Streetwise Professor

September 17, 2010

SWP Critiques Tyler Cowen’s Critique of SWP

Filed under: Clearing,Derivatives,Economics,Exchanges,Financial crisis,Politics — The Professor @ 2:48 pm

Tyler Cowen wrote a post about my Cato clearing piece, for which I am grateful.  Tyler was tepid in his appraisal: and I am tepid of my appraisal of his appraisal.

On a minor point, he says I say “not necessarily” too often.  Well, I am primarily responding to arguments that say or assume things to be necessary when they are not.  Moreover, even when things are not necessarily true, they may be true, and it would be overstatement to say otherwise.  I tried to be precise in my evaluations, and neither overstate nor understate the case.

More substantively, Tyler makes the two arguments that are least likely to persuade me: arguendo ad AIG, and “look, the CME did just fine during the crisis.”  Regarding the former, I think that (a) Tyler is guilty of hindsight bias, assuming that CCPs would have seen AIG’s positions to be exceptionally risky when nobody else did; (b) this is a red herring, as AIG positions would never have been cleared; and (c) the AIG case is far more complicated, as I argued extensively on SWP many moons ago.  With regard to the latter: (a) things at CME were dicier that he lets on, something else I’ve written about, and (b) this argument is fraught with selection bias, as CME cleared the stuff that was easiest to be cleared.  Even Tyler admits that clearing CDS with their jump to default risk would be very difficult; this is true of other instruments currently traded OTC too.

My biggest objection is that Tyler really doesn’t come to grips with any of the substantive arguments in the paper, including inter alia those relating to: (a) the question of how a putatively and seriously inefficient market structure could not just survive  but thrive and grow relative to the putatively more efficient alternative; (b) the information regarding default risk and the incentives of CCPs vis a vis dealers; (c) relatedly, moral hazard and adverse selection issues; (d) the differences in costs that hedgers will bear due to cash management costs, etc., (e) the potential loss of netting economies in clearing due to fragmentation; (f) relatedly, the possibility that the industry will evolve inefficiently due to the effects of strong scope and scale economies, jurisdictional issues, and the use of clearing for strategic purposes by exchanges; (g) the ability of affected firms to alter their financial contracting (capital structures) to undo most if not all of the leverage-reducing that is purportedly one of the benefits of CCPs and more restrictive collateralization; and (h) most importantly, the potential for systemic risk arising from CCPs.  I could go on, but these are the biggies.

Tyler does, in a way, address (h), but unpersuasively, IMO.  For instance, he says: “it seems to me that clearinghouses would have had a strong profit incentive to monitor or limit the kind of risk-taking which led to the A.I.G. debacle.”  Even overlooking the AIG reference, this is problematic.  There are two cases.

The first is that CCPs are mutual organizations or effectively mutual organizations, dominated by large financial intermediaries.  In that case, the CCPs would effectively inherit the incentives of these intermediaries, which Tyler apparently thinks are inadequate to induce them to police risks efficiently.  In addition, there would be all the problems associated with moral hazard, cooperative governance, and agency problems associated with multiple principals.  (Ironically, Tyler effectively concedes this point in one of his older posts that he links to where he expresses reservations about ICE Trust.)

The second case is that CCPs are for profit firms, collecting fees, potentially in competition with one another, and taking on tail risk.  Indeed, the entire business of a CCP is taking on tail risk.  But we know that pricing that risk is hard, and that moreover, shareholder incentives often lead financial institutions to underprice that risk, or to take on too much of it (which amounts to the same thing).

So Tyler, in effect, is reduced to arguing that CCPs are easier to regulate: “The key point is that a clearinghouse can more easily be forced to carry heavy capitalization and said capitalization, unlike with a current bank, cannot so easily be undone by off-balance sheet transactions or hidden leverage.  The clearinghouse has different incentives and is much easier to regulate and therefore we should put some more trust in them.”

Somehow, putting more trust in regulators is hardly calculated to build confidence.  The point that CCPs are likely to have simpler capital structures that make it harder to take on hidden leverage is a good one, but in many respects the portfolio of risks a CCP takes on is very complicated and difficult for a regulator to appraise properly.  Again, it is all tail risk, and in a mandated environment, said risk will involve more complicated, less liquid, more difficult to evaluate instruments, and crucially, will also depend on the balance sheet risks posed by the firms it clears.  These firms can take on hidden leverage, off-balance sheet transactions, etc., so regulators have to look through the CCP back to the same institutions that allegedly are the problem in the incumbent structure.

Furthermore, as I argue above, CCP incentives are far more problematic than Tyler lets on.  Moreover, CCPs, whether for-profit firms or mutuals, have the incentive to influence regulators in the same way banks do.  Putting all this together, I don’t think it is quite as easy as Tyler does to determine the right level of CCP capital or to monitor its operations.

I’ve written many times that I do not know for sure what the optimal organization of counterparty risk allocation and pricing mechanisms is.  Nobody does.  I have often emphasized that I intend to raise issues and arguments that are grounded in good economics but which have gone unraised and unanswered in the conventional paeans to clearing.  If advocates of clearing have a good case, they could meet these arguments head on, which they have not done so far.

After reading Tyler’s piece, I have to say that most of the substantive arguments I’ve raised still remain unengaged.  So skeptical I remain.  I appreciate Tyler’s taking the time to take my piece seriously, and am encouraged that he recognizes the need for a comparative approach., but would respectfully suggest that he should take a harder look at the real problems that CCPs must confront.  I think if he does that, he’ll have more concerns about clearing mandates than he has expressed heretofore.

September 16, 2010

The Shortest Speech in History*

Filed under: Uncategorized — The Professor @ 1:42 pm

From Reuters:

UC RUSAL (SEHK: 486, EuroNext: RUSAL/RUAL), the world’s largest aluminium producer, is pleased to announce details of CEO Oleg Deripaska’s lecture – ‘The Power of Focus: Turning Opportunity into Success’ – which is the inaugural speech of the UC RUSAL Presidential Forum at Hong Kong University of Science and Technology (HKUST).

In his lecture, Oleg Deripaska, one of Russia’s leading businessmen, will talk about his principles . . .

Deripaska is in the midst of a charm campaign, as mind boggling as that concept is.  He’s trying to sound all high minded and strategic and stuff, to make it look/sound like he’s something other than a Kremlin creature with a shady past–and a shady present.  Presumably this is to gull foreign investors to help him shovel out from his debt burden, and to give him a leg up in the war with Potanin over Norilsk Nickel.

Deripaska has to be figuring that P.T. Barnum erred substantially on the low side when he said there’s a sucker born every minute.

* Speaking of short, posting may be light in the next couple of days, and those posts may be somewhat abbreviated–esp. by SWP standards.  I am in France where I am participating in an International Energy Agency workshop on “Carbon Market Oversight.”  Yes, you read that right.  The event is in Paris Monday and Tuesday, but I came over a few days early.  Am now at Le Mont St. Michel, and will visit chateaux in the Loire Valley over the weekend.

September 15, 2010

More Guests Check Into (Basel) Faulty Towers

Filed under: Derivatives,Economics,Financial crisis,Politics — The Professor @ 3:35 pm

Felix Salmon is a big fan of Basel III, but admits to concerns about the perpetuation of the Basel II risk weightings after reading this by Noah Millman in the Economist:

More important, the new regulatory scheme could fail in several ways. The most serious failure in Basel III is that it doesn’t address the principal contribution of Basel II to the last financial crisis, namely, the calculation of risk-weights. One of the key components of Basel II was to increase the amount of capital banks had to hold against riskier assets. Extremely low-risk assets, meanwhile, could be held with very little or even no capital. Risk, moreover, was calculated primarily by reference to the rating assigned by one of the recognised ratings agencies. The consequence of this Basel II reform was to discourage banks from lending to risky enterprises, and to encourage the accumulation of apparently risk-free assets. This was a primary contributor to the structured finance craze, as securitisation was a way to “manufacture” apparently risk-free assets out of risky pools. What brought banks like Citigroup and Bank of America to their knees wasn’t direct exposure to sub-prime loans, but exposure to triple-A-rated debt backed by pools of such loans, debt which turned out not to be risk-free at all.

Since it did not change this risk-weighting, Basel III effectively doubles down on Basel II.

Martin Wolf at the FT echoes these concerns, even more forcefully:

These new ratios are also very much the children of Basel II, the previous regulatory regime: they rely on what should by now be discredited risk-weightings – one of the points Martin Hellwig of Germany’s Max Planck Institute makes in a superb recent paper on the intellectual bankruptcy of current approaches to regulation of capital. We might think of the new requirements as a “capital inadequacy ratio”.

The Hellwig paper is worth a read.

Needless to say, I agree with these concerns about Basel III.  It’s better than Basel II because it has higher capital levels (even though Wolf thinks they are grossly inadequate), but it shares the fundamental flaw: the attempt to price risks, which is doomed to failure because those setting the prices are going to have less information than those responding to them, who can moreover design their portfolios and design securities and financial instruments to exploit mispricing of risks.

I wrote about this several times, most recently in Basel Faulty.

Yes, there is a bigger cushion in Basel III, and the liquidity requirement is an improvement.  But Basel III perpetuates the most problematic feature of Basel II.  In particular, I think it bears repeating that since the mispricing will distort the incentives of all covered entities, it tends to lead them to trade the same way, which is lethal in response to a systemic shock.

It is nice to see that this is becoming increasingly recognized, but it is discouraging that the message does not appear to be coming through loud and clear–or even garbled–where it matters, in Basel.

September 14, 2010

Another Reason to Buy A Mac?

Filed under: Economics,Politics,Russia — The Professor @ 8:23 pm

A brutal article in the NYT accuses Microsoft of aiding in Russian government efforts to attack NGOs.  Russian “law enforcement” routinely raids NGO offices and seizes computers on the pretext that these computers contain pirated MS software.  The article contains allegations by some of those who have been victimized that Microsoft is the instigator of these raids, and that the company actively encourages the crackdown.  In the article, Microsoft denies that it prodded police to act, and claims that under Russian law it must participate in the actions.

Today the company released a sort-of-mea-culpa.  It’s general counsel doesn’t admit to any specific wrongdoing, but makes statements that could be interpreted as supporting the gravamen of the criticism against the company, e.g.:

We must accept responsibility and assume accountability for our anti-piracy work, including the good and the bad.  At this point some of the specific facts are less clear than we would like.

And what would the bad be, exactly?

An interesting aspect of the MS letter is that in multiple places it suggests that third parties are impersonating Microsoft attorneys:

Finally, we will undertake new steps to protect against third parties pretending to represent Microsoft in order to extort money for illegal software use. Our team in Russia had already started work to address this by creating a list on the web of our authorized counsel, so that anyone can review this and readily check someone’s claim that they represent Microsoft.  This is a good step, but we can and should do more.  For that reason, I’ve asked our team to develop a new program that can begin functioning next month, and I’ve told them that we’ll provide the budget and resources needed to get this working effectively.

If the real problem is that impersonators are instigating investigations, there is absolutely nothing, nothing, that Microsoft can do to address it.  Presumably, the security structures want to bust some NGO that is causing problems.  They need a pretext.  So they could have some guy say that he is a Microsoft representative, and that the NGO has pirated software.  He could be Donald Duck or Joey Ramone or some guy off the street paid in vodka to play the part.  Once they have their pretext, the cops can bust in, seize the computers, and it doesn’t matter a whit how loudly Microsoft howls that its people weren’t involved.  In fact, the real Microsoft lawyers would have to be careful, lest they wind up like Magnitsky.  As the NYT article shows, whether the prosecution goes anywhere is immaterial.  The raid itself is enough to impose a huge toll on the NGO, and impair its ability to operate.

In this regard, it should be noted that Microsoft’s letter specifically links pretenders with extortion efforts, not law enforcement raids on NGOs.  This is a crucial difference.  If pretenders are just extorting, then the allegations in the NYT article that Microsoft lawyers are facilitating police actions against NGOs cannot be blamed on pretenders imitating Microsoft lawyers in order to provide a pretext for a raid on an NGO.

But regardless, Microsoft has to come clean, and reveal exactly what its people have done.  If it has evidence that “third parties” impersonating MS people are involved in law enforcement raids on NGOs it should disclose specifics.  It should explain its detail its involvement in every of the incidents described in the article, and every other incident of which it has knowledge.

It would also be worthwhile for the company to disclose its involvement in all prosecutions for software piracy, and whatever information it has about software piracy arrests and prosecutions in Russia.  Specifically, any information in its possession about the breakdown in legal actions undertaken by Russian authorities by type of target would be quite useful.  How many of those investigated/raided/arrested/prosecuted were for profit businesses?  How many were NGOs?  How many were newspapers?  How many were government offices?  (I’m such a card.)  Any imbalance would be quite revealing.

And by the way: this post was created on a Mac.

Stuff It, or, The Price Isn’t Right

Filed under: Economics,Exchanges,Politics — The Professor @ 7:49 pm

My first substantive post on SWP, in January of 2006, was about the pricing of message traffic on electronic trading systems.  The post was motivated by a system failure on the Tokyo Stock Exchange, when the exchange’s trading system shut down under the weight of an avalanche of orders.  I discussed why exchanges typically do not price system capacity (bandwidth), and how this can lead to problems, including system failures.

The controversy swirling around HFT has me thinking about the subject again.  In particular, the furore over “quote stuffing.” Quote stuffing is like a dedicated denial of service (DDOS) attack on a website.  Somebody submits a hugh number of orders, away from the market, and then cancels them quickly.

Quote stuffing can be done with the intent of slowing down the system on the target exchange.  This can create a discrepancy between the quotes on the targeted exchange, and the quotes on other exchanges trading the same instrument, but not targeted.  This triggers other HFTs to submit orders to the exchanges, to exploit the apparent–but not real–price difference.  The stuffer knows this is likely to happen, and can submit orders to the other exchange(s) and trade at the expense of those duped by the mirage of a price difference.

A couple of comments.  First, this is a consequence of a fragmented market structure.  The SEC chose an “information and linkages” approach over a central limit order book alternative.  The resulting fragmentation creates the incentive to exploit–or create–price discrepancies or apparent price discrepancies.

Second, free bandwidth encourages these strategies.  There have been proposals to impose transactions taxes to address this problem, but that would throw out the baby with the bath.  Not all orders cause the problem.

“Do it yourself” latency is the problem.  So charge for it.  Levy fees on message traffic that slows down system operation.  Zero prices for submitting quotes, and prices that don’t vary with their impact on system performance, encourage overuse of system resources, and also encourage opportunistic consumption of this free resource in order to extract rents from others.

The hard question is what price to charge for latency.  The cost of latency depends, in part, on the cost of the actions that others take because of the false signals emitted by systems that slow down unexpectedly and unbeknownst to them.  These firms/individuals submit orders that they would not otherwise submit, and may end up transactions that they regret once they realize that they were triggered by false signals.  It is difficult to put a number on this cost.  But it isn’t zero, so the cost of latency-inducing orders shouldn’t be zero either.

It may also be worthwhile to discriminate among orders.  For instance, a blizzard of orders far away from the market doesn’t really improve liquidity, but can impair system performance as badly as a blizzard of orders near the market.  The benefit of the away from the market orders is smaller than the more competitive ones.  Thus, it makes sense to charge more for away from the market orders that induce latency than orders that are close to the market.  The further away from the market, the bigger the charge.  This would force quote stuffers to submit orders that have a greater chance of being executed–which raises the risks and potential costs of the strategy–or to eschew the strategy altogether.

The basic lesson here isn’t really news.  Bad things happen when scarce resources aren’t priced.  So price them.

The important thing to keep in mind is to price what is really scarce.  Taxing all orders and taxing them by the same amount is non-sensical, as different orders impose different costs and provide different benefits, and these costs and benefits can vary over time.  To deter quote stuffing it is sufficient to impose fees on orders that actually impair system performance (induce latency).  To reduce the possibility that “good” orders are punished, tax orders differentially: for two sets of orders that impose the same latency, charge less competitive orders higher fees than more competitive orders.

To address the concerns with HFT, regulators and exchanges should play Bob Barker, and get the prices right.  One mystery–something that puzzled me back in 2006 when I first thought about this–is why don’t the exchanges do it themselves.  Why do they treat their scarce system resources like free goods?  Is it too costly to design and implement a pricing system?  Is it because the costs of overconsumption of system resources are borne by others?  If so, what is the best way to address the collective action problem?

I would hope, though, that in addressing this problem that exchanges and regulators focus on the central economic issue, which is pricing of a resource, and attempt to design more discriminating pricing systems, rather than impose indiscriminate rules and constraints on conduct that are likely to be both over- and under-inclusive.

September 13, 2010

Mary Schapiro: Take Longer (Electronic) Breaths

Filed under: Economics,Exchanges,Politics — The Professor @ 8:19 pm

A brief follow up to my earlier post on HFT and SEC Chair Mary Schapiro’s suggestion of a minimum time in force for all limit orders.

My criticism of this idea focused on one aspect of limit orders: their optionality, that exposes limit order submitters to losses if price-affecting information arrives and they cannot revise their quotes accordingly.  A time in force minimum increases the option cost of a limit order, and will induce limit order traders to quote less aggressively.  This will widen spreads and reduce depth.

This paper by Fong and Liu discusses another important aspect of quote revision: non-execution risk.  A limit order trader is not guaranteed an execution.  If the market moves away from him, his order will not be executed.  Traders who want to provide competitive quotes will revise their quotes if another trader betters them on price, or on some dimension (e.g., size) that affects secondary priority.  Thus, quote revision is part of the process of competition between liquidity suppliers (although informed traders can also be limit order traders.)

The effects of a time in force minimum on this aspect of limit orders on competition is more complicated than its effect on the option feature.  Knowing that they cannot respond to the entry of a better quote for some time, traders may quote more aggressively in the first place.  (It should be noted they can match or beat an order that under/over-cuts them, but only by entering a new order and leaving the original order in force, thereby raising their risk.)  Thus, it is difficult to determine on net whether a time in force rule intensifies competition between limit order submitters.

One last remark.  On floor-based auction markets, like futures floors, it is said that bids and offers are good only as long as the trader’s breath is warm.  This is intended to limit the options that traders provide gratis to the market.  This system has exhibited tremendous survival value, suggesting that there are some efficiency benefits to allowing liquidity suppliers to reduce their exposure.  The same principles apply in electronic markets too.  That should be remembered before requiring electronic traders to breathe long and deep, as it were.

The Fog Surrounding the Crash Remains

Filed under: Politics,Russia — The Professor @ 7:06 pm

The airplane crash in dense fog outside of Smolensk that killed Polish President Lech Kaczynski and a large portion of Poland’s military, intelligence, and civilian leadership was supposed to have represented a watershed in Russo-Polish relations.  Putin hastened to extend condolences to Poland, and promised an open and thorough investigation.

But the concept of “open and thorough investigation” is utterly alien to Russia.  There are odd, not to say disturbing, aspects to this inquiry that cash shadows over the entire event.

To begin with, the Russians treated the crash scene as an intelligence bonanza, systematically rifled the crash site, and returned personal effects but kept items of potential intelligence value.

Most peculiarly, the air traffic controller who was in charge when the plane crash “retired” three days after the crash, and Russian authorities claim that they cannot locate him.

Sure they can’t.  Look, people in Russia don’t move that much.  And when they do, the Russian security forces have ways of finding them.  Do you think a material witness in anything involving, say, Yukos, would be allowed to vanish into thin air?  Me neither.

There are other troubling aspects.  The Poles have not had access to the black boxes, and there are anomalies in the transcripts that the Russians have provided to the Poles.  These transcripts were not signed by the only Polish representative allowed to listen to the boxes.  (I have not read whether he refused to sign, or whether there is some other reason for the fact his signature is missing.)

Now maybe this is just a case of old Russian habits dying hard.  Moreover, this investigation lies on a dangerous fault line in Polish politics.  Polish Russian policy is a matter of intense political conflict.  Kaczynski was fervently anti-Russian and wanted to orient Poland decisively to the West.  The current government favors a much more accommodating policy to Russia, as illustrated in this opinion piece in The Economist.   The opposition is adamantly opposed to this, and therefore has every incentive to raise questions about the investigation to cast aspersions on Russia.  So these accusations must be interpreted cautiously.

But facially, the revelations about the investigation raise doubts about it.  And by raising doubts about the investigation that inevitably raises questions about the crash itself.

As always seems to be the case, Russia’s chronic–or is it congenital?–inability to deal with issues such as this in an above board fashion is self-defeating if there is nothing to hide, and the crash was as initially reported: the result of pilot error perhaps caused by Kaczynski’s recklessness in insisting on landing.  But such investigative shenanigans could be quite rational if the truth is more sinister than that.

Will we ever learn anything approximating the truth?  I doubt it.  Which means that the crash will just be another chapter in that long running saga of mysterious, enigmatic, and riddle-ridden deaths in Putin’s Russia.

* Commentor a.russian recommends Andrei Illarionov’s treatment of this matter:

“Professor, the best coverage of Kaczynski’s death that I’ve seen is in the blog of Andrew Illarionov (in russian)
http://aillarionov.livejournal.com/227014.html
One of the commenters there insists that the plane was intentionally directed 1 km away from the airport
http://aillarionov.livejournal.com/227014.html?thread=13188038#t13188038

More Time for Sergeants

Filed under: Military,Russia — The Professor @ 6:26 pm

The grotesquely over-officered Russian military has suspended admission of new entrants into its military academies.  These entities were churning out far too many junior officers than could be absorbed into the military: 10,000 2009 and 2010 graduates presently have no assignment.   (To put that in perspective, that is a larger number than the entire graduating classes of USNA, USMA, and USAFA over a three year period.)  Current students (and some serving officers) are being given the options of becoming non-coms, contract soldiers . . . or civilians.  Many of the academies will be transformed to train sergeants instead of officers.

This is all part of an intense culling of the officer ranks.  The military plans to cut its officer complement by 60 percent.  Already, the number of colonels has been cut by approximately 85 percent.

This is a rather remarkable transformation.  If it goes well, the Russian army will leave the 19th century (or early-20th) and enter the 21st.

But there is no guarantee that it will go well.  There is resistance within the military.  But more importantly, the creation of a reliable group of non-coms from scratch is a daunting task.  In particular, military academies oriented to training officers are ill-suited to training non-coms.  In western armies, notably the American, British, German, and French, where there is a longstanding tradition of strong non-commissioned officers providing the backbone of military units, non-coms train non-coms.  Moreover, non-com candidates are selected from soldiers or sailors or Marines with several years experience who have demonstrated potential.  The curriculum and staff of existing officer training schools are ill-suited to duplicate the tried and true training methods of the western armies.

I am skeptical that this process will go well or smoothly.  But it seems there is a plan, and that crucial elements of the plan–downsizing the officer corps, reorganizing the entire force into brigades assigned to streamlined territorial-based commands, and creating a reliable corps of non-coms–are under way.  The most problematic element is finding enough soldiers to serve in this more modern military: the plans for replacing conscripts with contract soldiers have been largely shelved, and the problems in finding and training conscripts remain severe.

Medvedev talks a lot about modernization.  In economics and politics that’s all there is: talk.  In the military sphere, however, there are tangible steps towards modernization.  This is something that bears watching going forward.

September 12, 2010

Questions for the Chucklehead (and the President)

Filed under: Military,Politics — The Professor @ 8:59 pm

In the CNN interview I discussed in the last post, Feisel Rauf mentioned “national security” eight times, and “radical” nearly 20 times.   He seemed obsessed with national security and radicals.

For some reason, Rauf’s newfound obsession with national security seems less than genuine.  To the contrary, it seems much an opportunistic, manipulative argument; the last refuge of a scoundrel, as it were.  But perhaps he can persuade me otherwise.  So I have some questions for him: Mr. Rauf, what have you done in the last nine years to bolster American national security, specifically by supporting the war against the radicals whom you claim you deplore?  What risks have you run, what costs have you borne, to advance American national security from radical threats?  Have you encouraged all those moderate Muslims you claim to represent in the United States to, inter alia: (a) publicly condemn radicals, (b) identify radical elements in their communities or mosques, (c) take measures to eject radical elements from their mosques or community centers, (d) assist in US military operations against radicals by serving as translators or intelligence personnel, or (e) speak out on behalf of the United States and its treatment of Muslims in Muslim countries?  In your numerous trips abroad–many on the US taxpayers’ dime–what have you done in word or in deed to advance American security?  Have you ever done or said anything that might compromise American security?

And while I’m in a questioning mood, I have some for Obama.  Recently he has been making the rather tired point about Guantanamo serving as an Al Qaeda recruiting tool.  Mr. President: Don’t you think that they would use the Thompson, IL prison as a recruiting tool if Al Qaeda detainees were moved to there from Guantanamo?  In fact, don’t you think they would use the Mayberry Jail as a recruiting tool if the detainees were moved there, and guarded by Barney Fife?  So, short of releasing all Al Qaeda suspects, how do you propose to deprive AQ of a recruiting tool?  If you are not going to release them, and since it is the fact that they are being held, rather than the location, which angers AQ, where is the best place to hold them?

And speaking of things radicals use to recruit, it is undeniable that the Koran is Al Qaeda’s most effective tool.  What do you plan to do about that?

September 11, 2010

Pick Your Pinhead

Filed under: History,Military,Politics — The Professor @ 2:02 pm

Demonstrating that his stalwart position on the need to defer to the legal and Constitutional rights of the builders of the Ground Zero Mosque was a matter of deep principle, Obama came out in support of Rev. Terry Jones’s exercising his right to free expression by burning the Koran.  He said this was a purely local matter, the subject of Gainesville, Florida fire ordinances.  He didn’t want to express any opinion on the wisdom of Rev. Jones’s actions.

Just kidding.  Obama actually said:

“If he’s listening, I just hope he understands that what he’s proposing to do is completely contrary to our values … this country has been built on the notions of religious freedom and religious tolerance,” Obama said. “As a very practical matter, as commander (in) chief of the armed forces of the United States, I just want him to understand that this stunt that he is pulling could greatly endanger our young men and women in uniform who are in Iraq, who are in Afghanistan.”

So, here he lectures on “our” values and tolerance, excoriates the wisdom and prudence of Jones’s (since dropped) plans, and avoids any discussion whatsoever of the legality of the act, or Jones’s right to do it.  With the GZ mosque, however, he emphasized the legalisms, and explicitly eschewed any comment on the wisdom of the matter.

In contrast to Obama, Bloomberg was consistent: he focused on the legal and constitutional issues in both cases.  From the other end of the political spectrum, Palin was also consistent: she focused on the wisdom and sensitivity  in each.

When on closely related issues a politician uses flatly inconsistent arguments to justify his/her decisions, it is usually because he or she does not want to acknowledge publicly the real rationale, which is often very consistent across the cases.   What could that rationale be in these matters?  I do not know for certain, of course.  It is immediately obvious, however, that in each case Obama clearly sided with Muslim sensitivities.

The whole Jones thing is farcical.  Look, there are over 300 million people in the US.  In a population of 300 million, there will be a fair number of attention seeking pinheads.  Jones is an attention seeking pinhead.   Such people are best ignored.  The attention lavished on Jones is counterproductive.  It will encourage other pinheads.  It gives a distorted impression of the relevance and representativeness of pinheads.  It especially gives an extremely distorted perception of what the vast majority of Americans think.  It plays to foreign bigotry and prejudices–notably Muslim bigotry and prejudices.

Jones’s foil in this farce, Feisel Rauf, is also a pinhead.  This was on display in an interview on CNN on Wednesday:

I meant it, the danger from the radicals in the Muslim world to our national security, to the national security of our troops. I have a niece who works in the Army and served in Iraq. The concern for American citizens who live and work and travel overseas will increasingly be compromised if the radicals are strengthened. And if we do move, it will strengthen the argument of the radicals to recruit, their ability to recruit, and their increasing aggression and violence against our country.

In other words, we are supposed to appease Muslim radicals.  You know, those people who are unappeasable.  The same people who will view the GZ mosque as a monument to a Muslim triumph, an attack on the American kafirs.  The same people who were killing Americans long before the mosque was ever mooted, and who will continue to try to kill Americans long after the issue is resolved one way or another.

The foregoing quote from the interview has received most of the attention; some interpret as a threat, and that interpretation is not unreasonable.  But that’s not the comment that I found most outrageous. This is:

I am extremely concerned about sensitivity. But I also have a responsibility. If we move from that location, the story will be that the radicals have taken over the discourse. The headlines in the Muslim world will be that Islam is under attack. And I’m less concerned about the radicals in America than I’m concerned about the radicals in the Muslim world.

. . . .

As I mentioned, because if we move, that means the radicals have shaped the discourse. The radicals will shape the discourse on both sides. And those of us who are moderates on both sides — you see Soledad, the battle front is not between Muslims and non-Muslims. The real battle front is between moderates on all sides of all the faith traditions and the radicals on all sides. The radicals actually feed off each other. And in some kind of existential way, need each other. And the more that the radicals are able to control the discourse on one side, it strengthens the radicals on the other side and vice versa. We have to turn this around.

So, to Rauf, the debate over the mosque is between the radicals in the Muslim world on the one hand–and the radicals in the United States on the other.  I guess it’s nice of him to acknowledge that the radicals in the US are less of a threat (though that acknowledgement is decidedly missing from the second quote) but the clear meaning of his remark is that deferring to the overwhelming sentiment of Americans would be making a concession to radicals; that is, Americans who oppose the mosque are radicals.

Sorry, Rauf, but American opposition to the GZM is anything but the obsession of radicals.  It is broad and deep, cutting across virtually all segments of the American public.  With a few notable exceptions, of course, one of whom, unfortunately, occupies the Oval Office.

This slur on the opponents of the mosque is factually wrong and deeply offensive.  It deserves far more attention than it has received.

Rauf is not just offensive, he’s self-admittedly clueless:

O’BRIEN: Right, but given what you know now, would you have said, listen, let’s not do it there? Because it sounds like you’re saying in retrospect you wouldn’t have done it.
RAUF: Well, yes.
O’BRIEN: You would not have done it?
RAUF: If I knew this would happen, this would cause this kind of pain, I wouldn’t have done it.

So here we have someone, who by his own admission, didn’t have the slightest clue about the sensitivities surrounding 9-11.  Who believes that opposition to his initiative is solely the province of “radicals” in the US.

Let’s say the mosque gets built, and Rauf leads it.  Uhm, you think that there’s any doubt that given his self-admitted incomprehension of American views about 9-11, that the mosque and his mouth would become  never ending sources of injuries and insults to deeply held American beliefs and sensibilities?

And let’s further consider the fact that Rauf repeatedly–repeatedly–justifies his actions as necessarily deferential to Muslim radicals, lest they go on a violent rampage.  (How would you know?)  If he truly believes this, every decision he makes about the mosque, and its operation, will be made with an eye–no, two eyes and two ears–on those same radicals.  Even giving him every benefit of the doubt about his sincerity in building bridges, his cravenness towards Muslim radicals, his evident belief that it is imperative to appease them, makes it highly likely that he will be forever susceptible to radical pressure.  And he has announced that to them, in no uncertain terms.  Knowing that, they will threaten him every time he does anything that offends them.  He will bend to their will.  He admits as much.

And if you do doubt his sincerity, well, you know that he can always hide behind the threat of radical violence to justify further sacrileges to the memory of 9-11.

A man who has no understanding of America and Americans whatsoever, and who obsessively appeases Muslim radicals.  Just the man to head a mosque on a site that is sacred to most Americans, no?

Yes, Terry Jones is a pinhead.  But Feisel Rauf is a pinhead too.  And a far more important and dangerous one to boot.

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