghast when he learned (from my former high school history teacher, in whom I’d confided) that I was thinking of leaving. He was a classic manager/executive guy, and sat me down for a talk when I was home on spring break leave. In the 21st century, I’m sure he would have prepared a PowerPoint presentation. In that analog age, he instead prepared flip charts laying out the case for staying at Navy. This involved going into nuke power. Unfortunately, he gave this presentation the week after Three Mile Island blew. Really. Talk about your awkward timing!

I told him “Dad, I really appreciate the thought and effort, but that’s just not me.” As a compromise I agreed to attend the summer professional training (PROTRAMID) which involved spending a week at the surface, submarine, air, and Marine training facilities, and to defer making a decision until afterwards. But as soon as I got back to Annapolis, I prepared a resignation letter (a copy of which I found when cleaning out my mom’s house last month).

The usual routine was for a resigning Mid to have an exit interview with the Deputy Commandant. I did, but then I had one with the Commandant, and finally, the Superintendent (which almost never happens). The Supe was a bad-ass: Medal of Honor winner VADM William P. Lawrence. Admiral Lawrence asked me if there was anything he could do to convince me to stay. I cheekily said “guarantee a slot in Naval Intelligence and I will consider it.” (I was really not interested in boats, especially the kind that went underwater, and didn’t have the eyes to fly.) He said that was not legally possible, so I said, “then there is nothing you can do.” We shook hands, then I saluted, did an about face, and left.

Shortly thereafter, I went from alpha (the Academy) to omega (the University of Chicago). Many serendipitous twists and turns and 38 years later, and here I am.

A high point in that saga came about 25 years after I left Navy. My dad said to me one Christmas: “I thought you were making a big mistake, but you made the right choice.” That was good to hear, and I know he was right–the really important thing was that he knew it was right. It was the right choice to go, and it was the right choice to leave. When I look back–which I do seldom, and mainly on days like this–I do so with no regrets, and with pride. Pride at having gone there, but mainly pride at having no reason to regret deciding to leave.

* This is a Texan phrasing that I have adopted because it is so much more precise than “you”.

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SWP Acid Flashback, CCP Edition

Filed under: Clearing,Derivatives,Economics,Financial crisis,Regulation — The Professor @ 6:09 pm

Sometimes reading current news about clearing specifically and post-crisis regulation generally triggers acid flashbacks to old blog posts. Like this one (from 2010!):

[Gensler’s] latest gurgling appears on the oped page of today’s WSJ.  It starts with a non-sequitur, and careens downhill from there.  Gensler tells a story about his role in the LTCM situation, and then claims that to prevent a recurrence, or a repeat of AIG, it is necessary to reduce the “cancerous interconnections” (Jeremiah Recycled Bad Metaphor Alert!) in the financial system by, you guessed it, mandatory clearing.

Look.  This is very basic.  Do I have to repeat it?  CLEARING DOES NOT ELIMINATE INTERCONNECTIONS AMONG FINANCIAL INSTITUTIONS.  At most, it reconfigures the topology of the network of interconnections.  Anyone who argues otherwise is not competent to weigh in on the subject, let alone to have regulatory responsibility over a vastly expanded clearing system.  At most you can argue that the interconnections in a cleared system are better in some ways than the interconnections in the current OTC structure.  But Gensler doesn’t do that.   He just makes unsupported assertion after unsupported assertion.

Jeremiah’s latest gurgling appears on the oped page of today’s WSJ.  It starts with a non-sequitur, and careens downhill from there.  Gensler tells a story about his role in the LTCM situation, and then claims that to prevent a recurrence, or a repeat of AIG, it is necessary to reduce the “cancerous interconnections” (Jeremiah Recycled Bad Metaphor Alert!) in the financial system by, you guessed it, mandatory clearing. Look.  This is very basic.  Do I have to repeat it?  CLEARING DOES NOT ELIMINATE INTERCONNECTIONS AMONG FINANCIAL INSTITUTIONS.  At most, it reconfigures the topology of the network of interconnections.  Anyone who argues otherwise is not competent to weigh in on the subject, let alone to have regulatory responsibility over a vastly expanded clearing system.  At most you can argue that the interconnections in a cleared system are better in some ways than the interconnections in the current OTC structure.  But Gensler doesn’t do that.   He just makes unsupported assertion after unsupported assertion.

So what triggered this flashback? This recent FSB (no! not Putin!)/BIS/IOSCO report on . . . wait for it . . . interdependencies in clearing. As summarized by Reuters:

The Financial Stability Board, the Committee on Payments and Market Infrastructures, the International Organization of Securities Commissioners and the Basel Committee on Banking Supervision, also raised new concerns around the interdependency of CCPs, which have become crucial financial infrastructures as a result of post-crisis reforms that forced much of the US$483trn over-the-counter derivatives market into central clearing.

In a study of 26 CCPs across 15 jurisdictions, the committees found that many clearinghouses maintain relationships with the same financial entities.

Concentration is high with 88% of financial resources, including initial margin and default funds, sitting in just 10 CCPs. Of the 307 clearing members included in the analysis, the largest 20 accounted for 75% of financial resources provided to CCPs.

More than 80% of the CCPs surveyed were exposed to at least 10 global systemically important financial institutions, the study showed.

In an analysis of the contagion effect of clearing member defaults, the study found that more than half of surveyed CCPs would suffer a default of at least two clearing members as a result of two clearing member defaults at another CCP.

This suggests a high degree of interconnectedness among the central clearing system’s largest and most significant clearing members,” the committees said in their analysis.

To reiterate: as I said in 2010 (and the blog post echoed remarks that I made at ISDA’s General Meeting in San Fransisco shortly before I wrote the post), clearing just reconfigures the topology of the network. It does not eliminate “cancerous interconnections”. It merely re-jiggers the connections.

Look at some of the network charts in the FSB/BIS/IOSCO report. They are pretty much indistinguishable from the sccaaarrry charts of interdependencies in OTC derivatives that were bruited about to scare the chillin into supporting clearing and collateral mandates.

The concentration of clearing members is particularly concerning. The report does not mention it, but this concentration creates other major headaches, such as the difficulties of porting positions if a big clearing member (or two) defaults. And the difficulties this concentration would produce in trying to auction off or hedge the positions of the big clearing firms.

Further, the report understates the degree of interconnections, and in fact ignores some of the most dangerous ones. It looks only at direct connections, but the indirect connections are probably more . . . what’s the word I’m looking for? . . . cancerous–yeahthat’s it. CCPs are deeply embedded in the liquidity supply and credit network, which connects all major (and most minor) players in the market. Market shocks that cause big price changes in turn cause big variation margin calls that reverberate throughout the entire financial system. Given the tight coupling of the liquidity system generally, and the particularly tight coupling of the margining mechanism specifically, this form of interconnection–not considered in the report–is most laden with systemic ramifications. As I’ve said ad nauseum: the connections that are intended to prevent CCPs from failing are exactly the ones that pose the greatest threat to the entire system.

To flash back to another of my past writings: this recent report, when compared to what Gensler said in 2010 (and others, notably Timmy!, were singing from the same hymnal), shows that clearing and collateral mandates were a bill of goods. These mandates were sold on the basis of lies large and small. And the biggest lie–and I said so at the time–was that clearing would reduce the interconnectivity of the financial system. So the FSB/BIS/IOSCO have called bullshit on Gary Gensler. Unfortunately, seven years too late.

 

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