Streetwise Professor

January 31, 2015

Russian Central Bank Roulette: Rubble the Ruble or the Banking System?

Filed under: Economics,Politics,Russia — The Professor @ 2:53 pm

On Friday the Central Bank of Russia surprised pretty much everyone by cutting its policy interest rate from 17 percent to 15 percent. Bloomberg lays responsibility at Putin’s feet, and no doubt he had to approve. But the evidence the article cites is not dispositive by any means. Yes, Central bank Governor Elvira Nabiullina had sworn up and down a little more than a week ago that the bank would not cut rates: if she’d said anything differently, she would have set off a speculative attack on the ruble, so she had to say that even if a policy change was being considered.

The fact is that CBR faces a terrible trade-off. Keeping the interest rate high damages severely the banking system, and is a drag on the real economy. Lowering the interest rate undermines the ruble (which indeed fell sharply on the news) and stokes inflation, which is already high and accelerating, and which has a disproportionate adverse impact on low and middle income individuals. Significantly, the RBC’s pubic statements have shifted from mentioning only inflation as a policy target, to a Russian version of Humphrey-Hawkins balancing of inflation and growth.

No doubt there is substantial political support for this that extends far beyond Putin. In particular, domestic banks are central bankers’ most important constituency and responsibility. Indeed, central banks are at risk of capture by domestic banks, and a banking crisis is frequently a greater fear than a sharp depreciation in the currency (though those things are of course related). Major Russian bankers, notably Sberbank’s German Gref have been lamenting the damage that high interest rates are doing to banks. Further, a mid-tier Russian bank (SB) began to limit deposit withdrawals, and the entire sector is suffering funding difficulties. Given all this, the CBR decided to rubble the ruble rather than the banking system. This is a piece with the government’s plans to recapitalize the banking system.

In sum, given the choice between supporting the ruble and the banking system, it chose to support the banking system. That appears to be the more imminent danger, and one that is of primary concern to the CBR. No doubt Putin agrees, but it’s unlikely he had to force an unwilling Central Bank into that decision. If another sharp selloff in the ruble occurs, the bank may reverse course, but for now, it has chosen the banking system (and Russian corporate borrowers) over the ruble and inflation.

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January 30, 2015

ISIS May Be Heeding SWP’s Military Analysis, Unfortunately

Filed under: History,Military,Politics — The Professor @ 10:46 pm

ISIS has acknowledged that it was defeated in Kobane:

The first fighter said that “it was fated for us to retreat from Ayn al-Islam [Ayn al Arab, or Kobane] bit by bit, because of the bombardment and because some of the brothers were killed.”

The second fighter said that “the reason behind our retreat is that we did not find points in which to remain garrisoned. We stayed in garrisoned positions inside more than 70% of Ayn al-Islam, but the aircraft did not leave any buildings and destroyed everything.”

“They flattened the land with their rockets, so we were forced to retreat,” he continued. Later, he stated that the aircraft “bombarded day and night.”

What I found most interesting is the statement that ISIS would shift tactics to hit-and-run:

The second jihadist warned that the Islamic State would “return” to Kobane, presumably once Coalition aircraft turn their attention elsewhere.

“This is the style of hit and run since the days of the Messenger … We will return once again and we will disperse them [the Kurds],” the second fighter said.

Compare that to what I wrote in December:

T. E. Lawrence and other British officers assigned to the Arab rebels during WWI despaired of making them conventional soldiers. Lawrence, per his telling in the grips of dysentery-induced delirium, conceived that their genius was as irregulars who utilized mobility to carry out a war of hit and run attacks on a relatively immobile Turkish army of dodgy morale. Keegan’s History of Warfare states that this form of warfare was the Arab way going back to the times of Mohammed. For the Arabs, there was no dishonor in retreat. Hit weaker forces at a vulnerable point, don’t engage in standup fights, and run when a superior force appears.

ISIS is most formidable when it fights in the traditional Arab way. (Chechens were also historically guerrillas and raiders.) It does its opponents a favor when it fights the Western way.

Perhaps ISIS has learned that lesson.

Today they launched an attack on Kirkuk that could be viewed as such a hit and run attack. They hit, and they were pushed back, but it’s not clear whether they intended to take and hold ground but just couldn’t do it, or decided to pull back before getting pounded by airpower when the fog lifted.

Enemies learn. ISIS should have known that standing up against American airpower was foolish, but they tried for months and paid the price. They may be slow learners, but they are learning.

There’s an old adage in the military: the Four Fs. Find ‘em, fix ‘em, fight ‘em, finish ‘em. Our ubiquitous sensors make finding them easier than has ever been the case in military history. Fixing usually involves infantry, and we really don’t have a reliable infantry force at our disposal in Iraq. ISIS did us the favor of fixing themselves in Kobani. They’ve given that up, and hence it will be harder to fight and finish them.

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Can We Hang On For Two More Years?

Filed under: History,Military,Politics — The Professor @ 10:20 pm

In recent days, the administration has looked like a cornered rat, scurrying back and forth to escape a predicament of its own making, trapped by its previous policies and words.

It began when the administration was questioned about the Jordanian negotiations with ISIS to exchange an imprisoned terrorist for their pilot shot down last year. Obama spokesman Eric Schultz implicitly criticized the Jordanians by reiterating the US position of not negotiating with terrorists. This led ABC’s Jonathan Karl to ask what was the difference between what the Jordanians were attempting, and what the US did to secure the release of Bo Bergdahl from the Taliban. Well, Schultz replied, the Taliban aren’t terrorists: they’re an armed insurgency.

The administration’s discomfort was only elevated by leaks that the Army was about to charge Bergdahl with desertion. Although the Army vehemently denied it, the denial had a “depends on the meaning of is” aspect to it. The story said he was about to be charged: the Army’s huffy denial said he hadn’t been charged yet. There are rumors of a dog war under the carpet between the administration and the Pentagon: Obama wants to avoid in the worst way the embarrassment of trading Taliban members for a deserter. The awkwardness of Obama’s position was made even worse by news that at least one of those exchanged was attempting to get back into fighting the US.

And things took a bloody turn when the Taliban claimed credit for a Green-on-Blue attack in Kabul that killed three Americans.

Again: Not Terrorism!!!!!!! Watch spokesweasel Jennifer Psaki refuse to “label” the Taliban. Because labels can be self-fulfilling. Or something. One Democratic analyst said the administration doesn’t want to call the Taliban terrorists because then they won’t negotiate with us. As if the Taliban give a damn what we call them. The problem in Obama’s eyes is if we call them terrorists we can’t negotiate with them.

And tell me. If they aren’t terrorists, just why are we droning them?

The new Taliban ain’t terrorists line clashes loudly with Obama’s previous pronouncements. Remember when he declared Afghanistan “a war of necessity”? Precisely because of Taliban participation in and support of terrorism against the US:

By moving forward in Iraq, we’re able to refocus on the war against al Qaeda and its extremist allies in Afghanistan and Pakistan. That’s why I announced a new, comprehensive strategy in March — a strategy that recognizes that al Qaeda and its allies had moved their base from the remote, tribal areas — to the remote, tribal areas of Pakistan. This strategy acknowledges that military power alone will not win this war — that we also need diplomacy and development and good governance. And our new strategy has a clear mission and defined goals: to disrupt, dismantle, and defeat al Qaeda and its extremist allies.

In the months since, we have begun to put this comprehensive strategy into action. And in recent weeks, we’ve seen our troops do their part. They’ve gone into new areas — taking the fight to the Taliban in villages and towns where residents have been terrorized for years. They’re adapting new tactics, knowing that it’s not enough to kill extremists and terrorists; we also need to protect the Afghan people and improve their daily lives. And today, our troops are helping to secure polling places for this week’s election so that Afghans can choose the future that they want.

But I forgot. Al Qaeda is on the run.

And then there’s this reminder that another of Obama’s interlocutors, Iran, has been neck deep in killing Americans for decades. Very interesting time to leak a story about the assassination seven years ago of the Iranian-backed Hezbollah bastard who was behind the Marine Barracks bombing in 1983, and numerous other terror attacks, isn’t it?

Also rather embarrassing was the fact that a few days after the State Department hosted some Muslim Brotherhood members complaining about the Egyptian government, that the Muslim Brotherhood in that country calls for “a long, uncompromising jihad.”

Terror is exploding around the world, with Americans being killed in Libya and Saudi Arabia not just Afghanistan. Iraq and Syria are nightmares. But Obama’s big initiatives-a deal with Iran, getting out of Afghanistan, depend on the fiction that the war on terrorism has been won. So the administration dissolves into utter incoherence, refusing to call spades spades, and denying things that are as plain as day.

Can we hang on for two more years of this? The butt ends of second terms are usually dreary, but this one could be downright dangerous.

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January 27, 2015

A Good SWIFT Kick

Filed under: Economics,Politics,Russia — The Professor @ 7:39 pm

They say a foolish consistency is the hobgoblin of little minds, so it must be that Russians have truly expansive minds indeed. On the one hand, by May they will have established a payments system that will eliminate dependence on the international payments system called SWIFT. The Russians have also been boasting about how deals with China and Iran to conduct business using their own currencies rather than the dollar will immunize them from American financial measures. Do your worst, stupid Americans!

On the other hand, excluding Russia from SWIFT would be a declaration of war. According to VTB CEO Andrei Kostin, the day after this occurred, ambassadors would be leaving capitals.

Today Medvedev (yes, he’s alive! and awake too!) reiterated the threat:

Western countries’ threats to restrict Russia’s operations through the SWIFT international bank transaction system will prompt Russia’s counter-response without limits, Prime Minister Dmitry Medvedev said on Tuesday.

“We’ll watch developments and if such decisions are made, I want to note that our economic reaction and generally any other reaction will be without limits,” he said.

Without limits! And that goes for non-economic reactions too! So I guess that Putin plans to do a reverse Reagan, and in the event of a SWIFT cutoff take to the airways and intone “My fellow Russians, I’m pleased to tell you today that I’ve signed legislation that will outlaw the US forever. Bombing begins in 5 minutes.”

Of the two inconsistent sets of statements, the ones where the Russians freak out about being shut out of SWIFT are much more likely to be true. It would be a devastating blow to the Russian economy, and even if a parallel system is in place, unless foreign entities agree to use it, it could not supplant SWIFT for international transactions (including getting cash out of the country!) And even if foreign entities were considering ROTS (Russian Overseas Transactions System, as I’ve decided to call it), they could easily be persuaded not to by the US imposing penalties on those who did. Due to the FUD effect, even the potential for such penalties would have a deterrent effect.

Word to the wise: autarky ain’t all it’s cracked up to be.

Realistically, though, I don’t think either the US or the Europeans have the fortitude to take this step. Russian hysterical threats of “unlimited” responses are no doubt intended to feed Western reluctance. Normally I’d say the Russian threats aren’t credible, but Putin is just crazy enough that there’s room for doubt, especially given that a SWIFT kick would be an existential threat to the Russian economy.

The Greek election, which has put a pro-Putin coalition in power, makes European action even less likely. Once the EU’s Greek gangrene was only financial: now it has infected foreign policy as well, as just today the new PM rejected an EU statement blaming Russia for the Mariupol attack, and threatening additional sanctions. The Euros should have amputated long ago, and are likely to rue their failure to do so.

It is unlikely, therefore, that a SWIFT cutoff will be used, precisely because it would be so devastating. But if Putin goes all in in Ukraine, who knows?

One last humorous aside. Zero Hedge highlighted the Medvedev threat and Russia’s move to reduce its exposure to the dollar system. ZH claimed that this is another in a series of blows against the dollar: de-dollarization is one of its favorite hobby horses to ride.

So riddle me this, Tyler: if there is such panicked flight from the dollar, led by such countries as Russia, China, and Iran, why is it up almost 20 percent (as measured by the DXY) since May? That would be the most bizarre flight from a currency in recorded history. (h/t Ty-not Tyler-for pointing me to the ZH post, and the contradiction.)

 

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Quiet, Please. Paranoids at Work.

Filed under: Economics,Exchanges,Military,Russia — The Professor @ 1:34 pm

The indictment in the Russian espionage* case is available online, and having had a chance to read the portion related to HFT, it’s now clear to me what the Russians were up to. Contrary to certain idiots desperate for attention who are breathlessly claiming that this was part of a plot to bring down Wall Street and the American financial system, this was all about Russian paranoia about the vulnerability of their own financial system to the devilishly clever HFT.

Here’s the relevant part of the indictment:

Screen Shot 2015-01-27 at 1.16.05 PM

ETFs on Russian stocks, including Market Vectors Russian Index ($RSX) are traded in the US, and HFT firms are major participants in ETF trading. What Badenov-sorry, I mean Buryakov-and his co-conspirators are worried about is that “trading robots”-why not trading drones?-could be used to trade Russian ETFs in a way that destabilized the Russian market. They are also curious about who trades ETFs on Russian stocks. Further, they want to gauge the NYSE’s interest in limiting these robots, presumably to learn whether the robots actually posed a threat to Russia.

In other words, this is Russian paranoia talking. More defensive than offensive. Still rather amusing.

Note that the Vnesheconombank employee, Buryakov, is the “expert” here, and the SVR agent operating under diplomatic cover, Igor Sporyshev, is the go between with the “news organization.”

As I noted yesterday, Russian cyber and hacking capabilities are formidable, and they don’t need a couple of disgruntled guys to garner secrets about the vulnerability of Wall Street. Instead, Bulyakov was just channeling fears about the vulnerability of the Russian financial markets.

That was in May, 2013. Just think of how paranoid they are today.

* Tellingly, these guys weren’t charged with committing espionage. Bulyakov was charged with failing to register as a foreign agent. Enough to put him in jail, and an excuse to fire this shot at Putin, but a charge that is likely easier to prove and which doesn’t require the government reveal too much about sources and methods.

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January 26, 2015

If the Russians Want to Know About HFT, They Don’t Need Spies

Filed under: Economics,Exchanges,Military,Politics,Russia — The Professor @ 8:08 pm

Attorney General Holder today announced espionage charges against three Russians, one of whom was arrested today in New York. Two were Russian diplomatic officials, and the third-the one arrested-was an employ of a Russian bank, reported to be Vneshekonombank. The FBI had the men under surveillance since 2012.

So just what were these agents after? Information about potential future sanctions targets for one thing. But they were also after information on high frequency trading of exchange traded funds, or in acronymspeak, HFT of ETFs:

According to the complaint, Sporyshev told Buryakov to tell an unnamed Russian state-owned news organization to ask about how the New York Stock Exchange used exchange-traded funds and potential limits on the use of high-frequency automated trading systems.

Why, pray tell, would this be of such great interest to the Russians? Economic sabotage? Or a money making opportunity?

And why the need for such cloak-and-dagger? There are Russians working in pretty much every HFT shop on and off Wall Street: remember Sergey Aleynikov in Flash Boys? Can’t they find one susceptible to blackmail, bribery, or appeals to patriotism?

Further, what really could be learned by having an “unnamed Russian state-owned news organization” (can you say “RT”? I knew you could) ask someone (presumably the NYSE itself) about “limits on the use of” HFT that couldn’t be obtained by reading public disclosures?

The best of all: it’s not as if the Russians couldn’t find out-and haven’t found out-pretty much anything about NYSE (or NASDAQ or any other exchange) operations without leaving home. They have been fingered for hacking many financial firms, including NASDAQ. (CME has also been hacked, although Russians have not been specifically implicated.) That would be a much more informative, and much less risky, way of divining HFT secrets.

And it’s not as if Russians in Russia aren’t aware of the details of HFT. The Moscow Exchange is actively trying to attract HFT firms (h/t @libertylynx), and has introduced capabilities such as co-location in order to do so. (But perhaps the Moscow Exchange rep is speaking in code. No doubt Fort Meade and Langley have their best men working on this.) Just Google “HFT Moscow Exchange” and you’ll find numerous links describing HFT activities there.

And if they want to learn about ETFs, why not just buy some books? Or do a little surfing? And there are Russian stock ETFs. (Note my clever insertion of the Market Vectors Russia ETF tag.)

You know that HFT and ETFs are hardly Russian espionage priorities. US intelligence and intelligence capabilities, defense technology, and even other types of economic espionage are of far greater interest. The triviality of the targets of this cell, compared to other things of much greater sensitivity, just reveals how pervasive Russian intelligence operations in the US likely are. So why go after this rather hapless group? And why now?

Viewed in context, it’s pretty clear. We rolled up what is likely the least important and sensitive operation the FBI is monitoring at this time and had the Attorney General announce it as a bit of Kabuki theater to communicate our displeasure with the Russians. We have had this group under surveillance since 2012, and could have netted them anytime. That time was now because of the escalating tensions with Russia. It is a signal that we can do things that would hurt the Russians much worse.

Will Putin listen? Doubtful. So what will we do next? That will be interesting to see.

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January 25, 2015

Mewling Oligarchs Move Putin Not At All: The Security Forces Are a Different Matter

Filed under: Military,Politics,Russia — The Professor @ 8:36 pm

Bloomberg breathlessly reports that oligarchs are irked at Putin because he adamantly refuses to countenance backing down in Ukraine.

And Putin really doesn’t care. Mewling oligarchs move him not in the least. Or if they have an effect on him, it is to create disgust and disdain. Putin cares about retaining power, and the oligarchs don’t threaten that.  He can destroy them, in a trice, and they know that: the recent example of Evtushenkov is surely fresh in their minds.

The Bloomberg piece states that Putin’s circle has shrunk to a few:

The ruble’s plunge has heightened opposition to Putin’s backing of the rebellion in Ukraine among his wealthiest allies, prompting the president to shrink his inner circle from dozens of confidants to a small group of security officials united by their support for the separatists, two longtime associates said.

. . . .

The core group around Putin is led by Security Council Secretary Nikolai Patrushev, Federal Security Service head Alexander Bortnikov, Foreign Intelligence Service chief Mikhail Fradkov and Defense Minister Sergei Shoigu, according to Markov.

This selection is probably overdetermined. As a Chekist, Putin’s views are likely broadly similar to those in the security services and the military. But perhaps more importantly, these people can actually pose a threat to Putin. A challenge is most likely to arise from their ranks, and unlike oligarchs, these people have force at their disposal.

Meaning that Putin is likely acting along the lines of the old adage: “Hold your friends close, and your enemies closer.” Putin doesn’t need the oligarchs as friends. Patrushev et al may not be enemies, as such, at least not yet, but they are a threat. And so keeping them close, and satisfied, is wise as a survival strategy.

This has broader implications. Putin likely has every intention of continuing his attempts to bring Ukraine to heel. But if he thinks about backing off in the face of pressure, or because of rising casualties and costs of continuing the campaign, he realizes that he risks running afoul of the hard men around him. Which implies that internal political forces will continue to impel Putin to continuing confrontation.

This further implies that outraged denunciations by Kerry or the Euros or even Obama will have little effect on Putin. Something sterner is required, for behind Putin stand some very stern men.

 

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From Birth to Adulthood in a Few Short Years: HFT’s Predictable Convergence to Competitive Normalcy

Filed under: Commodities,Derivatives,Economics,Exchanges,HFT — The Professor @ 2:05 pm

Once upon a time, high frequency trading-HFT-was viewed to be a juggernaut, a money-making machine that would have Wall Street and LaSalle Street in its thrall. These dire predictions were based on the remarkable growth in HFT in 2009 and 2010 in particular, but the narrative outlived the heady growth.

In fact, HFT has followed the trajectory of any technological innovation in a highly competitive environment. At its inception, it was a dramatically innovative way of performing longstanding functions undertaken by intermediaries in financial markets: market making and arbitrage. It did so much more efficiently than incumbents did, and so rapidly it displaced the old-style intermediaries. During this transitional period, the first-movers earned supernormal profits because of cost and speed advantages over the old school intermediaries. HFT market share expanded dramatically, and the profits attracted expansion in the capital and capacity of the first-movers, and the entry of new firms. And as day follows night, this entry of new HFT capacity and the intensification of competition dissipated these profits. This is basic economics in action.

According to the Tabb Group, HFT profits declined from $7 billion in 2009 to only $1.3 billion today. Moreover, HFT market share in both has declined from its peak of 61 percent in equities in 2009 (to 48.4 percent today) and 64 percent in futures in 2011 (to 60 percent today). The profit decline and topping out of market share are both symptomatic of sector settling down into a steady state of normal competitive profits and growth commensurate with the increase in the size of the overall market in the aftermath of a technological shock. Fittingly, this convergence in the HFT sector has been notable for its rapidity, with the transition from birth to adulthood occurring within a mere handful of years.

A little perspective is in order too. Equity market volume in the US is on the order of $100 billion per day. HFT profits now represent on the order of 1/250th of one percent of equity turnover. Since HFT profits include profits from derivatives, their share of turnover of everything they trade overall is smaller still, meaning that although they trade a lot, their margins are razor thin. This is another sign of a highly competitive market.

We are now witnessing further evidence of the maturation of HFT. There is a pronounced trend to consolidation, with HFT pioneer Allston Trading exiting the market, and DRW purchasing Chopper Trading. Such consolidation is a normal phase in the evolution of a sector that has experienced a technological shock. Expect to see more departures and acquisitions as the industry (again predictably) turns its focus to cost containment as competition means that the days of easy money are fading in the rearview mirror.

It’s interesting in this context to think about Schumpeter’s argument in Capitalism, Socialism, and Democracy.  One motivation for the book was to examine whether there was, as Marx and earlier classical economists predicted, a tendency for profit to diminish to zero (where costs of capital are included in determining economic profit).  That may be true in a totally static setting, but as Schumpeter noted the development of new, disruptive technologies overturns these results.  The process of creative destruction can result in the introduction of a sequence of new technologies or products that displace the old, earn large profits for a while, but are then either displaced by new disruptive technologies, or see profits vanish due to classical/neoclassical competitive forces.

Whether it is by the entry of a new destructively creative technology, or the inexorable forces of entry and expansion in a technologically static setting, one expects profits earned by firms in one wave of creative destruction to decline.  That’s what we’re seeing in HFT.  It was definitely a disruptive technology that reaped substantial profits at the time of its introduction, but those profits are eroding.

That shouldn’t be a surprise.  But it no doubt is to many of those who have made apocalyptic predictions about the machines taking over the earth.  Or the markets, anyways.

Or, as Herb Stein famously said as a caution against extrapolating from current trends, “If something cannot go on forever, it will stop.” Those making dire predictions about HFT were largely extrapolating from the events of 2008-2010, and ignored the natural economic forces that constrain growth and dissipate profits. HFT is now a normal, competitive business earning normal, competitive profits.  And hopefully this reality will eventually sink in, and the hysteria surrounding HFT will fade away just as its profits did.

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January 24, 2015

Farewell, Mr. Cub

Filed under: History,Sports — The Professor @ 6:07 pm

Ernie Banks, AKA Mr. Cub, passed away last night on the cusp of his 84th birthday. He was a great ballplayer, and the kind of man who was rare at the time and almost non-existent today.

Banks was my first childhood sports idol, growing up as I did in a bleed blue Cubs household. His greatest years-and they were great-were centered on the year of my birth, so I didn’t see him at his prime. In 1958-1960, he lead the league in RBIs twice, home runs twice, and in one of those years (1958) led in both. He won back-to-back MVPs in ’58 and ’59. This was a remarkable achievement for two reasons. First, other all time greats, including Mays, Aaron, and Frank Robinson were active and in their primes, so the competition was intense. Second, the Cubs were horrible. It’s rare for a player on a last place team to win an MVP. He did it twice.

Although Banks was known for his hitting, he was also a Gold Glove winning shortstop with a good arm and decent range. He was truly a rare player, manning the most difficult defensive position while hitting for power. A Rod without the steroids (Ernie was rail thin, but man, those wrists and hands).

By the time I was cognizant of baseball, Banks had moved to first base because he had lost range at shortstop. He had become a complementary player, with Ron Santo and Billy Williams playing the leading roles on the team. He still hit for power, but didn’t put up the monster numbers like he did in the 50s.

I got Ernie’s autograph twice. The most memorable time was opening day, April 8, 1969. Along with many other kids, I leaned over the dugout with a comic book, believe it or not (because my mother was too cheap to buy a program!), and Ernie signed it. (Mom did buy me a Frosty Malt, though.) This was memorialized in a photo on the front page of the Tribune the next day.

Although Banks was a great between the lines, what made him exceptional was his carried himself outside them. Despite playing on horrible teams, and suffering through a crushing disappointment when the best team he played for, the ’69 club, collapsed in September, he was always ebullient. “Let’s play two!” “It’s a beautiful day for baseball!” Even when Leo Durocher treated him badly in the clubhouse, he didn’t let it show. He didn’t blast Durocher. He didn’t try to undermine Durocher. He didn’t demand a trade. He always had a smile and a kind word for everyone.

I defy you to name a single star player today that has Ernie’s attitude.

So farewell, Mr. Cub. A player such as you will likely not be seen again soon, if ever.

 

 

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The World in Flames: Another Low, Dishonest Decade

Filed under: History,Military,Politics,Russia — The Professor @ 3:36 pm

Recent days have seen a dramatic escalation of military operations in eastern Ukraine. The New York Times headline is on point: “War Is Exploding Anew in Ukraine.” The Russians* launched an assault on the battered hulk of the Donetsk airport, which had held out for 242 days. The airport fell, with the garrison of “cyborgs” being killed or captured. A counterattack by Ukrainian regulars was abortive. Recent days have seen rocket attacks in Donetsk and Luhansk,with civilians dying. Today a Grad attack in Mariupol killed over 30.  A Ukrainian salient centered on Debaltseve (between Donetsk and Luhansk) is evidently under attack. The “leadership” of the rebels in Donetsk announced-and then unannounced-that an assault on Mariupol was underway.

As I wrote in November, an attack along the coast to open up a route to Crimea would be an obvious move. As for those (including some former military) who claim that major offensive operations would be postponed to the spring, I say: Huh? Winter warfare is a Russian specialty, and even a passing familiarity with the history of campaigns in Russia (Napoleon’s, WWI, and WWII) shows that it is spring (and fall) mud that is a far greater impediment to military operations than cold and snow. The notorious “raputitsa” that follows the snow melt (or fall rains) causes movement to grind to a halt until the fields and roads dry.

This offensive could be underway now, but given the lack of reliable reporting it is impossible to know.

What is Putin’s objective here? Securing Crimea, which is now isolated and vulnerable and difficult to supply, is clearly paramount. Beyond that, I doubt he really wants to take ownership of a Sovok sh*thole like the Donbas. His main objective is to force Kiev to sacrifice its sovereignty, and become a reliable satrapy of Russia. A combination of economic and military pressure falling short of an all out invasion is likely sufficient for that purpose. This is especially true inasmuch as the feckless West is quite clearly unwilling to risk anything to protect Ukraine. Keeping the meat grinder turning in Donbas advances this objective.

As for the indiscriminate attacks on cities, I have no good explanation. Perhaps it is just the thuggishness of the anti-Kiev forces. Perhaps it is part of Putin’s testing of the West. If killing of civilians elicits no more than a shrug of indifference, Putin can be assured that further escalation will come at little cost.

So much for Obama’s State of the Union boast:

Second, we are demonstrating the power of American strength and diplomacy. We’re upholding the principle that bigger nations can’t bully the small — by opposing Russian aggression, supporting Ukraine’s democracy, and reassuring our NATO allies.

Putin apparently didn’t notice. Ukraine certainly hasn’t noticed that the bullying has stopped. Indeed, the final assault on the Donetsk airport occurred on the day that Obama uttered these words.

Traveling to the south and west, Syria and Iraq are also in flames, and making a liar of Obama.

Back in December I discerned the outlines of a campaign that will culminate with an attack on Mosul. Last week it became clear that this campaign is indeed proceeding. The Kurds, supported by American airpower, are shaping the battlefield and isolating Mosul from the west and south. The Kurds have made advances around Sinjar and Tal Afar, thereby interfering with ISIS supply lines to its Syrian fastness. The US military has indicated, however, that an assault on Mosul will not occur until the summer, when sufficient numbers of Iraqi regulars have been trained.

In Syria meanwhile, the US is pounding Kobani regularly, and the Kurds are painstakingly pushing back ISIS.

The US commander in the region, General Lloyd Austin stated that ISIS had lost approximately 6000 KIA, and was having manpower problems. This theme was picked up by the US ambassador to Iraq, but the Pentagon quickly squelched this discussion, due to Viet Nam body count flashbacks.

But other than attrition and shaping the battlefield around Mosul, there has been scant progress against ISIS. Indeed, ISIS has been expanding rather dramatically throughout Syria, giving the lie to this SOTU statement: “In Iraq and Syria, American leadership — including our military power — is stopping ISIL’s advance.” That’s true to a limited degree in Kobani and Mosul, but flatly wrong elsewhere in Iraq and especially Syria. Don’t even get me started on another Obama delusion: the “success” in Yemen, which has descended into absolute chaos with competing “Death to America” factions, both Shia and Sunni, vying for control.

It’s rather depressing to see the President of the United States do a Baghdad Bob imitation while addressing a joint session of Congress.

In sum, at present it appears that Putin is on the advance in Ukraine and ISIS is at best stalemated in Iraq and Syria. And the West’s leaders, reflecting the indifference of their citizenry, are content to let it happen, or at least do too little to prevent it from happening. In other words, we are in the midst of another low and dishonest decade.

*There is a war of labels in Ukraine. What to call those fighting against the Kiev government? Rebels? Separatists? Pro-Russians? Terrorists (the preferred Ukrainian label)? Russians? The problem is that each label describes a part of the anti-Kiev combatants, but none describes it completely. Yes, there are Ukrainian citizens who are engaged in a separatist rebellion that aims to achieve unification with Russia, and they are advancing Russian interests, making them pro-Russian. Yes, sometimes they employ terrorist methods, though they primarily use conventional military tactics. Yes, there are Russian troops involved, of various types (GRU spetsnaz, artillery and air defense units, armored and infantry elements) in fluctuating numbers. Russian number spiked in August, and appear to be increasing now.

This is  a Russian owned and run operation. The indigenous forces in Donbas obviously obtain massive quantities of Russian ammunition and weapons from Russia, and can’t pay for these arms themselves. Their objectives largely overlap with Putin’s. In addition, there is direct Russian involvement, and that will increase if Putin indeed decides to escalate.

 

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