Streetwise Professor

I am experiencing considerable–what’s that word? oh yes!, schadenfreude–at the German election results. Although Angela Merkel’s party received the largest share of the vote, the results were a shocking setback for her. The CDU/CSU won the largest share of the vote, but this share was the lowest since WWII and represented a double-digit drop from the 2013 vote. Further, the CSU’s leader is mooting a split from the CDU. Merkel is almost certain to have to craft a coalition including three other parties–including the Greens–and this will be time consuming and constrain her power even once the coalition is in place. But the biggest setback at all was due to the stunning surge of Alternative for Deutschland (AfD), the nationalist (and typically referred to as “far right”) party, which not only surpassed the 5 percent hurdle for parliamentary representation, but garnered 13 percent of the vote.

On Friday, Merkel was lionized. Now she is a greatly diminished figure. So much for the New Leader of the Western World, the Tamer of Trump, the Vanquisher of Populism.

And it’s not like this should be surprising. This is at least the third major replay of the movie–first Brexit, then Trump, now Merkel/AfD. Like the Remainers and the Democrats, Merkel condescended to the broad strain of popular (and populist) unease at her policies, most notably her immigration policy. Indeed, she and the rest of “elite” German (and indeed, Western) opinion could barely contain their disdain, and indeed revulsion, at any of the hoi polloi who dared question the wisdom of admitting a million plus immigrants from Muslim countries, or who expressed so much as concern at the criminality (especially sex crimes) and terrorism risk associated with the immigration wave: such people were the German version of The Deplorables. To the contrary: Merkel et al used this criticism as an opportunity to engage in a spasm of virtue signalling, not to say moralistic onanism. Those who agreed with them were morally elevated: those who disagreed, or even questioned, were knuckle dragging crypto–or not so crypto–fascists.

And as in the UK and the US, the knuckle draggers had the vote–and used it to take their revenge.

It is hard to discern from biased media coverage just what AfD really is. Perhaps David Goldman (AKA Spengler) is right that it is “an America-hating ethnic nationalist monster crawling with Nazi nostalgia.” I seriously doubt, however, that most of those who voted for it fit that description. But in some ways the party’s alleged ugliness, and the scorn and derision heaped on it by Merkel and the establishment, were a feature and not a bug to those looking to express opposition to the establishment’s policies. In a parliamentary system, voting for a fringe party is a way of sending a message, and what better way to send a message to Angela et al than by voting for a party that makes them recoil in horror because of its often extreme views? The only way to snap them out of their virtue signaling and self-pleasuring reveries is a 2×4 upside the head: voting for an AfD that elite opinion considered beyond the pale did just that. For that purpose, the more reprehensible the party, the better.

Such a smack may be necessary, but it may not prove sufficient. For what the post-Brexit and post-Trump reactions of the elite demonstrate is that they are incapable of reconsideration or self-examination or self-doubt. They are so convinced of their own superiority (especially moral superiority) that they tend to double down on the derision and condescension. Thus, electoral shocks tend to be merely the first battle in a protracted and increasingly hysterical war between the soi disant elite and those they believe it is their right to rule. We see that in the US today, with no respites even on the Sabbath, as the current frenzy over the NFL demonstrates.

My schadenfreude is only increased by the fact that Germany lapped France  as the most annoying country in Europe some time ago. German annoyingness was the product of two currents, one of which is longstanding, the other more recent. The longstanding current is that of various German national neuroses, most notably the need to cope with the awesome responsibility for the greatest catastrophes of the 20th century, the two World Wars, and in particular the crimes committed in the second of these. To prove that they are different now, the Germans have long held themselves out as morally superior judges of everyone else. Notable examples include virulent German criticism of Israel (especially useful because if Israelis are no better than Nazis, the moral valence of the Holocaust is diminished) and of the US in Vietnam, and latterly Iraq. German criticism of lazy southern Europeans is a somewhat less egregious, but nonetheless notable, example of this tendency. Virtue signaling is a natural pastime.

The second current is Germany’s economic ascendance, especially in the context of the EU. Germany emerged from the Financial Crisis as the dominant economy in Europe, by far. Its main rival within the EU, France, fared not nearly so well, and this combined with British exit has left Germany preeminent in the EU. And they have not been shy to exercise this dominance–nor should they have been expected to, given the aforementioned belief in their moral superiority. Germany–with Merkel in the lead–has been the biggest force pushing for MOAR Europe, because in their current circumstances, More Europe means More German Power.

Of particular relevance in light of the election results, one of the most appalling manifestations of this has been Germany’s insistence on imposing its open borders policy on other countries, especially in eastern Europe (notably Poland). For its part, the Polish government knows how to hit Germany where it hurts (in its swollen sense of superiority) by threatening to demand trillions in reparations for WWII. (The issue of WWII illustrates Churchill’s aphorism about the Germans being either “at your throat or at your feet” very well. It is interesting to note how the Germans have been at times groveling to the Russians in recognizing their depredations in Russia during WWII, but have not behaved similarly to Poland, even though German crimes there were probably greater, and Polish responsibility for the war far less than Russia’s.)

German energy policy is another example. The Germans have been intent on forcing Nordstream I and now II on Europe because it benefits Germany, even though it leaves eastern Europe in the Russian energy thrall. Related to this is the schizophrenic German policy on Russia. On the one hand it has insisted on maintaining sanctions on Russia for Ukraine, but on the other hand it freaked out when the US tightened sanctions on Russia because this undermined German attempts to secure gas supplies from the Russians.  The Germans insist on sending a signal–as long as they don’t have to pay a price.

So even if–or especially if–AfD is as bad as Spengler says, its shockingly strong performance yesterday will have major political effects outside of the borders of Germany. It has proven that Merkel has feet of clay. It will lead to a protracted negotiation over a coalition that in the end will leave Merkel diminished and constrained. It will probably spark a vicious political battle in Germany over immigration and Europe that will derail Germany’s attempt at world domination by other means.

And as much as the western establishments will wail, these are good things. In fact, the wailing is probably the best indication of that which one could imagine.

The Mueller “investigation” of “collusion with Russia” is one part abuse, one part absurdity. There is no third part.

One aspect of the abuse is well summarized by my friend Tom Kirkendall and others quoted in this article:

“Here is a United States citizen where the FBI is coming in, picking his lock, and raiding his home in the early morning, over what? It doesn’t matter which side you’re on. It’s just crazy. We’re not the Soviet Union. It’s appalling,” said Kirkendall, who has worked on cases involving one of the special counsel’s key investigators, Andrew Weissmann.

The Battle of Chickamauga took place on 19-20 September, 1863, making today (and yesterday) the 154th anniversary of the battle. And a brutal battle it was. It ranks only behind Gettysburg in terms of total casualties–about 35 thousand as compared to 46 thousand for the three day Pennsylvania battle. However, casualties at Chickamauga almost equal as a percentage of forces engaged: 28 percent of combatants fell in each. It was one of the few battles in which the Confederates suffered a substantially larger number of casualties than their Federal foes:  Confederate losses at Chickamauga were about 2,300 greater than Union casualties (as compared to a disparity of only 180 at Gettysburg). Indeed, since the Confederates lost relatively few prisoners at Chickamauga, whereas the Federals lost many, the disparity in killed and wounded was even greater.  The total casualties, and the percentage losses, at Chickamauga far exceed those at Antietam.

Chickamauga was a meeting engagement fought in dense woods. These factors made it an extremely chaotic struggle. Divisions and even brigades were thrown from the march into advances through the woods, with no idea of what was in front of them and usually without proper support on the flanks. There were multiple instances in which one force moved undetected through the underbrush to fall on an unsuspecting enemy’s flank, routing him, only to be surprised, flanked, and routed in turn. Some brigades were routed multiple times. Unlike Gettysburg, where artillery could be used to great effect in open fields and from high ground, the effectiveness of artillery at Chickamauga was limited by the sharply limited visibility in the dense forests, and several batteries were surprised and captured because their attackers were on them before the gunners were aware of their presence. The limited effectiveness of artillery also meant that the vast bulk of the casualties were inflicted by musketry, usually delivered at very short range.

Given the confusing nature of the battle, after action reports and battle histories are confusing and contradictory. The battle spawned numerous controversies, most notably between Union commander William S. Rosecrans and division commander Thomas J. Wood. Rosecrans’ order to Wood to move his division, based on faulty information, opened a gap in the Union line which Longstreet’s massive force poured through and split the Union army in two. (Although I should note that given the thinness of the Federal line, and the mass and depth of Longstreet’s column, I think it is highly likely that his attack would have pulverized the Union line even had Wood’s division remained in place. Longstreet rolled over Davis’ division to Wood’s right with hardly a hesitation.)

One of my first Civil War memories is my grandfather explaining the Rosecrans-Wood controversy. I was 9, and we were sitting at the dinner table at a lodge in Lake Kabetogema, Minnesota, where my grandfather went fishing every year. He had Tiparrilo boxes, each one representing a Union division: Reynolds’ (in which my GGGF fought), Brannan’s, and Wood’s. He showed that the existence of Brannan’s division between Wood’s and Reynolds’ made it impossible for Wood to obey literally Rosecrans’ order for “Wood to close up on Reynolds, and support him.” So Wood (represented by a moving Tiparillo box) had to fall back, march behind Brannan’s box, and the move forward behind Reynolds’.

My most tangible piece of family Civil War history is from Chickamauga. My grandmother’s grandfather, George Immel, was a soldier in the 92nd Ohio Infantry, and during the battle was an aide to his brigade commander John Turchin (nee Ivan Turchininov). Immel had been born in Germany, which his parents fled in the aftermath of the 1848 revolution. His mother was distressed that he enlisted: she lamented that she left Germany so that her son would not be conscripted, and here he goes and volunteers to fight in a new country. Turchin’s brigade turned in one of the best performances of the battle, capped with a mad charge across McDonald Field at the end of the fight to open up an escape route for the defeated Yankees. One of George’s memories that he passed down was his recollection of Chickamauga. What he remembered most was the sound. Continuous musketry from morning until well after dark on both days. In his three years of service, he never experienced the like in volume or duration. (His other Civil War memory that was passed down is from the March to the Sea. He loaded up on loot from South Carolina plantations, but eventually tired of his load, and dumped it all.)

The best history of the battle is David Powell’s multi-volume A Mad, Irregular Battle. I agree with most of the interpretations of the often conflicting evidence, except in the case of the fighting around Viniard Farm, which I have studied intensively over the years (and which was chaotic even by Chickamauga standards), and Horseshoe Ridge/Snodgrass Hill.  My favorite Chickamauga book is Archibald Gracie IV’s The Truth About Chickamauga, which he wrote primarily to give proper credit to his father, a Confederate brigade commander whose unit (according to the book) launched the attack that drove the Federals from their last-stand line on “Horseshoe Ridge.” Gracie convincingly argues that the markers and monuments in that area are wrong and misplaced, and were positioned to exaggerate the feats of the brigade of one of the Park commissioners: most historians have perpetuated the official version and slighted Gracie’s, but I think this is mistaken. Gracie spent years corresponding with veterans, and assembled a powerful case. It can be dry reading at times, but it is true original scholarship.

(Archibald Gracie IV was on the Titanic, but survived. He wrote the an book about the tragedy, but his health was devastated by hypothermia experienced during the sinking, and he died eight months later. His father was killed in the trenches at Petersburg in December, 1864, less than 15 months after his moment of glory in the Georgia woods.)

There is a current connection here. General Gracie’s grandfather was a New York merchant who built Gracie Mansion–now the home of New York mayor Bill de Blasio. The Gracie family had a cotton export business in Alabama, which is what brought Archibald Gracie III to Mobile before the war. Ironically, the hard left mayor is on a mission to cleanse New York of any traces of Confederate heritage. Well, in a way he lives in one, though perhaps I shouldn’t give such a hysterical iconoclast any ideas!

Chickamauga was a devastating defeat for the Union Army of the Cumberland. The defeat stung, so when they achieved stunning victories later in the war, first in the storming of Missionary Ridge, later in smashing the Confederate Army of Tennessee at Franklin, they exulted by shouting “Remember Chickamauga!” as a battle cry.

And it should be remembered. Like many western battles, Chickamauga is shaded by more well-know eastern fights. (Stones River/Murfreesboro is even more obscure, even though the percentage losses there were over 31 percent, well in excess of any major battle in the war.) It deserves more attention, because in the Georgia pines tens of thousands of Americans North and South, and of all ranks, displayed in abundance the virtues and vices that were commonplace in America’s most important historical episode. Courage there was in abundance. There was inspired leadership, and command ineptitude. Like the war overall, the battle gave birth to bitter controversies that outlived the principals. It was arguably the greatest tactical victory in the war (rivaled only by Nashville), but was strategically barren. It’s worth knowing more about, and I hope this short post is intriguing enough to entice you into doing so.

I conjectured that Qatar’s sale of half of its Rosneft stake reflected at least in part the dramatic change in the emirate’s circumstances between December (when it initially bought in) and September (when it sold off), specifically the cold war with Saudi Arabia, the UAE, and the rest of the Gulf Cooperation Council (oxymoron alert!) that broke out over the summer. This conflict has put substantial financial strains on Qatar, which would suggest it bailed on Rosneft (at what price???) to raise cash and reduce risk.

This story from Bloomberg is consistent with that: private depositors have been fleeing Qatar’s banks, and the state is stepping in, putting about $11 billion into these banks. Liquidating investments like the Rosneft stake is one way of raising that cash, and reducing debt. (This raises the possibility that if the crisis drags on, Qatar may sell the rest of its 4.7 percent share of Rosneft.) That is, Qatar could have been a very motivated seller–war clouds can do that to a country. And if it was a motivated seller, CEFC probably obtained its position at a good price, perhaps even a fire sale price. That’s not evident from the reported terms of the transaction, which means that there are side deals.

One other thing about the Qatar-GCC standoff. There are reports that Trump kept the cold war from going hot:

Saudi Arabia and the United Arab Emirates considered military action in the early stages of their ongoing dispute with Qatar before Donald Trump called leaders of both countries and warned them to back off, according to two people familiar with the U.S. president’s discussions.

The Saudis and U.A.E. were looking at ways to remove the Qatari regime, which they accused of sponsoring terrorism and cozying up to Iran, according to the people, who asked not to be identified because the discussions were confidential. Trump told Saudi and U.A.E. leaders that any military action would trigger a crisis across the Middle East that would only benefit the Iranians, one of the people said.

Donald Trump, peacemaker. Not that he’ll get credit. Note that early on, Trump’s pro-Saudi message clashed with Tillerson’s more neutral approach. This story suggests that Trump’s private and public positions may have been different, and that he was really on board with Tillerson all along. Alternatively, Trump initially tweeted his gut reaction, but Tillerson and others quickly persuaded him to moderate his course. Either way, the outcome conflicts with the prevailing narrative about Trump.

Russia’s private banks  are in pretty dire shape. The biggest one, Otkritie, was bailed out. Others have been designated as systemically important (i.e., TBTF), reflecting their size and their marginal financial condition. Further, the FT reports that some private banks are undergoing a run of sorts. Interestingly, the run is being led by state corporations, which are withdrawing billions (of dollars, not rubles)–one unidentified state corporation is leading the way. Such withdrawals sounded the death knell of Otkrite, and are jeopardizing other big private lenders.

In the conventional view of Russia as a centrally directed “vertical of power,” such potentially destabilizing moves by state entities would not take place without Putin’s acquiescence. Indeed, in this view, such moves would most likely occur at his direction.

If that is the case here, one is led to wonder about the motivation given (a) the potential for sparking a banking crisis in Russia, and (b) the cost to the central bank/government of dealing with such a banking crisis: the central bank lent Otkrite about $12 billion over the summer. Certainly, the large state banks (VTB, Sberbank, Gazprombank) would appreciate a reduction in competition for funding, although they are evidently not the only immediate beneficiaries: private bank Promsvyazbank has experienced a surge in deposits from state companies. The inflow to Promsvyazbank followed its designation as a systemically important bank, which may have convinced the state firms that their deposits are effectively backed by the RCB.

So under the power vertical view, this could be perceived as a boon to state banks who may see more deposits from state firms and less competition for funding. It could also reflect bleak choices facing the government and central bank: the weakness of the private banks means that they need to shrink their balance sheets, and the withdrawals by state firms are a way of forcing that outcome. But whence the funds to pay off the fleeing depositors? Asset sales?: fire sales could cause contagion that damages other banks, including the state banks. The central bank?: that would mean that this could be a first step to bailouts and eventual liquidation (or dramatic shrinkage) of the private banking sector.

The alternative explanation is that the state firms are acting on their own hook, and in their own interest, without direction from the top, or without receiving permission despite the potentially systemically risky implications of these moves. In some ways, that would be even more intriguing, as it would suggest a serious degradation of the degree of central control in Russia–or that such control has been overstated all along.

A shaky banking sector will test the RCB, and the government. How it plays out–a relatively orderly wind-down of wobbly lenders directed from the center, or an uncoordinated sauve qui peut by big depositors–will say a lot about the state of the Russian economy, the Russian financial system, and crucially, the true nature of the Putin system. Is the Kremlin orchestrating this behind the scenes, or is it taking place without Putin’s directing hand? Inquiring minds want to know!

A Reuters piece today provides even more evidence of the farcical nature of the Rosneft “privatization.” Specifically, it reports that (a) the CEFC deal was heavily leveraged, and (b) more importantly, a good part of the leverage was from a Russian bank (VTB). The remainder of the debt was provided by the Chinese Development Bank.

Remember Putin’s original injunction to Sechin: the deal should be a real privatization, without participation by Russian banks, and western investors must participate. Remember the triumphant statements of Putin and Sechin at the time of the original deal, and when he awarded Medals of Friendship to two of the big players in the deal: to hear them tell it, the participation of a major western bank, Intensa, was a validation of the legitimacy of the transaction, and an endorsement of Rosneft and Russia as a place to invest.

Of course, those statements were lies when made: Russian banks guaranteed at least Glencore’s debt, so even if they did not provide any funding, they did bear the risk, which is what really matters. Further, the unaccounted for difference between the alleged purchase price and the funds provided by Intesa, Glencore, and QIA also makes it quite possible that Russian banks even chipped in some funding. (VTB was likely one. Gazprombank is another.) And don’t forget that VTB provided bridge financing until Russia cadged Intesa into the deal.

But now the falsity of the original narrative, and original plan, is laid bare. There is not a western entity in sight, unless you count Glencore and its piddling .5 percent stake–which is more than compensated for by generous off take deals and a seat on the Rosneft board. The deal was clearly structured–almost to the kopek–to make Intesa whole, and allow it to flee snowy Russia for sunnier Mediterranean climes (with its CEO Carlo Messina getting a cool Medal of Friendship as a pre-parting gift). A major Russian bank ends up exposed to Rosneft by stepping into Intesa’s place, along with a Chinese state bank. Not a private western investor or lender in sight.

So yes. The Rosneft deal indeed speaks volumes about the company, and about Russia as a place to invest. And what it says is exactly the opposite of the message that Putin trumpeted in December 2016, and again in April (when the friendship medals were awarded).

Think about it. Russia cannot entice private investors to buy into an oil company with access to some of the greatest oil properties in the world. How damning is that?

Hillary Clinton expects you to spend $30* to read the notes from her post-election therapy sessions–all 512 pages(!) of them. She is also on tour, broadcasting hour after hour of therapy session with assorted media shrinks.

The therapy has obviously been an utter failure, because Hillary remains stubbornly stuck in denial and anger, and incapable of moving anywhere close to acceptance. The therapy has also failed to resolve her rampant internal contradictions, wherein she is simultaneously the smartest, most powerful woman in the world and the serial victim of offenses committed by all humans great and small, simultaneously the ubermensch and untermensch.

In What Happened, Hillary purports to explain her (to her anyway) inexplicable loss to the worst man in the world, bar none, Donald Trump. What Didn’t Happen would have been a much shorter book, because in her tome (and in her interviews) she blames everyone and everything for her loss. Check that: she blames everyone and everything except Hillary Clinton, save for some pro forma acknowledgements of responsibility, before she returns to her regularly scheduled blamecast. There are more scapegoats in this book than in all of Greece.

James Comey–whom, as you may know, I loathe–is the target of considerable ire. Lest you think that this is one thing Hillary and I can agree with, it ain’t. One of the reasons I dislike Comey is that there is ample evidence that he gave numerous passes to Hillary: most recently, it was revealed that he had basically decided to clear her before interviewing her or any of her flunkies, and basically said mother-may-I when requesting (not demanding) documents. But Hillary blames Comey’s late-in-the-day hedge on some of those passes for her loss: he never should have terminated the investigation that he felt compelled to resume later on.

The most tedious refrain in Hillary’s pity party is that she was the victim of misogyny. Please. For one thing, if misogyny is so rife in affecting American votes, why are there so many women in elective office in the US? It was just one woman in particular whom many Americans found off-putting.

For another, Hillary and her ilk believe that misogyny is rife on the right–but those people weren’t going to vote for her in any event. Hillary therefore must impute misogyny to middle-of-the-road swing voters in places like Wisconsin and Michigan and Pennsylvania who voted Democratic in the past but who voted for Trump this time around. (And who voted for women for high political offices–note that Debbie Stabenow has received a majority of the votes in Senate contests in Michigan, and that Jennifer Granholm was elected governor years ago. Tammy Baldwin, a woman–indeed, a lesbian–was elected to the Senate from Wisconsin in 2013.) Indeed, since there was a swing to Trump of female voters who had previously voted Democratic in these states, she would have to argue that moderate and Democratic-leaning women acted out of misogyny. Evidence for these assertions would be nice. I’ve seen none, and she presents none. Chalk this up as another example of Hillary’s penchant for insulting those she should flatter. In brief, Hillary believes that if you voted against her you are a misogynist, and if you are a woman who voted against her (or did not vote), you are a traitor to your ovaries to boot. That’s just pathetic.

The issue of states leads to one of her most appalling rants–the attack on the Electoral College. Well, those were the rules going in, lady, and had been in place for 229 years and 57 presidential elections prior to 2016. You didn’t play the electoral map properly. Trump did. You lose.

Further, if she had been an even remotely decent candidate, the Electoral College wouldn’t have mattered a whit. The loss in the Electoral College demonstrates some of her fundamental failings as a candidate, most notably an overweening belief in her own inevitability, which led her to run a lazy, uninspired, unstrategic and frankly stupid campaign.

I will also note in passing that precisely because of the Electoral College, her husband cruised to victory twice despite receiving a minority of the popular vote, and indeed a smaller fraction of that vote than the reviled Trump. Besides demonstrating one of the virtues of the Electoral College system (which can result in an unchallenged outcome even in a sharply divided electorate), this is also deliciously ironic, and karmic. But irony is not one of Hillary’s strong suits. (I honestly can’t say what Hillary’s strong suits are, but appreciation for irony and karma are definitely not among them.)

The obsessive self-focus of this book also apparently blinds her to all of the slings and arrows that Trump endured during the campaign (many of which were self-inflicted). By any objective measure, Trump experienced far more negative treatment than Hillary. You can argue that it was warranted, but you really can’t argue that fact. So why were negative coverage and damaging revelations fatal to Hillary, but not to Trump, even though (in her mind at least) those directed at her were false and those directed at Trump were true? After all, this was a contest between two individuals, meaning that the relative degree of negativity should matter.  Furthermore, it is gravely insulting to the American people to insinuate, as Hillary does, that they are utterly incapable of distinguishing fair criticism from false. In Hillary’s mind, she is wonderful, and every criticism is unfair, but Americans are too stupid to see through fake news concocted in Macedonia to perceive her incomparable wonderfulness.

The book and the interviews primarily show that Hillary is still Hillary, and she will always be Hillary. This should not be surprising. Hillary is a narcissist, and narcissists never change. She believes that she is so wonderful that any criticism is a grave injustice, and that Trump is so horrible that no criticism is too strong: the fact that she was criticized at all is to her an outrage. In her mind, she should have been elected by unanimous affirmation. She should move to North Korea.

Further, the book and interviews show that Hillary lost despite every objective advantage because of her myriad personal defects. Well before the election I pointed out often that Hillary was a horrible candidate, in large part because she is a horrible person. And wouldn’t you know, she done wrote herself a book to prove that to the world.

*That’s list price. The book is available at $17.99 on Amazon almost immediately after release: indeed, it is available new for $12.99 from some sellers. Draw your own conclusions.

The Rosneft deal involving Qatar and Glencore, announced with such fanfare in December, and commemorated with Putin awarding medals a few months later, has been undone. A Chinese conglomerate, CEFC (not exactly a giant name in the energy business) has agreed to invest $9.1 billion. As a result, Qatar’s stake will fall by more than half to less than five percent. Glencore, which notionally owned half of the nearly 20 percent stake sold in December, but which went to great pains to point out that it was at risk to the tune of a mere $300 million, will retain only .5 percent of Rosneft. The Italian bank which funded the deal, Intesa, will be paid off and exit the transaction. And as Ivan Tkachaev notes in RBC, it also lets the heretofore unknown Russian banks who provided guarantees to Glencore (and perhaps provided some funding too, given the gap between the price of the deal and the contributions by Intesa, QIA, and Glencore) to eliminate their exposure to Rosneft. (Exposure that Rosneft/Sechin/Putin never admitted, and which was allegedly not supposed to exist in this “privatization.”)

Like the original transaction, this one raises many, many questions. And like the original transaction, no doubt few (if any) of these questions will be answered.

The most notable issue is that the transaction clearly was not done at a market price. The amount invested exactly pays off the Intesa loan, plus about $100 million to cover costs and fees: it would be miraculous if a market-price deal exactly paid off existing loans. Thus, the deal was clearly done to save Intesa from its predicament, which was quite dire given that it could not syndicate the loan, and its association with the deal put the banking some sanctions-related binds.

Further, the deal is a boon to Qatar, which is embroiled in a standoff with the Saudis and the rest of the GCC, and which has suffered some economic difficulties as a result. The deal helps its balance sheet, which was under pressure due to the economic conflict. Further, Qatar needs all the friends it can get right now, and being a major investor in Rosneft did not help its relations with the US.

Not only was the deal not at a market price, it is highly likely that the Chinese overpaid. The price was at a 16 percent premium to the average of Rosneft’s stock price over the previous month. It is extremely rare to pay a premium, let alone that big a premium, for a minority passive stake–especially in a country where minority investors are routinely raped. (And Sechin is a multiple offender in this regard.) Indeed, most such deals are done at a discount, not a premium.

Note that the original deal was at a discount, and Putin explicitly acknowledged it was at a 5 percent discount. He claimed it was the “minimum discount,” but it was a discount nonetheless.

The Chinese are not notorious for overpaying. Thus, it is almost certain that there is some side deal that makes the Chinese whole. Or better than whole. The side deals could be in the form of cash payments from Rosneft (or maybe even Qatar), but I consider this the least likely. Instead, CEFC could obtain oil at preferential prices from Rosneft, or provide financial services to the Russian company at above market prices.

Ivan also reminds me that just days before the CEFC purchase, Rosneft and the Chinese company announced a “Strategic Cooperation Agreement and a contract for the supply of Russian crude oil at the 9^th BRICS summit.” Rosneft describes the oil contract thus:

Rosneft and CEFC signed a contract for the supply of Russian crude oil, opening up new opportunities for the strategic partnership. This contract will lead to an increase in direct supplies of crude oil to the strategic Chinese market and ensure a guaranteed cost-efficient export channel for the Company’s crude sales.

Price is not mentioned, but this could provide a mechanism that would allow Rosneft to compensate CEFC for any overpayment on the purchase price of the stake. (Recall that Russia obtained funding for an oil pipeline to China by contracting to deliver oil at discounted prices.)

Again, we will likely never know the details, but there has to be more to this deal than meets the eye.

Here is how the investor describes its business:

In recent years, CEFC China has been accelerating its strategic transformation, focusing on building an international investment bank and an investment group specialized in energy industry and financial services, which has helped boost the Company’s sustained rapid development. The Company has under it two group companies at management level, 7 level-one subsidiaries as investment platforms and an A-share listed company, with a workforce of nearly 30,000.

Underpinned by its European oil and gas terminals, CEFC China secures its position by obtaining upstream oil and gas equities and interests, building professional teams of finance and independent traders and providing financial support with a full range of licenses. The profits in the financial and logistics sectors are driven by its energy operations and financial services. In addition, CEFC China has set up its second headquarters in the Czech Republic to conduct international banking businesses and investment, and acquired controlling shares in banks and shares in important financial groups with its investment focusing on airline, aircraft manufacturing, special steel and food, in order to facilitate international cooperation in production capacity.

Hardly a major oil player, and certainly not a strategic investor that brings to Rosneft any technical expertise or access to upstream resources outside Russia. It’s just a supplier of cash. And as such, and as one that is providing cash to help previous Rosneft investors/lenders get out of a sticky wicket, you can be sure that it got a pretty good deal. Thus, like so many Russian transactions, the interesting action is not that which takes place in plain sight, but that which takes place behind many screens and curtains.

Although Sechin now boasts that Chinese investors are always the ones he wanted, that’s not what he–and notably Putin–said in December and January. Then they were saying how the participation of a noted western company–Glencore–put a stamp of legitimacy on the deal, and showed that Russia was an attractive place for western companies to invest.

Well, Glencore never really invested anything substantial in the first place: if there was any doubt back in December and January that this was a Potemkin privatization involving western companies, there should be no doubt now. And of course, Glencore comes out a huge winner in this. The company earned a lot of goodwill from Putin and Sechin for saving them from the embarrassing situation that they faced in 2016, with a privatization deadline looming and no investors in sight. More tangibly, Glencore obtained–and retains after this deal–a lucrative concession to market Rosneft barrels. It took on very little risk in the first place, and has very little risk now. Glasenberg received a seat on the Rosneft board, and apparently retains it, even though Glencore’s equity stake is now trivial. And Ivan gets to keep that totally cool Order of Friendship medal.

But he better not fall in with the “wrong crowd,” like previous recipient Rex Tillerson, whom Putin is now very sore at! But since I doubt Ivan has any prospect or interest in becoming a diplomat, that’s probably not going to happen. Ivan knows a good deal when he sees one. And this deal was very, very good for him and Glencore.

For Rosneft and Russia, I’m guessing not so much.

The last several days in Houston have been warm and sunny. Most stores are open (with the surprising exception of a local Starbucks), traffic is getting back to normal–unfortunately (I-610 in particular is a nightmare). There are still flood waters in some locations, but most of the water has drained. I drove on US-59 (I-69, which nobody calls it) yesterday. Here’s how it looked a few days ago.

Some of the bayous are pretty much back to normal. Here is Brays (or Braes) Bayou, at Calhoun Rd. near UH, as of Friday–less than 48 hours after the rain stopped.

That doesn’t look much different than on a normal day. (This bayou has been subject to a lot of Corps of Engineers work post-Allison. The place I first lived in for a bit had been flooded up to the 1st floor ceilings during Allison. That area did not flood this time around. Whether that can be attributed to work on the bayou I can’t say.)

I only had to contend with many small lizards who took refuge on my 2d floor patio. When I sat out there after the storm, I felt like I was at a casting call for a Geico commercial.

Thank you to all who contacted me via various channels to inquire about how I was faring. I am deeply grateful, and am glad to say that unlike so many others, I was mainly inconvenienced, rather than suffering bodily or material harm. I am deeply sorry for those less fortunate than I: there but for the grace of God . . .

As I told most of those who wrote, the impacts were highly variable, and largely driven by proximity to the bayous. Or as Beldar, who returned from a long blogging hiatus to write about Harvey put it, there were highly localized but widely distributed areas of impact. In the areas that it was bad, it was horrid. But the bad areas were not as ubiquitous as viewing the news would suggest.

As some commenters have noted, and has been widely recognized, Houston and Texas have acquitted themselves very well. The contrast with the New Orleans during and post-Katrina is remarkable on every dimension. Rather than social disintegration, there has been solidarity and a spirit of mutual aid. My tennis coach’s father works with Red Cross, and says that they have more volunteers than they can handle. The lines in grocery stores that I visited once they reopened were amazing placid, with people patiently chatting while waiting their turn. Would that Christmas shopping scenes be as civil.

But of course, numerous people of ill will outside of Houston and Texas have taken this opportunity to take swipes at the city, state, and their people. Examples include a disgusting “cartoon” in Politico (a Tweet of which the gutless bastards deleted when called out on it), an even more disgusting cartoon in Charlie Hebdo, and more Tweets than I could count claiming that Harvey was divine justice for Houston’s petrol-chem industry–presumably these were Tweeted from artisanal wood and hemp smart phones by people who don’t drive, eschew all plastics, and produce all their own food using only llama dung as fertilizer. (The Unabomber was an evil bastard, but at least he lived what he believed.) These criticisms make as much sense as fundamentalists blaming earthquakes in the Bay Area as God’s retribution on sodomites (which is an illustration of how political opposites are often doppelgängers).

To which most Texans reply: we really don’t give a shit what you think. Or as one meme put it: Hold our beer–we got this.

And of course there are those who are using this to advance their political obsessions. I’ve already mentioned those who assert, obnoxiously and ad nauseum, that Harvey was the inevitable and predictable result of climate change. Among the most prominent, and certainly most execrable of these, was one-time economist Jeffrey Sachs:

Gov. Abbott, we would like to bid you a political adieu. Perhaps you can devote your time to rebuilding Houston and taking night classes in climate science. Senators Ted Cruz and John Cornyn, you will soon be asking us for money to help Texas.

My answer will be yes, if you stop spewing lies about climate dangers, agree to put US and Texas policy under the guidance of climate science, back measures to lower carbon emissions and stay in the Paris Climate Agreement. Then, of course, let’s help your constituents to rebuild.

And to ExxonMobil, Chevron, Koch Industries, ConocoPhillips, Halliburton, and other oil giants doing your business in Texas: You put up the first $25 billion in Houston disaster relief. Call it compensation for your emissions. Tell the truth about growing climate threats. Then, as citizens seeking the common good, we will match your stake.

This is the rankest opportunism, and his entire piece is written with a reckless disregard for the evidence about the link between CO2 and hurricanes generally (which is equivocal at best), and about the link between anthropogenic effects on climate and Hurricane Harvey in particular.

As I noted in my earlier post, Harvey was not an exceptionally powerful storm by historical standards, and indeed storms of its intensity were actually more common during the period prior to large increases in CO2 emissions. Harvey’s devastating effects were a result of the chance interaction of weather patterns that led Harvey to meander and linger over Houston.

At present another hurricane–Irene–is forming in the Atlantic. To illustrate the role of weather, there are two scenarios for its track. If the dominant weather pattern over the North Atlantic is a strong high pressure region, it will likely hit the US, most likely Florida. A weaker high pressure area, will result in Irene turning north and petering out in the Atlantic.

The other hobby horse being ridden with abandon is that Houston’s pro-development policies increased the damage: I’ve read that Houston’s lack of zoning bears some of the blame. Two of the most strident advocates of this view include The Economist and Bloomberg Business Week.

Well, on one level, this is Captain Obvious DUH territory: no development, no damage. More seriously, it is difficult to see how any policy change would have had an appreciable impact. The Houston Has No One to Blame But Itself litany wreaks of the correlation-causation fallacy, and post hoc ergo propter hoc arguments.

Where to begin? I guess with the fact that this was truly an exceptional storm, with record rainfall. Given Houston’s topology and geography, there would have been massive flooding even had the place been inhabited by Karankawa and the Akokisa indians living in grass huts sleeping on chickees, as it was once upon a time.

Houston is flat as a table. It is cut by numerous bayous and streams: its nickname is “The Bayou City.” Many of these streams are quite winding, which means that when they take on a lot of runoff, the water goes up and over the banks rather than rushing out to Galveston Bay, because it has nowhere else to go.

Yes, the pavement and building increases runoff. But several factors need to be kept in mind. First, Houston’s soil is sandy and its water table is very high, meaning that even absent parking lots and streets and buildings the capacity of the soil to absorb is limited. Second, contrary to the prejudices of people who write about Houston in blissful ignorance of the facts, Houston has the largest amount of green space of any city in the United States. Only about 10 percent of the area in Houston is rated as impermeable, and 90 percent is ranks less than 2 on a 5 point scale of permeability (with a lower score indicating greater permeability). Third, many of the outer lying areas that flooded were inundated by the Brazos River and connecting streams, which is another meandering stream, and which was not swollen by runoff from suburban developments, but which just couldn’t handle all the rain and the runoff from undeveloped areas.

And can anyone honestly say that any of Harris County would be that much less developed under any alternative development policies? Zoning for instance, might have affected the distribution of business and maybe some residential areas, but the total amount of the county that would be built on would almost certainly be virtually the same.

Yes, if Houston had adopted the policies of Detroit, and suffered the same economic shocks, there would be a lot more green space and Harvey would have done a lot less damage. No serious person considers that a good trade-off.

Indeed, there have been floods as extreme and even more extreme, back when Houston was far less developed than today. A good example is 1935, when Buffalo Bayou crested at 54 feet. It crested at a mere 40 feet in 2017. But downtown Houston has flooded ever since there was a downtown Houston, because downtown Houston lies hard up a flood-prone bayou. And it was put there because that bayou was the city’s economic link to the world, and which eventually made it one of the great ports in the United States.

In sum, given the prevalence of floods before the boom of the recent decades, it is difficult indeed to attribute this week’s floods to that boom. Instead, the floods are a constant, as is Houston’s geography and topology. Combine those with biblical rains, heavy even by Houston standards, and we have what we have.

Some–The Economist for example–blame permitting of houses in 100 year flood plains. The impact of this (the magazine estimates 8600 houses so located) on the total volume of flooding is certainly trivial, meaning that there are no external effects to speak of. Those who built in these locations assumed the risk, based on the same information The Economist used to make its calculations.

Yes, to the extent that such development is encouraged by subsidized flood insurance, or the prospects of post-flood government assistance, too many of such houses are built, and the private losses are socialized to US taxpayers at large. I completely agree with the principle of making people bear the full cost of insuring the risk, or the full cost of losses if they choose to build but underinsure. But again, the contribution of this to the magnitude of the flooding is probably too small to even measure: the magnitude of the flooding was due to record rain and Houston’s topography. Further, it also likely represents a small fraction of the estimated $160 billion in damage from the storm.

Jeffrey Sachs writes: “Houston has been growing rapidly without attention to flood risk.” It has been growing rapidly, but to say that this growth has occurred without attention to flood risk is a damnable lie–a libel, actually. Especially post-Allison (in 2001) there has been an effort to reduce the city’s vulnerability to flooding. Of course, as with any government endeavor, one can criticize the execution, and the priorities: as commenter and friend Tom Kirkendall notes, money squandered on sports stadiums and light rail (the lightest aspect of which is ridership) could have been better spent on infrastructure, including drainage improvements. But there has been considerable attention. There has been work on the bayous. (For example, there has been ongoing work on Brays Bayou near Calhoun for some time–and the crews were back at work on Friday.)  Moreover, as any Houstonian with a car can tell you (and that is the vast majority of Houstonians, as many outsiders often snarikly remark), every road repaving project is a long running saga because in addition repaving, the city is installing huge storm sewer lines. Shepherd has been a nightmare for years because of such a project.

If you look at the 2011-2015 Houston capital improvement plan, which sets out the various major road projects, you will see that almost all of them include “improving drainage.” There are 27 references to this in the document.

The strategy has been to try to direct runoff to the major highways, which is one reason for some of the most striking images of the flooding. Better to flood freeways than neighborhoods.

So Jeffrey Sachs, in his lofty and deliberate ignorance, can fuck right off.

The rainfall in Harvey was approximately double that of Allison, and covered a much wider area. For example, one reason that some of the major disasters Harvey caused did not occur with Allison is that the former storm overwhelmed the Addicks and Barker Reservoirs, whereas that did not happen with the latter because the heavy rain area did not extend that far.

I do not know for certain, but it is my impression that the Harvey flooding in the area that Allison also hit hard is comparable to what happened in 2001, despite the fact that Harvey’s rainfall was about double Allison’s. A comparison of 2017 and 2001 will tell a lot about how well post-Allison infrastructure changes mitigated the damage this time around.

Post-Allison, the Harris County Flood Control District put out an excellent report on the storm, and its effects. It was titled “Off the Charts” to indicate how exceptional Allison’s rains were. Since Harvey’s were about double Allison’s, off the charts doesn’t even come close to describing 2017.

No doubt HCFCD will put out a post-Harvey report, and will be challenged to come up with a appropriate title. I look forward to reading it, paying particular attention to what it has to say about the effect of post-Allison mitigation efforts.

But the basic point is that this is not primarily, or even secondarily a policy issue, regardless the attempts of opportunists to make it so. This was a historic storm–an epic storm–produced by a chance interaction of weather events. It dumped huge rains on one of the largest cities in the US–in amounts that would have no doubt overwhelmed every major city in the US. Moreover, it hit a city which nature made preternaturally vulnerable to flooding.

In sum, Harvey is a natural disaster. The economic cost is indeed due to economic development, but that is primarily an effect, rather than a cause, as Jeffrey Sachs, the Economist, Bloomberg BusinessWeek and myriad others with an axe to grind would make it.

Musical postscript. I survived Harvey’s danger, and didn’t even have to climb a flagpole.