Streetwise Professor

In the very early days of the Russian invasion of Ukraine, after watching many videos of columns of Russian armor or individual tanks getting blown to smithereens, I remarked on Twitter several times that what astounded me is that the tanks were operating without infantry support, which left them vulnerable to being ambushed by a couple of guys with an ATGM fired within spitting distance. FFS, it has been known since the dawn of tanks in WWI, and especially since their widespread employment in WWII, that tanks without infantry are extremely vulnerable to one- or two-man antitank weapons. The bazooka is one example, but the panzerfaust (and subsequently its imitator the RPG-7) is the best illustration.

I had written down the Russian failures to a meatware problem: namely, badly trained or badly led troops, operating under bad doctrine. Well, it appears that it is a meatware problem, but a different one: a lack of meat. To modify the old Wendy’s commercial: where’s the meat?

For it seems that the vaunted Russian Battalion Tactical Groups–BTGs–have been deployed to Ukraine seriously undermanned. Fifty percent undermanned, in fact, a problem only exacerbated by the massive attrition that undermanned units inevitably suffered.

Many of the infantry fighting vehicles like the BMP-2 in its several variants have apparently operated without infantry: only the driver, commander, and gunner man the vehicles. So the reason that Russian armor has no infantry support is that it has no infantry period.

This is nothing short of criminal. Alas, the real criminals here (from Putin on down) will not pay the price. The poor Ivans incinerated when Javelins or Stugnas and other ATGMs demolish their vehicles have–and will.

Recently there have been fewer such images, because the Russians have changed tactics, due no doubt to the carnage of February and March. Now most Russian losses (at least the ones depicted on video) are from indirect fires.

For the war in Ukraine has become one of indirect fires. As predicted here when the original coup de main was smashed, the Russians have reverted to reliance on their God of War–artillery. In particular, after giving the Grozny treatment to Mariupol and winning a pyrrhic victory there, they have done the same at Severodonetsk.

The Ukrainians have wisely decided to withdraw. Perhaps a bit too late, but better late than never. By holding out the Ukrainians did cost the Russians time and materiel and casualties. But the Ukrainians suffered severe casualties as well. Judging when to make a tactical withdrawal is hard.

Severodonetsk is (or perhaps was) at the nose of a salient. The classic means of assaulting a salient is to strike on the shoulders and pinch it off, trapping the defenders. But the Russians have signally failed in their attempts to do so. So they bashed in the nose of the salient with brute firepower. It is a victory, of sorts, but one that will not have decisive because the Russians have proved that they do not have the ability to exploit such breaches through armored maneuver.

Severodonetsk was just a WWI battle, or a battle akin to the ones in the static phase of the Korean War July 1951-July 1953. A few kilometers are taken, at heavy cost (especially to the attackers) with no decisive strategic effect.

And the prospect is for more such battles, until one side or the other–or both–collapses due to an exhaustion of personnel or emotional/moral collapse.

Morale on both sides involved in the slugging contests is reportedly cracking. This is understandable. Especially on the Ukrainian side, given they are outgunned. There is nothing more terrifying or demoralizing to soldiers than artillery bombardment. The soldier feels utterly helpless, with no way of fighting back, and wondering whether the next whoosh of a shell is the last sound they will ever hear. What we now call PTSD was referred to as “shell shock” in WWI for a reason.

So, again as predicted early on, the war has degenerated into a war of attrition. The deciding factor will be which army, and perhaps which government, collapses first. Existing Russian forces have been hollowed out. Russia has additional manpower to draw on, but that would require Putin to mobilize, something he has been reluctant to do. And even if he does, re-manning depleted BTGs with unmotivated raw recruits will just permit extending the slow grind west, will not result in a decisive advance, and will push the Russian death toll ever closer to 6 figures.

Ukraine has made some marginal gains on the periphery in the north (around Kharkiv) and in the south (around Kherson). But nothing decisive.

Further, the events in Donbas have apparently been a rude awakening and cured the “victory disease” that inflicted Zelensky, the rest of the Ukrainian leadership, and many supporters in the West after the initial Russian thrusts were turned back.

But given that neither side seems willing to stop the fighting except on terms that the other finds completely unacceptable, the bloody, pointless war will drag on for the foreseeable future.

Astoundingly, even though it should have been apparent no later than mid-March that based on events on the ground and betting on form regarding Russian behavior that this is exactly where we would be, US military “intelligence” has supposedly been surprised at how the Russians have responded to their initial setback: “But U.S. intelligence apparently missed another possibility: that Russia would revert to its traditional “way of war” based on mass and attrition.”

How is that possible? I mean really. This should not have been complicated.

After Iraq, Afghanistan, and now Ukraine, U.S. military intelligence–especially the parts responsible for evaluating enemy capabilities and intentions–needs to be ripped down to the foundation and built from scratch. Ukraine is another example of “those who forget the past are condemned to repeat it.” And it doesn’t even require looking at relatively ancient history, like, you know, WWII. It only requires looking back back 20-25 years, to Grozny.

These serial failures of US intelligence scare me far more than anything happening along the Don. An addle-brained president, with moronic advisors, acting on bad information. What could possibly go wrong?

Senators have released a draft gun control bill produced as the result of a “bipartisan compromise.” Let me translate: “bipartisan compromise” means a cabal of the uniparty has conspired to screw you. That’s not a conspiracy theory: that’s an empirical regularity.

Some of the bill is unobjectionable. But that conceals its diseased heart: a provision to bribe states to adopt “red flag” laws.

Red flag laws are patently unconstitutional. Fourth Amendment. Fifth Amendment. Second Amendment. Binding on the states by the Fifteenth Amendment. Other than that, great!

It is highly unlikely that these laws can or will prevent lunatics like the Uvalde shooter or the Parkland shooter (whom I will not give any notoriety by writing their names), but they will impose substantial costs on innocent individuals, especially those afflicted with a vengeful spouse or disputatious neighbor.

The “Republican” leader in these negotiations, my own state’s John Cornyn, had the audacity to preen over the bill:

Today we released text of our bill to make attacks like the one in Uvalde less likely, while protecting the Second Amendment.
 
I am proud that this mental health and school safety bill places NO NEW RESTRICTIONS on law-abiding gun owners.
?https://t.co/JhkJtMBJyu

— Senator John Cornyn (@JohnCornyn) June 21, 2022

The red flag provision will not reduce the risk of Uvaldes, but it will trounce the Second Amendment. The last sentence is particularly mendacious. “Mental health and school safety bill.” Yeah, right, John. Only nuts will get snared by red flag laws, right? In fact, it’s more likely that nuts will use them against their enemies than it is to disarm murderous nuts.

And “NO NEW RESTRICTIONS”? Please. In fact, I think the all caps are a clear case of thou protest too much. Further, it is an outright lie. Outsourcing unconstitutional and anti-liberty measures to the states (and paying them to take these measures) is cynically dishonest beyond belief. Even for you.

And spare me any of your pompous, pious crap about “due process.” The process is the punishment. It pits the individual against a predatory state. Anyone knows that getting enmeshed in a legal dispute is financially costly and emotionally tortuous: that is especially true in the circumstances that give rise to red flag actions. Even if at the end of the day you “win”–that is, you get your guns back–you lose. And there is no guarantee that you will win. The odds are stacked against you.

If Cornyn were an actual Republican, rather than a member of the uniparty (AKA the government party, the swamp party) he would realize that this is politically idiotic. The Democrats are reeling. They face a disaster in November. Their addled “leader” has, by the last poll, a 32 percent favorable rating. Why give them a victory? Why throw them a line? Just stand there and watch them drown. Or better yet–throw them an anvil.

But no. So by revealed preference Cornyn demonstrates that he is just another uniparty apparatchik.

And indeed, Cornyn has said as much. He was booed at the Texas GOP convention in Houston last week. His stand is highly unpopular among the base. But he said that he doesn’t care what his constituents think.

So also spare me any laments over our dying democracy. It’s people like John Cornyn who are killing it, and who are stoking populism, by betraying those who elected them.

Cornyn is in line to replace Mitch McConnell, and become majority leader in the event of the Republicans regaining control of the Senate. So Tweedledee will replace Tweedledum. Oh Joy! McConnell’s only positive contribution to the Republic is preventing Merrick Garland from ascending to the Supreme Court. Other than that, he’s just another apparatchik for whom Cornyn would be a worthy replacement.

This title of this song is an apt description of our current age. And John–the chorus is all about you.

I’ve often written that every big move in commodity prices leads to a reprise of Casablanca: “Round up the usual suspects!”

The usual suspects, of course, being speculators.

And here we have a case of the usual suspects calling for a roundup of the usual suspects. People like Michael Greenberger and Tyler Slocum. I would be more than glad to move on. Them apparently not so much.

Now they feel especially energized because they can blame speculators not just for a rise in the price of this or the price of that, but the price of everything. Yes, boys and girls, speculators cause INFLATION!!!!! THEY ARE DRIVING UP THE PRICE OF EVERYTHING!!!!

A handful of congressional Democrats are turning their attention to an arcane loophole that, as TYT previously reported, is driving high prices for gas and food. Rep. Ro Khanna, D-Calif., told TYT that he wants the Biden administration to close the loophole, which lets Wall Street speculators gamble on commodity prices, driving inflation.

I’ll get back to “Ruh Ro” Khanna in a moment.

What Greenberger and others are serving up is the same-old, same-old that was discredited long ago. It’s too tedious to reprise the arguments: go back and look at my posts from 2006-2009 or so. The BS hasn’t changed, so the response to the BS hasn’t changed.

The quickest counterpoint: If–and even Paul Krugman and I agree on this, people, so the apocalypse must be nigh–speculators are driving prices above the competitive level determined by supply and demand fundamentals, (a) inventories increase, and (b) speculators hold the inventories.

Well, inventories are dropping to rock bottom levels in everything from oil, to diesel, to industrial metals. So (a) isn’t happening. And if (a) isn’t happening, (b) can’t happen.

QED.

But this would require Greenberger et al to have a modicum of understanding of economics. In fact, I once forced him to admit he has no such understanding.

We were witnesses at a House Ag Committee hearing on speculation and oil prices in July, 2008. Right about the time WTI hit its all time high. (I published a WSJ oped about the same time.). Greenberger and I were on a panel. He tried to make an argument that prices were irrational because they hadn’t gone down when the Saudis announced an increase in output. I pointed out that the real shortage was in low-sulfur crude (like WTI), driven in large part by Europe’s new low sulfur diesel rules. The Saudi oil was high in sulfur and didn’t address this issue at all, so it didn’t impact the prices of WTI and Brent (which are low sulfur).

In reply, Greenberger stuttered: “Well, I’m not an economist . . .” I interrupted: “That’s the first thing you’ve ever said that I agree with.” (Yeah. I know I’m bad. I can never pass up an easy shot.)

That still holds true. He ain’t an economist. He knows no economics. And anybody who listens to him bloviate about economics is wasting time and killing brain cells. (Though looking at his audience–Salon AKA Daily Dipshit readers, congressional Democrats–that latter is pretty much impossible.)

These geniuses think they’ve uncovered some damning new evidence. In footnotes:

But thanks to an obscure CFTC passage — Footnote 563, in regulatory guidance — buyers and sellers of oil and other commodities are outnumbered something like 10 to one by Wall Street traders, none of whom have a genuine buyer’s incentive to keep prices low, because few of them ever actually buy it; they mostly bet on it.

Uhm, that factoid, or a variant thereon, has been tossed around every time this tiresome debate has occurred. It was irrelevant every one of those times. It’s irrelevant now. It means nothing.

But some geniuses in Congress are going to flog this dead horse yet again. FFS.

But this is not the only idiocy that is being resurrected. Ron Wyden D-But you knew that-OR is proposing a revival of the windfall profit tax.

Another ’70s acid flashback. I’m trippin’, man!

pic.twitter.com/Wxw4EMk27e

— streetwiseprof (@streetwiseprof) June 14, 2022

Yeah that worked so well under Carter. Hey! Here’s an idea! Let’s reduce the incentive to invest by reducing payoffs when the investments are most valuable! What could go wrong?

Another hardy perennial: Our ranting senile narcissist in chief is demanding refiners cut prices and increase output. Er, look at the EIA capacity utilization numbers, dude. Refineries are operating flat out.

Apparently they did that, because today they mooted restricting exports instead. Another dumb idea.

And then there’s Ruh Ro Khanna:

Thanks for the heads up on "Ruh Roh" Khanna's insanity. I'll do a little more research and then bring the lumber to him. pic.twitter.com/WOn6Ls9l8X

— streetwiseprof (@streetwiseprof) June 3, 2022

h/t @CantillonCH

Khanna’s brainstorm is–get this–to have the government “buy the dips” and then sell commodities to consumers at low prices.

WHY HASN’T ANYBODY THOUGHT OF THIS BEFORE????

Well, because it’s so stupid only a California Democrat could come up with it.

Of the top of my head, Family Feud fashion, the top 4 reasons why this is stupid:

1. The best traders can’t time the market consistently. Why would anyone possibly believe government GS-13s or whatever could?
2. The government wouldn’t be a price taker–it would be driving prices.
3. Every trader in the world would be trying to front run the government. Talk about creating speculative opportunities! Speculate on what the government is going to do!
4. A California Democrat came up with it.

Bad economic times bring out bad economic ideas. Stupid never goes out of style in politics, and bad ideas never die. And that’s our reality today.

So today inflation as measured by the Consumer Price Index checked in at 8.6 percent annualized. Which is an uptick in the rate rather than the promised easing.

Sic transit transitory.

The Queen of Transitory, Janet Yellen (Jerome Powell being the King) acknowledged as much earlier this week in Congressional testimony, admitting that her prediction had been wrong. Whoopsie!

One wonders about her (and Powell’s and the rest of the herd’s) mental model of inflation, especially under current circumstances. The usual explanation is some version of the Phillips Curve inflation-unemployment tradeoff. Which is stupid because it is just a correlation, and a worthless one at that since it is about as stable as Amber Heard.

But even that idiocy obviously won’t fly here, so Yellen mumbled about COVID and supply chains and Putin and blah blah blah (as well as holding forth on gun control and abortion, which are OBVIOUSLY primary responsibilities of the Treasury Secretary). These explanations are also inadequate.

Insofar as COVID is concerned, arguably the policy response to it (not COVID itself) shifted back supply curves as stores were closed and people stayed home from work. But those restrictions peaked in early-2021 and have been easing then, so can’t explain by themselves accelerating inflation in the subsequent months.

Yes, COVID has had lingering effects on certain sectors that have constrained supply while demand has rebounded. For example, a lot of truckers that left the industry in 2020-2021 haven’t come back. Interestingly, trucking schools shut down during the pandemic, which has constrained the flow of new labor to the market. In industries such as lumber and oil refining, the largely policy-driven collapse in demand in 2020 led to actual disinvestment and a loss of capacity. We saw the impacts of that in the lumber market a year ago, and are seeing it in the markets for refined products now.

But those factors alone cannot explain the recent spikes: demand has to be part of the equation as well.

Also, supply constraints (and supply chain bottlenecks) cannot explain increases in the general price level, especially as measured by broader measures such as the Producer Price Index and the GDP Deflator. Here’s a straightforward example.

Consider computer chips, inadequate supplies of which hit the auto industry hard, and which are blamed as a major culprit for inflation. Yes, the chip supply constraint limited the production of new automobiles, raising the prices of both new and used cars (which are substitutes for new ones). But, the limitation on the output of automobiles reduced the derived demand for other automobile inputs, such as aluminum, steel, rubber, labor, and capital goods. Ceteris paribus, that should have put downward pressure on the prices of those inputs.

Put differently, bottlenecks increase prices on one side of the bottleneck relative to the prices on the other side. One cannot attribute a rise in the price level (in which the prices of most if not all goods and services are rising, albeit some more than others) to bottlenecks, at least not directly. Bottlenecks can cause prices to fall too. You can’t just look at the impact on the downstream side.

A more indirect story is that by limiting output (and therefore income) bottlenecks cause real income to be lower, thereby reducing the demand for real money balances. Given the nominal supply of money, the only way to equilibrate the now lower demand for real balances with a given nominal supply is to reduce the real value of the money stock by increasing the price level.

Color me skeptical that this can explain the magnitude of the inflation we’ve seen. (The Fed juicing base money by almost 50 percent in 2021 could have added to this impact.)

I therefore am deeply skeptical that supply constraints, attributable to COVID or otherwise, explain the broad rise in prices that has been accelerating over the past year plus.

What about Putin, Biden’s favorite scapegoat? Well, the Ukraine War doesn’t really explain the timing. Consider diesel prices.

There was a spike in the crack spread right at the time of the invasion in late-February, but that subsided quickly. The subsequent runup, especially the ramp-up in mid-April, is harder to ascribe to the war and almost certainly reflects some demand side factors.

Furthermore, it usually takes some time for upstream shocks to translate into higher prices at the consumer level (e.g., a wheat price shock impacting retail food prices). Meaning that a lot of the impact of a disruption first occurring in March is yet to have been fully felt. Good news all around, eh?

No, I think that the stock explanations that the likes of Yellen, Biden and the media fall back on to explain the accelerating inflation are woefully inadequate. Supply chain (and the effects of COVID thereon) in particular.

The most plausible explanation to me is the fiscal theory of the price level, developed formally some years ago by Thomas Sargent and recently studied deeply by John Cochrane. In a nutshell, the theory posits that the price level adjusts to equate the real value of government debt to the discounted real value of government primary surplus. Holding primary surplus constant, an increase in government obligations requires a price level rise to reduce the real value of outstanding debt by the amount of the new debt. Similarly, given the level of government debt, any reduction in expected future surpluses requires a rise in the price level. (The theory is obviously a lot more complicated: that’s a Cliffs’ Notes version of the Cliffs’ Notes of John’s book.)

The massive COVID-driven fiscal stimuluses of both Trump and Biden dramatically increased the nominal value of US government debt. Moreover, the clear preference of this administration and Congress is to expand government spending (and debt) further (e.g., student debt forgiveness, among other things). (It will be interesting to see what happens to inflation if there is a big shift in Congress in 2022.)

I would also suggest that the big regulation plus big “green” agenda pursued by this administration and Congress are also inimical to growth, and expectations about growth. (I put “green” in quotes because as I’ve written before, a monomaniacal focus on CO2 is not a balanced environmental policy, and is indeed inimical to the environment in many ways.)

The green agenda is particularly pernicious. BIden and others (not just in the US) keep yammering away about the wonderful transition to green energy that will occur. What this really means is a transition to more expensive energy and lower incomes. Sic transit transition? I wish.

Less growth means lower future GDP means less future government revenue means smaller primary surpluses.

Meaning that both from the debt side and the growth/surplus side the COVID and post-COVID years are, according to the fiscal theory of the price level, a recipe for large increases in the price level. We’ve seen just such an increase. The timing works out. The fact that the increase in prices is broad works out.

This administration–of which Yellen is unfortunately an accurate avatar–not only does not believe in the fiscal theory, but finds it an anathema because its implications regarding the need to restrain government spending and to jettison onerous regulations and its cherished CO2 agenda require it to become, well, Reaganites. So what is likely the right model of the current inflation will never be their mental model.

Which means we will not be able to say sic transit inflation anytime soon.

Gary Gensler is back, as clueless as ever. Perhaps in a future post I will discuss his malign proposal on corporate climate disclosure, but today I will focus on his latest brainwave: the restructuring of US equity markets.

In a speech, Gensler outlined his incisive critique of market structure:

“Right now, there isn’t a level playing field among different parts of the market: wholesalers, dark pools, and lit exchanges,” Gensler said in remarks delivered virtually for an event hosted by Piper Sandler in New York. “It’s not clear, given the current market segmentation, concentration, and lack of a level playing field, that our current national market system is as fair and competitive as possible for investors,” adding that there was a cost being borne by retail investors.  

“Level playing field” is a favorite trope of his, and of regulators generally. But what does it even mean in this context? Seriously–I have no idea. It’s just something that sounds good to the gullible that has no analytical content whatsoever. Yes, there are a variety of different types of market participants in competition and cooperation with one another. How does the existing setup disadvantage or advantage one group of participants in an inefficient way? How do we know that the current distribution of winners and losers does not reflect fundamental economic conditions? Gensler doesn’t say–he doesn’t even define what a level playing field is. He just makes the conclusory statement that the playing field isn’t level.

Furthermore, note the mealy mouthed statement “It’s not clear . . . that our current national market system is as fair and competitive as possible.” Well, then it’s not clear that it isn’t as fair and competitive as possible. And if Gensler isn’t clear about the fairness and competitiveness of the current system, how can he justify a regulator-mandated change in that system?

For God’s sake man, at least make a case that the current system is inefficient or unfair. If your case is bullshit, I’ll let you know. But to call for a massive change in policy just because you aren’t certain the current system is perfect is completely inadequate.

The Nirvana Fallacy looks good by comparison. At least the Nirvana Fallacy is rooted in some argument that the status quo is imperfect.

Foremost in GiGi’s crosshairs is payment for order flow (“PFOF”). This practice exercises a lot of people, but as Matt Levine notes, and as I’ve noted for years, it exists for a reason. Different types of order flow have different costs to service. Retail order flow is cheaper to trade against because retail traders are unlikely to be informed, which reduces adverse selection costs. PFOF is a way of segmenting order flow and charging retail traders lower prices which reflect their lower costs, in the current environment through zero (or very low commissions). This passes some (and arguably all) of the value of retail order flow to the retail traders.

The main concern over PFOF is that retail investors won’t see the benefit. Their brokers will pocket the payments they get from the wholesalers they sell the order flow to, and won’t pass it on to investors. Well, overlooking the fact that’s a distributive and not an efficiency issue, that’s where you rely on competition in the brokerage sector. Competition will drive the prices brokers charge customers down to the cost of serving them net of any payments they receive from wholesalers. In a highly competitive market for brokerage services, retail traders will capture the lion’s share of the value in their order flow.

So if you think retail customers are not reaping 100 pct of the benefits of PFOF (which begs the question of whether that’s the appropriate standard), then the focus should be on documenting some inadequacy of competition (which has NOT been done, and which Gensler does not even discuss); and if (and only if) that analysis does demonstrate that competition is inadequate, devising policies to enhance competition in the brokerage sector.

Only if (a) it is somehow efficient (or “fair”) for retail investors to reap 100 pct (or a large fraction) of PFOF revenues, (b) brokerage competition is inadequate to achieve objective (a), and (c) policies to enhance brokerage competition are inferior to banning or restricting PFOF is such a restriction/ban sufficient.

Does Gensler do any of that? Surely you jest. He says “unlevel playing field blah blah blah crack down on PFOF QED.” It is fundamentally unserious intellectual mush.

Gensler’s approach to equity market structure is disturbingly similar–and disturbingly similarly idiotic–to his approach to swap market structure in the Frankendodd days. As I (tediously after a while) wrote repeatedly while the CFTC was working on Swap Execution Facility regulations, Gensler favored a one-size-fits-all approach that failed to recognize that market structures develop to accommodate the disparate needs and preferences of heterogeneous traders. OTC and exchange markets served different clienteles and trading protocols and market structures were adapted to serving those clienteles efficiently. He did not analyze competition in any serious way at all. He did not address the Chesterton’s Fence question–why are things they way they are–before charging full speed to change them.

History is repeating itself with equity market structure. PFOF is an institution that has evolved in response to the characteristics of a particular class of market participants, (relatively) uninformed retail investors.

Crucially, it is an institution that has evolved in a competitive environment. There is value in retail order flows. There will be competition to capture that value. Considerable competition will ensure that retail investors will capture most of the value.

Gensler has proposed requiring routing all retail order flow through an auction mechanism where wholesalers will compete to offer the best price. The idea is that the auction prices will be inside the NMS spread, giving retail customers a better execution price.

But it’s a leap of faith to assert that this improvement in execution price will exceed the loss of PFOF that is passed back to investors through lower commissions. Will the auction be more competitive than the current market for retail order flow (including both the broker-wholesale and broker-customer segments)? Who knows? Gensler hasn’t even raised the issue–which demonstrates that he really doesn’t understand the real economic issues here. (Big shock, eh?)

And again, this means that the appropriate analysis is a comparative one focusing on competition under alternative institutional arrangements/market structures.

And insofar as competition is concerned, if auctions are such a great idea, why didn’t an exchange or an ECN or some other entity create one? Barriers to entry are low, especially in the modern electronic world.

I further note the following. One potential reason to eliminate or reduce PFOF that would actually be grounded in good economics is that segmentation of order flow exacerbates adverse selection problems on lit markets (exchanges) causing wider spreads there. However, the auction proposal would not mitigate that problem at all. The exacerbation of adverse selection is due to segmentation of order flow. The auction is just another way of segmenting order flow, and executing that order flow outside the lit exchange markets.

And here’s an irony. Assume arguendo that the auction does benefit retail investors–they capture more of the value inherent in their order flow. That would tend to lead to more order flow being directed to the auction market, and less to the lit markets. This would increase adverse selection costs in lit markets, exacerbating the inefficiencies of segmentation.

Nah. GiGi hasn’t thought that through either.

Talleyrand said of the Bourbons: they have learned nothing, and they have forgotten nothing. That’s Gary Gensler in a nutshell. He hasn’t learned any real economics, especially the economics of market structure and competition. But he hasn’t forgotten that he knows best, and he hasn’t forgotten the things that he knew that just aren’t true. That is a poisonous combination that damaged the derivatives markets when he was CFTC chair. But Gensler figures his work isn’t done. He has to damage the equity markets too based on his capricious understanding of how markets work–which is really no understanding at all.