Streetwise Professor

Infamous short-seller and sometime SWP follower Jim Chanos is very bearish on China (H/T MJ).  Sayeth Chanos:

Now Mr. Chanos, a wealthy hedge fund investor, is working to bust the myth of the biggest conglomerate of all: China Inc.

As most of the world bets on China to help lift the global economy out of recession, Mr. Chanos is warning that China’s hyperstimulated economy is headed for a crash, rather than the sustained boom that most economists predict. Its surging real estate sector, buoyed by a flood of speculative capital, looks like “Dubai times 1,000 — or worse,” he frets. He even suspects that Beijing is cooking its books, faking, among other things, its eye-popping growth rates of more than 8 percent.

“Bubbles are best identified by credit excesses, not valuation excesses,” he said in a recent appearance on CNBC. “And there’s no bigger credit excess than in China.” He is planning a speech later this month at the University of Oxford to drive home his point.

I can’t disagree, and have been expressing skepticism about the sustainability of China’s growth for some months.  I referred to China as the Michael Jackson economy: kept performing by outsized doses of artificial stimulants.  That can work for awhile, but as MJ (not the SWP reader:) showed, the ultimate effects are likely catastrophic.

What I find hard to understand is why so many investors and commentators seem to have bought into the China growth story hook, line, and sinker.  I don’t expect everybody to be as skeptical as I am, or as Chanos is.  But one would think that in the aftermath of a major economic contraction which plausibly resulted from an overly expansive monetary policy and various institutional factors that directed most of the ballooning credit to the real estate sector, the China boosters would at least pause to ask whether the same might be occurring in China.  Or to question the reported growth, that always miraculously hits official targets, much in the same way as Enron’s earnings always miraculously came in as expected, with metronomic regularity.

Part of the credulity seems to stem from a confidence that Chinese planners have the ability to manage the economy efficiently and avoid a bubble followed by a crash.  You know, sort of the same attitude that gave people confidence in the genius that was Greenspan.  Well, Greenspan was no maestro, and it would be foolish in the extreme to expect China’s rulers to be any more adept with the baton (or, should I say “wand,” apropos the Sorcerer’s Apprentice?).  At the very least, it is prudent to recognize that there are serious downside risks in China.

The NYT article states that Chinese regulations make it difficult for Chanos and others to trade on that view.  As the old Diamond-Verrechia article demonstrates, such restrictions can delay the market’s reckoning.  But not indefinitely.  China is riding the tiger, and has deliberately taken a huge calculated risk in its massive stimulus program.  The historical track record of these initiatives is spotty at best.  Moreover, the Chinese strategy is implicitly based on a strong recovery in the developed nations generally, and the US particularly, and the prospect for that is shaky.  Add to that the fact that China is massively long the dollar, and hence somewhat a hostage to the highly uncertain effects of the Fed’s unprecedented monetary policies, and the course of those policies going forward.  Putting it all together, the downside risks are pretty sobering.  At least you’d think they’d be.

Writing near to the event, in Capitalism, Socialism, and Democracy, Schumpeter argued that policy shocks, and policy uncertainty generally, lengthened the Great Depression:

The subnormal recovery to 1935, the subnormal prosperity to 1937 and the slump after that are easily accounted for by the difficulties incident to a new fiscal policy, the new labor legislation and a general change in the attitude of government to private enterprise all of which can, in a sense to be defined later, be distinguished from the working of the productive apparatus as such.

Since misunderstandings at this point would be especially undesirable, I wish to emphasize that the last sentence does not in itself imply either an adverse criticism of the New Deal policies or the proposition–which I do believe to be true but which I do not need right now–that policies of that type are in the long run incompatible with the effective working of the system of private enterprise.  All I mean to imply is that so extensive and rapid a change in the socially scene naturally affects productive performance for a time, and so much the most ardent New Dealer must and also can admit.  I for one do not see how it would otherwise be possible for the fact that this country which had the best chance of recovering quickly was precisely the one to experience the most unsatisfactory recovery. [Emphasis in original.]

Some of the specifics are different (e.g., health care legislation vs. labor legislation) but the overall thrust of Schumpeter’s analysis of the 1930s is quite applicable today.  An “extensive and rapid change in the social scene” is currently in progress, and like Schumpeter, I believe that “policies of [the] type [being considered] are in the long run incompatible with the effective working of the system of private enterprise.”  And even if you don’t buy into that, as Schumpeter notes, just the massive rise in uncertainty associated with this policy ferment is sufficient to impede measured economic performance because it is rational for businesses and individuals to delay investment and hiring decisions until the uncertainty is resolved.

The NYT reports that “senior administration officials” are angry at the military for its alleged slowness in deploying for the Afghanistan “surge”:

Senior White House advisers are frustrated by what they say is the Pentagon’s slow pace in deploying 30,000 additional troops to Afghanistan and its inability to live up to an initial promise to have all of the forces in the country by next summer, senior administration officials said Friday.

Tensions over the deployment schedule have been growing in recent weeks between senior White House officials — among them Vice President Joseph R. Biden Jr., Gen.James L. Jones, the national security adviser, and Rahm Emanuel, the White House chief of staff — and top commanders, including Gen. Stanley A. McChrystal, the senior commander in Afghanistan.

A rapid deployment is central to President Obama’s strategy, to have a jolt of American forces pound the Taliban enough for Afghan security forces to take over the fight. Administration officials said that part of the White House frustration stemmed from the view that the longer the American military presence in Afghanistan continued, the more of a political liability it would become for Mr. Obama. But beyond the politics, the speeded up deployment — which Mr. Obama paired with a promise to begin troop withdrawals by July 2011 — is part of Mr. Obama’s so-called “bell curve” Afghanistan strategy, whereby American troops would increase their force in Afghanistan and step up attacks meant to quickly take out insurgents.

One administration official said that the White House believed that top Pentagon and military officials misled them by promising to deploy the 30,000 additional troops by the summer. General McChrystal and some of his top aides have privately expressed anger at that accusation, saying that they are being held responsible for a pace of deployments they never thought was realistic, the official said.

So, is Obama a latter-day Lincoln, and McChrystal a 21st century McClellan, with the former justifiably frustrated by the latter’s case of the “slows”?

I seriously doubt it.  The italicized portion above suggests that political considerations are paramount here.  What’s more, previous reporting on Obama’s decision making quite clearly suggests that these political considerations completely overshadowed any rational consideration of military realities:

“If people are having trouble swallowing 40, let’s see if we can make this smaller and easier to swallow and still give the commander what he needs,” a senior Defense official said, summarizing the secretary’s thinking.

The plan, called Option 2A, was presented to the president on Nov. 11. Mr. Obama complained that the bell curve would take 18 months to get all the troops in place.

He turned to General Petraeus and asked him how long it took to get the so-called surge troops he commanded in Iraq in 2007. That was six months.

“What I’m looking for is a surge,” Mr. Obama said. “This has to be a surge.”

So, since the Iraq surge was able to get everything in place in six months, it must be so in Afghanistan, right?

Let’s see.

Iraq: relatively developed country; accessible by sea; moderately modern infrastructure; not mountainous; no major seasonal weather problems; near large US logistical bases in Kuwait.

Afghanistan: arguably the world’s least-developed country; landlocked; no infrastructure to speak of; mountainous; daunting winters; completely isolated from any major US support bases.

Sound pretty much the same to me!  If six months is good for one, it must be good for the other!  Six months it is then!

The post title is a well-worn military aphorism.  Campaigns succeed or fail more often than not on logistical considerations.  The examples are too numerous to list.  Moreover, logistical realities cannot be wished away, and these realities are probably more daunting in Afghanistan than in anywhere in the world.  Regardless of whether Obama’s need for speed derived from a laudable desire to take the initiative, or from a crass political calculation (more likely in my view), it is foolish in the extreme to ignore the fundamental logistical constraints.  And the NYT articles lend strong support to the view that Obama did just that.

The administration might also get more sympathy about the time factor if Obama had himself acted expeditiously and decisively in deciding on his course in Afghanistan, instead of playing Hamlet for months.

The military seems to be playing it cynically.  McChyrstal and Petraeus are aggressive commanders, and there is no reason to believe that they were taking an unnecessarily leisurely course when they planned for an 18 month deployment period.  Instead, it is highly likely that they chose that schedule based on a professional, realistic understanding of the logistical constraints.  Faced with the stark choice of Obama pulling the plug on Afghanistan altogether if they stuck to their timeline, or getting his (grudging) acquiescence to an accelerated deployment, they chose the latter.  They probably figured that the iron laws of logistics would eventually rule, and that the “bell curve” would be pushed back beyond what Obama desired, but that since the president had committed, he could not bail.

This cannot end well.  There was never much chance that the Pentagon and Obama and his minions would ever be comfortable with one another.  They inhabit different mental universes.  But a military convinced that the president is a military neophyte who lets domestic political needs override fundamental military considerations, and a president and administration who are convinced that the military is defying the president’s will is an extremely poisonous combination.

A new Federal Reserve Bank of NY staff report by Darrell Duffie, Ada Li, and Theo Lubke, “Policy Perspectives on OTC Derivatives Market Infrastructure” has received a lot of attention in the press.

There are some good things in the paper.  Notably, it is suitably cautionary about the potential systemic risks posed by central counterparties, and the consequent need for prudential regulation thereof.  It also makes a good case for data repositories, and for the role of the Fed and other government agencies in reducing the costs that intermediaries incur to coordinate risk reducing actions, such as portfolio compression and improvements in the process of confirming deals.

But overall the paper is extremely disappointing.  Its tone is Olympian and prescriptive.  The word “should” is used 61 times 21 pages of text (that includes several space eating tables and charts).

This is extremely dangerous because these prescriptions and dictates are not based on a a rigorous analysis of costs and benefits.  Most disturbingly, there is virtually no discussion whatsoever of the informational demands inherent in the prescriptions.  We’re told that regulators should set the right capital and collateral requirements on non-cleared deals, and that CCPs should maintain “high collateral standards.”

Great.  Thanks for the advice.

Now, give me some numbers.  What is the right capital requirement?  How high is high?

Can’t do that off the top of your heads?  Understood.  Then tell us the information required to establish these requirements.  Tell us the process by which that information will be collected.  Tell us about the incentives facing those using that information, so that we can have some confidence that the regulatory process will select appropriate charges.

In essence, Duffie, Li and Lubka (DLL) are recommending a type of financial central planning, a centralized price setting system.  Regulators set a vector of prices, in the form of capital requirements and collateral charges (or regulate/oversee the collateral charges and other decisions of CCPs).

The first, second, third, . . . Nth question that should come to mind when hearing such a recommendation is: “How do you address the knowledge problem?”  Or, “What information do you need to set these prices?”  Relatedly: “What are the costs of getting the prices wrong (as you certainly will)?”

These prices create a high powered incentive system that very smart, very motivated people will respond to.  If the prices are set wrong, because the regulators don’t have the information necessary to set them properly, or the incentive to do so, or both, these responses can be individually rational but systemically perverse.  Extremely.

This is especially true inasmuch as these are one size fits all charges, so the effects of any mistake are almost by definition systemic.

And it’s not like we don’t have examples of this.  The Basel standards created incentives that drove many of the (correlated) risk taking and investment decisions that contributed substantially to the financial crisis.  Which goes to show that setting these prices improperly can create the very problems the prices are meant to solve.

The knowledge problem here is extremely complex.  To set the relevant prices properly, you have to understand the marginal contribution of any particular transaction to risk.  Moreover, if the objective of the exercise is to reduce systemic risk, you have to have some estimate of the cost of systemic risk, and the contribution of particular transactions to this risk.  We don’t even have an agreed upon definition of systemic risk, let alone a way to measure it or its costs, or the contribution of particular instruments or trades to it, in the complex system that is the financial market.   So just how do we set this price?

DLL don’t even raise any of these questions, let alone answer them.  This is a classic example of what Coase called blackboard economics.

Moreover, adverse selection problems are likely to be rife here.  Again, the highly motivated bankers and traders are going to have much better information than the price-setting regulators.  They are going to find out what risks are underpriced and what risks are overpriced, and trade accordingly.  This is a recipe for trouble.

The fundamental prescriptions regarding incentivizing clearing and raising capital charges on non-cleared trades is also based on a superficial analysis, as is all too common.  DLL argue that an externality is pervasive in OTC trading.  For instance, they claim that traditional capital charges do not “provide a direct incentive to [a] bank to lower the exposure of its counterparties to the failure of the bank itself, that is, the potential losses of others that are based on the bank’s payables.”  They relatedly argue that there is a negative externality in OTC trading, due to the failure of counterparties to take into account the systemic risk inherent in their trades.

I find it hard to believe that DLL take seriously the argument regarding a bank’s failure to consider the effect of its potential default into account when making trading decisions.  Yeah, maybe A doesn’t take into account of its failure on B, but B sure the hell does.  Therefore the prices at which B is willing to deal with A, and the amount it is willing to trade with A, depend on B’s assessment of A’s default risk.  There is no externality here.  The risk is priced.

Surely, in a world of imperfect information, the risk is priced imperfectly.  But that gets us back to the question of who is in a better position to set the price for this risk, and the relative merits of two mechanisms: one in which a one size fits all price is set, and hence errors are likely to have systemic consequences, or one in which many economic agents utilize dispersed information to make individual judgments about the terms on which they are willing to trade.

DLL also predicate their analysis on an assumption that policy should be devised to reduce the likelihood of “runs” on OTC dealers.  This is understandable, and conventional, but it fails to come to grips with recent research on liquidity and financial intermediation (much of it done by Doug Diamond) which shows that runs–and the fragile capital structures that can produce them–might well be a feature, not a bug.  That is, the risk of runs is an incentive mechanism that deters opportunistic behavior by intermediaries.  This is, to be sure, a somewhat controversial position, but it is sufficiently grounded in logic to at least deserve some attention.

In sum, the DLL analysis raises some important concerns, but overall it cannot provide any real policy guidance because it fails to address the fundamental information problems inherent in its policy prescriptions.  It’s like the old Steve Martin routine, “How to Make a Million Dollars Without Paying Taxes”: “First, make a million dollars.”  DLL’s version is “How to Price Performance Risks to Save the Financial System”: “First, price the performance risks properly.”  Gratuitous advice, and advice that can be very costly indeed if the fundamental informational problems are too daunting, as is quite likely to be the case.

Greg Meyer at the Financial Times wrote a piece covering a just-released study I did analyzing the performance of the CME-NYMEX WTI crude futures and ICE Brent crude futures during the financial crisis.

The full study is here: scroll down to the bottom for the PDF.

Cliff’s Note version: (a) the financial crisis was a period of unprecedented volatility in the oil markets, (b) the hedging performance of both pricing benchmarks declined during the crisis, (c) the crisis affected front month WTI more acutely than second month WTI or either front or second month Brent, (d) the performance of second month WTI was comparable to that of both Brent contracts, (e) the most likely cause of the observed price behavior was the major shock to demand, which resulted in a sharp increase in oil in store at Cushing, (f) spread behavior was not something peculiar to WTI, because the fundamental shock affected West Texas Sour crude (also tributary to Cushing) too, (g) oil stocks and WTI spreads continued to covary positively, as you’d expect, though the relationship was weaker during the period of the crisis, but (h) oil stocks and Brent spreads covaried negatively during the crisis.

No sooner did I hit “Publish” on the latest Timmy! bash, then do I read an article suggesting that Geithner is indeed on his way out.

Yippee!

Not so fast.  The rumored replacement?

Wait for it.

Chris Dodd.  Yes, one of Fannie and Freddie’s two fathers.  Angelo’s BFF.

I’m a cynical SOB, but even I can’t believe that could actually happen.  But the mere fact that it is being discussed anywhere but a crack house frequented by bankers is a testament to the depravity of our political culture.

Timmy! Geithner has been keeping a low profile lately–but maybe it’s just the anti-terror FUBAR that has drawn attention away from him.  But today he gets a banner headline on Bloomberg:

The Federal Reserve Bank of New York, then led by Timothy Geithner, told American International Group Inc. to withhold details from the public about the bailed-out insurer’s payments to banks during the depths of the financial crisis, e-mails between the company and its regulator show.

AIG said in a draft of a regulatory filing that the insurer paid banks, which included Goldman Sachs Group Inc. and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from the firm. The New York Fed crossed out the reference, according to the e-mails, and AIG excluded the language when the filing was made public on Dec. 24, 2008. The e-mails were obtained by Representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee.

R asks if this could be the last straw for Timmy!  You’d think, but if Janet Napolitano and John Brennan are still among the employed (I wouldn’t say “gainfully employed”), it’s pretty clear that you can get away with a lot these days.  A whole helluva lot, in fact.

The Bloomberg article is very short on reasons why the FRBNY was so adamant on keeping the details of the AIG deals quiet.  Any GueSses?

No doubt this was of a piece with the Paulson-Bernanke insistence that all big banks take TARP funds, in order to pool the true weaklings with those not in desperate shape, so as to stem potential runs on the weaker institutions.  No doubt revelation of the details would have raised questions as to why it was so, so important to pay off Goldman, DB, etc., and ASAP.

I would love to hear an explanation as to how this could possibly be consistent with Geithner’s insisting to the Special Inspector General that the financial condition of the AIG counterparties was (I quote from memory) “not a relevant consideration” in the government’s decision make said counterparties whole.

Again: he was either lying when he said that, or everything else he has said or done in regards to the AIG intervention is a lie.

This raises another issue.  Geithner, along with others in the administration (notably Gensler at CFTC) has been preaching The Gospel of Transparency when flacking for clearing and exchange trading mandates.  Sunshine and transparency have magical powers, they intone, that will protect us against systemic risk.  Those who oppose transparency are merely greedy special interests protecting their turf.

But the FRBNY’s actions with AIG, and Treasury and Fed actions more generally, make it clear that the powers that be clearly believe that transparency can be damaging under some circumstances.

I’m perfectly willing to stipulate that, and then debate what is the right amount of transparency, and more importantly, what is the appropriate process to determine the level of transparency in various settings.

What I can’t abide is highhanded lectures about the virtues of transparency and the need to force it on individuals and firms, delivered by the likes of Timmy! Geithner, who is more than willing to do big deals away from prying eyes when it suits him.

The UK’s Financial Services Authority (FSA) released a report on OTC derivatives market reforms in December.  In contrast to most government reports I’ve read on the subject, this one is thoughtful and arrives at pretty well reasoned judgments.  It recognizes the trade-offs involved.  It is a little too sanguine on the merits of clearing for my taste, but does not recommend mandates.  It recognizes the burdens of mandated clearing and the associated cash flow risks on end users.  It advocates an increased reliance on data repositories (something I advocated in late-2008 for OTC derivatives, and for energy years before that).  It identifies counterparty risk management as the key issue, and concludes that mandated exchange trading is unnecessary to address this issue, and an unwarranted attempt to impose market structures.

Its analysis of position limits is especially good. I liked this part:

The second limb of the Commission’s proposal is to give regulators the possibility of setting position limits to counter concentrations of speculative positions. Such an approach would go beyond the existing legislative remit in the UK and more importantly we have not seen evidence which supports such an approach. The UK regime applies its position management tools to all participants, without a specific emphasis on those that do not have a desire to hedge physical positions, or take physical delivery. We do  not consider activity by financial participants to be de facto manipulative. We do not therefore consider that there should necessarily be a distinction made between “large speculative” and “large   non-speculative” positions for the purposes of combating manipulation – the focus should be on combating “large positions that lead to manipulation” irrespective of whether they are held by financial participants or not.

And this:

9.20 Over the last two years, certain commentators and market observers have linked the growth in financial, or “speculative”, participation in commodity markets with recent significant price movements, particularly in oil.We recognise that this type of investor has impacted the nature of commodities markets as a whole, for example, as a result of different methods of trading and increased volumes.

9.21 However, the majority of academic studies and evidence do not support the proposition that prices have been systematically driven by this increased inflow of financial interest.  Indeed the majority of commentators have concluded that commodity price movements cannot be solely attributed to the  activities of any one class of investor and are principally attributable to market wide factors.We agree with these conclusions.

Proposals for combating price movements

9.22 The FSA’s regulatory aim (as defined by legislation) is on maintaining fair and orderly markets, not limiting price movements or volatility. In any event, we do not believe a case has been made which demonstrates that prices of commodities, or other financial derivatives, can be effectively controlled through the mandatory operation of regulatory tools such as position limits, whether on exchange or OTC. Analysis of market data where position limits are already in use suggests that this has not shown a reduction in volatility or absolute price movements compared to contracts where they are not.

9.23 We also consider that limiting financial participation more generally would hamper market efficiency. To use oil markets as an example, increased participation has brought significant benefits, such as greater depth and liquidity.

In contrast, on this side of the water, from the Chairman of the FSA’s US counterpart, the CFTC, we get drivel like this.  He’s said it all before.  Arguendo ad AIG.  Horror stories about interconnections.  Completely misleading conclusions based on outrageously inappropriate analogies between impossible to price toxic assets like MBS-based CDOs and vanilla swaps.  Assertions that end-users don’t know their own economic interests, and subject themselves to the predations of a “small group of derivative dealers.”  (His comparison between buying an apple and the OTC derivatives market is especially idiotic.)  Wildly misleading insinuations that clearing will reduce interconnections in the financial system.  Similarly wildly misleading insinuations that OTC trades are not collateralized.  (Before anybody says this about AIG again, read the AIG Special Inspector General’s report.  Please.)  Egregiously misleading insinuations that failure of a clearing member “does not harm its counterparties.”  (Then, pray tell, who eats the loss?  The derivatives fairy?)

Ugh.  What inanity awaits us when CFTC announces its position limit changes?

Overall, the Europeans are quite dismayed at the trajectory of regulatory and legislative initiatives here in the US.  This dismay is documented in a couple of articles by Jeremy Grant in the FT.  This quote is priceless:

Richard Raeburn, EACT chairman, said companies were looking for a “clear carve-out” from the clearing and exchange-trading requirements.

“My fear is that what happens in the US will pre-empt the ability to be sensible over here,” he told the Financial Times.

Yes, Mr. Raeburn, be afraid.  Be very afraid.

There is an extensive economic literature that demonstrates that high powered incentives, like piece rates (as opposed to low powered incentives like hourly wages) can have extremely perverse effects in the presence of information asymmetries, or non-verifiability/non-contractibility.  And it doesn’t get much more perverse than this (along with a free bonus illustration of the ratchet effect!):

There was an old Soviet joke about how central planners decided to reward factories based on how many nails they produced. So the plants naturally began producing copious quantities of miniscule nails. So planners began measuring output by weight, and the factories promptly started producing small numbers of enormous nails.

A similar problem is currently bedeviling efforts to reform the Russian Interior Ministry, as a recent article in gzt.ru makes vividly clear. The site spoke candidly with a police officer identified only as Sergei, who described in detail how the ministry’s insistence on tallying up “solved” crimes motivates officers to commit the most heinous acts.

Sergei describes how ambitious officers boost their statistics (in order to secure bonuses, promotions, or choice assignments from superiors who can recognize a person who will “do whatever is necessary” when they see him) by setting up unsuspecting people, usually by giving them a few drinks and then convincing them to commit a crime to help their new drinking buddy. The drinking buddy, of course, disappears in the confusion surrounding the arrest and if the scam target mentions him, police shut him up just by threatening to charge him with “organizing a criminal gang.”

. . . .

Alternatively, Sergei says, police can rack up a lot of brownie points by “paving the way” for a known drug dealer and just arresting his customers one after another.

He also describes how the end-of-the-month reckoning at the police station leads to a lively market in which officers who have exceeded their quotas (the most viciously corrupted) sell or trade their extra “solved” crimes to less-fortunate officers (the ones who wasted the whole month pursuing real criminals or keeping the public safe).

Sergei says the heart of the problem is that the ministry is completely infused with a culture of statistics, particularly statistics that show ever-increasing figures for “solved crimes.” The entire ministry and individual departments, precincts, and officers live in terror of the dreaded “analogous period from last year” (known by insiders by the Russian acronym APPG). It is, Sergei says, “the root of all evil” in the force.

He says that an officer who solved 40 crimes last year is simply obligated to solve at least 41 this year. And he compared it to a journalist who covers five terrorist attacks in one year and is informed by his editor that he must cover at least six this year. He describes how every unit in the ministry must account for itself on a quarterly basis and how when the third-quarter report is submitted in October, the pressure begins to solve all the “open” cases and to bring up the current levels to the needed APPG levels before the end of the year.

Comparing the situation to Soviet times, Sergei says back then police were judged only on the percentage of solved crimes and they regularly achieved rates above 90 percent largely by not registering many crimes that actually occurred (this practice made the country look good and pleased Communist Party officials).

After the collapse of the Soviet Union, the ministry “reformed” this system by instilling deep incentives to “solve” as many crimes as possible (and the nefarious one-two punch of police and prosecutors in Russia made this easier than it otherwise would have been). He points out that all police – even patrol cops – have to live up to the APPG quotas, even for administrative offenses like “fighting.”

The article closes with this telling quote, which could serve as a credo for Putinism*:

His final assessment reminds me of another old joke, about the man who complained that the food on the airplane was terrible and there wasn’t enough of it. “Our system is bad,” Sergei says. “But it is strong and resilient.”

Good luck with that whole reform thing, Dmitri.

*I was going to write “serve as an epitaph for Putinism,” but sadly, that would be unwarrantedly optimistic.

In some weird sort of numerical coincidence, the 4000th comment was posted on the 4th anniversary of SWP.  Thanks, all.

Most of those comments have been received since August, 2008, with the number of comments beginning to tick up right before the Russo-Georgian War.  The 3000th comment was posted about 4 months ago, in mid-September, when I was in Hong Kong.  So the pace has been picking up nicely.

And here’s the weird thing.  Comment #4000 was from (gadfly) rkka.  I also recall that he submitted comment #3000.  Gaming the system there, rk?

Keep it coming, folks.  All the comments are appreciated.