Streetwise Professor

The Commodity Futures Modernization Act has been demonized as a major contributor to the financial crisis-unfairly in my view. This view is ahistorical, and fails to understand what led up to its passage.  In brief, the evolution of derivatives markets, and particularly the growth of the swaps market in the 1980s and 1990s created legal and economic challenges that the Commodity Exchange Act, dating from 1922 with a major modification in 1936, was completely unable to handle.  The CEA was passed at a time where “off exchange” transactions meant $10 bets at bucket shops, not huge deals between major banks and corporations.  The categories of market participants and the kinds of derivatives traded that Congress had in mind when drafting this legislation were vastly different from those developed during the wave of financial innovation that began in earnest in the early-1970s. As a result, by the mid-1980s, and certainly by the 1990s, the regulatory framework in place was completely ill-adapted to market conditions.

In particular, the exchange trading requirement of the CEA constrained the ability of market participants to undertake mutually beneficial transactions.  Those entering into perfectly sensible OTC deals risked running afoul of the requirement, which put their transactions at considerable legal risk.  The CFTC responded to this situation by issuing a variety of interpretative statements and no action letters and exemptions that were intended to give relief to these transactions.  Soon a confusing thicket of ambiguous and often contradictory rulings, exemptions, no action letters and interpretations grew up around OTC derivatives trades. The legal, logical, and linguistic contortions became increasingly absurd.  Although these permitted certain transactions to go forward, they did not address the very serious risk that someone could challenge whole categories of OTC trades and instruments in court, and that a judge would find them in violation of the CEA.

This was the genesis of the CFMA.  The “modernization” was intended to create a legal framework that reflected modern market reality, and which gave legal certainty to economically beneficial transactions.  It was an effort to clear the thicket, to replace an often absurd and contradictory set of ad hoc improvisations with a coherent structure.

The fundamental problem that CFMA was intended to address was that legal and legislative categories did not correspond to market reality.  The CFTC reacted by crafting ad hoc fixes.  But in the face of rapid innovation, the bolting of one ad hoc fix onto another created a vast Rube Goldberg contraption that was an accident waiting to happen.

Move forward 10 years from CFMA to Frankendodd.  Frankendodd creates numerous categories of instruments and market participants-swap, securities swap, swap dealer, major swap market participant, and on and on. It then delegates to multiple regulators the task of establishing detailed criteria describing these categories. Frankendodd itself weighs in at 2400+ pages, and the myriad regulations thereunder will run to many thousands of additional pages.

And that will just be the beginning.  The proliferation of categories that do not correspond to market realities today, let alone market realities in the future that develop in response to fundamental economic changes, financial innovations, and the regulations themselves, will lead to serious contradictions between what makes commercial and policy sense, and the letter of the law and the regulations.  The regulators will inevitably respond today the way they did in the 1980s and 1990s-with ad hoc responses intended to address the specific transactions and transactors at issue, with only passing regard for the coherence of the overall set of rulings and interpretations.  A Talmudic mind will be required to sort through it all.

Lawyers will rejoice and prosper-hence the rejoicing-because the most important design consideration for a transaction or a new structure will be how it can be jiggered to satisfy the regulations and interpretations, rather than the most efficient way to achieve a particular economic objective.  And even then there will be considerable uncertainty given the inevitable contradictions in the regulations, interpretations, judicial rulings, and on and on.

In due course, the whole edifice will become utterly unworkable and incoherent, and create a real systemic risk-a risk arising from the serious legal uncertainty that is inevitable.  And the problems arising out of Frankendodd will be all the worse than those arising out of CEA because it is more sweeping, the markets are more complicated and international, and the categories and distinctions and requirements it creates are vastly more numerous.

The ink on some regulations arising out of Frankendodd is barely dry, and this regulatory dialectic is already beginning.  The regulators are already making ad hoc adjustments.  From the FT:

US regulators are exploring ways to give large foreign banks and overseas subsidiaries of US lenders a reprieve from stringent new derivatives rules, potentially alleviating one of the biggest concerns facing global financial institutions.

The US Commodity Futures Trading Commission is looking to grant a temporary exemption to swap dealers that may fall under the jurisdiction of foreign financial authorities from complying with a host of post-financial crisis regulations governing derivatives transactions, people familiar with the matter said.

If you think this exception is the exception, you have another thing coming.  This is just the beginning of the dialectic.  Moreover, the international nature of the derivatives industry, and the creation of laws, rules, and regulations in different jurisdictions around the world will just accelerate it.

Within a period of a few years, derivatives regulations will be another absurd Rube Goldberg contraption.  And in its inimitable fashion, Congress (and the EU-if it still exists) will feel compelled to pass The Derivatives Modernization Act of 2020 (to choose a realistic round number).  Mark my words.

The pretense behind the Reset is belied by Russian truculence around the world, but most notably by the marked intensification of Russian intelligence operations.  Edward Lucas’s new book focuses on the relentless Russian espionage campaign being waged against the West under Putin.  An oped in yesterday’s WSJ tackles the same subject.  The “illegals” spy case of 2010-which Lucas argues forcefully was far more ominous than it was treated at the time-is the most prominent example of this.  But it is not the only one.

A case that hasn’t received much attention at all, but which should, is from Canada:

Sources familiar with a breaking spy saga in Halifax say Russian envoys were after military secrets from a Canadian forces member who worked at a highly secure naval operations centre here.

That information was substantiated Wednesday. It had been rumoured since Sub-Lt. Jeffrey Paul Delisle was arraigned on espionage charges Monday in Halifax.

While the 40-year-old naval intelligence officer awaits another court appearance on Jan. 25, experts in the cloak-and-dagger world of counter-intelligence say Russian or other nations’ agents working in Canada is nothing new.

Russians regularly hunt for secrets in Canada, including Halifax, spy experts say.

“We don’t understand that Canada is a target for espionage,” said counter-intelligence expert Martin Rudner. “Most Canadians would say ‘Us?’”

Rudner, a professor emeritus at Carleton University specializing in intelligence and national security, said Canadians forget we’re a superpower, a member of the G8, an “energy superpower” and a member of NATO. Our navy also has significant experience in anti-submarine warfare, he said.

Rudner is right on all this, and he omitted something of particular interest to the Russians: Canada is an Arctic nation.

The details of this particular espionage effort are chilling (no pun intended):

Delisle’s job at the top secret HMCS Trinity intelligence centre in Halifax would potentially open doors to codes and ciphers used by the Canadian navy and our allies, said Rudner, adding he was speculating on what might be available to Russian spies.

Trinity reportedly also specialized in subsea surveillance systems for the U.S. Navy and NATO countries, according to Internet reports.

Other targets could include our technologies and tactical secrets used in potential blockades, said Rudner. For example, the navy has a ship dispatched to the Mediterranean, he said, adding Russia might seek details about how Canada would enforce a blockade against its friend, Syria.

“Those would be the kinds of secrets…they would want to know,” said the expert. “This happens to all of our allies. We shouldn’t be surprised…if they target us.”

Chilling especially if you remember the Walker Family Spy Case, which focused on US Navy submarine codes and was likely the most damaging espionage case in the Cold War-at least it is likely the most damaging one that is publicly known.

Some more detail about the Trinity facility can be found here and here.

I would very much like to learn commenter Mark’s views on this.

For an all too predictable Russian response, take a look at RT‘s headline:”Sensation drive stirring Canadian media hype?

No, this is very serious.  And expect the intensity to ramp up even more with Putin’s return to the tendency.  Indeed, expect the truculence to move beyond spying, as this article about the forthcoming vote on Scottish independence suggests:

One of Vladimir Putin’s US political counsellors was recently dispatched to a symposium in Washington on the “political and economic implications for the United States should Scotland leave the United Kingdom to become an independent nation”.

The future of the Faslane and Coulport nuclear missile nuclear missile bases and Scotland’s continuing membership of NATO were both on the agenda.

Moscow’s interest sent a jolt through Capitol Hill and senior figures in the American government are now said to be waking up to the full implications of Alex Salmond’s referendum.

Dmitry Cherkashin from the Russian Embassy in Washington attended the National Capital Tartan Day Committee’s (NCTDC) Tartan Day 2012 Symposium at the Capitol Visitors Centre on March 28.

According to observers, he was particularly interested in the discussion about Trident and the future of Britain’s nuclear deterrent should the SNP force the fleet to leave Scotland.

I’ll bet he was.

A self-styled proud Chekist rules Russia. He plays by Chekist rules. No doubt the Canadian case is merely the tip of the iceberg.

It’s starting earlier than I had anticipated, but it has started. The Obama campaign, fresh off the War Against Women sortie, is now pivoting to the Republicans Are The Taliban strategy (h/t R).  Loathsome Chicago hack David Axelrod, whom has appalled me since I lived in Hyde Park, kicked off the assault this morning:

“I think a lot of Republicans in Congress want to cooperate, know better, but they’re in the thralls of this reign of terror from the far right that has dragged the party to the right. In your own polling and other polling, you see the Republican Party has really moved out of the mainstream.”

The forthcoming campaign is going to resemble something out of the early-19th century, say Adams-Jefferson or the three Andrew Jackson campaigns.  Obama’s record is hardly one that he can run on, so he is going to wage a vicious campaign based on class warfare (note the “silver spoon” remark from last week) and relentless personal attacks, not just on his opponent Romney, but on the entire Republican base.   The idea is to scare the moderates away from voting for Romney or the Republicans by painting them as dangerously radical.

Gee.  Don’t I remember some guy talking about there is no Red America, there is no Blue America?  Who was that guy?

Whoever he was, whether those sentiments were legitimate or merely a cynical pose, he’s gone now.  This is a war to the knife.

Welcome to the Five Minutes of Hate Campaign, brought to you by the Great Uniter.

Actually, we would be blessed if there were only five minutes of hate per day.  It is going to be more than that, and the duration and frenzy of the attacks will only  grow in the coming months.

And the campaign will be suitably Orwellian, because it will try to use hate to paint Republicans as haters.

Don’t take the bait folks.  Do the thing that Obama desperately wants you to avoid.  Focus on the record.  The litany of failure.  From spending to Obamacare to Frankendodd.  Do that, and exploit the contrast between the soaring rhetoric of 2008 and the viciousness of 2012.

Alexy Navalny achieved prominence by revealing corruption at Russian oil pipeline operator Transneft. He doggedly pursued other cases of corruption.  He is among the most well-known Russian bloggers, and is the most widely known of the leaders of the opposition.

Although Navalny is widely viewed as a liberal, he has made inroads with nationalists in Russia; he participated in a somewhat notorious nationalist march. He was expelled from Yabloko in 2007 for his nationalist activities.

Recently Navalny entered into the debate over the NATO transport hub at Ulyanovsk-Lenin’s birthplace.  Communists are up in arms about the operation and are attacking the government. Rogozin the Ridiculous pushed back, claiming that the allegations that there will be a NATO “base” there are a provocation: “I don’t think that the transit of NATO toilet paper through Russia can be considered the betrayal of the fatherland.”

Navalny has associated himself with the nationalist critics, although his remarks were apparently oblique and ironic:

We need to find the [Russian] politicians who take orders from the global cabal and beg for scraps at NATO’s offices. Channel One is silent. NTV doesn’t film [GV link] ‘The Anatomy of the Military Base.’ Clearly, the American spies have already infiltrated quite deeply.

Another noted liberal (by Russian standards), Vladislav Naganov, was far more inflammatory in his criticism:

These scum fool Russian citizens as a service to another country. They’re all traitors to the Motherland, unashamedly masked as patriots actively battling the United States and NATO — all in order to cover their tracks and promote themselves.

. . . .

Putin’s] seat as President of Russia was exchanged for the NATO base in Ulyanovsk, disguised by anti-Western hysterics in the media, and agreed upon [in advance] with the Americans.

So, the ostensible liberals in the opposition movement are making common cause with the most rabidly anti-American and revanchist nationalist elements.  Hardly encouraging. Perhaps it is a cynical political ploy, based on the enemy-of-my-enemy-is-my-friend principle. But perhaps it represents more than a political calculation, and reflects some points of ideological contact. Either way, it demonstrates that any hopes that the opposition will be even passably liberal are faint indeed. Perhaps the “liberals” are not that liberal.  Or even if they are, they realize that they are so weak that they have to make common cause with the most illiberal elements in Russia in order to have any chance of success.

This illustrates a couple of points.

First, Russian politics are hopelessly reliant on personalities.  There is an institutional deficit in Russia, especially outside the state. The opposition is unduly dependent on individual personalities like Navalny, and these individual personalities tend to be extremely flawed.

Second, nationalism is a dominant component of the Russian mindset, even among those who are opposed to the current government.   The example that comes to mind is the Whites in the Civil War, particularly in 1919-1920.  The Whites insisted on maintaining as much of the Russian Empire as possible.  For instance, they begrudgingly conceded the existence of an independent Poland, but wanted it limited to a rump like the Napoleon-created Grand Duchy of Warsaw.  The Poles had much bigger ambitions, including a Poland that incorporated large portions of Ukraine and the Baltic states (essentially recreating the Polish-Lithuanian Empire.)  The Whites refused to make any concessions to the Poles on these territorial issues.  The Reds, being much more cynical and flexible, were more accommodating to the Poles, figuring they would deal with the Poles once the Whites were out of the way.

At a critical juncture of the war, when the Whites were advancing inexorably north, the Reds raced all their forces south to meet them.  This left the Red rear wide open to the Polish forces under Pilsudski.  But Pilsudski deliberately held back, because he feared a White victor more than a Red one, due to the inveterate nationalism of the former.  The Reds prevailed: the Whites’ choice of nation and empire doomed them to defeat.

It is this decided nationalist/imperial tendency that makes what Yeltsin did so remarkable.  And it explains why many Russians revile Yeltsin so vehemently, considering him a traitor.

So one must have low expectations about the prospects for the opposition’s political success.  One must also have low expectations about the prospects for any fundamental changes in Russian foreign policy, or attitudes towards minorities in Russia on the off chance that they do succeed.

On 21 April, 1836, the Texians under the command of Sam Houston avenged the Alamo and Goliad, and routed Santa Ana’s Mexican Army.  This victory secured Texas’s de facto independence.

Here’s Scott Miller’s tribute to Sam Houston-Say Ho:

The CFTC had to play Goldilocks and decide the level of OTC swaps activity required to make a firm a swap dealer and thereby subject to the collateral and capital requirements and other obligations entailed in such a designation.  Earlier proposals ($100 million, then $3 billion) were commonly deemed too small.  Industry proposals were deemed to be too big.  The Commission decided on $8 billion, with the possibility of reverting to $3 billion depending on the results of forthcoming data collection and analysis by the Commission.

The usual suspects-like “Better Markets”-claim that the limit is far too big, and represents a huge loophole.  Genlser (no Goldilocks, if you know what I mean) fired back, claiming that the limit was actually quite small, compared to the immense size ($300 trillion notional) in the US swaps market.

These kinds of debates are frustrating in any event, because cutoffs like this economize on information, but are inherently arbitrary.  They focus on the easily measured, rather than the economically significant.  They reduce multi-dimensional problems to a single dimension, which inevitably leads to distortions.  In particular, they provide incentives to devise transactions and structure business to circumvent the rule.

The real questions that should be asked in determining the criteria for swap dealer designation are: What is the market failure that this regulation is intended to address? and What criteria will mitigate that market failure in a cost-effective way?

The whole justification for Frankendodd is that derivatives pose a systemic risk.  Systemic risk, properly understood, involves some sort of externality.  One potential externality is that a default by one large derivatives trading firm can lead to a daisy chain of defaults.  Another is that default costs are passed onto taxpayers in the form of bailouts.  Swap dealer designation, and the consequent regulation of their activities, are supposedly intended to address these externality problems.

Viewed from this perspective, $8 billion in notional amount seems like a very small number.  Based on BIS numbers, market values are about 3 percent of notional amounts.  Applying this to an $8 billion notional gives a market value of $240 million.  The financial system can withstand such a default, and even several such defaults.  Yes, counterparty risk also depends on gross amounts, but even an $8 billion loss is not catastrophic, especially inasmuch as any such loss would be spread over a number of counterparties.

To put things in perspective, look at the notional holdings of firms whose collapse or threatened collapse arguably posed a systemic threat.  LTCM’s derivatives book was $1.25 trillion-in 1998.  That’s 2 orders of magnitude bigger than the $8 billion figure being imposed 14 years later, when the markets are substantially larger.  Lehman’s was about $35 trillion-over 4000 times the  $8 billion threshold.  Bear Stearns: $13.5 trillion, about 1700 times the $8 billion. AIG’s notional was down to $1.6 trillion-200 times the threshold-at the time of its default.   And note that Lehman and AIG failed nearly simultaneously.

I am unaware of any default by a firm with $8 billion notional that created a systemic risk.

So I am in the too small camp.  I don’t know exactly what the number is, but there should be a pretty close correspondence between firms that are deemed to be systemically important and those that are subject to the requirements imposed on swap dealers.

Yes, the default of a firm with $8 or $10 billion in notional would presumably be painful for its counterparties.  But absent any knock-on effects, any externalities, that loss is internalized by the contracting parties.  This does not require any regulation to protect them.  Let them protect themselves, contract as they will, and live with the consequences.

I should also note that swap dealer regulation, which is effectively microprudential in focus, and which attempts to regulate only a part of firms’ capital structure, will not have the desired effects on systemic risk even if it is applied only to systemically important firms.  As I’ve noted repeatedly, firms can contract around this restriction, and will substitute different forms of leverage-and potentially riskier and more fragile forms of leverage-for the leverage squeezed out of derivatives transactions through collateral requirements.

In sum, all this to-ing and fro-ing over the swap dealer rules has resulted in a regulation that is far more inclusive than necessary to achieve its ostensible purpose of reducing systemic risk.  Moreover, the whole idea is fundamentally flawed for a reason I’ve written about often: it is virtually impossible to reduce the risk in the financial system by regulation of the pieces.

Yesterday Obama delivered another of his it-must-have-been-some-other-body-it-wasn’t-me (h/t Chuck Berry) speeches on energy.  And, true to form, he delivered another clarion call to round up the usual suspects: evil speculators, whom he confabulates with manipulators .  (And I am being generous, because confabulation is inadvertent, whereas I Obama’s slander is almost certainly deliberate):

That’s what’s happening right now.  It’s those global trends that are affecting gas prices.  So even as we’re tackling issues of supply and demand, even as we’re looking at the long-term in terms of how we can structurally make ourselves less reliant on foreign oil, we still need to work extra hard to protect consumers from factors that should not affect the price of a barrel of oil.

That includes doing everything we can to ensure that an irresponsible few aren’t able to hurt consumers by illegally manipulating or rigging the energy markets for their own gain.  We can’t afford a situation where speculators artificially manipulate markets by buying up oil, creating the perception of a shortage, and driving prices higher — only to flip the oil for a quick profit.  We can’t afford a situation where some speculators can reap millions, while millions of American families get the short end of the stick.  That’s not the way the market should work.  And for anyone who thinks this cannot happen, just think back to how Enron traders manipulated the price of electricity to reap huge profits at everybody else’s expense.

. . . .

That includes doing everything we can to ensure that an irresponsible few aren’t able to hurt consumers by illegally manipulating or rigging the energy markets for their own gain.  We can’t afford a situation where speculators artificially manipulate markets by buying up oil, creating the perception of a shortage, and driving prices higher — only to flip the oil for a quick profit.  We can’t afford a situation where some speculators can reap millions, while millions of American families get the short end of the stick.  That’s not the way the market should work.  And for anyone who thinks this cannot happen, just think back to how Enron traders manipulated the price of electricity to reap huge profits at everybody else’s expense.

He used the word “manipulate” or “manipulation” 11 times in his relatively brief remarks.  In typically dishonest fashion, he isn’t responding to specific, credible evidence of manipulation; he provides no evidence that manipulation is rampant or is at all responsible for current price levels.  Hell, he can’t even come up with a current example, having to reach back more than a decade to Enron (itself a dubious example).  He merely insinuates and implies.  But the average listener or reader will conclude from his remarks that manipulation is causing their pain at the pump.  Rather than encouraging a sober and realistic appraisal of the role of speculative trading in energy, he is feeding suspicions and encouraging a witch hunt.

Moreover, note the repeated and casual identification of manipulation and speculation.  This is itself a manipulative use of language.  Manipulation is not even a proper subset of speculation: hedgers can be some of the most dangerous manipulators.  It further encourages the popular suspicion that financial trading in commodity markets is inherently dishonest and crooked.

Insofar as concrete steps are concerned, he is demanding substantial increases in resources for the CFTC to oversee the energy markets and a substantial hike in the criminal and civil penalties for manipulation.  With respect to oversight, I’ve said more times that I should have to that the undetected manipulation is the unsuccessful manipulation.  If manipulation distorts prices, that distortion will be manifest.  Moreover, those harmed by the manipulation have every incentive to bring the manipulation to the attention of the regulators.  The idea that manipulation is rife and is having huge impacts on prices, but it is necessary to surveil the markets intrusively using “modern tools” to find it is an oxymoron.  Which means that greater penalties imposed ex post are defensible.

It doesn’t inspire confidence that Obama justifies the greater CFTC resources by quoting another of GiGi’s inane metaphors.

The other major concrete step is to give the CFTC authority over margins for energy derivatives.  This is another hardy perennial: similar proposals were made with respect to stock index futures in the aftermath of the 1987 Crash.

Obama’s justification for this is risible: “Congress should give the agency responsible for overseeing oil markets new authority to protect against volatility and excess speculation by making sure that traders can post appropriate margins, which simply means that they actually have the money to make good on their trades.”  So which is it? Are margins to ensure contract performance, or are they to reduce volatility and excess speculation?  If the former, there is zero evidence that CME Group or ICE or OTC market participants aren’t charging margins that are sufficiently high to control efficiently counterparty risk.  If the latter, there is (a) no evidence that there is excess speculation in energy, or that it is elevating volatility, and (b) no evidence that tweaking margins will have any impact on volatility.  Indeed, hiking margins can raise volatility by reducing the amount of speculative capital available to absorb fluctuations in hedging demand.

In sum, the parts of Obama’s markets aimed at speculator-manipulators are intellectually confused, empirically baseless, and deeply irresponsible because they encourage a witch hunt atmosphere by slandering (by slimy insinuations) legitimate market actors as criminal manipulators.

Well played.  Because of all the practice, no doubt.

A few other things stand out.  First, he repeats the “we use more than 20 percent of the world’s oil and we only have 2 percent of the world’s proven oil reserves” mantra.  Hell, even he admits he says this repeatedly: “But as I’ve said repeatedly.”  Repetition of a dubious factoid does not make the conclusion it is intended to support true. Indeed, that’s a staple of the Big Lie.

Second, he continues to take credit for increased US oil output when in fact he and his administration don’t have a damn thing to do with it, except that it could have been higher yet without some of their counterproductive policies.

Third, take a look at this remark: “We’ve added enough new oil and gas pipeline to circle the Earth and then some.”  To which my first response is:  What do you mean “we” kimosabe? Again, a guy who has never done anything that would risk getting a callous taking credit for the actions of those that actually put hands to shovel and made some truly shovel ready projects realities.  Moreover, it raises the question: if building so much pipeline capacity is such a great thing, why is he doing everything in his power to stall or stop Keystone?  Is that uniquely damaging? (To the environment, I mean, not to the fortunes of Buffett’s BNSF.)

A rule of thumb to keep in mind.  Whenever Obama talks about energy generally, and speculation specifically, it is safe to conclude you are being manipulated: that’s not at all speculative.

* Title suggested by R.

Julian Assange’s widely awaited (well, not really) debut on RT occurred today.  He interviewed Hezbollah leader Hassan Nasrallah.  Of course.  Hezbollah is a tireless fighter for human freedom, and a beacon of transparency, so of course Assange views him as an honored guest.  Well, not really.  Assange honors him because Nasrallah is anti-Israeli and anti-American.  Period.

The initial reviews of Jules’ show are brutal.  Utterly brutal.  But the best (and by best I mean the worst) of the lot is from the Guardian (h/t R). Yes, the Guardian!  The paper savages Assange.  Not just for his uninspiring style, but for the appalling substance.  And the Guardian also savages the News Channel Formerly Known as Russia Today.  Indeed-and this is so completely weird and other-worldly that extended quotation is required to give the full effect-the Guardian sounds like it is channeling SWP and @LibertyLynx’s Twitter tl.  I kid you not.  Don’t believe me?  Read on:

The most insidious aspect of Assange’s show is not what is in it, but what isn’t. Russia Today – now styled RT – is state-owned and Kremlin-controlled. It is remarkable for how little reporting it devotes to what is going on inside Russia today. There is no mention, for example, of top-level corruption, Vladimir Putin’s alleged secret fortune – referenced in US embassy cables leaked by WikiLeaks – or the brutal behaviour of Russian security forces and their local proxies in the north Caucasus.

Instead, the channel offers a shiny updated version of Soviet propaganda. The west, and America in particular, is depicted as crime-ridden, failing, and in thrall to big business and evil elites. RT’s favourite theme is western hypocrisy: “How dare you criticise us when you do the same?” The English-language channel portrays itself as “anti-mainstream”. In reality it reflects Putin’s own conspiratorial, touchy and xenophobic world-view while staying mute about Russia’s own failings.

The mystery is why Assange should agree to become a pawn in the Kremlin’s global information war. Perhaps he needs the money. Assange’s anti-American agenda, of course, fits neatly with the Kremlin’s own. Russia prides itself on having undesirable allies; expect Venezuela’s Hugo Chávez or Belarus’s Alexander Lukashenko on future shows. In Tuesday’s interview Nasrallah expressed support for the Syrian regime of President Bashar al-Assad. By happy coincidence this is Moscow’s position.

One quibble.   There is no mystery at all.  The hand-in-glove fit (and I’m not talking OJ trial here) between Russia’s agenda and Assange’s is the beginning and the end of the explanation of this collaboration.  This isn’t the Hitler-Stalin Pact, an opportunistic agreement between blood enemies. This is a match of anti-American, anti-Western haters.  Period.

The Guardian suggests that RT has duped Assange.  Hardly.  He surely knows all about RT, and about the regime it serves.  He doesn’t need to be duped to work for them.  He works for them because he shares a common agenda.

These quibbles aside, I am quite pleased to see that the Guardian recognizes the true nature of RT, and the Russian government it flacks for.  This is surely a sign of the impending apocalypse.

There is, of course, a backstory to the Guardian’s brutality. The paper was originally a big supporter of Assange and Wikileaks.  Until he screwed the paper, just like he screws everybody-ally and enemy alike, in his malignantly narcissistic way.  This review is part of the Guardian’s payback, and payback is, as they say, a bitch.

And hopefully, this payback is just a ripple in advance of a tsunami of payback that will soon descend on Assange’s head.

The Taliban launched high profile attacks in Kabul, focusing on political targets, including the Afghan parliament, NATO headquarters, and western embassies.  The attacks were repelled after 18 hours of fighting.

These attacks immediately brought to mind a part-and just a part-of the Tet Offensive in Viet Nam in January, 1968.  Specifically, they remind me of the Viet Cong attacks in Saigon, and in particular on the US Embassy compound.  These attacks were made soon after the US turned over security in the capital to South Vietnamese (ARVN) troops.  The attacks produced surprise, but were quickly crushed, resulting the deaths of virtually all of the VC sappers engaged.

These attacks had a political impact far beyond their their utterly trivial military consequences.  As detailed in Peter Braestrup’s Big Story, these attacks convinced an already skeptical US press of the futility of the war.  Walter Cronkite witnessed the attacks, and supposedly said: “What the hell is going on? I thought we were winning this war?”  Cronkite returned from Viet Nam and announced on the air that the war was lost. (A perfect illustration of the idiocy of drawing broad conclusions about the progress of a war on the basis of a single skirmish.  No unflappable U.S. Grant he.)  Cronkite’s disaffection specifically, and that of the media generally, signally contributed to LBJ’s collapse of will, which culminated in his decision not to seek reelection in 1968.

The North Vietnamese planners of Tet, most notably General Giap, understood that Washington, DC was the strategic center of gravity in the conflict, and that the media provided a way to attack it.  That part of Tet succeeded brilliantly, far beyond anything Giap could have hoped.  For the VC, the rest of Tet was an utter disaster militarily.  They were savaged, and the VC was never effective militarily thereafter: North Vietnamese regular forces bore the brunt of the fighting afterwards.

But that didn’t matter, because the strike at the center of gravity was so wildly successful.  The Taliban appear to be  attempting to adopt a similar strategy, but to avoid Giap’s errors.  They are evidently focusing on the high profile attacks aimed at the political center of gravity-western capitals-and eschewing broad scale attacks against US and NATO military forces that would result in crushing losses.

Given the Obama administration’s obvious distaste for the war, particularly in the face of an election, and Sarkozy’s fraught political situation in France (where he looks doomed to defeat), the Taliban are right to conclude that squishy political leadership is the center of gravity in Afghanistan.  However, Afghanistan is not at the forefront of American minds in 2012 as Viet Nam was in 1968.  Media coverage is sporadic at best, and for a variety of reasons the electorate is not happy with the conflict, but for most the conflict is a peripheral one.  The number of troops engaged is small by comparison to 1968, and the number of casualties far smaller.  This all means that the political impact of the Taliban attacks is likely to be far less than that of the VC assault in 1968.

Moreover, whereas Viet Nam deeply divided the Democratic Party in 1968, Afghanistan does not pose the same threat of intra-party insurrection to Obama as Viet Nam did to LBJ.

As a result, I don’t think that these attacks will have the same seismic effects as the Saigon assault.  Indeed, the Taliban are pretty much pushing on an open door.  Obama wants out, has long wanted out, and put the US on a trajectory to get out two years ago.  His will was never engaged here: the Afghanistan issue was a prop in the 2008 campaign that he used to deflect charges that he was weak on national security, and after that became an irritant and distraction to him. Moreover, Afghanistan is marginal as a political issue, and what happens there is highly unlikely to affect political events here.

I therefore expect that these attacks will not alter significantly the course of events in the coming months.  That course was set long ago, and will continue largely unchanged as a result of what transpired in Kabul over the last couple of days.  At most, it will confirm to Obama that getting out is the correct course.

General Services Administration Jeff Neely is taking the Fifth in response to a subpoena from the House Oversight and Government Reform issued in an investigation of a luxurious conference for GSA employees held in Las Vegas. In response, the administration is falling back on Old Reliable: Blame Bush.

The Obama administration is responding to the recent report that shows a federal agency spent more that $800,000 on a lavish conference near Las Vegas by putting some of the blame on the Bush administration.

This reflex reminds me of the game Six Degrees of Kevin Bacon, in which players try to connect any given Hollywood figure to Kevin Bacon via other figures within 6 steps or fewer.  This administration immediately responds to any failure, misstep or scandal by BOB-blaming it on Bush.  They do it on the economy routinely.  They have done it with Solyndra.  The are now doing it with the GSA fiasco.

They are actually quite adept at doing this, usually accomplishing the feat in one or two steps.  Of course, that’s not that much of an accomplishment, given that logic or even plausibility are not require under their rules.