Streetwise Professor

September 23, 2010

He Could Be Me

Filed under: Politics,Russia — The Professor @ 7:27 pm

Or I could be him.  Or something.

I mean that Dmitry Sidorov, who has a new blog titled The Putin State Chronicles at Forbes, is a kindred spirit.  His posts could be ripped from the pixels of SWP, or vice versa.  They provide some great examples of the natural/mafia state in action.

I especially liked “Washington is Delusional About Russia.”  I strongly suggest you read the whole thing, so I’ll limit myself to one relatively short quote:

Recently, Strobe Talbott, the former Clinton administration point man on Russia, and believed to be a shadow adviser to Hillary Clinton and president Obama, explained that Russia should be forgiven for its mistakes. He divided the Russian analysts into those who love the Great Russian culture and the Russia haters.

I have despised Strobe Talbott since 1992.  (Actually before, dating back to his days as editor and Washington Bureau Chief at Time.)  He was consistently wrong then, and I’m sure he is to this day, so it is disturbing that he’s a “shadow advisor.”  (He was sort of a Thomas Friedman before Thomas Friedman.  The almost perfect distillation of East Coast liberal conventional wisdom: conventional, and wrong.)

This dualism between those who admire Great Russian culture (presumably high culture) and Russia haters is so typical of Talbott.  It is utter BS.  Indeed, people like me consider it one of the great tragedies that a nation and a culture that has produced such transcendence, has record of some great achievements, and is blessed with so many intelligent and sincere people, has been so long cursed with dysfunctional political systems.  Indeed, these systems have been dysfunctional on their good days.  On far too many other days, they’ve been far worse than that.  People like Talbott–and far too many commentors here–who can’t distinguish between Russia (and Russian) haters and people who despise a corrupt and cursed while holding no animus towards the Russian people do no favors to those they purport to admire and support.   Indeed, this attitude actually seems to be far more insulting to Russians; it’s as if they’re not capable of anything better than Putinism.

I wonder if Talbott, or others who toss about the epithet “Russophobe” think that Dmitry Sidorov is a Russophobe.  What, is he a self-loathing Russian?  Is it just possible that he’s actually a patriotic Russian who is distressed at what Putinism has wrought?

Regardless what he is, he’s worth reading.  I will, regularly.

Fracking, Old School

Filed under: Economics,History — The Professor @ 7:06 pm

I spoke about Frank-n-Dodd today at the 9th Annual Oil & Gas Institute here in Houston.  Prior to my talk, Larry Nettles of Vinson & Elkins gave a crisply delivered and amazingly informative talk about shale gas and fracking.

Mr. Nettles remarked on how there hasn’t been much drilling in the Northeast in the last 100 years, but that is changing with the Marcellus Shale.  His comment brought to mind some family history.

My grandfather’s stepfather, Bill Wilcox, “shot” oil wells in West Virginia and Southeastern Ohio from the 1890s to the 1920s.  Back in the day, fracking meant drilling a hole, filling a coffee can with nitroglycerine, lowering it very carefully down the hole, and then detonating it (hence the term “shooting” the well).  We have family pictures of the process, including an honest-to-God gusher that Wilcox blew.

Obviously, this was a very, very hazardous occupation.  My grandfather said that Wilcox told him that for 16 Februaries in a row, at least one of his fellow shooters was blown up.  The rapid fluctuations in temperatures typical for that time of year made the nitro unstable, and put that together with icy and rutted mountain roads in West Virginia, or the hills of Ohio, and well, use your imagination.  As a result, Wilcox eventually spent every February dead drunk, or so my grandfather said.  It must of worked, as he survived into a ripe old age (although his liver was probably twice as old as that).

But there were compensations, apparently.  Wilcox used to drive a “shooting wagon” (again, we have some photos) that everybody around knew was used to carry nitro.  As a result, everybody, and I mean everybody, steered clear of it.  Including law enforcement.  So Wilcox figured out that the shooting wagon was a great way to run moonshine, which he did.  According to my grandfather, the local brand was known as New Straitsville Special, after a small coal town called New Straitsville.  The stuff was distilled there in old mines that had been abandoned, because many of the mines had been set on fire during a labor dispute in the 1880s.

Think they’re running any moonshine in the water trucks used in that new fangled fracking?

Tom Friedman: Gung Ho!

Filed under: Economics,Politics — The Professor @ 5:03 pm

Thomas Friedman has apparently felt the heat over his get-a-room slobbering over China.  He wrote a virtually incomprehensible column (well, even more incomprehensible than normal) today in which he tries to square the circle of reconciling his cheerleading for the PRC with the country’s repressive, authoritarian, rule (h/t R):

I know, I know. With enough cheap currency, labor and capital — and authoritarianism — you can build anything in nine months. Still, it gets your attention. Some of my Chinese friends chide me for overidealizing China. I tell them: “Guilty as charged.” But have no illusions. I am not praising China because I want to emulate their system. I am praising it because I am worried about my system. In deliberately spotlighting China’s impressive growth engine, I am hoping to light a spark under America.

Studying China’s ability to invest for the future doesn’t make me feel we have the wrong system. It makes me feel that we are abusing our right system. There is absolutely no reason our democracy should not be able to generate the kind of focus, legitimacy, unity and stick-to-it-iveness to do big things — democratically — that China does autocratically. We’ve done it before. But we’re not doing it now because too many of our poll-driven, toxically partisan, cable-TV-addicted, money-corrupted political class are more interested in what keeps them in power than what would again make America powerful, more interested in defeating each other than saving the country.

To start with, consider the sentences: “Some of my Chinese friends chide me for overidealizing China.  I tell them: ‘Guilty as charged.’ But have no illusions.”  Does that make any sense?  He’s guilty of over-idealizing, but he has no illusions?  Uhm, doesn’t “over-idealizing” by definition presuppose buying into illusions?

Friedman ties himself in knots trying to simultaneously (a) praise China for its top-down, authoritarian economic policy, (b) disclaim any intent of praising its system, and (c) bashing the United States for having lost connection with what made it great.

The whole column is a mess, but it does betray quite clearly what Tom Friedman thinks is the right policy, and what made the US great: politically directed, centralized policy making focused on massive prestige projects:

“How can you compete with a country that is run like a company?” an Indian entrepreneur at the forum asked me of China. He then answered his own question: For democracy to be effective and deliver the policies and infrastructure our societies need requires the political center to be focused, united and energized. That means electing candidates who will do what is right for the country not just for their ideological wing or whoever comes with the biggest bag of money. For democracies to address big problems — and that’s all we have these days — requires a lot of people pulling in the same direction, and that is precisely what we’re lacking.

. . . .

Orville Schell of the Asia Society, one of America’s best China watchers, who was with me in Tianjin, put it perfectly: “Because we have recently begun to find ourselves so unable to get things done, we tend to look with a certain overidealistic yearning when it comes to China. We see what they have done and project onto them something we miss, fearfully miss, in ourselves” — that “can-do,” “get-it-done,” “everyone-pull-together,” “whatever-it-takes” attitude that built our highways, dams and put a man on the moon.

What bilge.  First of all, anybody who thinks it is best to run a country’s economy like a company is a fool: hell, anybody that thinks that anybody should or can “run” an economy  period is a fool.  Notice too the infrastructure and prestige project infatuation.

Moreover, I really appreciate the very practical advice: we need politicians that want to do the right thing.


How much does this guy get paid?

When discussing policy alternatives, it is always useful to start with a firm understanding of the realities of political systems, rather than dreamy and counterfactual abstractions.  The reality is that tying one’s hopes to politicians “doing the right thing” is a fool’s errand.  But we are talking about Thomas Friedman, aren’t we?

Note too the fascination with collective,  “pulling in the same direction”, “everyone-pull-together” with its not so implicit suggestion that central direction that gets us to pull together is needed to return America to economic greatness.

To the contrary.  What has made the American economy more productive than any in history is the largely uncoordinated actions of millions of individuals, often in competition with one another.  Competition among freely assembled cooperative organizations–firms.  Guys in their basements and garages.  Not governments and mandarins and bureaucrats who act like those paid to whip Chinese boat haulers in the old days.

America’s current economic problems are largely a manifestation of the unceasing efforts of the government to impose central direction and control.  And the current political firestorm sweeping the country is directly attributable to millions of people pushing back.

Carlson’s 2d Marine Raider Battalion used the Chinese expression “Gung ho” as a motto: it was soon adopted by the rest of the Marine Corps.  Gung ho means “Pull together,” or “work together in harmony.”  That’s Tom Friedman’s idea of how an economy and a polity should work.  It also happens to be the idea held by Obama, and a good part of Congress and the bureaucracy.

It is appealing to a certain kind of mind that makes analogies between tribes or firms or military units or other formal organizations on the one hand, and entire economies on the other.  A kind of mind that has no comprehension of emergent order, spontaneous organization, ordered liberty, or decentralized coordination through competition and the price system.  “Gung ho” makes sense as an ethos for a military unit: it makes no sense as an organizing principle for an economy.   And it is certainly not the American system whose disappearance Friedman laments.

Nor should Friedman be cut any slack whatsoever in his lame attempt to distinguish his admiration for the achievements of China from the brutal realities of its government.  And here is just a taste of that reality:

Across a remote tract of southern Africa, naturally fortified by mountains and patrolled by hundreds of soldiers with dogs trained to tear intruders apart, teams of mining experts are hard at work.

Yet they are not speakers of Shona, the native language of this land on the border between Zimbabwe and Mozambique. No, thousands of miles from home, under a broiling African sun, these slim, pale-skinned figures are members of the Chinese military.

Working alongside henchmen from one of Africa’s most murderous regimes — headed by Robert Mugabe — the Chinese are here to oversee Beijing’s investment in the world’s most controversial commodity: blood diamonds.

High-ranking officials of China’s People’s Liberation Army, they have been striving to escape detection for their role in this blood-thirsty — but hugely lucrative — trade.

For here, carved out of the African bush, is a runway big enough for huge cargo planes. There is also sophisticated radar equipment, a fully-operational control tower and comfortable barracks for the Chinese officials overseeing the entire operation.

. . . .

Secret documents obtained by the Mail reveal that the company given the rights to the diamond fields —called Mbada Diamond Company — is fronted by Mugabe’s trusted former personal helicopter pilot, with Chinese military officials as silent partners.

The documents reveal that the pilot — Robert Mhlanga, who has no experience of mining — was personally appointed by Mugabe, with Chinese partners named as Deng Hongyan, Zhang Shibin, Zhang Hui, Jiang Zhaoyao and Cheng Qins. With military camps set up around the perimeter, and three separate fences erected to keep out smugglers and spies, local villagers told me appalling stories of how they have been driven from the land at gunpoint.

Soldiers set their dogs on one girl, who was mauled and killed in front of her parents. The military said this was a warning to others to keep away from the fields; at least seven people caught near the fields were killed by the military in the last month alone and their bodies dumped.

There’s more.  Not just in that article.  Not just in Zimbabwe, but in Sudan and across Africa, not to mention in China itself.

Sorry, Tom, but it’s a package deal.  Governments who think about people purely instrumentally, who think that they can push them around to achieve this economic result or build that glittering piece of infrastructure have a tendency of engaging in brutal behavior.

No, Friedman is just another example in a depressingly long line of soi disant intellectuals who are enamored with authoritarians red or brown; who marvel at their gargantuan achievements; and who somehow believe that the bloody and brutal behavior of such authoritarians is some sort of minor bug that can be eliminated while retaining the supposed economic benefits.

That was a lie in the 1930s.  It was a lie in the 1940s.  It was a lie in the 1960s and 1970s.  And it is a lie now.

Too Bad

Filed under: Commodities,Derivatives,Economics,Energy,Exchanges,Financial crisis,Politics — The Professor @ 4:16 pm


Still on the Hamster Wheel from Hell: Protecting Putin’s Purgatory

Filed under: Economics,Financial crisis,Politics,Russia — The Professor @ 12:13 pm

Back from France, and just in time too: massive transport strikes today.  (So what else is new, I can hear you saying.)

Reading through my usual sources, I came across this article from Reuters about Russia and the WTO.  Over the last couple of days, there have been some stories about Russia’s desire to proceed with the WTO process, but this article claims that Putin is trying to put the kibosh on that:

Prime Minister Vladimir Putin’s drive to revive Russian industry with the help of handouts and protectionist measures is casting doubt on Moscow’s push to join the World Trade Organization in the near future.

Russia has declared its commitment to completing a 17-year bid to join the WTO, with backing from the United States. But liberals in the Russian cabinet appear to be in retreat along with their policies that resist state investment.

“It looks like Russia is consciously trying to postpone the WTO accession, and is trying instead to experiment with different methods of industrial policy,” said Erik Reinert, professor at Tallinn University of Technology in Estonia.

. . . .

During Russia’s deep recession, Putin’s cabinet identified promising sectors such as petrochemicals, the motor industry, shipbuilding, aerospace and agriculture, and moved to support them with the mix of handouts and protectionist measures.

Generous state support has helped to push car production up 88 percent so far in 2010. Output at struggling Soviet-era firm AvtoVAZ, in which Renault has a 25 percent stake, has risen 56 percent.

“I am convinced that time will show that the path we have chosen — a formation of strong competitive industrial production in the auto, aviation and shipbuilding industries — is the right one,” Putin said in a speech last week.

. . . .

The cabinet liberals led by Finance Minister Alexei Kudrin, a vocal supporter of WTO membership, have found their fiscal and monetary policies resisting state investment in the economy coming in for heavy criticism.

Putin said that growth in the motor industry should be a model for other sectors. Leading global car makers have opened assembly lines in Russia and are gradually increasing the share of components made locally

I said months ago that substantially freer trade is incompatible with Putinism’s natural state.  To maintain the political equilibrium in Russia, it is necessary to be able to control the distribution of rents among competing factions, clans, and industries.  Protectionism is an important tool that Putin can utilize to maintain equilibrium: opening trade would weaken his ability to control the allocation of rents, and jeopardize the system’s stability.

Yes, there are some, mainly associated with Medvedev and Kudrin, that favor WTO accession.  But it is evident that their political hand is weak.  Extremely weak.  So just like Russia constantly plays footsie with OPEC (and Putin whispered sweet nothings about that last week), it will continue to play footsie with the WTO.  But it will not go beyond first base.  Open trade is an anathema to the entire structure of Putinism.

Regarding protectionism, it is informative and wildly entertaining to read Putin’s remarks regarding the auto industry:

It is true that the global automotive industry has built up excess capacity. And it was bound to decline during the economic downturn, as explained by experts in the global automotive industry. At whose expense is this excess capacity reduced? It is reduced as a result of inefficient companies going bankrupt. Following this logic, only the laid-off workers should be supported, through unemployment benefits and retraining programs, for example.

And we do this, to a certain extent. But first of all, there is no excess car production in Russia. Even producing almost 1.5 million cars per year, we were and still are a major importer of automobiles. And secondly, there is absolutely no explanation as to why a problem facing the global automobile industry should be resolved at the expense of Russia. Why should our manufacturers give up their own market, where they hold a 70% market share? Why should Russian auto industry workers be the ones to end up in the street?

Besides being economically ignorant (the existence of imports does not imply that there is not excess car production in Russia: if you read the rest of the material about the auto industry in this speech you’ll see numerous economic inanities), this is a pitch perfect demonstration of Putin’s–and Russians’ more generally–paranoid world view: “there is absolutely no explanation as to why a problem facing the global automobile industry should be resolved at the expense of Russia.”  Yes, the world is ganging up on poor Russia, and conspiring to resolve its problems at Russia’s expense.

What tripe.

There is a simple answer for why the Russian industry suffered most: it is the least efficient.  Period.  In an industry plagued by overcapacity, the least efficient producers will bear the greatest burden of adjustment.  In other words: looking for the explanation, Vladimir?: look in the mirror.

But the speech illustrates Russia’s problem, and why Putin can’t abide free trade:

While supporting the company, we did not forget about our obligation to help the people. These tasks complement each other. It would be impossible to solve the problems of Togliatti in any other way. Everything in this city of 700,000 people is linked with the car plant.

The city has implemented a large-scale programme to support employment. Social programmes at AvtoVAZ have been funded from the municipal budget. Togliatti was the first city to launch a pilot project for the comprehensive development of single-industry towns. This involves new infrastructure and sites for modern industrial facilities. We allocated funds for major housing repairs from the Housing and Communal Services Reform Fund.

Last month the government decided to establish a special economic zone in Togliatti, which will provide about 10 thousand new jobs for residents of the city.

Today AvtoVAZ is on the rise. It is profitable again, and production has almost returned to pre-crisis levels. The increase is about 56%. Additional weekday and Saturday shifts have been introduced. But we’re well aware, of course, what lies behind the numbers. It’s our car scrappage programme, first of all, and also expanded manufacturing lines for so-called classic models.

In other words, the monotowns are a major problem.  In the last 19 years many sectors of the Russian economy have adjusted  substantially to world prices, but numerous industries cannot compete internationally, and cannot survive at world prices.  These industries are concentrated in cities that are almost completely dependent on them.  Putin knows that the country’s stability cannot survive more wrenching adjustments.

So Putin’s purgatory will continue.  The legacy of the past, the Soviet past, makes the adjustments required to integrate Russia more fully into the world economy–in particular, to integrate anything beyond energy and a few consumer goods sectors–far too costly socially and politically.  And that means–no WTO today, no WTO tomorrow, and no WTO for the foreseeable future. Protectionism will perpetuate the lock-in of the patterns and structures inherited from the past, meaning that it will never be the right time to change.  Again: the hamster wheel from hell.

September 20, 2010

Burn the Witch!

Filed under: Politics — The Professor @ 1:46 pm

I am much more understanding, tolerant, and respectful of someone who dabbled in witchcraft in their youth, then walked away, than someone who dabbled in Marxism in their youth and did so (if they did) (especially when such Marxist dabbling took place in the mid-1980s, not the 1920s or 1930s).  After all, witches don’t routinely try to impose their views on others by force, violence, and fraud.  Far more witches and purported witches have been the victim of unjust deaths and persecution than witches have killed or persecuted others.  The same cannot be said of Marxists.  In their case, the toll is reversed, by many orders of magnitude.  (Mao alone, 45 million in the Great Leap.)

Witches get burned.  Marxists do the burning.  This any sentient being should have known in 1985.

Remind me again which youthful view is considered indicative of an intellect and judgment unsuited for public office?

I find interesting the youthful superstitions the self-appointed adjudicators of opinion deem acceptable, and those that they consider beyond the pale.  I further find it interesting that official Catholic teachings are considered the subject of shock and ridicule among this set, but that any questioning of the far more brutal, and at times lethal, strictures of shariah is considered outrageous bigotry.  These things speak volumes.

Postcard From Another Galaxy

Filed under: Climate Change,Economics,Politics — The Professor @ 1:28 pm

I am attending a The Greenhouse Gas Emission Trading Workshop at the International Energy Agency in Paris.  I feel like an alien, in more ways than one.  For one thing, I am not a global warming–excuse me, “climate disruption”–true believer, which makes me a minority here–a minority of one, probably.  Moreover, the anti-Americanism is palpable, and is all the worse because one of the most outspoken purveyors thereof is American.  (Chatham House rules preclude me from naming names.  But I am sorely tempted.) (I should also note that Canada and Australia were the subject of much criticism.  I guess we are all just hopeless colonials.)

The perfect illustration.  A Brit asked the American: “I understand American brains are wired differently, having two American daughters-in-law.  [I pity them.  And spare me the condescension, twit: wire this.]  Given that cap and trade is the most business-friendly way of reducing carbon emissions, how can you explain the opposition of the Republicans, the pro-business party, to cap & trade?”

Uhm, is your brain wired at all?  When it comes to cap AND trade, American opponents never even get to the trade part.  That is a detail that is overwhelmed by the cap part.  The political opposition in the US to cap and trade is all about the cap.  Period.  Opponents realize that capping carbon output will lead to higher energy prices.  They don’t believe that there is a corresponding benefit to justify this cost.  American opponents are hung up on the “reducing carbon emissions” part of the Brittwit’s question.

Amazing how silly a question one can ask when one assumes away the crucial issue.  This is just an indication of the prevailing mindset here: the belief that capping emissions is blindingly self-evident, so that it does not even dawn on the questioner that the cap part is what people object to.

You may criticize American opponents as benighted for their failure to recognize the peril of anthropogenic global warming–excuse me, climate disruption–but given that belief, opposition to cap and trade, cap without trade, or cap with trade on even days and not on odd days makes perfect sense.  It’s the cap, not the trade, and if you can’t see that you’re hopeless.  Anything with the cap in it is political poison.  [Apropos Monty Python: “Have you got anything without cap in it?”  With a chorus of “cap, lovely cap”  in the background.]

But the American’s response was even worse.  He attributed the failure of cap and trade in the Senate to the “Republicans’ desire to deny the new president of a political victory.”  [A few heads turned when I muttered, “you gotta be f*ckin’ kidding me” under my breath.]

It is hard to say which would be worse: the speaker believes this bilge, or he does not.  If he does not, he is just a liar and a political hack trying to score political points in a forum which is supposed to be a place for serious intellectual exchange.  If he does, he is utterly delusional.  As a practical matter, Obama himself put cap and trade behind health care and financial regulation on his list of priorities; this represented a rare moment of political lucidity, because cap and trade is deeply unpopular.  Moreover, if the Republicans were really intent on denying Obama a victory, they would have chosen health care.  But in point of fact, as the health care issue proved clearly, and as the financial “reform” legislation demonstrated further, the Republicans independently had no ability whatsoever to deny Obama a victory, given their shrunken numbers in both House and Senate.

No, cap and trade failed because (a) it was a stepchild in an already crowded and ambitious political family, and (b) anything that raises energy prices is broadly unpopular in straitened economic times.

Not that the true believers would have any interest in taking political advice from me, but I’ll offer up some.  If you want to achieve your goal, (a) get out of the echo chamber, and (b) take the opposition seriously and address its concerns head on, rather than writing it off to colonial stupidity, or mis-wired brains, or mean spirited political oppositionism, or whatever.  Condescension and ridicule may play well in the Circle of True Believers, but you know what?: (a) every adult in the US gets to vote on 2 November, (b) a lot of the true believers don’t get to vote at all, being furriners and such, and (c) it is just this elitist disdain that has set the stage for a political earthquake in a little over a month.

You know they won’t change.  I know they won’t change.  Which means that they are going to get what’s coming to them–good and hard (apologies to Mencken) in six weeks and a day.

September 19, 2010

Family History?

Filed under: History — The Professor @ 2:06 pm

A genealogist swears she can trace my mother’s family back to the Plantagenets.  My grandfather, and several others, have independently traced this line of the family back into the late-16th century.  There are several problematic links between that established line and the Plantagenets, but this woman claims she has done it.

Not that such a link, if it exists, is anything to brag about.  The Plantagenets, up and down the line, from Henry I to Richard III, were complete and utter bastards.  The connection, such as it is, would run through John (Jean Sansterre/John Lackland/John I), the baddie in the Robin Hood stories.  And bad he was.  But the supposed good guy, Richard I, the Lionheart, was also a mercenary, murderous SOB.  And their dear old dad, Henry II, was a real piece of work; Mom (Eleanor of Aquitaine) was what you would call very high maintenance.  (See the Lion in Winter for a dramatization of this dysfunctional family.)

Well today I made a pilgrimage, of sorts, to the old family stomping grounds (again, if the genealogist is to be believed).  I first visited the Abbey at Fontevraud.  Here Henry II, Eleanor, Richard I, and John’s wife Isabella lie beneath famous recumbent statues, still covered with traces of the original paint.  This is where Eleanor spent her last days.

I then went to Chinon, the seat of the Plantagenet lands in France.  (They were the Ducs d’Anjou as well as Kings of England.)  The Fortresse in Chinon is where the drama in the Lion of Winter played out.  It is where Eleanor and her sons plotted against Henry.

It is also where Joan of Arc recognized Charles VII, Dauphin of France–or was recognized by him, depending on the version of the story.  She received his promise to fight for the kingship of France, and his permission to lead an attack on Orleans.  The rest is history and legend, inextricably mixed.

So much history in a small space.  I have been to many historical sites in my life, but the royal house at Fortresse Chinon affected me in ways that most sites do not.  Perhaps it was the emotional intensity of the Angevin melodrama, or the inexplicable mysteries of Joan, but the place left its mark on me in ways that few historical sites have.  (Perhaps this was encouraged by the interesting and evocative film dramatizations of Fulk, Duc d’Anjou; Henry II and his sons; and Joan that played in rooms of the house.)

There is other family history in Chinon that is beyond dispute.  My dad was stationed there during his days as a draftee in the Army in 1955.  His unit was a communications outfit, and their equipment was stored in caves in the banks of La Vienne river.  I drove by some caves visible on the hillside today–perhaps the same ones.  These were what the Polish vets I mentioned yesterday guarded.

Today Chinon is pretty much a tourist town, touting the Fortresse and the medieval city at its base as its main attractions.  My dad’s memories are hardly so romantic.  He mainly recalls killing with fire pokers the rats that infested their tarpaper barracks; the GIs would turn out the lights, and when they heard the rats scurrying about they would blind them with flashlights and then bash them with the pokers.  But that was the France of the mid-1950s, recovering from the devastation of WWII, much poorer than today.  The France of the pissoirs.  And I’m sure when my dad was there, they didn’t have Le Tennessee Tex Mex restaurant, complete with a bright yellow promotional “Le Tenessee Tex Mex” car parked in front.  They have one today!–incongruously in the center of the medieval town.  (BTW, Jack Daniels might have a good copyright infringement suit against this place.  Just sayin’.)

But no GIs.  They are long gone.  That’s probably mutually agreeable.

And Chinon is the place that would have wrecked my life, had I been born a girl.  My dad met a woman there whose name was Pierrette.  Now, for some reason, that name struck my dad’s fancy.  He was going to name his first daughter Pierrette.

Pirette Pirrong.  Oh. My. God.  There but for a Y-chromosome go I.

He suggested that name for my girls.  Needless to say that silence was the only reply.

Now Pierrette Plantagenet–there’s a name for you!

September 17, 2010

SWP Channels “Early Edition” Again

Filed under: Clearing,Derivatives,Economics,Exchanges,Financial crisis,Politics — The Professor @ 3:33 pm

I’ve written frequently about the problematic evolution of financial market structure under a clearing mandate.  One concern is the proliferation of CCPs.  One potential reason for this proliferation is that exchanges will want to control their own CCPs.

Long before before the crisis, I wrote about this vertical integration issue, in detail.  I dismissed worries that vertical integration is anti-competitive.  But I did note a fundamental tension.  Large, multi-product (and hence likely multi-exchange) CCPs have advantages from a risk-bearing perspective (although perhaps not from a systemic risk perspective).  But vertical integration likely economizes on transactions costs.  Thus, “siloed” CCPs can make sense even if it does not optimize risk bearing.  But the trade-off is a real one, and hard to evaluate.

I know some, notably the Bank of England, are worried about silos because they are concerned that they inflate the costs of managing counterparty risk.  But transactions costs are real costs too.

Apropos all this, today the FT has an article about how LSE is putting together its own CCP. It has cleared through LCH, but for strategic reasons thinks it necessary to control its clearing.  Given that LSE was once held out as the exemplar of how exchanges didn’t need to control their clearing, this is big news.  It also puts an exclamation point to my arguments that the evolution of the clearing business is not going to be driven purely to reduce systemic risks.  Clearing decisions are going to be made by for profit firms with their own particular agendas.  This means that the evolution of the market is likely to be quite complicated, and lead to results that the clearing mandate evangelists have not contemplated.  The implications of this structure for systemic risk are by no means obvious.

And a story in WSJ Europe raises yellow flags, and perhaps red ones, about the EU’s clearing mandate plans.  Read it. It will all sound very familiar to regular SWP readers.  Like in the US, however, it is unfortunate that people are coming to grips with the complexities of clearing mandates–and the potential dangers–only after they are a fait accompli.

La Bonne Vie*

Filed under: Uncategorized — The Professor @ 3:09 pm

I am in France for a few days.  This time–no battlefields.  I’d thought about going to Lille to see the Vauban designed citadel, and some other remaining Vauban fortifications in Normandy, but decided instead to visit the Loire valley, which I’ve not visited before.  Right now, I’m in Saumur, in a hotel room looking directly up at the chateau; the hotel  lobby that overlooks the river.  (Ironically, my dad was based here during his glorious service as a draftee in 1955.  I’m guessing that the tarpaper shacks he and the other GIs inhabited here and in Chinon up the river are long gone.  As are the Polish WWII veterans who served at guards at those bases.  My dad said they were the toughest, meanest SOBs he ever met.  They were men without a country who had fought against the Germans from 1939 until 1945.  If that doesn’t make you tough, nothing will.)

I spent the morning at Le Mont St. Michel.  Truly spectacular.  It is the second biggest tourist attraction in France, and I can see why.  Thanks to the suggestion of FB friend Stephanie, a Normandy native, I stayed on the Mont itself; given that the place was booked for the weekend, I rejiggered my plans and drove directly from Paris after my flight so I could stay there on Thursday, when I could get a room.  Definitely worth it.  The crowds are insane before 5 (at this time of year–can’t say what it’s like at the peak season), but then the busses leave and you can have the place pretty much to yourself.  I was up early, and again–the place was mine.  Watching the sunrise over the bay was truly remarkable.  (Another advantage of a September visit: you can watch the sunrise without getting up before the crack of dawn.  Or something like that:))

The interior of the abbey itself is beautiful, but the views of the exterior, and of the surroundings, are what make it spectacular.

Then a drive to the Loire.  It’s hard to beat rolling through the rolling French countryside, listening to good music, under a high blue sky with cotton-white Simpson’s clouds.  Most of the fields were in stubble, with the exception of some cornfields, and a few fields of sunflowers, their bright yellow faded, with huge seed-laden heads looking like big black eyes.  The trees haven’t turned yet.  But still a pleasant aspect, wherever I cast my eye.

Tomorrow, some more Loire sights–chateaux, abbeys, etc., before a night in Tours.  Sunday?  Who knows, but I doubt I can go wrong.

And the best thing about this trip: no tropical storms.  Seriously.  September 15, 2009–Ike (not to mention Lehman!)  September 15, 2010, a typhoon in Hong Kong.  This year, placid, cool, crisp.

* F is for French–and my grade in French.  I originally titled this “Le Bon Vie.”  D’oh!

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