Streetwise Professor

May 27, 2017

Comey Channels Maxwell Smart

Filed under: Politics — The Professor @ 6:24 pm

So, the new version of the Comey rationale for dropping the Hillary investigation is that he knew the document claiming that Loretta Lynch had promised a Clinton staffer that the email investigation would go away was disinformation, but it didn’t matter! He had no choice but to drop the investigation lest the disinformation be leaked in order to discredit Lynch if she dropped the investigation. Or something:

Sources close to Comey tell CNN he felt that it didn’t matter if the information was accurate, because his big fear was that if the Russians released the information publicly, there would be no way for law enforcement and intelligence officials to discredit it without burning intelligence sources and methods. There were other factors behind Comey’s decision, sources say.

What complete and utter bullshit.

The I’d-tell-you-but-then-I’d-have-to-kill-you-because-the-information-is-from-super-secret-sources dodge is getting so, so tiresome, especially when the people who tell us this leak like sieves. Such a convenient way of telling partial truths.

But it gets better! Come on, think about it: the Russians would only plant disinformation where they knew it would be found, that is, in communications they already knew were compromised.  What’s the point of passing disinformation through a super-secure channel? You WANT the disinformation to be uncovered, and hence will broadcast it over channels you know the target is monitoring. So revealing this information would have compromised exactly nothing.

Meaning that the new story is inherently contradictory, and an insult to our intelligence.

And please: you think there is no way for the FBI to show that a document is disinformation through independent means? Especially when they knew of its existence in advance of any leak?

Comey (and/or his leaky mouthpieces) remind me of Maxwell Smart. When one stupid story implodes, they try another: “Would you believe . . . ?”

“Would you believe, I knew the story was disinformation, but because of its existence I had to torpedo the Hillary investigation anyways?”

No. We find that hard to believe, Mr. Smart, I mean Mr. Comey.




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May 25, 2017

OPEC and Inventories: An Exercise in Game Theoretic Futility

Filed under: Commodities,Economics,Energy — The Professor @ 11:37 am

OPEC met today, and agreed to extend its output cuts for another nine months. OPEC’s focus is on “rebalancing the market,” that is, on inducing a decline in world oil stocks to a level well below their current inflated value. This is far easier said than done, and indeed may be impossible because of the inability of OPEC to commit to a path of future output. This is because inventory changes result from changes in the temporal supply and demand balance.

In a competitive market, stocks accumulate when there are unexpected increases in supply or declines in demand, and crucially, these shocks are expected to be highly transitory. Similarly, market participants draw down on stocks when there are unexpected declines in supply or increases in demand that are expected to be highly transitory.

The “transitory” part of the story is very important. It makes sense to store when expected future supply is less than current supply, i.e., when future scarcity is greater than current scarcity. It makes sense to draw down on storage when future scarcity is expected to be low relative to today: why carry inventory to a time of greater abundance? Markets move things from where/when they are abundant to where/when they are scarce. Highly persistent shocks to supply and demand don’t affect the temporal balance, and hence to don’t lead to temporal reallocations. Temporary shocks (or shocks to future supply/demand) also change the temporal balance, and lead to inventory changes.

In my empirical work on the copper market (where inventory data is pretty good), I document that a net supply shock with a half-life of about 1 month drives inventory changes. Much more persistent shocks (e.g., those with a half-life of a year) have virtually no impact on inventory.

Inventories can also decline if expected future supply rises, or expected future demand declines. An increase in expected future supply reduces the future value of oil, and makes it less valuable to hold oil today for future use. Or to put it another way, it is desirable to smooth consumption, so if expected future supply (and hence future consumption) goes up, it makes sense to increase consumption today. This can only be done by drawing down on inventory. (Time travel that would allow bringing the abundant future supply back to the present would do the same thing, but alas, that’s impossible.)

OPEC’s desire to cause a drawdown in inventory would therefore require it to commit to a path of output. Further, this path would involve bigger cuts today than in the future in order to cause a temporal imbalance involving an increase in future supply relative to current supply.

But it is unlikely that this commitment could be credible, precisely because of the reason that OPEC gives for fretting about inventories: that they constrain its pricing power. Assume that inventories do drop substantially. According to its own logic, OPEC would feel less constrained about cutting output even further because non-OPEC supplies (in the form of stocks) have declined. Thus, if inventories indeed fall, OPEC’s logic implies that it would cut output further in the future.

But this path is inconsistent with the path that would be necessary to induce the inventory decline in the first place. Indeed, market participants, looking forward to what OPEC would do in the event that stocks were to decline substantially, would choose to hold on to inventories rather than consume them. Meaning that OPEC would fail in its objective of reducing stocks. In the game between OPEC and other market participants, OPEC’s own rhetoric about inventories and supply/demand balance severely undercuts its ability to cause others to consume inventories rather than continue to hold them.

In sum, OPEC is likely to have little if any ability to influence inventories. To influence inventories, it would have to commit to an output path, but that commitment is not subgame perfect/time consistent.

Instead, inventories will be driven by factors outside of OPEC’s control, namely, unexpected transitory changes in supply and demand. But the effect of even those shocks will depend on how market participants believe OPEC will behave when inventories are low. The supply changes will mainly result from shocks to non-OPEC producers (e.g., US shale producers) and to politically unstable OPEC nations like Libya, Nigeria, and Venezuela. Inventory changes may also result from information about the durability of output cut agreements and cheating: a surprise increase in the estimates of future cheating would tend to cause inventories to decline today. Thus, perversely from OPEC’s perspective, its wish of lower inventories may come true only when it is widely believed that OPEC output discipline will soon collapse.

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Maxine Waters Plays Six Degrees of Donald Trump, With Hilarious Results

Filed under: Politics,Russia — The Professor @ 10:48 am

The Six Degrees of Donald Trump/Russia game has reached new peaks of hilarity. Let by noted genius Maxine Waters (when the stupid stick hit Maxine, the stick got stupider), a group of Congressional Democrats are demanding release of Deutsche Bank records relating to Trump loans because . . . Deutsche Bank has been implicated in a money laundering scheme in which billions were tunneled out of Russia. QED!

For the record, Deutsche Bank has about 100,000 employees, and operations all over the world. The people handling commercial banking transactions in the US for Donald Trump were definitely not also manning the DB equities desk in Moscow, or the Russia equities operations in New York and London–which is where the money laundering scheme was executed. And what is the connection between the beneficiaries of the money laundering scheme and the Kremlin?

Deutsche Bank is a sprawling operation with loose controls, as its involvement in virtually every financial scandal in recent years (gold and silver fixings; IBOR manipulation; sanctions violations; mortgage violations; tax evasion) attests. The scheme bouncing around in the void of Maxine’s skull would require centralized coordination and control and oversight across completely unrelated lines of business that Deutsche Bank has conspicuously lacked for a very long time.

Also, Deutsche Bank does business in every major country of the world–and some not so major ones. Its lending and trading operations touch myriad corporations, governments, and individuals. Some of those touches are of dubious legality (as witnessed by the sanctions violations). To connect two dots of the millions in the Deutsche Bank orbit, and ignore the rest, is beyond absurd.

The ostensible plot took place in 2012-2015. Um, in 2012-2014, Trump was not a candidate: he was not part of the political conversation at all then. Even when he declared in 2015, it was considered something of a joke. Actually, strike “something of.” A 2012-2014 Trump trade would have been about a .01 delta call. If that. Deep, deep out of the money.

Maxine suggests that the Russian government may have guaranteed Trump loans. Hilarious! For a big part of this period, Russia was facing a financial crisis and deep recession, and was having to worry about its own companies, rather than cultivate Trump. In 2014 sanctions were followed by an oil price collapse. I remember the joke that 62 was the magic number for Russia: Putin would turn 62, the ruble would hit 62, and oil would trade at 62. That was wildly optimistic. Yes, Putin turned 62 but the ruble hit 80 and oil went under $30. All major Russian companies were feeling the strain, and Putin was only showing love to his buddies like Timchenko and the Rotenbergs, who were hit by sanctions.

These are not serious people, Maxine et al. Using the fact that they gargantuan financial institution like DB dealt with Trump and dirty Russians to claim a nexus between Putin and Trump shows how completely unserious they are.


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May 24, 2017

Just When You Think the Comey Saga Couldn’t Be More Bizarre

Filed under: Politics — The Professor @ 8:04 pm

Today the WaPoop ran what I think is supposed to be a defense of James Comey’s absolution of Hillary in July 2016. You see, Comey supposedly learned of a clandestinely obtained Russian document purporting to disclose the contents of an email between Debbie Wasserman Schultz and a member of Soros’ Open Society Foundation in which DWS related a conversation between Attorney General Lynch and a Clinton campaign staffer in which Lynch said that the FBI investigation of the Hillary emails would go nowhere.

Oh my God! A third hand representation (with Russians at the third remove, no less) of a conversation in which the nation’s chief law enforcement officer discusses subverting the investigation of Hillary Clinton that Comey was leading. What to do? What to do? Well, it’s obvious, isn’t it? Terminate the Hillary investigation!

No. I am not making that up:

Current and former officials have argued that the secret document gave Comey good reason to take the extraordinary step over the summer of announcing the findings of the Clinton investigation himself without Justice Department involvement.

Comey had little choice, these people have said, because he feared that if Lynch announced no charges against Clinton, and then the secret document leaked, the legitimacy of the entire case would be questioned.

. . . .

“It was a very powerful factor in the decision to go forward in July with the statement that there shouldn’t be a prosecution,” said a person familiar with the matter. “The point is that the bureau picked up hacked material that hadn’t been dumped by the bad guys [the Russians] involving Lynch. And that would have pulled the rug out of any authoritative announcement.”

So let me get this straight. If there were no charges, and the document leaked, people would suspect the investigation was tainted, so dammit, just better shut the whole investigation down. He had no choice! No choice! Free will is dead!

The article says that the veracity of the document was fiercely debated within the FBI. Well I would hope so! Does the FBI usually rely heavily on 3d hand stories retailed by those the Bureau claims suborn American democracy daily?

But let’s take the claim that Comey took the document seriously at face value. If so, rather than shut down the investigation of Hillary, he should have opened a no-holds-barred investigation of the Attorney General. Schultz, the Open Society person, and the Clinton staffer should have been put under intense scrutiny with all the tools at the FBI’s disposal, culminating in surprise questioning of those named in the Russian document. Comey should have found some way of preventing Lynch from shutting him down in the event she was tipped. This supposed paragon of rectitude (which he says he is, repeatedly) should have recognized this allegation for the brazen affront to the American polity that it represented, and investigated fearlessly (he also tells us he’s fearless, you know), and let the chips fall where they may.

The last thing he should have done is to do Lynch’s supposed dirty work of stonewalling the investigation for her. But per the WP, that’s exactly what he did.

Or, if he didn’t believe the document, he should have disregarded it in evaluating his course of action regarding Hillary, except to prepare a strong analysis detailing the document’s deficiencies, in order to answer the charge of coverup in the event that the document was leaked.

I see no possible reason why he should have done what he allegedly did, regardless of his opinion about the veracity of the document. This late-in-the day explanation makes no sense whatsoever.

Since it makes zero sense, one wonders why this defense is being proffered now, and by whom. If it is Comey or his surrogates or “friend”, he’s an even bigger douchenozzle than even I had imagined possible. Because it makes him look stupid, or craven, or both under any assumption about the truth of the document at issue, and his beliefs about the truth of the document.

If he believed it true, and it wasn’t: (a) he was credulous in believing such a dubious source, and (b) he was beyond derelict in his duty by failing to investigate the attorney general given his beliefs: if the document was false, the investigation would likely have shown that, and the Hillary investigation could have taken its course.

If he believed it to be true, and it was, he was beyond derelict in his duty by failing to investigate the attorney general: if the document was true, his dereliction let a rogue AG derail an important inquiry, and was in fact the instrument of that derailing.

If he believed it to be false, he was derelict in his duty by dropping the investigation of Hillary on such flimsy grounds. Indeed, he should have undertaken a thorough examination of its veracity, which would have necessarily involved an investigation of those identified in it.

Indeed, Comey looks so bad here the most logical explanation is that it came from his enemies, either in the Bureau, or in the administration (relying on people in the Bureau).

But regardless of where it came from, the story could be true. Given its explosive implications, Mr. James Comey should be questioned closely and indeed ferociously about it. If what the WaPoop reports is even remotely close to the truth, Trump vastly understated the man’s deficiencies when he allegedly called Comey a “nut job.” For if the story is remotely close to the truth, Comey is a nut job who turned a blind eye to what he believed to be a colorable case of obstruction of justice by the Attorney General of the United States, and essentially ensured that obstruction of justice would succeed by his own doing. And if Comey now has grave concerns about Trump asking him (again, allegedly) to let the Flynn matter pass, how could he have any less grave concerns about Lynch promising that the Hillary email matter would indeed pass?

I didn’t think the entire Comey-Hillary-Lynch-Trump story could get more bizarre. I was wrong. Very wrong.



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May 23, 2017

A Bilious Harpy Gets Trump’s Riyadh Adventure Exactly Wrong

Filed under: Politics — The Professor @ 11:10 am

There are things to criticize about Trump’s recent extravaganza in Saudi Arabia. Most notably, the good vs. evil rhetoric regarding Iran was redolent of Bush’s Axis of Evil approach, and sits uneasily with the president’s claimed commitment to foreign policy realism. On that, in the end, I will judge more on the basis of actions than words, especially given the frequent disconnect between Trump’s words and deeds.

There’s criticism and skepticism, and then there is the drivel emanating from Anne Applebaum and her ilk. The bilious harpy could barely contain herself in attacking Trump’s trip in a WaPoop doped (pronounced “dope ed”). She shrieked out six criticisms.


It was a very strange choice for a first trip abroad. The past four American presidents, two Republicans and two Democrats, made their first trips to either Mexico and Canada, countries that are close trading partners, close allies, compatible democracies and of course neighbors. Trump chose, instead, to make his first presidential visit to an oligarchic kleptocracy which forces women to hide their faces and forbids them to travel without a male guardian’s permission.

Annie, babe: this is your best shot? This is what you led off with? Seriously. For one thing, previous presidents could be criticized for timidity, not to say political cowardice, by making a safe, conventional first trip. Trump, conversely, scorned the training wheels and dove right into the US’s most vexing foreign policy challenge.

As for the unsavory nature of the Saudi regime, well the oil ticks are indeed repulsive in many ways, but enlightened states are rather in short supply in the region–which is exactly why it is the US’s most vexing foreign policy challenge. We have to deal with the present realities, rather than stand aloof and let oligarchic kleptocrats have free rein. As for Saudi culture, (a) it is quite beyond the capability of the US to change in the slightest, (b) any attempt to do so will only stir up trouble (and terrorism), and (c) it is not our place to do so even if we could or there wouldn’t be blowback. But perhaps Anne is making an argument for restricting Muslim immigration into the US.


It was a very strange place to speak out against Islamist extremism. Although Saudi Arabia is afraid of some forms of Islamist extremism, it supports others. Saudi Arabia sponsors extremist Wahabi mosques and imams all over the world; Osama bin Laden was a Saudi citizen, as were 15 of the 19 9/11 hijackers.

Bravo, Anne. 180 degrees from reality! No: Saudis are exactly who need to hear stern talk about terrorism, and the US commitment to fight it. Trump actually uttered the words “Islamist extremism” in his speech as delivered, and his prepared remarks included “Islamic extremism”: supposedly exhaustion accounts for the slightly different (though potentially crucial) distinction. This is about as close as one can imagine a president calling out the sponsors of terrorism on their home turf, and is a welcome change from Obama’s reluctance to utter anything similar even from the comfort of US soil. This is also an important signal that the bonhomie–and billions in arms sales–of the Riyadh meetings do not reflect a denial of important truths. There is an implicit conditionality here, which is important.


The sword dance. Every American president has met with his Saudi counterparts, and of course the stability of Saudi Arabia, as well as its oil, is an important U.S. security concern. But until now American presidents made it clear that, while we have to deal with Saudi leaders, we don’t endorse their culture. Trump, Secretary of State Rex Tillerson and others in the delegation did exactly that, by participating in this sinister all-male dance.

Ever heard the phrase “when in Rome,” Anne? Participating in a farcical (decidedly non-aquatic) ceremony involving strange men (no women!) distributing swords is hardly an endorsement of Saudi culture–or of the basis of their government. It’s a trivial indulgence which can grease the wheels in down-to-business bargaining. Note that Tillerson said this wasn’t his first sword dance: he knows that’s how it’s done. When Trump holds an all male cast sword dance in the Oval Office, wake me.

And by the way, doesn’t this cut against the narrative that Trump is an anti-Muslim hater?


Ivanka Trump’s “outreach” to women entrepreneuers. Saudi women must cover their heads and often their faces. They cannot drive cars, cannot (see above) travel without the permission of male guardians and are deprived of legal rights and education. In that context, Ivanka Trump’s promotion of female “entrepreneurs” looked like a cynical public relations gambit, which of course it was. The announcement that Saudi Arabia and the United Arab Emirates will donate money to her fund was a “pay to play” far more blatant than anything Hillary Clinton ever dreamed of.

Note that this isn’t “her fund”: this is a World Bank initiative. Further, and more importantly, would it be better that we completely ignore the issue of women in KSA? Yes, it is a small step, especially in light of the retrograde treatment of women not just in Saudi Arabia but the Muslim world generally. But it is something, and in particular it is something that contradicts Annie’s claims about endorsing Saudi culture. Again, we ain’t gonna change it, and it ain’t our place to change it.


Tillerson talking about human rights in Iran. Yes, Americans are often hypocritical about where and when they promote human rights. But to denounce human rights in Iran while standing in Saudi Arabia, a place where there is no political freedom and no religious freedom, brought hypocrisy to a whole new level. Better not to have said anything at all.

It’s called realpolitik. There are books about it. Read one, Anne. And yet again, it is futile, and indeed counterproductive, to make major strategic decisions on the basis of human rights in the ME. Because there ain’t any, anywhere. This should be about advancing American interests, and hold the iPhone, but hypocrisy is the essence of diplomacy, especially in the Middle East.

It’s also interesting that Anne and her ilk don’t point out how this flatly contradicts the Trump-is-Putin’s-bitch narrative. Russia and the Saudis are adversaries in the Middle East. Russia and Iran are allied in the Middle East. Trump taking a hard line against Iran and siding with the Saudis is diametrically opposed to Russian policy in the Middle East.

Sixth, my favorite:

Tillerson holding a news conference for foreign press only.The U.S. press corps was not invited. Presumably this was because the White House doesn’t want Americans to find out what the president was doing in Saudi Arabia?

Good! This is a welcome, and well-deserved “fuck you!” It never ceases to amaze me that the media engages in unrelentingly hostile coverage of the administration–coverage that ranges from the tendentious to the libelous–and yet expects to be indulged and pampered. Yes, Trump (and Tillerson) are breaking the Washington rules–great! The rules are stacked in favor of the sleep deprived, dehydrated, over-caffeinated, boozy, junk-food eating, low-brain function narcissists who call themselves “journalists,” and bore us with their conceit that they are the guardians of the republic. They deserve a good smacking, and their wails and laments are music to my ears. I hope they get another. And another.

And as for finding out what happened, um, if we were kept in the dark then how did Anne know about items 1-5 of her screed? Believe me, we lost nothing–and probably gained–by the inability of aforementioned sleep-deprived, dehydrated, etc., journalists to ask some snarky questions. They can fuck off presently, and kudos to Tillerson for telling them to do so in not so many words.

Anne Applebaum is the poster child for the elite whose serial failures and utter cluelessness made Trump president. What happened in November was first and foremost a reaction to that elite. And Anne shows daily that like the Bourbons, she has learned nothing and forgotten nothing. There are substantive grounds to criticize Trump on most things, including his Middle East policy but all Anne Applebaum has done is rant dishonestly about the least objectionable, and often praiseworthy, things that Trump did in Riyadh.


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May 17, 2017

Another IC Kneecapping

Filed under: Politics — The Professor @ 3:31 pm

In signal processing, if the signal to noise ratio is small, one puts very little weight on a particular noisy signal. Similarly, in regression analysis, when the independent variable is very noisy, one reduces sharply the coefficient towards zero.

These things are worth keeping in mind in the current political environment. Alleged “bombshell” stories are so noisy that they shouldn’t be emphasized: they should be interpreted with great skepticism.

Case in point: the “Trump disclosed intelligence to the Russians story.” Regardless of what Trump told the Russians, one thing is sure: whatever ISIS would have learned had the allegation not been leaked, it learned vastly more as the result of the leaking of the details of the intelligence that (per McMaster) Trump discussed with Lavrov in fairly general terms. Indeed, this is one situation where US and Russian interests are fairly aligned: even if Trump said “an Israelis spy in an ISIS cell in Raqqa [or wherever] told us about a plot to put bombs in laptops” what incentive would the Russians have to pass along that information to ISIS? I also note that Russia and Israel have been in close communication for months now, making it not unreasonable to assume that Israel may have provided similar intelligence to Russia independently. So the odds that information that was contained in the WaPo would have made it to ISIS was about zero . . . until the WaPo ran the story. At which point the probability became 100 percent.

Regardless of whether Trump’s disclosure was prudent, it was almost certainly legal. The leak was both grotesquely imprudent and illegal.

This is another intelligence community kneecapping. No doubt about it. And it is sick and perverse that the supposed justification for leaking–that Trump endangered national security–resulted in far more damage to national security than whatever Trump revealed to Lavrov. But perhaps in the mind of some IC jackass, Trump is such a grave threat to national security that any means necessary are acceptable if he is driven from office. But that is not the call of the jackass to make.

Another case in point: the Comey memo. First, apropos my earlier post, there is no reason to believe that Comey is an a disinterested actor here. Since this is he said/he said, Comey’s alleged representation should be treated with skepticism. Second, and relatedly, context matters. A clip quote could have very different interpretations depending on the conversation that led up to it, and which followed. So a selective leak from one memo could give an impression that is 180 degrees from what actually happened.

Both stories–as well as many more–lead me to another conclusion. I will put virtually no weight on any story that relies on anonymous sources, and particularly on anonymous sources quoting selectively from documents. If these matters are so grave, and the allegations are so damning, the party in possession of the information should reveal it publicly. Particularly if s/he is a “public servant.” Fine–perform a public duty and make a public allegation on which you can be questioned.

Indeed, the very nature of anonymous leaks casts doubt on my initial analogy to signal processing. In that context, the noisy signal differs from the true one by noise that could be positive or negative. In the current situation, it is highly unlikely that the errors are random: they are chosen to distort. They are more likely deliberate, and strongly negatively correlated with the truth. So in the random noise case you believe the direction of the signal, but reduce your estimate of its magnitude: in the negative correlation case, you actually believe the opposite.

Maybe all this stuff about Trump is true. If so, I would like to know. If so, those in the possession of the information have nothing to lose by going public with it: indeed, they would likely be lionized as heroes and saviors of the Republic. The fact that they choose to backshoot from the bushes instead strongly suggests that what they are leaking cannot withstand a full and fair airing.

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May 14, 2017

Imperial Bureaucracy vs. Imperial Presidency

Filed under: Politics — The Professor @ 6:43 pm

For the non-partisan, an evaluation of the Comey firing depends crucially on one’s views of the independence, probity, and politicization of the FBI generally and Comey specifically, and of the intelligence bureaucracy. (Anti-Trump partisans, contrary to the previously stated views of many, adamantly say that the FBI is independent, upright, and apolitical in its search for justice. Those latter day conversions may be discounted.) There is sufficient reason to have doubts on all scores to make judgment difficult.

Watergate analogies, notably Nixon’s firing of Archibald Cox, are all the rage these last few days. This serves mainly to demonstrate the left’s impoverished historical palette. Other episodes from that era and somewhat before demonstrate clearly that the powers of the FBI, and individual FBI personnel, can be put to malign purposes, or misused. J. Edgar Hoover maintained confidential files on most important politicians, including the Kennedys, and is widely believed to have used this information to intimidate–blackmail–people into doing his bidding. Mark Felt, associate director of the FBI, was Deep Throat–leaking information to the Washington Post that culminated in Nixon’s resignation, for motives unknown.

So if one wants to appeal to historical precedents, there is plenty of reason to believe that the FBI is capable of dirty dealing in pursuit of the political or personal agendas of its leadership.

To which some might object that Comey is no J. Edgar Hoover, but is instead a straight shooter intent on seeing justice done. Well, that’s exactly how Hoover saw himself. Indeed, such a crusading mindset, and an excessive self-regard in the righteousness of one’s motives, are dangerous precisely because they make it quite easy to rationalize that violating procedures, norms, and even laws is acceptable, if done in pursuit of a higher cause.

The stream of leaks from the intelligence community of which the FBI is a part–which, interestingly, subsided to a trickle in the aftermath of Trump’s incendiary “wiretapping” tweets in March–also provides grounds for suspicion about whether the IC is pursuing its own agenda (or agendas).

Today’s appearance of the execrable James Clapper on Jake Tapper’s State of the Union provides yet further reason to be skeptical of the objectivity of the IC:

CLAPPER: Well, I will just say that the developments of the past week are very bothersome, very disturbing to me.

I think, in many ways, our institutions are under assault, both externally — and that’s the big news here, is the Russian interference in our election system. And I think as well our institutions are under assault internally.

TAPPER: Internally from the president?

CLAPPER: Exactly.

TAPPER: Because he’s firing the checks and balances?

CLAPPER: Well, I think, you know, the founding fathers, in their genius, created a system of three co-equal branches of government and a built-in system of checks and balances.

And I feel as though that’s under assault and is eroding.

Is Clapper that ignorant, or is he just mendacious? (“Both” is the likely answer.) For that answer is not just wrong, but outrageously so. This came up in the context of Comey’s firing. The FBI is part of the executive branch, and even Comey acknowledged that he served at the president’s pleasure. Meaning that Comey’s axing raises no separation of powers issues whatsoever: zero, zip, nada. Further, time and again in the hundred days plus of his administration, Trump has been checked and balanced by other branches of the government, as the “founding fathers, in their genius” intended. Indeed, if there has been a violation of separation of powers, it has come from federal district judges and the Ninth Circuit, in their rulings on the travel ban.

And before Clapper presumes to lecture about violations of the separation of powers, he should acknowledge that an executive branch officer lying to Congress (which he was, and did) is a pretty clearcut violation of the system of checks and balances. He has absolutely no standing to make judgments on this matter.

But perhaps Clapper believes that the bureaucracy is a co-equal branch of government, even though in their genius the founders never conceived of such a thing. And such a mindset is quite prevalent in the swamp, and which is why although there is reason to  have deep reservations about Trump–as there were reasons to have deep reservations about Obama, and Bush, and [insert some president’s name here]–we should be deeply suspicious about the motives (and the competence) of a largely unaccountable part of the government which is in near rebellion in part because the president held one of its leading lights accountable. It may be politically expedient to pretend that the FBI and the intelligence bureaucracies are beyond reproach when they are at odds with Trump: it is also a a historically idiotic belief. History shows that the FBI specifically, and the bureaucracy in general, is capable of abusing its powers. Indeed, an imperial bureaucracy is more to be feared than an imperial presidency.


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May 12, 2017

Trump Axes Comey, But Hillary (and Bill) Put His Head on the Block

Filed under: Politics — The Professor @ 9:37 am

Trump’s firing of FBI director James Comey has released yet another frenzy of hysteria in The Swamp. One has to take one’s amusement where one finds it these days, and in this episode that would be from watching Democrats and anti-Trumpers who only days ago were calling for Comey’s head in a basket, now shrieking laments and rending garments because . . . Comey’s head is in a basket. If I roll my eyes any more I am going to detach a retina.

One other source of amusement is that Hillary, who couldn’t shut up about Comey since the election, has been silent since he got it in the neck.

The reigning narrative is that Trump is attempting to subvert justice by impeding the investigation of his ties with Russia. If this is what he was thinking, he is sadly deluded. Congressional investigations continue, and if anything, firing Comey will galvanize them. Further, the FBI personnel actually doing the investigation are likely to continue to do so, and if they are indeed onto something the firing will only make them more suspicious and motivated.

Trump being Trump, I think the truth is probably very different. Two things stand out to me. First, Trump stated in his letter that Comey had personally absolved him of the Russian accusations on three separate occasions. (Today Trump doubled down on that, saying Comey better hope there are no “tapes” of their conversations if he was thinking of leaking a denial.) Second, Trump is/was reportedly furious at the way Comey absolved Hillary last summer. Putting those pieces together, my guess is that it went down something like the following. Comey tells Trump that he is not under investigation and/or that there is no evidence of Russo-Trump collusion. Trump demands that Comey state that publicly. Comey demurs, saying that would be a violation of procedure. Trump loses it, and says “you did it for Hillary!” Comey mumbles something about how that was different, and then goes in front of Congress and refuses to admit that he erred in his handling of Hillary’s email. Trump figures that the guy is an untrustworthy political hack, and goes into Apprentice mode.

Truth be told, regardless of the political advisability of the firing, Comey had justly earned his termination. Comey’s investigation of Clinton was very irregular from the first: he violated standard procedures at every turn, which in addition to being wrong in itself, would make a mockery of any appeal to the need to be scrupulous in following them now. Further, he had arrogated to himself the responsibilities of the Attorney General by deciding not to prosecute Clinton. He sucked up to the Lynch (and Obama and Clinton) by taking her off the hook of making the prosecutorial call. When that unleashed a political storm from the right, he tacked and released his eve-of-the-election letter. Then he crowned this series of misadventures by mis-stating the basis for the renewed investigation in testimony before Congress: Huma shared only a handful of emails with Anthony Wiener, not the hundreds or thousands Comey claimed in his testimony.

Richard Epstein, hardly a Trumpophile summarizes well:

But, if anything, he [AAG Rod Rosenstein] understated the case against Comey. First, he treated the initial investigation of Hillary Clinton back in March 2015 with kid gloves. There were the inexcusable decisions to grant immunities to key Clinton backers without first serving them with a subpoena that would have allowed the FBI to extract a quid pro quo for any immunity that thereafter might be granted. Second, the FBI allowed Clinton’s key aide Cheryl Mills, Clinton’s former chief of staff, to act as her legal counsel, even though she herself was a legitimate target of investigation who could have faced charges. And they did not conduct any of the ambush interviews that are commonly given in cases where criminal prosecution is warranted. The obvious inference is that Comey was kowtowing to his superiors in the Obama White House.

Next, of course, was his public statement on July 5, 2016, in which he gave a thoroughly unsatisfactory explanation as to why he chose not to prosecute Clinton for her use of an unauthorized server that, in a case involving lesser persons, would have resulted in serious criminal charges, wholly without regard as to whether unauthorized persons hacked into the site (which they surely did).

Once Attorney General Loretta Lynch, as Judge Laurence Silberman wrote, “sort of half-recused herself” from the case, any charging decision should have been made by or at the direction of Sally Yates, the deputy attorney general. As Rosenstein rightly said in his memo, no experienced law enforcement figure thought that Comey acted correctly in issuing a public statement that explained his point of view.

Finally, his late October surprise, rightly castigated by none other than the New Yorker’s Cassidy, that he was conducting another investigation of Clinton, one that went nowhere, was likewise a breach of his duties.

The common response to this line of attack is that criticisms of Comey’s conduct in the Clinton investigation had nothing to do with the president’s decision, which was made, we are confidently told (on the basis of no firm evidence), because Comey was hot on the trail of information about possible ties between Trump, his supporters, and the Russians during the campaign. But it is also the case that Comey has made no effort to distance himself from this earlier conduct, and indeed affirmed in his Senate testimony of May 3, 2017, that with respect to his October 28 letter on Clinton, even though the episode had made him “mildly nauseous,” he would do it all over again.

The past events thus are linked closely to the future events. If the mistakes Comey made could have justified his firing in either 2015 or 2016, the passage of time does not cure those improper decisions.

Comey played the part of political weasel throughout, and his fate was the one the like usually suffer.

As for this being a “Constitutional crisis” or a “coup” (as David Frum and others hyperventilated), puh-lease. Trump is Chief Executive, and the FBI is in the executive branch. QED. Even Comey acknowledged that he serves at the president’s pleasure. As for a coup. Er, it would be a coup if the FBI Director removed the president, not the other way around.

Although Comey wove the basket in which his head now lies, ultimately  Hillary Clinton is the one who put his head on the block. Her grotesque misjudgment and malfeasance in using private email and lying about it repeatedly set in train the events that culminated in Comey’s firing. But this is nothing new, is it? Recall what Jim McDougall said, years ago: “I think the Clintons are really sort of like tornadoes moving through people’s lives. I’m just one of the people left in the wake of their passing by, but I have no whining or complaining to do, because I have lots of company.” Though departed from this  vale of tears, Mr. McDougall has yet more company, in the form of one James Comey.

Update: I should add that Bill Clinton is culpable as well. His meeting with Lynch on the tarmac in Phoenix “forced” her sort-of-half-recusal (to paraphrase Lawrence Silberman). I put “forced” in quotes because that may have been Lynch’s intention in meeting Clinton. Regardless of whether it was a blunder, or planned, the meeting with Clinton is what prompted the self-perceived Dudley Do-Right Comey to determine that he had to do Lynch’s job for her in order to maintain the public’s faith in the justice system. (Ha!) He shouldn’t have given her the out. (Calling him Dudley Do-Right gives him the benefit of the doubt, by the way. There are other more cynical interpretations that are observationally equivalent.) Regardless, Bill played a role in Comey’s decision to assume responsibilities that were not his, which was a legitimate reason to fire him. And note that McDougall referred to the Clintons plural: they usually are both involved in wrecking lives.

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May 8, 2017

Whatever Igor Wants, Igor Gets: Primitive Capital Accumulation, a la Sechin

Filed under: Economics,Energy,Politics,Russia — The Professor @ 7:34 pm

Apparently winning the “auction” for Bashneft (after it was widely claimed by Putin, and others, that a sale of the company to Rosneft would be a sham privatization) wasn’t enough for Igor Sechin. Igor is now after MOAR, and is using the “legal” process to get it. Rosneft has filed suit against the former owner of Bashneft, Vladimir Evtushenkov’s holding company Sistema, and is asking for a cool $1.9 billion. News of the suit knocked almost 40 percent off of Sistema’s stock price.

The grounds of the lawsuit are unclear.

In the past Sechin has complained about a sale of a Bashneft asset, oil services company Targin, to Sistema at an allegedly knock-down price. He has also criticized contracts between Targin and Bashneft entered into after the sale as unduly favorable to Sistema.

Both of these allegations are plausible. This is Russia, after all, and related-party transactions and Credit Mobilier-like contracting scams are classic ways of tunneling assets.

Recently Rosneft has had to spend $100 million to address safety problems at Bashneft refineries. Rosneft claims that it has found “irregularities.”

If commercial and legal logic mattered (a big if, I know), the alleged shenanigans involving Targin would not be grounds for a suit, and it would be hard to imagine how Rosneft would have standing. Recall that Bashneft was seized by the state in 2014, and Rosneft bought it from the government. So any uneconomic transactions in 2014 or earlier would not harm Rosneft: it would have known that Targin was not included, and what the contracts were. So Rosneft was not harmed by what happened before the company was nationalized.

Failure to detect “irregularities” at the refineries would suggest a lack of due diligence if these were not discovered prior to buying from the state, or if they were known, they would have been reflected in the price. Again, it is hard to see how Rosneft could have been defrauded. Further, there’s a big difference between a $100 million repair bill and a $1.9 billion legal claim.

But does it matter, really? Any legal claim is almost surely a pretext to expropriate a politically vulnerable oligarch who is, shall we say, Без крыши. And this strategy is in Rosneft’s DNA. After all, the company was built primarily on the assets seized from Yukos, and another big asset–TNK-BP–was obtained only after a campaign of pressure against BP (although the Russian AAR consortium held their own and were paid in cash). Put differently, Rosneft was built by  what Marxists called primitive capital accumulation–force and fraud, sometimes operating under the color of legal authority.

But there is a price to be paid for this. It shows that Russia remains a fraught place for investors with assets that come under the covetous eyes of Sechin, or others like him. This depresses valuations for Russian companies, and is a serious drag on investment. No wonder year in and year out Russia is notable for the small share of investment, which runs about 18 percent of GDP, very low for a country in its stage of development. (The world rate is about 24 percent.)

But whatever Igor wants, Igor gets, evidently. Even though what’s good for Igor isn’t good for Russia.

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May 6, 2017

Son of Glass-Steagall: A Nostrum, Prescribed by Trump

Filed under: Economics,Financial crisis,History,Politics,Regulation — The Professor @ 7:30 pm

Apologies for the posting hiatus. I was cleaning out my mother’s house in preparation for her forthcoming move, a task that vies with the Labors of Hercules. I intended to post, but I was just too damn tired at the end of each day.

I’ll ease back into things by giving a heads up on my latest piece in The Hill, in which I argue that reviving Glass-Steagall’s separation of commercial and investment banking is a solution in search of a problem. One thing that I find telling is that the problem the original was intended to address in the 1930s was totally different than the one that is intended to address today. Further, the circumstances in the 1930s were wildly different from present conditions.

In the 1930s, the separation was intended to prevent banks from fobbing off bad commercial and sovereign loans to unwitting investors through securities underwriting. This problem in fact did not exist: extensive empirical evidence has shown that debt securities underwritten by universal banks (like J.P. Morgan) were of higher quality and performed better ex post than debt underwritten by stand alone investment banks. Further, the  most acute problem of the US banking system was not too big to fail, but too small to succeed. The banking crisis of the 1930s was directly attributable to the fragmented nature of the US banking system, and the proliferation of thousands of small, poorly diversified, thinly capitalized banks. The bigger national banks, and in particular the universal ones, were not the problem in 1932-33. Further, as Friedman-Schwartz showed long ago, a blundering Fed implemented policies that were fatal to such a rickety system.

In contrast, today’s issue is TBTF. But, as I note in The Hill piece, and have written here on occasion, Glass-Steagall separation would not have prevented the financial crisis. The institutions that failed were either standalone investment banks, GSE’s, insurance companies involved in non-traditional insurance activities, or S&Ls. Universal banks that were shaky (Citi, Wachovia) were undermined by traditional lending activities. Wachovia, for instance, was heavily exposed to mortgage lending through its acquisition of a big S&L (Golden West Financial). There was no vector of contagion between the investment banking activities and the stability of any large universal bank.

As I say in The Hill, whenever the same prescription is given for wildly different diseases, it’s almost certainly a nostrum, rather than a cure.

Which puts me at odds with Donald Trump, for he is prescribing this nostrum. Perhaps in an effort to bring more clicks to my oped, the Monday after it appeared Trump endorsed a Glass-Steagall revival. This was vintage Trump. You can see his classic MO. He has a vague idea about a problem–TBTF. Not having thought deeply about it, he seizes upon a policy served up by one of his advisors (in this case, Gary Cohn, ex-Goldman–which would benefit from a GS revival), and throws it out there without much consideration.

The main bright spot in the Trump presidency has been his regulatory rollback, in part because this is one area in which he has some unilateral authority. Although I agree generally with this policy, I am under no illusions that it rests on deep intellectual foundations. His support of Son of Glass-Steagall shows this, and illustrates that no one (including Putin!) should expect an intellectually consistent (or even coherent) policy approach. His is, and will be, an instinctual presidency. Sometimes his instincts will be good. Sometimes they will be bad. Sometimes his instincts will be completely contradictory–and the call for a return to a very old school regulation in the midst of a largely deregulatory presidency shows that quite clearly.


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