Streetwise Professor

December 8, 2007

A Knight’s Tale

Filed under: Politics,Russia — The Professor @ 10:09 am

This interview with Amy Knight in the Globe and Mail on the Duma election is a must read. Ms. Wright lays it out bluntly and forthrightly.

I also congratulate her on keeping focused on the main issue, rather than indulging in the gratuitous anti-Americanism of several of the bedwetting questioners, a couple of whom epitomized a phenomenon that is becoming distressingly common: namely, to sympathize with, support, or rationalize Putin’s steadfast march to authoritarianism because (a) Putin doesn’t like the US, and (b) anybody who doesn’t like the US must be OK!

One questioner, a certain Wilfred McIntyre of Maple Ridge, BC, uttered a phrase that really sets me off: “Bush regime.” There is a Bush administration, and although one definition of “regime” is “a government in power, an administration,” the more common use of the term is “a form of government.”

In that sense of the word, the “regime” in the United States is the Constitutional form of government that has been in effect since 1789; and the Bush administration was elected twice–albeit one time amidst tremendous controversy–under that “regime.”

Moreover, this word often connotes an illegitimate form of government that attained or holds power by illicit means–and that connotation is clearly present in Mr. McIntyre ‘s snotty question. It is fair enough to dislike Bush personally, or his administration, or to disagree with his policies. Indeed, its fair enough to do all of these things quite intensely. But it is beyond the pale to suggest that the current American government is somehow illegitimate. And that goes for Americans as well as Canadians and anybody else.

To quote Merle Haggard, say that in my presence, and you’ll be On the Fighting Side of Me.

And on the substantive point of Mr. McIntyre’s question–and I am being more than generous to credit it with any substance whatsoever–he pukes out the Putin line: “The Bush regime in Washington should give up on trying to undermine Mr. Putin.”

If only. Bush and the State Department have been far too gentle with “Mr. Putin.” (Note the use of “Mr. Putin”–no “Mr. Bush.”) I’m sure you heard of the hue and cry emanating from Pennsylvania Avenue and Foggy Bottom over the Clampdown, the arrest of Kasparov, etc. Yeah. Me neither. In point of fact, Bush has turned his other cheek to Putin time and again. Putin has been able to use the US as one of his many bogeymen firm in the knowledge that the bogeyman isn’t real.

So Ms. Wright’s interview is illuminating in two, distinct ways. Her answers about Russia reveal a deep understanding of what goes on there. And her questioners reveal that many Useful Idiots didn’t disappear with the end of the USSR, but just changed their allegiance to United Russia.

And Your First Clue Was?

Filed under: Economics,Energy,Politics,Russia — The Professor @ 9:38 am

From the Moscow Times via Robert Amsterdam, an article on the siloviki wars contains this pearl:

In a sign that the public dispute could be worrying investors, investment bank UBS described the recent twists in the complex saga as “discomforting” in a note to investors Thursday.

As I have been writing on SWP since April, 2006, investors should have been discomfited a long, long time ago. Day after day, week after week, there has been a procession of stories detailing the ongoing institutional degradation in Russia. The Storchak affair is only the latest, and admittedly among the most lurid, of these episodes.

In his decision in Final Accounting in the Estate of A.B. (1866) Judge Gideon J. Tucker famously said “no man’s life, liberty, or property are safe while the Legislature is in session.” In 19th century America, this was more than a little bit of hyperbole. In Russia, it is no hyperbole–it is stone-cold truth–to say “no man’s life, liberty, or property are safe while the siloviki are awake.” And they never sleep.

“Velvet Privatization:” Doublespeak or Honest Truth

Filed under: Economics,Politics,Russia — The Professor @ 9:16 am

I’ve been pondering the phrase “velvet privatization” in the Shvartsman interview. My first take is that it is a double dose of double speak: both words mean the exact opposite of what they are intended to describe. There is certainly nothing “velvet” about the process; it is all iron fist, no velvet glove. And on the surface, what is going on is not privatization, but its opposite: re-nationalization.

But upon further consideration, the “privatization” part may in fact hit the nail on the proverbial head. For what is going on seems to be the use of the coercive power of the Russian state to direct immense resources into the hands of private parties who pull double duty as government officials and company managers and directors. In other words, what is doublespeak is to refer to what is going on in Russian resource industries as “nationalization.” The state is merely a middleman by which the transfer of massive wealth from one group of private individuals to another is effected.

This can be seen as a modern incarnation of Muscovite patrimonialism, in which everything is the property of the ruler, and where the state and its bureaucracy is just a creature of the patrimonial ruler. As in Russia of old, in other words, everything is privately owned–by the ruler. The only questions are: how much of his property does the ruler let you use?; for how long?; and what do you have to do for him in exchange? In the resource sectors, the answers are increasingly: not much; not long; and a lot.

December 6, 2007

Cool Hand Luke Reprise

Filed under: Economics,Politics,Russia — The Professor @ 10:40 am

My post likening the statements of Oleg Shvartsman to the Captain’s “Get Your Mind Right” speech from “Cool Hand Luke” elicited a couple of comments. James ( of says “good call.” Timothy Post, on the other hand, says “I know not of what [I] write.”

It is self-evident that James has his mind right, and Timothy doesn’t;-) but self-evident or no, I feel compelled to respond to Mr. Post’s comment on my post. Timothy says: “In the West, corporations are expected to be socially active and philanthropic. We see this often with sponsorship of various cultural events. Putin was reminding the country’s oligarchs (aka “Khordokovskies”) that are other stakeholders in addition to shareholders. Fair point Mr. Putin.”

Huh? A couple of things. First, the owners and managers of a corporation in the West that don’t act philanthropically run no risk of being sent to Siberia (even figuratively, let alone literally) on facially implausible charges after a travesty of due process. Second, Shvartsman said that the “FSB decided that an organization must appear that will incline, bend, torment, and lead the various and sundry Khordokovskies toward social activeness.” In the US, the CIA, the FBI, BATF, DoJ, or any other law enforcement or intelligence organization does not take it on itself to “bend” or “torment” people to act according to its view of appropriate social activism. And thank God for that. Mr. Post, do you truly believe that it is appropriate for those who wield the coercive power of the state to employ this power against anyone who doesn’t conform to their ideas of philanthropy? Jail for those who don’t “sponsor various cultural events” of the right type? You really think that? If so, I don’t want to live in your world. Third, I’d love to know about all the wonderful things the Sechin/Rosneft clan did with those Yukos assets, all the wonderful Russian folk music festivals they’ve sponsored, all the little people they’ve helped. (And starving bankers in Switzerland, Cyprus, Lichtenstein, etc., don’t count.)

Lastly, whatever one thinks about Khodorkovsky’s origins, history, or motives, it is gobsmackingly obvious that it was precisely his social activism, his support of civil society NGOs, and his political ambitions that led to the state’s assault on him. So, to say that Khodorkovsky was targeted because of his lack of “social activeness” is to turn the truth on its head. In this sense, Shvartsman’s statement is truly Orwellian.

In sum, insufficient “social activeness” is no justification for imprisonment, and in any event, it is not the true reason for Khodorkovsky’s incarceration.

Shameless Self-Promotion (and a History Lesson)

Filed under: Commodities,Derivatives,Energy,Exchanges — The Professor @ 9:45 am

Tom Fowler of the Houston Chronicle quotes me in a blog post spurred by US Asst. Attorney Belinda Beek’s mentioning during jury selection in the manipulation trial of several former El Paso traders that onions were not covered by the Commodity Exchange Act. As I noted to Tom, onion futures were banned due to intense political pressure from onion farmers after several episodes in which the price of onion futures plummeted, at times falling below the price of the sacks in which they were shipped.

Interestingly, in 1972 similar events in the potato market led to the proposal of a bill to ban potato futures. This bill failed, however, in part because a USDA study of what happened in onions after futures trading was banned; the USDA study did not find any evidence that the ban had affected pricing patterns. In a 1963 article in the Journal of Farm Economics Roger Gray found that if anything, the ban increased volatility of onion prices.

The potato contract died a somewhat unnatural death a few years later due to several spectacular manipulation attempts, but this time Congress did not commit the murder. In one of these manipulations, in 1976, both a big long and a big short were trying to manipulate the contract simultaneously, with the short trying to ship huge quantities of potatoes from Idaho to Maine (the delivery point) and the long tied up most of the railroad cars on the Bangor & Aroostook Railroad (in which delivery had to be made). There was a large default against the futures contract. The default severely damaged NYMEX’s reputation. Here is a court case that provides some of the lurid details.

Ironically, the demises of the onion and potato contracts were perhaps the best things that happened to the CME and NYMEX, respectively. The loss of these contracts forced each exchange to innovate to find replacements. CME developed meat futures (including the legendary pork belly contract, which is now fading away but was once the hottest thing in town) to replace onions. NYMEX, under the leadership of Michael Marks, developed energy futures. (Which, funnily enough, a commenter on the Fowler post says should be banned. La plus ca change.) Necessity as the mother of invention, futures exchange edition.

The common feature of potatoes and onions is perishability. Perishability makes prices inherently volatile, and also can make some manipulative strategies possible. Indeed, short manipulations are likely to be more profitable for things like onions and potatoes than other products because dumping additional supplies on the market can depress prices sharply because the perishable good must be consumed almost immediately. This allows someone short futures to profit substantially.

December 2, 2007

Get Your Mind Right

Filed under: Politics,Russia — The Professor @ 4:46 am

This is one creepy statement from an interview with Oleg Shvartsman of Finansgroup:

This structure was created in 2004, after President [Vladimir] Putin said that big business should have a social responsibility to the state. At that time our colleagues from the FSB decided that an organization must appear that will incline, bend, torment, and lead the various and sundry Khordokovskies toward social activeness.”

This reminds me of the treatment of Winston Smith in 1984. Or perhaps better yet, it reminds me of The Captain in Cool Hand Luke:

You run one time, you got yourself a set of chains. You run twice, you got yourself two sets. You ain’t gonna need no third set ’cause you’re gonna get your mind right. And I mean RIGHT.

Shvartsman’s statement drips with irony–intentional or unintentional, I know not. For it is obvious that it was social activeness that was Khodorkovsky’s downfall. But not the right kind of social activeness. And just as The Captain was making an example of Luke (“(To the other inmates) Take a good look at Luke. Cool Hand Luke?”), Putin and the FSB were making an example of Khodorkovsky for others who might have thoughts of the wrong kind of social activeness. And from the looks of things, the example was well taken.

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