Streetwise Professor

The New York Times reports that the Treasury and the SEC are contemplating requiring banks to disclose publicly quotes and trades in derivatives, such as CDOs. Where have I heard that idea before? Oh yeah, I came up with it 5 years ago to address problems in the energy market.

Now, of course, I shouldn’t take entire credit for the idea, as Mike Prokopp at Amerex, Ed Bell, then of PA Consulting, and Bob Anderson at the CCRO, and some folks at Reuters were thinking along similar lines. But I think it is fair to say that I contributed as much, and perhaps more, to the development and evangelization of the concept as anybody.

In energy, the issue was that many traders falsely reported the prices at which they bought and sold natural gas to trade publications such as Gas Daily and Inside Ferc. The price reporting was purely on an “honor system,” and like everything, honor has its price–and that was a price many traders weren’t willing to pay. So the basic idea I developed was that of a “data hub.” In a nutshell, traders would report prices of actual transactions to a central repository, that would validate the submissions by matching buys against sells. The data would then be disseminated to the marketplace.

The concept is pretty straightforward, but in the energy space it attracted a lot of flak, some of which I am still picking out of my backside. Transparency is not everybody’s friend; traders feel that they give up valuable information by publicly disclosing their prices. Moreover, the price reporting incumbents–notably Platts–had a vested interest in maintaining the old system. FERC and CFTC said nice things about the idea, but the political pressure from some industry groups, individual energy firms, and Platts overwhelmed the arguments that an academic and a few industry mavericks put forth. As a result, neither regulatory agency was willing to mandate that firms report prices to a particular entity. Absent a mandate, the collective action problems of creating a viable data hub were daunting.

In May, 2004 the idea was all but dead. As a last gasp effort to revive it, my then assistant Jeff Graefe had the idea to organize a roundtable on the idea at UH. Bob Anderson, who had formed a non-profit company called Energy Data Hub (imagine that) was there, as were several representatives of energy firms. Bob was about to give up on the idea when Jim Allison from Conoco-Phillips gave the idea his strong endorsement, and suggested that the concept be extended.

The original concept behind the hub was to collect and disseminate data on simple energy products, like day ahead and month ahead gas. Allison said that it would be much more useful to collect and disseminate information on more complicated products, including longer dated swaps and options. This would help firms get better estimates of the values of their outstanding contracts, and hence allow them to manage risk and determine profitability much more effectively.

With Allison’s strong endorsement, Anderson plugged ahead with the Data Hub. It is now collecting data from several companies, and should go live later this year. Although I take pride in pioneering the concept, Bob deserves credit in persevering to make the concept a reality, and Jim deserves credit for the vision to see how the concept could be used to solve problems other than the false-reporting issue that had been the reason for its development.

It is ironic, in light of the NYT article, that at a lunch with Anderson before Christmas I mentioned that the hub concept could–and should–be extended beyond energy to deal with other opaque markets, such as credit derivatives. The idea is, as they say, scalable, and numerous segments of the derivatives marketplace could do with greater transparency.

I am not a big fan of government mandates, but theory and practical experience tell me that (a) a mandate is the only way this can be done quickly, and (b) a mandate is economically efficient. As I noted before, trading firms don’t like transparency. They operate on the motto “The One Eyed Man is King in the Land of the Blind.” A individual firm that sees some deal flow–but not all the deals–likely has something of an information advantage over other firms. If all prices are revealed to everybody, the informational playing field is level–and who can make any money when that happens? So many firms–especially the big hitters that see a big chunk of the deal flow–would rather have a relatively opaque market. Sure, they don’t know values as accurately as if all prices were disseminated publicly, but trading profitability only requires that you have better information than others. So the biggest, most influential firms have a vested interest in opposing greater transparency.

Moreover, there is a positive externality from disclosure of value information; it helps other firms manage their risk better and mark their books more accurately. Firm A doesn’t benefit if firm B can manage risk better. Though Firm A could manage risk and mark books better if it also received information from firms B, C, etc., no individual firm captures all the benefits of its disclosures. Moreover, investors in the stock of the trading firms (and investors in hedge funds trading in these opaque markets) would benefit from having more accurate valuation information. But firm A gets all the trading benefits of keeping the information to itself, but none of the benefit that disclosure confers on other firms who can use the information to manage risk and mark more accurately. Collectively firms would benefit from disclosure (as the trading part of it is close to a zero sum game but the risk management part is positive sum), but individual firms can’t capture the collective benefit through unilateral disclosure.

Thus, there is a collective action problem, similar to the common pool problem in the oil business. It is well known (as documented by Gary Libecap and Steve Wiggins) that operators of common pools typically do not resolve that problem efficiently. On a priori grounds I would predict that collective action problems would make it very difficult for individual firms to come to an efficient agreement regarding mutual disclosures of price information. Indeed, the resistance of the “front offices” (i.e., the traders) to the idea would likely overcome the influence of the “middle offices” (i.e., the risk managers) who would otherwise favor the concept. (Traders usually swing much more stick than the green eyeshade types.) My experience in the energy data hub was strongly consistent with this conjecture.

So, despite my usually libertarian/Chicago instincts, here is a situation where I believe a mandate to be warranted, and I support the Treasury/SEC initiative. It is clearly most needed in the credit derivatives market, and in the market for various structured products, but it is also defensible in other parts of the derivatives market as well.

Perhaps the SEC/Treasury action will also galvanize FERC and CFTC to revisit the issue in energy markets too. Although the Energy Data Hub lives, it is still fighting the collective action problem.

When the subprime stuff hit the fan, it was clear that the market could use better price information. It was equally clear that due to the conflicting interests and the collective action problem, market participants were unlikely to provide it absent a nudge from the feds. That nudge has come, and none too soon.

I’ve been predicting since the Whither NYMEX post almost exactly two years ago that CME would acquire NYMEX. That forecast took one major step closer to realization today, with the CME’s confirmation that it was engaged in merger talks with NYMEX. The parties have agreed to a 30 day exclusive negotiation period.

The timing of the move is very sensible. The CME just completed the integration of CBT products onto Globex. With the integration successfully completed, it is free to make its next move. The smooth segue from integration to offer suggests that this was the strategic plan all along.

As I’ve stated numerous times, the deal makes eminent sense. NYMEX already uses CME’s Globex trading system, and is contracted to do so for another 8 years. This always gave CME a leg up in any contest for NYMEX, as an alternative suitor would have to circumvent that contractual obstacle, and then migrate NYMEX business to a new platform, a costly and potentially risky endeavor. Moreover, the CME/NYMEX tie up offers far more substantial economies on the clearing side than any alternative combination–and remember, clearing is where the money is. Furthermore, NYMEX has made excellent headway in OTC energy clearing, which fits in very well with CME’s strategy of penetrating the OTC clearing business.

I don’t anticipate any antitrust issues. CME and NYMEX products are far less closely related than CME and CBT products, so if the Justice Department didn’t consider the latter a single market for antitrust purposes, they won’t consider the former to be such. Another suitor could arise–possibly NYSE-Euronext–but the economics make the CME the logical winner even if a would-be spoiler appears.

So now the question becomes: Whither ICE? I stand by my prediction that ICE will join up with NYSE-Euronext.

There is also speculation that CME will snap up the KCBOT and MGEX. That may well be, though ICE might compete for those vigorously. It has already purchased the WCE and NYBOT, so the two smaller grain exchanges would fit nicely in that portfolio. Moreover, I’ve noted before that the Chicago exchanges (now singular) always liked having Kansas City and Minneapolis around; they weren’t serious competitive threats, and their existence helped secure support from the Missouri and Minnesota congressional delegations on legislative issues of interest to the Merc and the Board. For that reason, they may be more valuable to CME as independent exchanges, but against that it must be said that it doesn’t make much economic sense for those two exchanges to survive. The cost of offering the KCBOT and MGEX contracts on CME (or ICE) is trivial compared to the cost of operating stand alone exchanges.

So, the consolidation process seems to be in its last phase. If the NYMEX deal goes through, only ICE and CBOE remain of the major independents. CBOE’s situation may become resolved fairly soon. The SEC approved a CBOE rule change that prevents CBOT members from asserting ownership rights in CBOE. This clears the way for the Delaware Chancery Court to rule on the issue. Once that is clarified, CBOE can have an IPO, and once that happens, it will probably be snapped up by somebody soon afterwards. Thus, it is likely that by the end of this year the exchange consolidation movement in the US will be complete, or nearly so. Then the main theater will shift to international alignments. More on that to come.

Yup, just like Freddie Kreuger. The blogging hiatus occurred because I was visiting Italy. I gave a talk at the Italian Federation of Applied Mathematics conference in Champoluc, Italy (in the Valle d’Ayas, near the Valle d’Aosta.) What a great time. The conference was quite good, the Alpine scenery spectacular. Moreover, much history in the area–numerous Roman sites (especially in nearby Aosta), but also many wonderful 14th and 15th century castles, both restored and in ruins. Thanks to FIMA, and especially Elisa Luciano for inviting me to speak. It was a very memorable week.

Gazprom/Russia is/are playing smashmouth ball over Serbia’s national oil company. Don Miller and Don Medvedev have presented Serbia with an offer it can’t refuse: to sell Naftna industrija Srbije at a fraction of its true value–and one with an unbelievably short fuse, like, you know, Friday.

In exchange for control of SIJ’s hard assets and guarantees of a monopoly position in Serbia for some period (take that Serbian consumers, Gazprom doesn’t do competition), Gazprom Neft (Gazprom’s oil affiliate) is offering an amount that has been estimated to represent well less than one-half (and perhaps as little as one-quarter) of the Serbian company’s value. The tacit quid pro quo is that Russia will support Serbia on Kosovo–but, if Russian rhetoric is to be believed (yeah, I know) they would do that anyways.

To make the deal look a little less like an abject surrender, Gazprom has also dangled the prospect of giving Serbia a stake in a future gas venture. Word of advice, guys–DON’T BELIEVE IT, and DON’T TAKE IT. Gazprom is the master of what Bob Amsterdam calls “premature contractualization.” That is, announcing deals just in time to forestall projects that are adverse to Gazprom’s interest, and then fading the deal when the threatening competing projects are shelved in response to the Gazprom announcement. Gazprom will whisper sweet promises in anybody’s ear to get what they want, and then renege when it suits them. (Nigeria–you should take note of this, as Gazprom has been wooing you too.)

Gazprom’s stratagem is analogous to a common ploy in the software business. In the 80s and 90s “vaporware” was a commonly employed competitive strategy. A software company would announce a new, improved software product in order to forestall entry by a competitor. Once the potential entrant was scared away, the new software would just fade away into the mists, never to be seen. Gazprom is essentially following this playbook–constantly announcing vaporpipelines, vaporwells, vaporinvestments, vaporstorage, vapor-you-name-it whenever a threatening project is mooted.

So, what Gazprom is offering Serbia is: a pittance in cash plus a pig in a poke in exchange for hard assets right now. Given Gazprom’s record of delivering on its big talk, the Serbs would be well advised to take cash on the barrelhead and take the promises for what they are worth–a little more than nothing.

Bob Amsterdam took the words right out of my mouth when he pointed out that the Russian government has bungled every major crisis during the Putin years. Notably, it is hard to imagine how it could have handled Chechnya, the Kursk, Beslan, and Nord Ost any worse than it actually did. Despite these fiascoes, Putin has created an image of an omnipowerful–and omnicompetent–state, and of himself as the great helmsman of the ship of state. How has he done so? Well, it seems primarily by (a) getting very lucky on the economy, (b) using the state’s massive powers to crush any opposition, from Khodorkovsky to Kasparov, to the wife (or was it mother?) of the Kursk crewman who was tranquilized in public when she had the temerity to speak out, to the tragic mothers of Beslan, to the British Councils, to whoever is next in daring to stand on his or her own hind legs, (c) throwing its weight around in Georgia, Estonia and other parts of the near abroad, and (d) engaging in pathetic military posing. (With respect to the economy, Russia’s performance under Putin looks far less impressive when one sees that Armenia, which has in no way profited from the energy boom that has fueled the Russian economy, grew almost twice as fast (13.6 percent) as Russia in 2007.)

It is only fitting, then, that the cult of Stalin as a Great Leader is metastasizing in Russia. Stalin was arguably not only the greatest mass murderer in history, but the greatest blunderer. Read any account of Stalin’s policy vis a vis Germany in 1939-1941, or of the the early months of the Nazi invasion in 1941, and you will be staggered by the magnitude of Stalin’s errors large and small. (Of recent books, Niall Ferguson’s War of the World or Andrew Nagorski’s The Greatest Battle are quite good on the subject. Paul Johnson’s Modern Times is somewhat older, but also quite damning–and accurate–in its assessment of Stalin. See Liddell Hart’s, J.F.C. Fuller’s or John Keegan’s histories of WWII for indictments of Stalin’s handling of the opening phases of Barbarossa.) There were errors in tactics. Errors in strategy. Errors in personal judgment (e.g, Stalin’s quite inexplicable trust in Hitler). And these errors cost literally millions of lives–and not just Soviet lives. By dealing with Hitler, and supplying his armies with fuel and grain, Stalin freed Germany to attack west with impunity. As Ferguson puts it, all that saved the Soviet Union from Stalin’s colossal errors were Hitler’s equally colossal misjudgments.

Yet Stalin is revered today in Russia as a great leader–and Putin is among the most reverent. It is outrageous to revere such a sociopathic mass murderer in any event, but it is beyond bizarre to worship his leadership, and to endow him with an aura of unerring judgment when in fact he figuratively stacked the corpses of millions of Russians (and other Soviet citizens) killed through his incompetence on top of the millions he killed through deliberate policy.

Even Stalin’s supposed greatest legacy–the transformation of the USSR from a backward agricultural nation to an industrial powerhouse–was a failure on its own break-a-few-eggs terms. (Terms, by the way, that I find appalling, and certainly wouldn’t condone even if they had produced substantial economic growth.) This transformation was effectively financed by draconian taxation on the peasantry of the USSR (most notably, the Ukrainian peasantry). In the short run, the surplus extracted from agriculture was indeed instrumental in facilitating industrialization. In the longer run, however, Stalin’s hollowing out of Soviet agriculture proved to be the regime’s Achilles heel. Due to the effects of collectivization, before long the USSR could no longer feed itself. Moreover, the vaunted industrialization produced nothing–other than oil–that the USSR could sell to pay for food. When the price of oil collapsed, the USSR collapsed with it. In a nutshell, Stalin destroyed Russian and Ukrainian agriculture to create an industrial complex that produced nothing that anyone wanted to buy. It was only a matter of time before the whole edifice collapsed. And collapse it did. If that’s leadership, the world could do with a lot less of it.

By comparison to Stalin and his stupendous mistakes, Putin is a piker in the blunder department. But there is an eerie parallel. Despite their blunders, they are viewed as visionary and effective leaders. A combination of intimidation (obviously far more extreme in Stalin’s case), relentless propaganda, and to no small degree, a willing suspension of disbelief by the Russian people, has sufficed to obscure their myriad failures with a mirage of power and brilliance.

Here’s what I posted on the International Relations site:

Russian Energy Politics: Fuelling Power

The phrase “Russian energy politics” is dangerously close to a redundancy; in Russia, politics is energy and energy is politics. To be sure, energy is politicized in virtually every country, but nowhere is the nexus between petroleum and politics tighter than in the Russian Federation. After all, in what country is the Chairman of the Board of the state champion oil company (Rosneft) also the First Deputy Chief of the Russian Presidential Administration (Igor Sechin), while the Chairman of the Board of the natural gas monopoly (Gazprom) is also the Deputy Prime Minister and presumptive national president (Dmitri Medvedev)?

Energy exerts a decisive impact on every aspect of Russian politics, from the domestic to the geopolitical. Domestically, huge rents from energy have been conducive to the formation in Russia of what scholars Douglas North, John Wallis, and Barry Weingast call a “natural state.” As North, Wallis, and Weingast argue:

[a] natural state is a specific way of structuring political and economic systems so that the economic rents created by limited entry are available to secure credible commitments among politically powerful groups. Potential rivals in a natural state stop fighting (or fight less) when the economic rents they enjoy depend on continued existence of the sate and of social order. Natural states limit economic entry to create rents and then use those rents to credibly commit powerful groups to support the state. In other words, natural states use the economic system as a tool to solidify the stability of the ruling coalition.

They also note that to maintain the stability of the division of rents, natural states have an incentive to suppress civil society; undermine democracy in order to reduce the likelihood of a transfer of political power and limit citizen access and power; undermine the independence of the judiciary; and control or restrict entry into valuable economic activities. In a nutshell, stability among the ruling elite is a fetish in natural states, as instability can touch off devastating internecine conflicts over rents.

Rents and natural states go together, and Russia’s current energy bounty – driven by its physical endowment and an unprecedented spike in energy prices – has created a stream of rents beyond the wildest imaginings of Russians at the time of the collapse of the USSR. Events in Russia over the past several years support the main contours of the natural state thesis that increased potential for rent seeking markedly affects domestic political organization.

In Russia, this boom in energy rents has coincided with, and has quite plausibly been a major cause of, an undermining of Russia’s already weak civil society, judicial, and democratic institutions. Moreover, the late-Putin era has seen the fetishization of stability alongside the evolution of rival political clans, each with a strong cohort of violence specialists with roots in the security services, restively coexisting in a tenuous equilibrium. These clans are among the major beneficiaries of the rents flowing into Russian coffers, and securing their claims to these rents is their major preoccupation.

And that is where the North-Wallis-Weingast formulation can be misleading. They emphasize that rents can be the glue that keep a natural state together, but underappreciate that the stability of such arrangements can be tenuous indeed. Such tacit truces between rivals for rents can be supported under some circumstances, but can break down when conditions change. In particular, such “cartels” of rent seekers are sustainable when the rival parties have relatively long time horizons; with low discounting of the future, repeat interactions and the threat of defecting from tacit agreements to share rents support cooperation and suppresses conflict. However, shocks that increase uncertainty can truncate time horizons, and if these shocks are sufficiently severe, cooperation is no longer an equilibrium strategy. In these circumstances, stability can rapidly degenerate into chaos and violence. That is, natural states can be brittle, and their apparent stability chimerical.

The recent uncertainty over presidential succession has clearly shaken the Russian political elite. Indeed, there have been recent public outbreaks of struggles among the clans, and the many growls emanating from under the Kremlin carpet (to paraphrase Churchill) suggest that the public feuds are just battles in a much larger war. The main case for retaining Putin in power advanced by many elements of the elite (notably the Sechin clan) is that only Putin can keep the clans in check. Although Putin’s anointment of Medvedev has evidently eased some of the anxiety over succession, the combination of the uncertainty over the future division of power between Medvedev and Putin, the inherent ambiguity and volatility of any such division, and the billions in rents at stake (most of them energy derived) will conspire to make the months to March 2008 and far beyond fraught with peril.

In sum, in terms of domestic politics, huge resource rents—most notably, rents from energy—have transformed Russia into a natural state in which the dominant factor driving political and legal arrangements is the division of rents. As North et al suggest, such arrangements corrode civil society, and such corrosion is clearly evident in Russia. Contrary to their (relatively) sunny predictions that these arrangements also facilitate stability and lead to the suppression of political violence among the elite, however, this stability is very brittle. And again, this brittleness is clearly evident in current Russian politics.

Moreover, the ramifications of energy rents extend far beyond Russia’s borders, and not only to the extent that regional and international stability is affected by the internal stability of a former superpower possessed of a massive nuclear arsenal and a UN Security Council veto.

Russia’s energy rents will be larger, the more that competing suppliers of energy restrict output. This fact sheds light on much recent Russian foreign policy. In Central Asia in particular, Russia has engaged in a diplomatic full court press to wall off that region’s energy resources from European and American countries. Gazprom in particular benefits greatly from limited competition for Turkmen gas, and the company and the Russian government (as if one can distinguish them) have acted aggressively to forestall the development of pipelines that could divert this gas from Russian, which is to say Gazprom’s, pipes. The new Great Game in Central Asia revolves around energy, and involves not just Russia and Europe, but Turkey, Azerbaijan, Iran, the US, and notably for the future, China.

But Central Asia is not the only area in which Russia is maneuvering to control or coordinate production of energy in a way that will enhance Russian energy rents. Russian initiatives with countries as diverse as Qatar, Algeria, and now Nigeria are all driven by Russia’s desire to restrict competition in the international trade of energy. These efforts focus primarily on natural gas because that commodity’s particular infrastructure needs make it particularly vulnerable to such anti-competitive efforts.

Moreover, it should be noted that uncertainty and the potential for supply disruption can drive energy prices higher. This undermines Russia’s interest in promoting stability in major energy producing regions, such as the Gulf, Nigeria, or South America. Indeed, it may provide an incentive to sow instability in these regions. As a result, there is a reasonable basis for suspicion over the motives behind its policies regarding Iran, as well as other energy producing nations.

Energy is also an instrument that Russia uses to advance other geopolitical objectives. Energy is the primary tool that Russia employs to reassert its influence the “Near Abroad.” Moreover, Russia repeatedly attempts to utilize energy to drive a wedge between European regions and individual countries, and between Europe and the US. These efforts are undertaken in service of the desire by some elements in Russia who believe their nation is in conflict with Western and “Atlanticist” blocs.

In brief, one cannot understand Russian domestic politics or Russian foreign policy without understanding the role of energy. At present, the resurgence of Russian state power both domestically and internationally is figuratively fueled by high energy prices.

And in this there is a cautionary tale. The influence of the USSR in the world during the 1970s was financed by the windfall of the last oil shock; without such a windfall, the Soviets would not have been able to overcome their severe structural weaknesses in industry, and especially agriculture. The end of this windfall precipitated the collapse of the USSR. Current Russian assertiveness is similarly dependent on an energy windfall.

Although it would be rash to predict a modest, let alone precipitous, decline in energy prices occurring in the near future, it would have been similarly rash to do so in 1985. As a much more open, market oriented economy, Russia is far better positioned to weather a decline in oil prices than the Soviets were, but Russia would still suffer terribly from a decline in energy prices. But perhaps the most disturbing realization is that high oil prices are no blessing to Russian civil society, democracy, and political stability, or its non-resource economy, or to the stability of the world outside of Russia’s borders. High energy prices or low, there is much room for pessimism about Russia. The “devil’s excrement,” indeed.

Postgraduate students at Oxford, Leicester, and the LSE have started a new website, International Relations. They kindly asked me to contribute a commentary piece on Russian energy politics. It is now up. I’ll cross post it at SWP in a day or two, but you might want to visit the International Relations site to read it, and then stick around for a bit to read more of that site as it is very interesting.

Gazprom is throwing a hissy fit over proposed EU energy policies. That suggests that the Europeans are onto something, so should keep it up.

But Gazprom–speaking through deputy board chairman Alexander Medvedev–is playing the divide and conquer card again: “‘We know that these measures provoke various responses in Europe. They have opponents – France and Germany,’ Medvedev underlined. ”

I’ll say again: the EU talks a good game on unity, and common policy, and its ambitions to be a world power, but its lofty words are revealed to be mere pretense by its repeated failures to devise–and implement–a unified response to Gazprom’s machinations. Unless and until Europe plays hardball–as a team–against Gazprom, it will see its energy security erode dangerously. Gazprom is making loud noises and threatening disaggregation to get its way. Now is the time–no, it is well past time–for Europe to get its act together and stand up to these threats.

My conjecture that dedovshchina is a major motivation for the reduction in the term of service of Russian conscripts received confirmation from Vasily Smirnov, Deputy Chief of the Russian General Staff:

“Our assessment of the facts of hazing in the armed forces is very harsh,” General Smirnov says. “I believe the gradual reduction of the military service period will allow us to substantially reduce the shameful phenomenon, which now exists.”

To me, this betrays a true sense of desperation. Reduction of the term of service will greatly reduce the training and experience of the Russian soldiery, but at the same time will exacerbate the Army’s already acute difficulties in manning (that arise in large part from demographic trends). The Russian government would only resort to such a measure–and the Russian Army would acquiesce–only if the effects of hazing on readiness and morale were truly devastating.

What a choice: an army of dubious effectiveness because of morale devastated by brutal hazing of its soldiers, or an army of dubious effectiveness because its soldiers are minimally trained short timers.

I like Edward Lucas a great deal. His instincts on Russia are usually right on (and hence I am looking forward to his forthcoming book.) He is an excellent writer. He also exhibits a calm and easy demeanor, in contrast to the sometimes pugnacity of, oh, I don’t know, say, me.

In a recent column, however, I think Edward’s good nature and optimism have led him astray. In his Economist piece “Eastern Europe 2008”, he writes:

Third would be some glimmers of hope from Russia, both in its treatment of opposition activists at home, and its neighbours. Given the Kremlin’s overwhelming domestic support and the ease with which it gets what it wants from the outside world, it is tempting to hope that it might start taking things a bit easier.

I take the more pessimistic–and I believe, more realistic–view that bolstered by domestic support, the Kremlin is likely to view the lack of resistance by “the world” (specifically, western Europe and the US) to its recent bellicosity as an invitation to demand more and more; to speak even more stridently; to act even more aggressively. That is the nature of the species that currently inhabits the Kremlin. The ambition and greed and delusions of grandeur of the current Kremlin set are unlikely to be satiated by its recent gains. Appetite comes with eating, and methinks that Putin’s recent gains on the world stage are likely to whet his appetite, not sate it.

I hope Edward is right, but fear he is decidedly wrong.