Streetwise Professor

December 30, 2019

The Necessity of an Armed Citizenry, Demonstrated

Filed under: Guns,Politics — cpirrong @ 7:35 pm

Yesterday, in the Dallas suburb of White Settlement, TX*, a repeat felon attended Sunday worship at the West Freeway Church of Christ, drew a shotgun, and opened fire, killing two people.

Within seconds, this piece of human offal was dead, killed by Mr. Jack Wilson, a parishioner working as a volunteer in the church security detail. Seconds after Mr. Wilson put down the thug, several other armed parishioners–also volunteers–were running to the sound of the shooting, ready to confront the assailant. But due to Mr. Wilson’s incredible gunmanship, there was no need.

And when I say incredible gunmanship, words fail. His was an unbelievable, awesome shot, as the livestream from the church service shows (starting about 2:37 of the video):

I am in awe of that shot. Probably around 40 feet way, he put the guy down. Not on the range shooting at paper. But in real life, with two friends already down, and a killer looking for another target. Long range plus pucker factor make that a truly remarkable shot.

I am not a slouch with a pistol, but I would never take that shot expecting a one shot kill: I would just hope to get the assailant on the defensive, keep firing, and hope to buy time for people to take cover and for backup to arrive. But he put one in the thug’s apple, and it was over.

Mr. Wilson was a parishioner, not a professional–though he does own a gun range, and obviously uses it. Nor were any of the others who leapt into action professionals: they were just parishioners, who had taken some training, and were ready to defend their friends and loved ones.

Unfortunately, the first man shot was also ready to defend, but could not draw quick enough. He paid for that with his life. But even then, his going for a weapon undoubtedly saved other lives by drawing the assailant’s attention to him. Which would not have happened were he not armed.

In 2017, in the aftermath of a church shooting in Sutherland Springs, TX, the state passed a law permitting the carrying of firearms in places of worship (which had been prohibited hitherto). Of course, that law caused the usual suspects to harrumph at the knuckle dragging Texans. These included the early-stage (or maybe not so early-stage) Alzheimer’s sufferer who is currently leading the race for the Democratic presidential nomination:

Seems pretty rational in retrospect, eh?

It also included Mr. Expert on Everything, the Naval War College’s Professor of Gasbaggery, Tom Nichols.

And the fact that armed citizens prevented true mayhem, other assorted idiots felt obliged to weigh in. Such as one Shannon Watts, who apparently thinks that the thug that entered the church with an intent to murder would have been deterred from doing so before the change in the law:

Or there’s Cathy Young (she has a blue check!), pathetically attempting to defend Tom Nichols:

Einstein: the security guards were parishioners. Presumably Cathy would rather put her life in the hands of a mall rent-a-cop. Hell, I would much rather put my life in the hands of Mr. Wilson, who clearly can shoot better than 95 percent of actual cops–hell, maybe 99 percent. Nobody was “firing at random.” Mr. Wilson fired with a purpose–and with deadly aim.

And then there are The Professionals who think you are just too damn incompetent to defend yourself, or fellow worshippers:

I think I recall an episode of The Andy Griffith Show where Barney Fife told Gomer pretty much the same thing.

And thousands of training hours? As if.

But here’s the thing. Even if cops could shoot better than Annie Oakley, they can’t shoot someone if they ain’t there. They’re really good at putting up the crime scene tape around your corpse, and putting those cute little flags in the locations of the spent shell casings, but that doesn’t do you a helluva lot of good when someone opens fire, does it?

And news flash: They ain’t Annie Oakley.

Then there are other blue check bozos who think that killing just isn’t the answer:

Pretty sure there are dozens of people in White Settlement, TX who beg to differ. Mr. Wilson’s head shot decisively solved the problem of a bad man with a shotgun, intent on mayhem. Some people just need killing.

An armed citizenry is not a sufficient condition to prevent mass shootings. But it is a necessary condition, or damned close, both for the deterrent effect, and because of the greater potential to incapacitate a shooter. These things happen in seconds, and law enforcement will always be too late to do anything about it.

But the drumbeat on the left is to disarm the law-abiding, and thereby empower the murderous. White Settlement shows how insane–and frankly, evil–that is.

*The name of this little town is no doubt shocking to modern sensibilities. It was given to a pioneer community in the 1840s by the local Indians because it was the only non-native settlement for miles around. The town is clearly unashamed of its name, having voted down by a 4-to-1 margin a proposal to change it some years ago.

December 27, 2019

China Syndrome–Or Socialism Syndrome?

Filed under: China,Climate Change,Economics,Politics — cpirrong @ 2:20 pm

China’s economy exhibits numerous symptoms of severe weakness that even its most world-class product–economic statistic manipulation–cannot conceal. One indicator of this is an increasing number of bond defaults (more on this in a bit). But there are others. Such as imposing the death penalty on the CEO of a large bank, pour encourager les autres, presumably.

Perhaps the best indicator is the palpable indication of nervousness at the highest echelons of the political (i.e., CCP) leadership. For example:

As China struggles to deal with the slowdown of the world’s second-largest economy, it has embarked on a new strategy of placing financial experts in provinces to manage risks and rebuild regional economies.

Since 2018, President Xi Jinping has put 12 former executives at state-run financial institutions or regulators in top posts across China’s 31 provinces,regions and municipalities, including some who have grappled with banking and debt difficulties that have raised fears of financial meltdown.

Only two top provincial officials had such financial background before the last big leadership reshuffle in 2012, according to Reuters research.

This is utterly futile. Although it reflects a realization by Xi and his minions that there is a problem, it also reflects that they have no idea what the cause of the problem is. Indeed, it shows that they are completely captured by their worldview, which believes that China will achieve wealth–and world domination–via the wise guidance of the Party and its enlightened leadership. (This worldview is not limited to Chinese Party cadres–the likes of Tom Friedman and Naomi Oreskes* and numerous other bon savants in the West share it.)

Their solution is a symptom of the problem. China’s current incipient crisis is a direct result of its economic model, which relies on state-directed investment to meet growth targets. No, there is not a granular, proscriptive investment program a la Stalin’s USSR. But provinces and local governments face strong incentives to meet growth targets that are most readily met via massive investment in infrastructure and housing: that these kinds of projects create corruption opportunities is just part of the incentive structure. Further, the financial system, with its repression of consumption and flip-side of subsidized credit, has provided further incentives to indulge the edifice complex.

This has resulted in massive malinvestment. The financial straits of these government entities, and the financial entities that have funded them, are merely a manifestation of the malinvestment: the investments have not generated returns sufficient to cover the costs of financing them. This is pretty amazing, given the magnitude of the direct and indirect subsidies.

Appointing managers with more “expertise” to exercise control at the sub-national level is not going to fix the fundamental fault in the system. The fundamental fault inheres in the socialist, centralized, Party-dominated, investment/credit-driven model.

The USSR showed that a centrally planned system can generate glittering results in terms of official statistics. For a while. But this largely reflects the flaws in national income accounting, especially in highly state-centric economies. Investment is a cost–a use of resources–but counts as contribution to national income. Pile up the costs at an insane rate for years, and you can show totally awesome GDP growth rates!

But eventually, the chickens come home to roost. If the investments are ill-advised, they do not generate a stream of consumption (and remember that consumption is the point of production, and investment) than can recoup the costs. Honest accounting would require writing down of these “investments,” causing a drop in measured national income. But this is never done.

The Soviet Union went through this “yeah we have problems but we just need better managers” phase. And it was a phase. The next phase was a slide into economic collapse. The phase after that was . . . outright economic collapse.

The Chinese and Soviet systems are not the same. But they share essential similarities, the most notable being that they are/were investment-driven and centrally directed, and horribly misprice credit. The means of direction are quite different, but the ultimate trajectories are quite similar. Investment-driven models that focus on achieving national income growth targets are prone to eventual collapse because of massively perverse incentives that lead to horrible misallocations of resources.

This has interesting short-run and long-run implications for the US (and the West generally). (“Interesting” being the most fraught word in the English language.) In the short run, it provides the US with considerable leverage over China with regards to trade: serendipitous developments, such as Asian swine flu increase this leverage. In the longer run, the fundamental flaws in the socialist model with Chinese characteristics will sharply reduce the Chinese geopolitical threat.

The problem is the interval between the short-run and the long-run. Big powers facing decline or economic crisis are inherently a source of instability. This problem is exacerbated in China, where the personalized, de-institutionalized nature of government under Xi also creates internal sources of instability. Xi is mortal, and has grandiose ambitions: as he sees the time to achieve those ambitions shrink, his incentive to take risk increases. Further, such systems are inherently unstable when the leader dies or becomes incapacitated because of succession crises–crises that are exacerbated by the fact that the ruler has a strong incentive to crush potential successors, rather than cultivate them.

Thus, there is likely to be a period of substantial internal turbulence in China, and this could have dire implications for the US and the world, especially given the changes that Xi has wrought in recent years.

In sum, China is entering the “we need better managers” phase of its development. This is a symptom of socialism, and a sign on the road to severe economic decline. A socialism syndrome, if you will. As an avowedly socialist country, China is not immune. Indeed, methinks it is particularly susceptible, especially given the neo-Maoism of Xi. This bodes well for no one.

*Oreskes is a Harvard “historian of science” who is primarily responsible for manufacturing the factoid (or should I say fiction?) that 97 percent of scientists believe in the threat of anthropomorphic climate change. Per the linked article: Oreskes believes in “change, owing perhaps to a sensible program of environmental regulation under Communism, and vindicating ‘the necessity of centralized government.'”

Sensible environmental regulation under Communism. LMFAO. Every Communist country is an environmental nightmare. I remember reading the official English-language Chinese paper when I was in China in the mid-2000s. It was a litany of environmental catastrophes. I truly shuddered when I thought that this was probably the sanitized view.

And has Naomi been to Beijing in January?

These are our better thans, people. FFS.

December 25, 2019

Merry Christmas

Filed under: Uncategorized — cpirrong @ 8:42 am

A Merry Christmas to all. ‘Tis the season for giving, and I appreciate the time you all have given over the years to read my musings (and rantings!). SWP will be going into its 15th year in a few weeks–hard to believe. Thanks to all for visiting, and for continuing to visit. I hope I give you reason to continue doing so.

Until then, have a joyous Christmas.



December 23, 2019

At the Russians’ Feet and Trump’s Throat: Germany’s Nordstream 2 Hypocrisy

Filed under: China,Energy,Politics,Russia — cpirrong @ 1:46 pm

Last week, Trump signed into law a bill authorizing sanctions against any company involved with the construction of the Nordstream 2 gas pipeline. Almost immediately thereafter, Ted Cruz sent a letter to Swiss company Allseas, which is laying pipe, stating that they were at risk of sanctions unless they ceased these operations. Almost immediately after that, Allseas announced that it was suspending work.

And almost immediately after that, Angela Merkel lost her shit:

“We are against extraterritorial sanctions, and not just since this decision yesterday — we also have this problem with a view to Iran,” Merkel told German lawmakers, referring to the Trump administration’s withdrawal from a deal between world powers and Iran meant to curb concerns over Tehran’s nuclear program and the imposition of new sanctions.

“I see no alternative to conducting talks, though very firm talks, (to show that) we do not approve of this practice,” Merkel said during a regular question-and-answer session in parliament. “We will see how things go with Nord Stream.”

You want talks, Angie baby? Talk to the hand.

I liked the part about Iran especially. Maybe she’s miffed because the secondary sanctions make it harder for Germany to help Iran finish the job the Germans started.

There has been a lot of bleating about how this American policy is intended to advance American economic interests, specifically US natural gas producers and LNG exporters. Maybe so, but any such criticism from Germany is an extreme case of projection, given its obsession with promoting German exports, including at the expense of the Greeks, etc.

There has also been a lot of bleating about how this is an attack on an American ally, and Nato. Well, as I’ve written ad nauseum, Germany is a pretty horrible ally of the US, and has been the biggest deadbeat in Nato for years. It spends chump change on defense, and as a result has an air force with few operational aircraft, a navy with few operational ships (and at times no operational submarines), and an army that trains with broomsticks.

Indeed, it is Germany’s persistent failure to pull its weight–hell, to pull Belgium’s weight–in Nato that no doubt makes Trump relish sticking it to them.

Payback is a bitch, Angela.

Further, the bleating about this being an attack on Europe, and Nato, is a particularly bad joke, given that large swathes of Europe and Nato detest Nordstream 2, and view it as Germany selling them out to the Russians. Poland is particularly outspoken on the issue:

“Despite the involvement in the Nord Stream 2 project of companies from some EU countries, this pipeline has never been a European or EU project,” said Polish Deputy Foreign Minister Pawel Jablonski, quoted by the PAP news agency.

“Instead, it remains an instrument for the realisation of Russian economic and, potentially, military policy.”

And it also undercuts Ukraine. You know, the country that Trump allegedly screwed for political gain, and for which Merkel constantly sheds crocodile tears.

That is, the Germans are even more two-faced than usual when it comes to alliances. Their idea of an ideal ally is someone who does what they want and lets them do what they want. Everyone else is an enemy.

The Russian (and Ukrainian) aspect of the story requires Merkel and other Trump critics to give Fitzgeraldian demonstrations of first-rate intelligence, i.e., holding two opposing thoughts in mind while retaining the ability to functoin These people tell us that Trump is in Putin’s thrall. But rather than acknowledging that he has implemented an avowedly anti-Russian policy (and the US has constantly harped on this aspect of Nordstream 2) by sanctioning the pipeline, the Germans and other euroweenies pivot to criticizing Trump for daring to trample on their sovereignty and harming European businesses.

As Churchill said, the hun is either at your feet or at your throat. Here, Germany is at the Russians’ feet, and at Trump’s throat–for having the audacity for going for a Russian economic jugular.

And they are singularly clueless in their failure to recognize that this duplicity is exactly why Trump DGAF about their objections to his policy.

It’s interesting to note that this dispute echoes one of the few serious disagreements between Thatcher and Reagan. In 1982, the Reagan administration was adamantly opposed to the construction of pipelines to export gas from Siberia to western Europe. (Ironically, these pipes are now the ones that are the source of chronic friction between Ukraine and Russia.) Despite her stalwart anti-Soviet policies, Margaret Thatcher supported the pipeline, on purely economic grounds: a UK firm located in economically depressed Scotland was a supplier to the pipeline, and almost two thousand jobs would be lost if they pulled out.

Reagan disagreed on broader geopolitical grounds. But back then, secondary sanctions were not an arrow in the American quiver–and Reagan probably would have shrunk from imposing them on the US’s closest ally. So the pipeline went forward.

Though not without Reagan getting a measure of revenge. The Soviets wanted US software to operate the pipeline, and of course they couldn’t obtain it through legitimate channels. So they tried to steal it, like they had stolen a lot of US technology before. The Reagan CIA was onto this, however, so they allowed the Soviets to steal software that turned out to be a Trojan horse. After a few months of operation, the Trojan kicked in, and completely disrupted the operation of the pipeline–and indeed caused an explosion on the pipeline in Siberia. The explosion was so large it could be seen from space, in what was supposedly the largest non-nuclear human-caused explosion ever.

Now I doubt that Trump would give a go-ahead to blow up Nordstream 2, given that the catastrophe would be in the Baltic, rather than the Siberian wastes.

But I am sure that there are days when he is tempted, given Merkel’s hypocrisy.

Which brings a thought to mind. Another source of bitter contention between the US and Germany is Huawei, which Merkel stubbornly insists on allowing to participate in Germany’s 5G rollout despite the extreme security risks that it poses. If Germany indeed flouts the US’s objections, and there is a subsequent failure in the German 5G system, it would be quite reasonable to collude that this wasn’t an accident, comrade.

Remember, Angela. You reap what you sow.

December 12, 2019

Historic Rhymes: From the Popish Plot to the Putinish Plot

Filed under: History,Politics — cpirrong @ 3:14 pm

In 1678, two religious fanatics, Titus Oates and Israel Tonge, created a long document that supposedly revealed a plot led by the Pope, and to be carried out by English Jesuits, to kill King Charles II of England. Oates and Tonge used subterfuge to bring the document to the King’s attention. Although he dismissed it, the document touched off sweeping investigations that eventually led to the execution–including by drawing and quartering–of 22 innocent individuals.

The controversy over the “Popish Plot” convulsed England for three years. It helped feed the controversy over the Exclusion Bill (designed to prevent Charles’ Catholic brother James from succeeding to the throne).

Eventually the public became convinced that Oates’ and Tonge’s charges were fabrications, and the frenzy abated. But not without political consequence: those politicians of the faction which would become to known as the Whigs who had been most ardent for the prosecution of the Plot and the Exclusion Bill were widely branded as subversives and extremists, and went into eclipse for some years (until the then James II was overthrown by William of Orange). The Popish Plot first empowered, then fatally undermined, the Whigs.

In the end, everything in the Oates-Tonge dossier was found to be a complete fabrication.

Twain said that history doesn’t repeat itself, but it does rhyme. Substitute Putin for the Pope, and Steele for Oates, and what has transpired for the last three years in the US does rhyme with what happened in England around 340 years ago.

December 11, 2019

The FBI Channels Retro Steve Martin Bits

Filed under: Politics — cpirrong @ 3:24 pm

Back in the day, Steve Martin had a bit called “You can be a millionaire and not pay taxes.” The punchline was: “I forgot.” Make a million dollars, don’t pay taxes, and when the IRS calls you on it, say “I forgot.” When accused of armed robbery, say “I forgot armed robbery was a crime.”

Apparently the FBI was channeling 45-year old Steve Martin bits when IG Horowitz questioned them on their numerous omissions of exculpatory evidence and inclusion of false information in their FISA warrant applications:

“We identified at least 17 significant errors or omissions in the Carter Page FISA applications, and many additional errors in the Woods Procedures. While we did not find documentary or testimonial evidence of intentional misconduct on the part of the case agents … we also did not receive satisfactory explanations for the errors or problems we identified. In most instances, the agents and supervisors told us that they either did not know or recall why the information was not shared with the OI (Office of Investigations), that the failure to do so may have been an oversight, that they did not recognize at the time the relevance of the information to the FISA application, or that they did not believe the missing information to be significant. On this last point, we believe that case agents may have improperly substituted their own judgments in place of the judgment of the OI, or in place of the court, to weigh the probative value of the information.”

Altogether now:

IG to FBI official: Why didn’t you include this information?

FBI official: I FORGOT!

IG: You expect us to believe that you forgot all about a surveillance request on an American citizen that allowed you to view the communications of a presidential candidate’s campaign.

FBI official: Yes.

IG: How could you be so unprofessional and unethical?

FBI official:

Ladies and gentlemen, our best and brightest. Patriots all. How dare you question them!

Addendum: Recall (since you, unlike the denizens of the Alzheimers ward which is apparently the FBI) that Douchnozzle in Chief James Comey said “I can’t recall,” “I can’t remember,” or “I don’t know” 245 times by House Investigators about the various matters–including the Page FISA case–which he oversaw.

And you thought Joe Biden was losing it!

December 10, 2019

In a Government Bureaucracy, People Are Promoted to the Level of Their Iniquity

Filed under: History,Politics — cpirrong @ 10:45 am

In 1969, Laurence Peter introduced the “Peter Principle” to the world: in any hierarchy, people rise to the level of their incompetence. This principle certainly applies–in spades–to government bureaucracies, but as two stories that came out yesterday demonstrate, there is another, far more malign principle at work. Call it the Pirrong Principle: in a government bureaucracy, people are promoted to the level of their iniquity.

The first demonstration is, of course, the DOJ IG report on the Page FISA warrants. Although the hierarchy of the FBI and DOJ that was responsible–particularly the execrable (words fail) psychopath (and I mean that literally) James Comey–has seized upon a clip from the report to claim vindication, the report as a whole is a damning indictment of the gross iniquity of those who infested the FBI and DOJ hierarchy.

The fig leaf that IG Horowitz gave to Comey, McCabe, et al was his statement that he found “no testimonial or documentary evidence of political bias.” But at the same time, he could find no defensible explanation for the serial abuse of the FISA process, abuse that was used to surveil–i.e., spy on–the Trump campaign.

Thus, the circumstantial evidence for bias is overwhelming. For what else could explain the repeated and deliberate lying by commission and omission by Comey et al to obtain the warrants on Page and thereby obtain access into the communications of the Trump campaign?

I would also like to know what possible defense there could be for lying to a court. Isn’t this a violation of multiple statutes? This is far worse than some procedural violations, as Horowitz suggests. This is serial, intentional misconduct to deceive a court in order to obtain a writ to trample the rights of an innocent man, Carter Page, not to mention to intervene in the political process. This last was an act of “interference in an election” that makes anything the Russians did pale into utter insignificance.

The IG report also demonstrates that the Steele Dossier was a tissue of fantasies, fabrications, and gossip that even Steele’s unnamed “sub-sources” called bullshit on when questioned by the IG. It also demonstrates that this tissue of fantasies, fabrications, and gossip was the centerpiece of the Page FISA warrant applications. This completely vindicates Devin Nunes, who said the same in 2018, thereby unleashing a cascade of calumny that continues to the present. It also gilds the lily by showing that Adam Schiff is a lying sack of crap. Which we already knew, and receive demonstration of daily.

But here’s the thing. We already knew all of this. Here’s what I wrote in September, 2018:

Failing to detail Page’s full involvement with the prosecution and conviction of the Russian agents was therefore another crucial omission from the FISA warrant application.  Given this information, Page’s plausibility as a Russian agent would have been zero.
Second, Sperry doesn’t remind us that after failing in its first try to get a FISA warrant on Page, a dossier report miraculously appears which contains the account of a meeting in which Sechin supposedly offered Trump, via Page, a stake in Rosneft.  Presented with the new “information” of Page’s deep ties with the Russians, et voila!, the court issues the warrant.
This makes it highly likely–certain, in my view–that Steele was a short order cook serving up made-to-order material intended to advance the anti-Trump campaign.  His–and the FBI’s/DOJ’s.
The FBI’s cynicism here is off the charts, and appalling.  Carter Page helps them out in an investigation of Russian spies.  But Peter Strzok and his fellow badged gangsters saw that Page was now useful in their attempt to sabotage Trump, so they viciously twisted his previous cooperation with them into evidence of connivance with Russian intelligence by leaving out the crucial details of his cooperation, the Russian views of him, and the likely Russian knowledge of him.
Moral of the story? Support your local sheriff, perhaps, but the FBI–you’d be a complete fool to do so, because they will F*** you sideways when it is in their interest to do so.  Page is the poster boy for “no good deed goes unpunished.”
Carter Page should have a massive civil rights case against the US government, and the individuals who lied and conspired to deprive him of his 4th Amendment right against unlawful search and seizure–Strzok, McCabe, Comey, Yates, and others.

Nota bene the date–almost 2 months before the 2018 midterm elections. We knew the gravamen of the FBI’s conduct at that time (and earlier) but the slow-walk in the DOJ allowed the lies to flourish without official contradiction until well after the election. The same happened with regards to the Mueller Report: Mueller and his malign minions knew early in their investigation in 2017 that every word of the Russian collusion story was false, including “and” and “the.”

The ongoing impeachment fiasco is the direct result of the 2018 elections. How would those have been different had the Mueller and Horowitz revelations been made prior to them? How is the unconscionable dilatoriness of the iniquitous bureaucracy not grotesque election interference?

The second demonstration of the Pirrong Principle is the revelation (in the WaPo) of documents indicating that those responsible for running the war in Afghanistan (which, like Napoleon’s misadventure in Spain, has been a bleeding ulcer for years) have been lying about its progress and prospect for going on two decades.

Pace MacArthur, lying is a substitute for victory. At least in the minds of iniquitous bureaucrats.

Like Vietnam, Afghanistan illustrates that long, indecisive guerrilla conflicts corrode and corrupt even the most reputable American government institution–the military. The reason that revelation of this corrosion and corruption have taken so much longer to be revealed in Afghanistan is due to the smaller body count, the initial success in defeating the Taliban and Al Qaeda in 2001-2002, and the isolation of the battlespace which sharply limited independent observation and disclosure of the true state of affairs.

It is sickly ironic that the same elements who are responsible for years of stalemate and lies to cover it up have fought Trump tooth and nail in his (typically spasmodic and unfocused) attempts to wind down American participation. This is of a piece with the Ukraine fiasco, where the “interagency” that reigned over a chronically failed policy have waged their own war against Trump. Ditto Syria.

If the bureaucracy was only as good at waging guerrilla wars in the back of buggery as it is in the halls of DC, American would never lose a war.

Yes, I think the Pirrong Principle is as valid, or more so than the Peter Principle. We see demonstrations of it daily.

But other than alliteration and the allusion to the also alliterative Peter Principle, it’s not correct that I make the principle epynomous. It should really be named the Hayek Principle, in deference to Hayek’s chapter in Road to Serfdom titled: “Why the Worst Get On Top.”

We see his principle in action daily. But on few days do we see it demonstrated more forcefully than we did yesterday.

December 9, 2019

The Four Horsemen of the Repo Apocalypse

Filed under: Derivatives,Economics,Financial crisis,Regulation — cpirrong @ 9:42 pm

The BIS included a box on the September USD repo spike in a chapter to its Quarterly Review titled “Easing Trade Tensions Support Risky Assets.” The piece lays out many damning dots, but does not connect them. Let me give it a try.

In a nutshell, the BIS report says that as a result of the wind down of the extraordinary post-crisis monetary policy measures there has been a dramatic change in the funding structure in US markets. In particular, the “big four [US] banks” (which the BIS delicately–or is it cravenly?–doesn’t name) have flipped from being suppliers of repo collateral (and hence cash borrowers) to being suppliers of cash (and hence collateral borrowers). Further, other US banks are not viable competitors to the big four, nor are other potential cash suppliers such as money market funds because they have hit counterparty credit limits which have constrained their lending capacity. According to the BIS, these events has made The Big Four Banks Who Shall Not Be Named the “marginal lenders” in the repo market. And mark well: prices are set at the margin.

Further, “leveraged players (eg hedge funds) were increasing their demand for Treasury repos to fund arbitrage trades between cash bonds and derivatives.”

So here are the dots. Recent structural changes have given the Big Four Banks Who Shall Not Be Named a dominant position in the repo market. Their main potential competitors as suppliers of funds are constrained by size or regulation. There has been a large increase in demand for repo funding.

Not even being willing to name the banks (as if their identities are unknown), the BIS does not even draw the blindingly obvious implication of its analysis–that the Four Repo Horsemen have market power. A lot of market power. Are we supposed to believe that (out of the goodness of their hearts, perhaps) they did not exercise it? I didn’t just fall off the turnip truck.

Even the euphemism Big Four is deceptive, for in reality this group is dominated by one bank–Morgan. And of course Morgan has been loudest in its protestations that it really wanted to lend more, but just couldn’t, dammit, because of those cursed liquidity regulations.

The BIS attempts to run cover, and provide some rather lame excuses for the failure to lend more despite the high rates:

Besides these shifts in market structure and balance sheet composition, other factors may help to explain why banks did not lend into the repo market, despite attractive profit opportunities. A reduction in money market activity is a natural by-product of central bank balance sheet expansion. If it persists for a prolonged period, it may result in hysteresis effects that hamper market functioning. For instance, the internal processes and knowledge that banks need to ensure prompt and smooth market operations may start to decay. This could take the form of staff inexperience and fewer market-makers, slowing internal processes. Moreover, for regulatory requirements – the liquidity coverage ratio – reserves and Treasuries are high-quality liquid assets (HQLA) of equivalent standing. But in practice, especially when managing internal intraday liquidity needs, banks prefer to keep reserves for their superior availability.

Hysterisis? Decaying internal processes and knowledge? Staff inexperience? Complete and utter argle bargle. We’re talking overnight secured lending here, not rocket science structured finance. It’s about as vanilla a banking transaction one could imagine. And LCR provides convenient cover.

The BIS lays out a compelling case that four major institutions have market power in repo. September events in particular are consistent with the exercise of market power, and the alternative explanations are beyond lame. Yet none dare speak its name, or even raise it as a possibility. Not the BIS. Not the Fed. Not the Treasury. Despite the systemic risks this poses.

The Financial Crisis supposedly changed everything. It apparently changed nothing.

December 4, 2019

The Democrats Enlist Elitist Leftist Eggheads to Make Their Case For Impeachment. Yeah, That’ll Play in Flyover Country. So Do Continue!

Filed under: Politics — cpirrong @ 6:43 pm

I haven’t written about the ongoing impeachment farce because, well, it’s so farcical. But events in the last few days deserve some comment.

First, the “Intelligence” Committee’s impeachment report. It reminds me of what one would expect a constipated man who binged on Ex Lax to produce. To summarize–and I think quite fairly–its central claims are that (a) it is an impeachable offense for the President to have policy differences with the bureaucracy that is Constitutionally subordinate to him, and (b) it is also impeachable for a politician to practice politics, if he is sufficiently loathed by the other political party.

Second, today’s hearings in the Judiciary Committee, which is more aptly named the Prejudicial Committee, because clearly the fix is in.

The “witnesses” in today’s proceeding were three hard left law professors (but I repeat myself) and one exception who proves the rule–Jonathan Turley, who though hardly conservative, isn’t a hard-core leftist. And of course he wasn’t asked any questions.

Several of the witnesses were literally prejudiced, having found grounds to impeach Trump within days of his taking office, for such things as tweets.

One witness, Stanford’s Pamela Karlan, especially debased herself by including Trump’s 13 year old son Barron into her diatribe. Karlan also said:

“Ukraine is on the front lines. They are fighting the Russians over there, so we don’t have to fight the Russians over here.”

That just cracks me up. Trump has so deranged the left that he has turned them into McCarthyite warmongers who see Russkies under every bed and think that Red Dawn is our future if we don’t defend the Donbas.

But as offensive as this display was, my cynical side says–More! Lots more! Please!

It is a testament to the cluelessness of the Democratic leadership in the House, and the governing class (the “elite”) generally, that they actually think that these people are going to play in Peoria, or anywhere outside of, say the Upper West Side, the Beltway, LA, and the Bay Area.

For one thing, most Americans don’t have a lot of respect for academics. Indeed, a lot of Americans despise academics. And as an academic, who has been in academia for 30+ years, I can say they have substantial justification for those beliefs.

It goes ten-fold for legal academics, who combine Americans’ disdain for academics with their loathing of lawyers. Or a three-fer, actually, because many Americans’ disgust with hard-core leftist partisans gets added to the mix.

Apparently the House Democrats believe that Americans will defer to the pronouncements of obviously partisan and prejudiced legal academics. This is quite frankly insane, and illustrates how out of touch those in the ruling class are. The Pamela Karlans of the world loom large in the salons of DC and NY and the Bay Area, but most Americans think they couldn’t screw in a lightbulb, and who would blame their failure on capitalist, patriarchal, racist, homophobic oppression. And they wouldn’t be far off in that judgment.

So, echoing Napoleon (or somebody!), far be it from me to interrupt an enemy when he is in the middle of making a mistake. And in trotting out leftist eggheads to make their impeachment case, the Democrats are definitely making a huge mistake.

So please . . . don’t let me interrupt you!

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