Streetwise Professor

LCH.Clearnet has announced that three exchanges have expressed an interest in buying the heretofore independent CCP.  Why does stuff like this happen on my vacation?  I’ll just make a brief comment, and leave more for later.

Jeremy Grant posits that LCH is in play because of cross margining efficiencies.  This conjecture is understandable, but fundamentally flawed.  Yes, there are definitely cross margining efficiencies.  More generally, there are economies of scope due to diversification effects that make it less costly to consolidate clearing for multiple asset classes in a single CCP.  But this does not explain why exchanges would want to vertically integrate clearing and execution.  Ownership is not necessary to exploit scope economies.  Indeed, the two things are often in tension–and are in this instance.

Scope economies do not explain integration.  Indeed, things cut the other way.  To the extent that there are more scope economies in clearing than execution (which is quite plausible), in the absence of transactions costs the most efficient way to organize the business would be to form a single clearinghouse, with which multiple execution exchanges would contract to obtain clearing services.  In fact, one of the costs of integration is that it often entails the sacrifice of scope economies in clearing.

Put differently, scope economies do not explain the pattern of ownership: the relevant question is why do exchanges find it optimal to own their own clearing facilities, rather than obtaining clearing services by contract.  That would be the way to optimize cross margining, netting, and diversification economies.   Such economies would be exploited maximally by having, say, LCH, clear just about everything, and sell its clearing services to myriad exchanges that offer execution services in different product classes.  But that’s not the way the market is moving.

Thus, the fact that many exchanges are already integrated, and why more exchanges are seeking to integrate, must arise from some other economic force than scope economies.  The most plausible explanation–and one that I advanced more than 5 years ago–is transactions costs.  Due to double marginalization problems and the transactions costs that arise when complementary activities are supplied by single firms (or by a small number of firms that do not compete vigorously), it is often efficient to integrate these complementary activities.  That is a basic lesson of Williamsonian Transactions Cost Economics (TCE).

In my view, that’s why exchanges like CME and DB have integrated, and why other exchanges have or are in the process of doing the same thing.  This drives regulators and legislators nuts: they see such integration as a nefarious scheme to leverage monopoly.  That’s bad economics–and it’s been known to be bad economics for going on 50 years.  Instead, it is all about transactions cost economization.  Regulators can try and fight it, and they will.  If they succeed in their quest, however, they will only succeed at raising costs and reducing efficiency.

Insofar as the potential LCH deals with exchanges are concerned, SwapClear is presumably a major target in any deal, but also a major obstacle.  I can’t see the banks that dominate SwapClear going along with a merger of LCH into NYSE-EuroNext or NASDAQ or LSE.  Or if that happens, I would expect them to leave SwapClear and set up their own CCP, perhaps through ICE Trust or through a new, freestanding interest rate swap and repo CCP.  (Going through ICETrust would exploit scale economies, so that would be a likely approach.)

I have more to say on this, and probably will.  But it’s been a long day in the sun, so it will just have to wait.

FT Alphaville has an interesting post on metals warehousing that resonates with my earlier post on the subject.   They call attention to a BBC report on commodities.

Recall that I dismissed the concerns about leveraging market power, and said that the crucial issue was information.  Given the availability of statistics on metals inventories, I downplayed the information advantage that warehouse owners have, but the Alphaville post suggests I was hasty in that judgment:

MR [BBC reporter Michael Robinson]: Steinweg is the last independent warehouse. Does it give them [the banks which own warehouses] an unfair advantage?

MR: John van der Lek told me he’s relieved that the Steinweg group is still independent, he says he’d like to avoid any suspicion of conflict of interest.

MR: “But what’s wrong with a bank owning a warehouse?”

ST [Warehouse operator Steinweg’s head of metals John van der Lek]: “I don’t know why they want to own warehouses. There must be a reason for that. But I don’t know why they do.”

MR: “Is it good business for a bank?”

ST: “Could be, but I don’t know, I don’t think so. I don’t have an idea what their feeling for taking over a warehouse.”

MR: “The danger is pretty obvious. That the bank has more information than other traders because it owns a warehouse?”

ST: “Yeah. That is to a danger for the traders. Maybe so we’re in a situation where people get more information out of the warehouses, but we are here independent and we would like to keep it that way. And we hope our customers appreciate that.”

All that said, trading is about information flows, and integration of traders into physical assets is ubiquitous–and has been for a long time–for exactly that reason.  Again, recall that major grain merchants did–and still do–operate the main delivery warehouses for CBOT/CME Group contracts.  Banks have been going into physical asset ownership in energy in recent years.  BP always viewed its asset ownership as a key to its trading operations.  That’s the way the game is played.

Anybody who owns the physical assets like storage facilities will have an information advantage when it comes to trading.  The relatively recent move of financial institutions into this area reflects a complementarity between access to this information flow and the ability to operate and finance trading operations.

In other words, it’s not about leveraging market power.  It’s about putting information and capital together.  That’s the essence of trading.  It’s the financial equivalent of a Reese’s Peanut Butter Cup.

Apropos my post about Russian capital flight, in the first four months of 2011, capital leaving the country has totaled $30 billion:

The net outflow of private capital, which started to pick up pace last year, amounted to about $30 billion in the first four months of 2011. “That is a very large figure,” Sergei Ignatyev, chairman of the Central Bank of Russia, told a banking conference Thursday.

And that may represent only about half the actual flight, with the rest coming in informal and illegal transfers.

Large, indeed.  That’s about the total flight in 2010.  I say again: in the first 4 months of 2011, capital flight has equaled or topped its 2010 total.

It is especially large given that fundamentals–the price of oil, particularly–should favor hot money inflows.  And given that other emerging markets and commodity economies have seen inflows.  I imagine that a rigorous econometric adjustment for these factors would mean that the outflows are pretty much off the charts.

Not exactly the kind of development that will lead to a doubling of GDP, per capita or otherwise.  A testament to the corrosive impact of Putinism, and the prospect for 12 more years of it.

Clearly in restoration campaign mode, Vladimir Putin has declared that Russian GDP per capital will double by 2015, and that Russia will become one of the world’s top 5 economies.  Why anybody would believe such a statement is beyond me.  Recall that Putin made a similar promise early in his presidency, promising a doubling of GDP by 2010.  Didn’t happen then.  Won’t happen now.

Note that doubling in 10 years requires roughly a 7 percent growth rate.  The country is currently lucky to get slightly north of 4 percent, despite a the dramatic rise in oil prices in the past 18 months.  Russia was pushing it to get 6 percent growth during the boom years.  7 percent per year over 10 years is a fantasy, especially in light of the vulnerability of the economy revealed by its experience during the crisis, and the daily revelation of its fundamental institutional weaknesses and political risks.

Putin is an expert at these long horizon forecasts that promise a pot of gold at the end of the rainbow.  He chooses a time horizon long enough that by the time it arrives, people will have long forgotten the promise.

Ironically, Putin’s resumption of the presidency would only reduce the odds of achieving his stated objective.  Twelve more years of stagnant corruptocracy will not generate growth.

Countries with sparkling growth potential do not experience massive capital outflows.  Countries with glittering prospects do not see major IPOs fail with regularity.  The pulling of the Domodedovo IPO is just another example of the toxicity of the Russian business environment.  Did it have to be pulled because (a) the dodgy corporate structure makes it suspect to Western investors, or (b) Western investors fear expropriation based on the pretext of a dodgy corporate structure?:

Domodedovo had been facing an onslaught of media scrutinty in Russia before the IPO on reports that the company’s management could be forced to sell out to a state-connected private investor.

Meanwhile, the prosecutor general recently released a report that deemed Domodedovo’s offshore ownership structure “unacceptable” and asked Russia’s transport ministry to put together a new bill that would essentially forbid Domodedovo’s current owners from managing the business.

Dmitry Kamenshhik, who owns 100 per cent of Domodedov, was named the 86th-richest man in Russia by Russian Forbes with an estimated net worth of $1.1bn

Analysts and investors say they are sceptical that the increased pressure against the airport at home had nothing to do with the decision to postpone the listing.

“Investors are not ready to pay fair value for a company which could face some risks with the state,” says one analyst, who did not wish to give her name because of the sensitivity of the matter.

“I don’t exclude the possibility that Domodedovo will change its shareholder structure very soon.”

Does it matter whether it is Russian business practice or the vulnerability of Russian businesses to the state that makes investors nervous?  And, pray tell, just what is the rationale for the creation of such an offshore structure?  To make it easier to tunnel assets out of the company–and out of the country?  Or to limit exposure to expropriation?  Both? However you interpret it, it suggests that the prospects for a Russian growth spurt are dismal.  Yes, Yandex just had a wildly successful IPO.  But it is the exception that proves the rule.

I haven’t heard much recently about the privatization campaign that is supposed to raise billions to fill the budget hole that Putin needs to meet his lavish campaign-but-not-campaign promises.  Given the rash of problems with Russian IPOs of companies, especially those with connections to the state, is there any wonder?

Ironically, I read of Putin’s promise to double GDP while in Portugal.  You might recall that once upon a time Putin promised that Russian living standards would reach Portugal’s by 2014.  First, that’s not going to happen.  Second, remembering that while in Lisbon brought to life the real implications of that statement, for the Portuguese capital looks very, very tired.   Unrealistic ambitions to surpass Portugal are revealing indeed.*

* Other parts of Portugal are more encouraging, to be sure.  I am currently in Troia, which is quite nice, and extremely reasonably priced for what you get.  But I have had to shake my head several times at the self-defeating economic attitudes here.  These are best summed up by my conversation with the nice woman at the car rental agency, after a frustrating experience relating to Portugal’s bizarre rules relating to declining insurance coverage based on coverage provided by my credit card company and US insurers, just as I’ve done not just in the US but throughout Europe.  (Essentially, they require you to buy the car.)  She said, with an obvious look of pain in her face: “I am sorry.  Many bad things in Portugal.  But the weather is nice!”  And ironically, while sitting here in the lobby discussing some arrangements with the guest services person at the hotel, just had another example of the rather, uhm, dysfunctional attitude towards the concept of customer service.  And I should say, piecing together what I can of the political ads on TV (a national election is being held next week), I doubt things will improve any time soon.  Which is sad, because it is a very nice country with some very interesting things to see (Sintra, for example), and extremely pleasant and friendly people.

The CFTC made all the front pages by filing manipulation charges against Parnon Energy, Arcadia Petroleum LTD and Arcadia Energy (Suisse), all affiliates of the trading firm Arcadia.

Let me say at the outset that I am in favor of addressing manipulation by ex post actions like those filed by the CFTC, and have long made that argument.  Let me also say that in 2002, Arcadia was accused of manipulation of Brent crude, and price patterns at the time were symptomatic of a corner, and per public reports, Arcadia’s trading was consistent with an attempt to corner.  Thus, I have no objection to the type of action the CFTC has brought, and don’t put it beyond Arcadia or a company like Arcadia to engage in manipulative conduct.  Indeed, I wish that the CFTC would rely more on ex post actions and less on things like position limits or ex ante jawboning to reduce the frequency and severity of market manipulation.

That said, based on the complaint, I conclude that the CFTC case is a tenuous one.  It is tenuous because of the novel nature of the claim, and the weak support for that claim provided by the price and trading data cited in the complaint.

The CFTC does not allege a corner.  Instead, it claims that Arcadia engaged in deceptive conduct.  It bought cash WTI forward contracts it did not need, then sold those contracts in the last three trading days of the WTI “cash window.”  The CFTC alleges that the buying deceived the market by suggesting buying interest that was not there, creating a false perception of market tightness.  This perception of increased tightness caused backwardation to increase.

Arcadia’s subsequent sales allegedly disabused the market of its (allegedly false) belief, causing backwardation to fall.  Arcadia allegedly lost money on these cash WTI purchases and sales, but made up for it through first buying and selling nearby spreads, and once the front month contract stopped trading on NYMEX, shorting the (new) nearby spread.  The creation of the perception and subsequent destruction of the perception of tightness, the CFTC alleges, generated profits for those spread positions.

Thus, the CFTC alleges a trade impact manipulation, rather than a corner.  These are always a greater challenge to prove, and the proof the CFTC adduces is hardly convincing.

In particular, the price data do not provide strong support for the allegation.  Consider the first alleged episode, in January, 2008.  Per the complaint, Arcadia bought 4.1 million barrels of February WTI cash crude.  During this period, it was also buying the February-March spread.  But in the 3 January-8 January period, when this trading–notably the cash trading, per the complaint–was allegedly creating an artificial perception of tightness in the market, (a) front month cash WTI fell by about $3.30/bbl, (b) the February-March (GH8) backwardation actually fell by 4 cents, and (c) front month WTI fell relative to front month WTS and LLS.  The spread did jump up 25 cents between the 8th and the 10th, and the WTI-LLS front month spread jumped by over a dollar, but this is after Arcadia’s purchase of the cash WTI contracts, and the purchase of the bulk of the GH8 spreads.  So to believe the CFTC, one has to believe that the market only became aware of the impending tightness with a lag–which is hard to reconcile with its assertion that it became aware that the demand was chimerical immediately on the sale of Arcadia’s cash position.

Moreover, by 15 January the GH8 spread had fallen to a level below its value prior to the commencement of Arcadia’s buying.  Then, when Arcadia began to sell the GH8 spread, the spread actually began to widen, going from 17 cents to 64 cents during the period that Arcadia was selling it. February WTI actually rose relative to February WTS during these days of selling February WTI as well.

This is all very hard to square with any assertion that the market was responding to Arcadia’s trading activity.  After all, NYMEX February futures and WTI cash forwards are effectively perfect substitutes, both allowing the buyer to take delivery of 1000 barrels of WTI in Cushing during February, 2008.  The market was showing greater signs of tightness at the very time Arcadia was reducing its demand for February WTI.  It will be devilish hard for CFTC to argue that purchases of near perfect substitutes have different price impacts, and for it to argue that the market was very sensitive to Arcadia’s trading of February WTI when its sales are associated with rising backwardation and its purchases are associated with falling backwardation.

The GH8 cash WTI spread did indeed go from backwardation to contango during the cash window of 25-28 January, when Arcadia was doing its selling of Feb cash WTI.  But February WTI actually rose during this period, and indeed rose on 28 January when Arcadia did most of its selling.  Again, this is not symptomatic of a market that was suddenly convinced that demand tightness had declined.

It must also be noted that the collapse in the February-March cash spread was equally large for LLS ($.985), and more than twice as large for WTS ($2.335).  Thus, the spread collapse was not limited to the product that Arcadia was trading.

Perhaps CFTC will argue that Arcadia’s deceptive buying had lifted and then crushed LLS and WTS spreads as well, but any manipulative buying should have a larger impact on the commodity actually bought, and the 25 January-28 January spread moves are not consistent with that.

What’s more, making this argument would present the CFTC with an acute problem.  It defines “market dominance” based on the size of Arcadia’s position relative to the WTI market.  If LLS and WTS are such close substitutes for WTI that buying one impacts the prices of the others because they are effectively one market, then for the purpose of determining market dominance Arcadia’s position must be measured relative to that market–WTI, WTS, and LLS, plus any other close substitutes.  It would be much harder to prove market dominance under such an expanded market definition.

In brief, the price and trading patterns for the January episode are not consistent with the CFTC allegations.  Prices fell throughout, even after Arcadia allegedly fooled the market into believing that conditions were tight.  Prices and backwardation did not rise when Arcadia was buying.  Backwardation was rising when Arcadia was actually selling the spread.  The spread collapse during the cash window that the CFTC apparently believes is its “Gotcha” piece of evidence was mirrored by collapses as large or larger in other types of oil.

I also note that the CFTC has provide no evidence that any of the price and spread moves were statistically significant.

The spread and trading co-movements are more equivocal during the March, 2008 episode.  The April-May (JK8) spread did rise when Arcadia bought it, and during the period it commenced buying April cash WTI.  But the biggest move in the spread, from $1.16 to $1.94 occurred when Arcadia sold its JK8 NYMEX spreads.  It was buying 3.5 mm bbl of April cash during this 14-19 March period,  but it was selling 14.4 mm bbl of JK8 spreads–meaning that it sold 10.9 million more barrels of April WTI than it bought during this period–so how could this contribute to an explosion in the perceived tightness of WTI–as indicated by the 78 cent increase in the backwardation? Note too that the WTI April cash flat price was falling $5.73 during the period it was buying the 3.5 mm bbl of April cash crude–another thing that is hard to square with a perception of increased tightness.

Furthermore, the April-May LLS spread fell by more during the cash window ($2.29) than did the WTI spread ($2.015).  This is very hard to square with any coherent manipulative theory, and as noted before, any story in which sales of WTI cause declines in the price of LLS would require a market definition under which it would likely be very hard for CFTC to prove market dominance.

I should also mention that even ignoring this problem, the CFTC’s market definition is suspect.  It compares Arcadia’s position to the company’s estimate of flows of WTI in Cushing during the delivery month.  But this ignores stocks of oil in Cushing, which were about 17 mm bbl during this period.  Now some of these barrels were not WTI, but some if not most of these barrels should be included in any calculation of the size of Arcadia’s purchases relative to the size of the market.

Corner manipulation cases are hard: the CFTC has never won one.  Trade impact manipulation cases in which it is alleged that buying or selling created false perceptions of demand are even harder to analyze and prove.  Thus, just based on the nature of the allegation alone, the CFTC has filed a very challenging case.  When one looks at the evidence the CFTC presents in its complaint, the odds become even higher.  For the January episode in particular, the most straightforward interpretation of the evidence cuts squarely against the allegations.  This will be a very difficult case for the agency to win.

There’s another lesson here that has been lost in all of the hue and cry over the filing of the complaint.  CFTC has been examining the oil market with a fine tooth comb going back to 2005 if memory serves.  If this is the best case they can find after all that, the oil market must be pretty damn clean.

At the Chicago Fed’s Financial Market Working Group meeting Tuesday afternoon–which included a very interesting talk about derivative collateralization by Mike Clark of UBS and ISDA.

No grass growing under my feet, I’m now in Lisbon for a commodities conference and some vacation, then off to London for some additional travel and another conference.

Really?:

Lawmakers in the Parliament voted that clearinghouses should have to hold capital of at least 10 million euros ($14.1 million) to absorb possible losses.

Yeah. That will prevent the next financial crisis.

FT Alphaville reports that the UK Parliament’s Science and Technology Committee is all hot and bothered about bank ownership, and particularly JP Morgan’s ownership, of LME delivery warehouses:

79. We heard that there were large companies dealing metals within the UK and an allegation was made by the MMTA that a company through a subsidiary may be behaving in an anti-competitive manner: on the London Metal Exchange there are four very large companies that own the very warehouses that people deliver metal into, J.P. Morgan is one of them.

They own a company called Henry Bath. They are, therefore, a ring-dealing member of the exchange and they also own the warehouse. That is restrictive. They were also reported, at one point, to have had 50% of the stock of the metal on the London Metal Exchange.[113] 80.

We would be concerned if the ownership of metals storage warehouses by a dominant dealer on the London Metals Exchange were to be anti-competitive. We would also be concerned if a dealer who had the resources to own over 50% of stock on the London Metals Exchange impeded the correct functioning of the market.

81. We use this report to bring the alleged activities of large dealers on the London Metals Exchange to the attention of the Office of Fair Trading. We would be concerned if a dealer were undermining the effective functioning of the market and we look for assurance that the market is functioning satisfactorily.

The confusion about the anti-competitive effects–or, more correctly, the lack thereof–of vertical integration is pervasive.  This is just another example.   JPM ownership of a delivery warehouse is not per se anti-competitive, and indeed, it is difficult to see how it could be a way of leveraging market power as the Committee insinuates.

Insofar as ownership of 50% plus of deliverable supply is concerned, that is a completely separate issue.  Sumitomo never owned any delivery warehouses, but it (and its pilot fish) cornered the market with abandon in the 1990s.  To my knowledge, none of the other frequent squeezes on the LME in recent years have been facilitated by ownership of warehouses.  What’s more, it’s most effective to attack corners and squeezes directly, rather than through restrictions on asset ownership.

I’ve also written from time to time on how ownership of physical assets is an important part of many commodity trading firms’ strategies.  In particular, commodity trading firms can optimize use of physical assets based on their access to information and their ability to exploit the option value of these assets.

With respect to delivery warehouses in particular, come on.  In the grain markets in Chicago, big merchants like Cargill, Continental, and ADM long owned delivery houses.  They did so for the exact same reason that many energy and metals traders today own physical assets like storage.

Where ownership of physical assets may be somewhat problematic is when it gives the owners privileged access to information.  By trading on that information, the asset owners create an adverse selection problem that reduces market liquidity.

Perhaps the most famous example of this occurred in the Chicago grain markets in the 1860s.  At that time, there was a veritable war between grain brokers and traders and the owners of the grain elevators in Chicago.  The Chicago Board of Trade was the representative of the interests of the brokers and traders, and fought hammer and tong against the “piratical” elevators.

The elevator operators had information about the quantity and quality of grain in store.  This information advantage allowed them to trade profitably.  For instance, elevator operators from time to time learned that grain was getting out of condition–“heating.”  Given this knowledge, they would go short, and cover their positions at a profit when news of the spoilage became public.

This is akin to inside trading, and has deleterious effects on market liquidity: it transfers wealth from the uninformed to the informed.

The elevator operators also allegedly operated a cartel that fixed storage rates at supercompetitive levels.  This again harmed grain merchants–and also farmers.   Elevators also took advantage of their ability to mix grain down to the minimum required to meet grade.  This effectively transferred wealth from those who stored above average quality grain into the warehousemen’s pockets.

The CBOT tried mightily to get the elevator operators to report information about the quality and quantity of grain in their facilities, and to charge reasonable rates.  The elevators basically told them to pound sand.  The CBOT had little leverage over the elevators: the brokers and merchants needed the elevators, but the elevators didn’t need to the CBOT, so threats of expulsion had little effect.

Eventually, the CBOT prevailed on the legislature of Illinois to regulate grain warehouses.  This is actually an extremely important event in American legal and regulatory history, for one of the elevator operators, Ira Munn, challenged the Illinois regulation.  He appealed all the way to the Supreme Court, which decided in favor of the state, thereby establishing the power of states–and the federal government–to regulate business “in the public interest.”  The regulatory state in the US traces its roots to that decision in Munn v. Illinois.

One of my favorite papers discusses this episode in more detail.  You can find it here.

Going back to the hyperventilating Parliamentary Science and Technology Committee and JP Morgan’s ownership of a delivery warehouse, the things that were arguably inefficient in 1867 Chicago are completely absent in 2011 Bath.  The LME announces stocks held in warehouses on a daily basis, meaning that elevator operators don’t have privileged information on quantities in store.  Quality is monitored by independent inspectors.  The fears of vertical integration resulting in a leveraging of market power are neurotic.  Merchant ownership of delivery and storage facilities is a virtually universal feature of the commodity landscape.

In other words: Move along.  Nothing to see here.

BP continues to maintain that the tie-up with Rosneft is just resting. But the Kremlin says that the deal is dead and will not be resurrected.

“The deal became a drag” in its previous form, Shmatko told reporters today in Moscow. “I don’t believe in the possibility of reincarnation for that particular deal.”

It is, in other words, a passed parrot.

The only real question is why, and in particular, why Sechin wasn’t able to pull it off–or perhaps more accurately, why Putin pulled the rug on Sechin. On those lines, I suggest you all check out Pahoben’s comment on the previous post (Igor Pyle). He provides additional detail as to why it is risible for Sechin or Putin or anybody else to claim “Surprise, surprise, surprise” at the TNK-BP shareholder agreement, and presents some plausible conjectures as to what killed this particular parrot.

It strains credulity to believe that Igor Sechin (who would be perfectly cast playing his namesake in a remake of Frankenstein!) did not know that the TNK-BP shareholders agreement required BP to undertake all Russian operations via TNK-BP:

Deputy Prime Minister Igor Sechin, who this week saw the crowning achievement of his career as Russia’s energy tsar thwarted by rival businessmen, shows no sign of conceding defeat.

. . . .

“I wouldn’t say that anyone contributed to the deal’s collapse. It’s just when there is no full information, when Rosneft had no opportunity to become familiar with the (TNK-BP) corporate agreement, it’s hard to make a decision,” he added.

I have been trying to track down what was public about the shareholder agreement going back to when it was revised in 2008-2009, but it’s hard to troll through all the material that’s out there.  I do have a distinct recollection that during the time of the pre-September, 2008 face-off between Dudley/BP and the AAR people (which, remember, featured raids by masked security personnel), there was mention that the shareholder agreement restricted BP’s operations in Russia.  At the very least, somebody–many somebodies, actually–should have asked.

But even if the details were not public, are we really to believe that the shareholder agreement details were concealed from a Russian government headed by an ex-KGB/FSB agent, and a Russian oil company headed by someone with a similar pedigree?  Really?  Especially since per Wikileaks, the US government was apprised of the behind-the-scenes dealing involved in the renegotiation of the agreement?  If the State Department had its sources, is it at all plausible that Putin, Sechin, et al, didn’t have theirs?  Please.

I don’t know exactly what went on here.  I am virtually metaphysically certain, however, that the public stories by Putin and Sechin are risible.  There was–is–some game within the game within the game.  I would wager that Sechin–and perhaps Putin–told BP that the shareholder agreement wouldn’t be a problem.  Then it was.  Why it was remains in the realm of conjecture.  Was it Sechin playing Lucy-and-the-football in an attempt to extract more out of BP?  Did the AAR oligarchs play a card that Sechin (and perhaps Putin) didn’t expect?  (Perhaps a card involving the upcoming election campaign?)  Again, I don’t know.

But I do know that Sechin does a very poor Gomer Pyle imitation: