Streetwise Professor

Greenwald’s latest story is that the NSA spied on Brazil’s national oil company, Petrobras.  A long day of intense meetings in Geneva, so  I’ll be brief in my analysis.

Typical BS Greenwald story.  Starts out with an alleged fact based on a Snowden document.  (No one ever mentions that one can deceive by telling only part of the truth, but I’ll pass over that.)  Then proceeds with paragraph after paragraph of speculation of what the NSA could be doing.  In this case, the speculation is that NSA is engaged in commercial espionage for the benefit of US corporations.

Evidence for this? Bupkus.

Then, at the very end, Greenwald quotes a US denial, in this case by Clapper.  Clapper says that, duh, the US has an interest in economic matters, and that NSA does not engage in commercial espionage.

Does Greenwald have any evidence to dispute NSA does not engage in commercial espionage?  No.  But on his Twitter tl, he says that Clapper is lying.  Because, of course, the only reason that the US could be interested in Petrobras is for commercial purposes.  That is, he asserts and assumes that spying on a national oil company is for the purpose of benefitting US companies.

Um, not really.  Note two other very salient reasons.  First, the US Export-Import Bank lent Petrobras $2 billion.  Second, Petrobras has been the frequent subject of corruption allegations, including an accusation of money laundering made by a . . . wait for it . . . whistleblower.  Some allegations involve Dilma herself.

Gee, I thought Glenn was all about lionizing whistleblowers.

I guess that’s selective.  Go figure.

But enough expecting some sort of intellectual consistency.  Let’s just recognize that (a) the US government, and most governments, take an interest in major economic developments, especially in energy, and employ all elements of their national power to obtain information on this, (b) this does not imply that the governments use this information to advantage their domestic companies, though many do-notably China and France, (perhaps the US is an exception that proves the rule) (c) Greenwald provides no evidence, but merely asserts, that the NSA used information on Petrobras to advantage US companies, in one of his by now tiresome “can therefore does” exercises in illogic, and (d) most importantly, the US had a direct economic stake in Petrobras, and a strong reason to know whether the company was corrupt, and whether government officials involved with the company were corrupt.

Funny that Greenwald never mentions the ExIm Bank deal or the corruption allegations involving Petrobras and Brazilian public officials.  After all, that might provide some context, and we can have THAT interfering with our narrative, can we?

The latest conspiracy theory regarding Syria is that this is all a Qatari plot designed to open up a route for a natural gas pipeline.  (Google Qatar Syria Gas Pipeline and you get about 1.3 million hits, virtually all of the first several hundred are about this theory.)

Several comments.

First, consider the source.  This is has been a Syrian propaganda line since very early on.

Second, consider who is flogging this theory, notably Alex Jones and Zerohedge, both of whom are reliable Putin pilot fish, with the former being a notorious propagator of outlandish conspiracy theories involving the US government, including 911 Truther type conspiracies.

Third, and by far most importantly, the theory doesn’t explain one crucial fact: Saudi support for Assad’s overthrow.  Indeed, if this reductionist conspiracy theory were correct, the Saudis would be throwing everything behind Assad, not trying to oust him.

Saudi Arabia and Qatar have had a testy relationship for decades, and since the Arab Spring and the ascent of the new Emir of Qatar, Sheikh Tamim bin Hamid Al-Thani especially, that relationship has degenerated into a shadow war fought through proxies throughout the Middle East.  This is most evident in Egypt, where Qatar backed the Muslim Brotherhood Morsi government, and the Saudis backed the military, and bankrolled its overthrow of that government.

The KSA-Qatar battle centers on the latter’s support of the Muslim Brotherhood, and the former’s hatred of that organization.  (H/T @libertylynx)

With respect to gas specifically, Saudi Arabia has consistently blocked, or attempted to block, Qatari pipeline plans.  KSA scuppered a Qatar-Kuwait pipeline and vetoed another pipeline that would have traversed Saudi Arabia.  It tried and failed to stop a Qatar-UAE pipeline.

Saudi Arabia does everything it can to stop Qatari pipelines.  It doesn’t bankroll rebellions or importune the US to facilitate them.

It should also be noted that the main discussion of a pipeline from Qatar that would traverse Syria dates from 2009, when Turkey and Qatar announced that they would study the idea.  The concept at the time was that this pipeline would supply gas for the Nabucco pipeline into Europe.  But Nabucco’s prospects were never good, and it was formally killed earlier this year.  Remember that there are far more pipeline ideas announced, often to much fanfare, than actual pipelines actually built.  Spending billions to fund a war to build a pipeline with bleak economic prospects doesn’t seem like all that great a project for cagey investors like the Qataris.

For religious, political, and economic reasons, Saudi Arabia and Qatar are foes not friends.  So if it was all about gas, perhaps Qatar would be trying to overthrow Assad, but Saudi Arabia would be trying to stymie Qatar.  Perhaps if it was all about gas, a bloody stalemate would be in the KSA’s best interest.  Or perhaps, KSA would even support Assad.  But if it’s all about gas, there is no way the KSA would be backing Assad’s overthrow, funding rebels, and lobbying the US to intervene.  It is even rumored that the Saudis would participate in an air campaign against Assad.  They wouldn’t do that if the ultimate outcome would be to empower the Qataris and allow them to achieve objectives the Saudis have tried to stymie for years.  The KSA isn’t going to fight Qatar’s wars.

So the conspiracy story doesn’t explain a vital fact: if you squint really hard it might-might-explain what Qatar is doing, but it doesn’t explain what Saudi Arabia is doing. And it’s even worse than that: the explanation of the Qatari action would lead you to predict the Saudis would do the exact opposite of what they are doing.  That’s a pretty big fail.

Truth be told, I have no idea what is really motivating the Saudis and the Qataris.  In the murky world of the Middle East, it is an act of extreme confidence to predict what these countries are really up to.  There are circles within circles, personal feuds, dynastic and family dynamics, and on and on.

Which means that the US should look to its interests, and to its ability to mitigate humanitarian catastrophe, when contemplating intervention.  Trying to unravel the games the Saudis and Qataris are playing is a mug’s game.  Define an objective, determine what means are necessary to achieve that objective, and determine whether the cost of achieving it is worthwhile.  Don’t get distracted by conspiracy theories, especially those that don’t fit a very important fact.

Obama continues to sound a very uncertain trumpet on intervention in Syria.  He spends more verbiage assuring Americans that any intervention will be extremely limited than he does making the case for the necessity of the intervention in the first place.  The affirmative argument that Obama does make is essentially a moral and humanitarian one: that chemical weapons used against civilians is a uniquely abhorrent crime.  (Perhaps this will change in his flood-the-zone PR offensive over the next two days.)

This is of course an inherently contradictory message.  If there is a moral imperative to stop the use of chemical weapons, why should any effort to do so be limited in advance? What if the limited strikes do not eliminate the conduct?  Then what?

One thing struck me about Obama’s remarks in St. Petersburg, in the windup of the G20 root canal:

“When there’s a breach this brazen of a norm this important, and the international community is paralyzed and frozen and doesn’t act, then that norm begins to unravel,” Obama said of the longstanding international prohibition against the use of chemical weapons.

“If that norm unravels, then other norms and prohibitions start unraveling, and that makes for a more dangerous world, and that then requires even more difficult choices and more difficult responses in the future,” he said

That, my friends, is the Domino Theory of the Violation of Important International Norms.  You’ll remember the original Domino Theory, applied in Viet Nam: if we didn’t stop Communism in Viet Nam, all the other dominoes in Asia would topple and fall to communism.

I won’t comment on the validity of this theory, either in Southeast Asia in 1968 or in Northwest Asia in 2013.  I will just point out that ridicule of the Domino Theory was the staple of progressive anti-Viet Nam War rhetoric in the late-60s and early-70s.  It is therefore beyond ironic that a died-in-the-wool progressive who was the political child of the Viet Nam War era progressive movement in the United States would invoke this theory to justify a deeply unpopular intervention in Syria.

But the ironies do not end there, of course.  What could be more ironic than John Kerry’s ringing justification of the use of military force in Syria?  Indeed, an endorsement far more ringing than anything Obama has said.  Kerry was a prominent protestor in the 1960s, and usually an opponent of US intervention during his years in the Senate. (Though one cannot say consistent opponent, for who can forget “I was for the war before I was against it”?)  Needless to say, Kerry was not a fan of the Domino Theory, in its 1968 incarnation.

And the ironies are not limited to one political party.  Many on the right who have historically supported military intervention are either opposed to this intervention or are decidedly ambivalent.  Some for good reasons.  Some are chastened by the experience in Iraq.  Some are troubled by Obama’s drawing of a red line on his own actions, meaning that they have no confidence that the operation will achieve anything positive but will result in various collateral harms to the US, and which may result in an escalation led by a president who is not committed to seeing things through.  (Charles Krauthammer is prominent in this group.)   There are those who are deeply concerned about the lack of strategic rationale and muscle to back it up, but who believe that American credibility is on the line and hence put their reservations aside and support intervention. Then there are those who are nakedly and rather disgustingly partisan: if Obama is for it, they must be against it.  Those who regurgitate Putin or Iranian talking points to support their case are particularly disgusting.

All of which goes to show how the potential American intervention in Syria has reversed the political poles.  To paraphrase John Kerry, those who normally would be for it are against it, and those who would normally be against it are for it.  Nothing illustrates this reversal more strikingly that Barack Obama’s invocation of Domino Theory as his primary justification for the employment of American arms against the Assad regime in Syria.

I’ve written about Germany’s bizarre Energiewende program before.  It massively subsidizes renewables, and pays for the subsidy with a huge premium slapped onto electricity rates, although some big industrial consumers are immune.  The most wasteful part of the program is the huge subsidies for wind, especially offshore wind.  Now Der Spiegel chimes in with a very, very long article savaging the program. (Complete with a bonus snark at greens posing as “saviors of the world.”)

I agree with most of what’s in the article, though I am hardly a big fan of the Swedish approach that Der Spiegel touts as an alternative: it’s just a less bad, and less expensive, than the German way.  If anthropogenic CO2 is a problem, slap a tax on it and let people figure out how to respond efficiently, rather than subsidizing specific technologies and suppliers.  The regressivity of the scheme is also not the worst thing about it, though it’s hardly a feature.  What is interesting is that the allegedly “social” Germans, who carp about American inequality, would implement such a regressive scheme.

One other thing to note, which might lead me to discount the brutal nature of the article if I didn’t know about Energiewende from other sources.  The article is clearly aimed at Merkel and her government: the program is laid entirely at her feet.  Thus, the article is a part of Der Spiegel’s unremitting attacks on Frau Merkel in the lead up to the election that will be held in a couple of weeks.  The most prominent part of those attacks is, of course, the Snowden coverage.

Ironically, the Der Spiegel site appears to be down now.  No doubt part of a US operation to silence the brave Laura.

But maybe it’s German intelligence.  For today Reuters reveals that-brace yourselves-Germany has an intelligence service.  And an intelligence service that collects electronic intelligence on foreigners no less!  Who knew? It even has at least one “naval reconnaissance vessel” that plies international waters scooping up information from the international ether.  (“Reconnaissance”, of course, being a fancy name for “spy”.)

Syrian brigade and division commanders had been asking the Presidential Palace to allow them to use chemical weapons for the last four-and-a-half months, according to radio messages intercepted by German spies, but permission had always been denied, the paper said.

This could mean Assad may not have personally approved the attack close to Damascus on August 21 in which more than 1,400 are estimated to have been killed, intelligence officers suggested.

Germany’s foreign intelligence agency (BND) could not be reached for comment.

Bild said the radio traffic was intercepted by a German naval reconnaissance vessel, the Oker, sailing close to the Syrian coast.

The BND couldn’t be reached? What, are they secretive or something?

And they also intercept phone calls!  I think I’m going to faint:

Members of the foreign affairs committee present at the briefing told Reuters Schindler had said that although the BND did not have absolute proof Assad’s government was responsible, it had much evidence to suggest it was.

This included a phone call German spies intercepted between a Hezbollah official and the Iranian Embassy in Damascus in which the official said Assad had ordered the attack.

But I’m sure Germany would never intercept anything on the Internet, so Laura and Jake can continue to take refuge in Berlin in good conscience.  I’m also sure that it knows exactly who the bad guys are so it only intercepts their communications, and only when they’re plotting bad things.  No NSA needle in a haystack programs for Fritz.

In further irony, Der Spiegel originally posted a story about the interception of the phone call . . . in a brief web posting without a byline.  (I’d link that, but like I say, Der Spiegel’s website is down now.)

Update: The Der Spiegel site is back up now.

This article in the Wall Street Journal regarding the administration’s befuddlement at what Putin wants is cringeworthy:

The U.S. blasted Russia at the U.N. on Thursday, blaming it for preventing collective military action on Syria in response to Aug. 21 chemical strikes and endangering the international security system built to prevent such attacks. “Russia continues to hold the council hostage and shirk its responsibility,” said U.N. Ambassador Samantha Power.

The tension between the two powers has been aggravated by a series of miscalculations and misunderstandings. U.S. officials acknowledge they have struggled to understand Mr. Putin, a former KGB agent. Russia, for its part, bristles at what it sees as the U.S. tendency to use humanitarian abuses as cover to remove regimes it doesn’t like, such as in Libya.
. . . .

U.S. officials haven’t found it easy to get a handle on Mr. Putin or his motivations. While anti-Americanism has been a key theme for Mr. Putin, the U.S. expected he would dial back the rhetoric once he had cemented control after the 2012 elections, a prediction that proved unfounded.

A senior White House official said the U.S. wants to convince the Russian leadership it is in their interest to part ways with the Assad regime. “What we’ve said to the Russians is the United States isn’t interested in removing Syria from Russian influence or acquiring Syria as a client state of the United States,” the official said.

Struggled to understand? Isn’t easy to get a handle on? Thought anti-Americanism was just election rhetoric? (Is that projection?)

It’s really pretty straightforward, and maybe that’s the problem: perhaps the administration thinks there has to be something beneath Putin’s public statements and public persona.  He can’t be that simplistic and crude, can he?  But if you are looking for a good predictive model, go with the obvious and take Putin at face value.

First, the anti-Americanism/anti-Westernism is genuine and has deep roots in the Soviet and Russian past.  It is bolstered by suspicions that the US and the West (including especially the little island that nobody pays attention to anymore) have a global agenda, and that central to that agenda is to humiliate Russia and exploit it for its resources. (Does the administration believe its own narrative that Obama’s very election was transformative and should allay international fears about American motives?)

Second, Putin, and Russian policymakers generally, view things in zero sum terms: if the Americans gain, Russia must lose, and vice versa.

Third, put these two things together:  Putin and the rest of the elite figures that if the Americans want something (e.g., to overthrow the Syrian regime) it must be antithetical to Russian interests and is part of a broader scheme to dominate Russia.

Fourth, like most autocratic rulers in states with highly personalized rule and weak institutions, Putin is obsessed with legitimacy and dreads the prospect of being overthrown.  This too has deep roots, and the Orange Revolution in Ukraine, the 2012 protest movement, the Arab Spring, and Libya have only stoked those fears.  Strict non-interference in internal affairs of states, no matter how brutal they are, is the highest principle of international relations to Putin and the Russians generally: he said exactly that in his remarks at the G20.  To them, internationalism and intervention are an anathema.

In other words, Putin’s obduracy isn’t hard to understand: it’s overdetermined.  What’s hard to understand is why the administration found this hard to understand.  It’s there in plain sight.

Based on its inability to figure out Putin, the administration decided not to play Let’s Make a Deal.  Wise decision, because not even Monty Hall could get Putin to barter.  Though it took way to long to reach that basic insight.

Add to all this that Obama has played his hand very shakily in the Middle East, and has only come to even considering confronting Assad after a lot of throat clearing and Hamlet-like indecision, and Putin and Lavrov conclude that backing Assad to the hilt is in Russian interests, and that they have a good chance of prevailing in a standoff.

Believe it or not, this confession of being mystified by Putin may not be the most embarrassing admission of the past few days. Samantha Power told a liberal interest group that the administration believed that it could use evidence of the chemical attack to convince Iran to abandon Assad:

“Or, if not, at a minimum, we thought perhaps a shared evidentiary base could convince Russia or Iran — itself a victim of Saddam Hussein’s monstrous chemical weapons attacks in 1987-1988 — to cast loose a regime that was gassing it’s people,” she said.

I checked.  That story didn’t originate in The Onion.

Words fail.

I am reading Richard Franks’ magisterial history of the Guadalcanal Campaign.  One recurring theme is the vital role played by cryptology.  Our military effectiveness was substantially greater when we could read the Japanese JN25 naval codes than when we couldn’t.  When the Japanese changed codes, we were reduced to relying on traffic analysis, a sort of prot0-data mining, analogous to and as about effective as our relying on terrorist chatter to attempt to discern enemy plans.

Even casual WWII students know that Joseph Rochefort’s cryptology unit made victory at Midway possible.  Although it is somewhat conventional to believe that American victory was inevitable after Midway, the story of the Guadalcanal Campaign gives the lie to that belief. It was a close run thing, and the prospect of defeat-including surrender of the Marines on the ‘Canal-hung heavy on every mind in October and November of 1942.  Our intermittent ability to read Japanese codes was quite plausibly the (very narrow) margin of victory.

And of course the victory over the U-boats in the Atlantic, and the war against Germany generally, depended in a crucial way on breaking the Enigma cipher.

Note the name given to the Allied code breaking efforts: Ultra.  Note further the lengths to which the Allies went to protecting the fact that they had broken Enigma: as Churchill said, these efforts were surrounded with a bodyguard of lies.  Distribution of Ultra intelligence was extremely limited.  There were numerous occasions when Eisenhower and other high commanders decided not to respond to German moves that they had divined from Ultra to protect that secret.  People were died-were sacrificed-to protect that secret, because its revelation would have cost the lives of many more.

Moral of the story: cryptology is a vital military activity.  Corollary to the moral: maintaining secrecy about cryptological capacity is a matter of the highest military and national security importance.

Fast forward 70-71 years from Guadalcanal to the present.  Yesterday the New York Times (along with the Guardian and ProPublica) made massive disclosures about NSA efforts to decrypt internet traffic.  This is indisputably an egregious blow to US national security, if one accepts that there is a legitimate purpose for the NSA at all.

Yet the even more egregious Glenn Greenwald and Laura Poitras and Edward Snowden assert that they have released nothing that would jeopardize US national security.

Firstly, that is an obvious lie.

Second, who the hell (and I cleaned that up) delegated to such flagrant and admitted foes of the United States government the authority to judge what is, and what is not, in the vital national security interest?  For them to arrogate to themselves such an awesome responsibility is profoundly undemocratic, and unrepublican.  They are unelected, unappointed, and unaccountable.

And who the hell at the New York Times thinks this is acceptable? (Aside: why is the NYT undertaking actions that are deeply damaging to the Obama administration? Interesting question to ponder: I don’t know the answer.  Relatedly: how are Obama and others in the administration responding to this ideological betrayal?)

There is a capabilities vs. intent issue here. Yes, the decryption capabilities are awesome, and can be used for nefarious purposes that violate the rights of individuals in the US.  (Spare me about spying on foreign governments.)  But these capabilities are also vital to prosecuting wars on terrorists, and state actors that are enemies or potential enemies of the United States.  Pace Guadalcanal: to deny the US military and intelligence services the ability to decrypt is to condemn us to fighting blind.  Information-intelligence-is power, and time and again has proved the difference between victory and defeat.  That we need this capability is manifestly obvious, and it is equally obvious that this capability is profoundly less effective, the more that is known about it.

The issue is how to limit the use of these capabilities to legitimate national security purposes.  Although Greenwald, Poitras, the Guardian, Der Spiegel, and now the New York Times have insinuated that these capabilities are routinely abused, they have produced no credible evidence to support these insinuations.  They elide from “can” to “do”, and do so in purple prose.  Every one of their stories elicits pushback that discredits these broad claims about abuse, but by then the narrative is cemented and the damage is done, and to be Glenn Greenwald et al means never having to say you’re sorry.  Because they aren’t.  This is lawfare, directed against the US, and to them, all is fair.  Greenwald et al are walking, talking, and unfortunately writing and leaking illustrations of the adage that truth is the first casualty in war.

Vital defense capabilities-especially cryptological ones-need to be protected, and sometimes protected with a bodyguard of lies.  These lies save lives-and liberties. This is one of the hard truths that statesmen in the real world must accept and grapple with.  The Guardian of Lies, with its new collaborators, flaunting their moral superiority when revealing vital secrets, are jeopardizing lives and liberties, and are doing so when there is no effective means of holding them to account for the damage they are doing.  Indeed, they wrap themselves in the banner of journalism to claim that they cannot be and should not be held accountable.  This mismatch between consequences and accountability for them is a recipe for disaster.

I’m supposed to be in Geneva right now, but United Airlines decided that what I really wanted to do was to sit around Dulles for 5 hours waiting for them to figure out they couldn’t fix a mechanical problem, and then to sit around a hotel for a day waiting for today’s flight.  Luckily I was able to get the last seat on that plane, so I don’t have to do something like Dulles-Newark-Frankfort-Geneva like some of the other folks on the canceled flight.

So that gives me some time to catch up on reading (and blogging).  And it takes some time to read this loooonnnnggggg Bloomberg encomium to Gary Gensler, which describes his valiant St. George-like battles against the big, bad banking dragons.

The basic theme is that anything the banks don’t like must be good, and anything the banks do like must be bad. The profile confirms that’s Gensler’s view of the world, and Silla Brush and Robert Schmidt pretty much adopt that template.

If only the world were that simple.  Yes, regulatory capture by major financial institutions is a major danger, and happens.  Freddie and Fannie illustrate that in spades, for sure.  So one should always approach the lobbying efforts of large incumbent players, especially large financial institutions, with incredible skepticism.

But at the same time, one has to remember that regulators do stupid things, and adopt regulations that are grossly counterproductive and impose costs far in excess of any conceivable benefits.  Banks potentially subject to such regulations reasonably fight against those, which means that bank opposition to a regulation is not a sufficient statistic to determine whether it is a good or bad policy.

The two regulations that Gensler fought for that are covered extensively in the Bloomberg piece are definitely examples of bad regulations.  The article devotes the largest share of pixels to the battle over the request for quote battle.  You may recall that I named Gensler’s RFQ proposal as the Worst of the Worst of Frankendodd.  The SEF mandate itself is seriously misguided, and mandating how many quotes those wanting to buy or sell a swap must obtain is totally cracked: it is predicated on the paternalistic belief that those who are doing the trading don’t have the ability to make the appropriate trade-offs between information leakage and greater competition to get their business.

The article also details the battle over the de minimis level of trading activity that would determine who has to register as a swap dealer, and thereby incur the additional compliance, collateral, and capital burdens.  Gensler wanted the level set at a piddling $100 million, which would catch pretty much everyone of even modest size in the CFTC’s swap dealer web.

If the purpose of the swap dealer designation is to reduce systemic risk, the level of trading activity is a very poor means of determining which entities should be subject to the higher level of regulation and scrutiny.  And seriously, many firms that must register as swap dealers under the $3 billion level eventually settled upon-against Gensler’s furious opposition-are not systemically risky, either.

Relatedly, the article identifies futurization as an end run around regulation.  As I’ve written before, futurization is a predictable response to regulations that treat economically identical instruments differently.  Swaps are treated more punitively, due to more onerous collateral standards, and because swap trades count towards the de minimis swap dealer trading level but identical futures don’t.  So, duh, people will choose futures over swaps that are otherwise economically equivalent.  If this also allows firms that aren’t systemically important to escape the burdens of swap dealer registration, that’s all for the better.

Moreover, it should be noted that futurization has been over-hyped.  Its main effect has been in energy.  There is no way that the real swap dealers who are systemically important-the JP Morgans, Citis, etc.-are going to be able to avoid being designated as swap dealers by switching their business to futures.  (Don’t interpret that to mean that I believe that swap dealer designation will materially reduce systemic risk.)  A lot of their business is in instruments for which futures are not a viable substitute.  In contrast, in energy (and commodities generally) for the bulk of the business futures and swaps are close substitutes.

Indeed, there is an irony here.  Large quantities of energy swaps were “NYMEX lookalikes” virtually equivalent to futures traded on NYMEX (and then the CME after it acquired NYMEX): firms traded the swaps because under the CFMA, they were subject to a lighter regulatory touch than futures.  So the energy swaps business was largely a product of regulation, and when the regulation changed, the business changed.  The business went to where the regulatory burden was lowest.  Go figure.  Given that part of the premise of Frankendodd is that the futures regulatory structure was the right model that made an appropriate trade off between costs and benefits, the migration to futures should be considered an improvement even by Frankendodd supporters.  It brought the business back to where it should have been all along, according to the advocates of Frankendodd.

The article also writes a lot about extraterritoriality, a subject that makes my eyes glaze over.  The most revealing aspect of this battle is Gensler’s regulatory imperialism, and his stubborn resistance to near universal opposition.  In Gensler’s view-and in the article-everybody was out of step but Gary.

One interesting omission (as if you think anything could be omitted in a 20 page article) is anything related to position limits, another Gensler hobby horse.  Perhaps this is because he eventually prevailed in the Commission, and got it to pass a rule to his liking, so it doesn’t fall into the category of where Gensler’s views lost out to intense political opposition.  But it does fall into the category of a regulation that was opposed vigorously by the banks, who prevailed-at least for now-in getting the regulation stopped.  The difference is that they fought and won that battle in court (though appeals are ongoing).

The article does devote some coverage to the systemic risk of clearinghouses.  Ironically, it indicates that Gensler is aware that CCPs concentrate counterparty risk, which can be problematic.  This is quite contrary to many of his public statements on the issue, including in an FT oped mentioned in the Bloomberg piece, in which Gensler suggests that CCPs are a magic box that makes risk disappear.  So was he misinformed before, and has he come to a better understanding of the way things really work?  Or was he deceptive in his earlier advocacy?

It’s good to know that there is some recognition of this issue, but sadly, the diagnosis of how CCPs contribute to systemic risk is cramped and simplistic.  Yes, the failure of a CCP is a major worry, but as I point out in the paper I will present in Paris next week (assuming UA cooperates!) measures to keep CCPs immune from failure can create systemic risks too.  There is too little systematic thinking about systemic risk.

In politics and journalism, good versus evil narratives are easy and comforting.  The problem with that is that when you are talking about something as complicated as derivatives regulation, the world isn’t that simple.  Rent seeking and capture happen, resulting in industry-friendly regulations that may create or perpetuate systemic risks, or fail to mitigate real problems.  But regulatory stupidity happens too.  This is especially likely when you have a regulatory crusader who believes that he is on the side of good fighting evil, and who approaches complicated markets with a very narrow set of simple beliefs, rigidly held: Transparency good! More transparency better! (Ironic, given that SEFs reduce transparency about the identity of counterparties, even if they increase pre- and post-trade price transparency).  Clearing good!  Banks bad and anti-competitive!

As you know, I believe that the intellectual assumptions underlying Frankendodd are fundamentally flawed.  The adverse consequences of those fundamental bugs are only exacerbated when the individual with the primary responsibility for implementing the law believes the bugs are actually features, and approaches his task with a Jesuitical zeal that treats any opposition as the result of malign and self-interested motivations.  Gensler’s rigidity and self-righteousness, and apparent unwillingness to contemplate the possibility that people were opposing him because, he was, you know, actually wrong, have made the process costlier and more contentious, and made the resulting regulations more costly and less beneficial.  Consequently, Gensler’s defeats on these issues-which are minor in the scheme of things, really-are to be welcomed, not lamented.

And now for something completely different.  No Eddie.  No Vova. Nothing about clearing or derivatives or Obama or Gary Gensler. Instead, this is a concert review-and crowd review.

This evening I spent 80 minutes in full body contact/hand-to-hand combat at the Rancid show at House of Blues in Houston.  By far the wildest, most intense show I’ve ever seen.  I thought the Dropkick Murphys crowds were insane, but they had nothing on the crowd tonight.  I was at the rail the entire show: close enough to read every letter on Lars’s somewhat fading “skunx” forehead tattoo.  I’ll say that I forced my way up there with brute strength, but truth be told it was more like I was propelled there, and then spent the night fending off attacks from three sides.  The advantage of the rail is that you are protected in the front and can use it for leverage 😛  I made some new friends-Niko, who shouted all the lyrics in my ear, and who clung to me for protection, and the burly guy who kept trying to elbow me aside until he finally gave up, put his hand on my head and shook it around, saying “you’re a bad motherfucker. I like that.” Mom will be so proud.

Because of the way things were, there was no way I could take pics, except a couple during song intros which I’ll post later.

As for the show.  Rancid killed it.  I’ve only seen them once before, at a bigger venue, and in an abbreviated (50 minute) set where they were the lead in act to Rise Against (which is a lame band, IMO-Jeez I can’t stand them).  Here they were the headline act, and played 80 minutes with just a 5 minute break.  They were excellent.  High energy, very tight.  They played songs from every one of their albums, including several from my favorite, Rancid 2000.  Black Derby Jacket was my favorite.  Matt Freeman just killed it on the bass.  That guy is unbelievable.  Best bass player I’ve ever heard or seen.  His fingers just fly over the frets.  It’s not just rhythm, it’s melody, and melody that you feel in your solar plexus.  No one else even comes close.

One interesting observation.  Lars was wearing Oxfords.  Very funny.  Another observation.  One kid went over the rail and security grabbed him, and put him in a headlock.  Stupidly, he put up a fight against the burly security guys (probably because he was obviously very wasted) .  As he was being wrestled away, Lars bent down, put his hand on the kid’s hand and told him to be cool and settle down.

Um, when Lars Frederiksen tells you to chill, you know you’re out of control.

Tim Armstrong did double duty, performing with Tim Timebomb and Friends as the second act.  Very entertaining ska and reggae influenced set.  That alone would have been worth the price of admission.

I hope Rancid doesn’t wait 5 years to return to Houston.  Hell, I’ll be old by then.

The Putin interviews are a fascinating mixture of trenchant observations and complete bullshit.  As an example of the latter, consider this:

Putin said U.S. authorities could have grounded the plane that Snowden boarded to come to Moscow from China’s Hong Kong just as they did with the plane of Bolivian leader Evo Morales after they suspected that Snowden was on board.

Seriously? Just where exactly?  Over China? Mongolia? Russia?  Does the US have the magic grounding wave that can teleport airborne aircraft to friendly countries who bend to our will?

But he says this stuff with a straight face.

Just like he says stuff about chemical weapons in Syria.  Which too many on certain precincts of what is often referred to as “the right” (as if Ron Paul and John McCain inhabit the same universe) gobble down like melting ice cream, many for the simple (if perverse reason) that anyone who opposes Obama must be right (as in correct).

Putin’s interviews are part of an information operation, intended primarily to influence opinion-especially among the gullible and weak-minded-in the West.  The numerous outrageous statements, mainly regarding Snowden and Syria, are ample evidence of that.

Don’t let partisanship drive you into Putin’s grasp.  His values and beliefs, such as they are, are antithetical to yours.  You’ll  regret it when you wake up with him in the morning.

Putin has been ubiquitous the last couple of days, with the impending G20 meeting which he is hosting in St. Petersburg.  He is eating up the attention, giving interviews laden with provocative, and sometimes nutty, statements.  For instance, responding to one question regarding what Russia will do in the event of a US-led (OK, US) attack on Syria by saying “do you work in the media or for the CIA?” (I’m surprised he believes these are somehow exclusive categories!)

One remark stood out.  For a while I’ve been saying that it was a huge mistake to revoke Snowden’s passport, thereby marooning him in Russia.  Anywhere would be better than Russia, for two big reasons.  First, we would be more likely to be able to get our hands on him just about anywhere than in Russia.  Second, he-and whatever he carried with him-is a potential intelligence bonanza for Russia.

To which Putin agrees in part, and lies about the other part:

Mr. Putin, who was in the KGB during the Soviet Union, criticized that decision as poor tradecraft as it stranded Mr. Snowden in Russia where U.S. agents would be unable to get to him.

“Representatives of the American special services–and I hope they won’t be angry–but they could have been more professional, and the diplomats as well. After they found out that he was flying to us, and that he was flying as a transit passenger, there was pressure from all sides — from the Americans, from the Europeans — instead of just letting him go to a country where they could operate easily,” he said.

Absolutely.

As for the lying part, Putin denies Russia obtained anything useful from Snowden (h/t @catfitz). Indeed, we appear to have dueling disinformation operations going on here, with Russia claiming it got nothing from Snowden because the NSA changed everything (as if) and the NSA claiming it doesn’t know even close to fully what Snowden took (which may be true, but is likely exaggerated and may be part of a plan to sow fear, uncertainty, and doubt in the minds of Snowden, Greenwald, Poitras, Appelbaum, Assange, et al).

As to Putin’s chiding US “tradecraft”-classic case of rubbing our noses in it. which he relishes.  He’s right, and he’s basically saying: you guys screwed up big time, and made sure that this tasty fly had to land on my web and couldn’t escape it.  I’ll feast on him at leisure, denying all the while I’m getting anything out of the meal.  Just to keep you all guessing.

This interpretation is predicated on the view that Putin is being honest regarding his surprise at Snowden turning up in Moscow.  Skepticism is warranted, but definitive proof that would make him a liar is lacking, as is information regarding whether Snowden was a Russian asset (witting or unwitting) even before going to Hong Kong.  But even if Putin would have had no intention of letting Snowden board a flight to Havana even if he did have a valid passport, we made Putin’s job a lot easier for him by giving him the perfect excuse to detain Snowden indefinitely.  This is why I said that even after the initial mistake-which I will admit is somewhat understandable, given the fluidity of the situation-we should have called Putin’s bluff and restored Snowden’s passport.

But we didn’t.  And now Snowden is permanently ensnared in Putin’s web, and Putin gets the added bonus of being able to give the Nelson laugh to the US.  Well played. (That statement is ironic when applied to one party, literal when applied to the other.)