Brent traded with a 66 handle for most of today. I am sure that Putin was not getting his kicks on Brent 66.
But no worries. It didn’t stay there long: it’s now trading at a 65 handle.
Going down, down, down, in a ring of fire.
Following the lead of Bank of New York, State Street announced that it is exiting the swaps clearing business:
State Street (STT) Corp. is closing down its swaps business after clients said new regulations steered them away for using the products.
The bank will shutter its U.S. business for clearing swaps early next year and will shelve plans to start a similar operation in Europe, Anne McNally, a spokeswoman for the Boston-based company, said in an e-mail statement today.
State Street will instead focus on trading other types of derivatives, particularly more traditional exchange-traded futures, that have not been subject to broad new regulations imposed since the 2008 financial crisis.
“Due to market and regulatory factors, our clients have largely evolved their investment strategies towards the use of futures and away from” over-the-counter derivatives, McNally said in the statement.
From even before Frankendodd was passed, I predicted that the swap clearing firm business would be highly concentrated and dominated by the major dealers who had dominated the OTC market. Indeed, I argued that the regulatory overhead created by Frankendodd would actually tend to increase scale economies and make the clearing services business more concentrated and connected.
But Gensler, with the vocal support of BNY, State Street, and Ken Griffen of Citadel-and also MF Global-argued that there was a clearing cabal of dealer firms that was was creating unnecessary barriers to entry into clearing. BNY and State Street claimed that the dealers were forcing ICE Clear to require members to have excessively large amounts of capital, an this prevented them from becoming clearing members. Tear down those walls, and doughty entrants like BNY and State Street and Newedge and others would make the clearing business far more competitive.
This view was channeled in a NY Times story written by Louise Story almost exactly four years ago: I criticized Story’s story pretty harshly. Reflecting this view, the CFTC rules substantially eased the capital requirements and other requirements to become clearing members. Gensler, BNY, STT, etc., thought that this would lead to a much less concentrated, much more competitive clearing business.
But this was to misunderstand the economics of clearing, clearing firm scale and scope economies, and how the complicated regulatory structure CFTC put in place exacerbated these scale economies. Even futures clearing (which is substantially simpler than swaps clearing) has become much more concentrated over the years. Only the truly huge can survive.
BNY and State Street tried, and failed. They couldn’t overcome their inadequate scale even though they could offer complementary collateral management and custodial services. They were just too small.
State Street announced that it was going to focus on futures clearing, but even here it faces problems. It just lost its biggest customer (Pimco). Moreover, there are scope economies between futures clearing and swap clearing. State Street will be at a disadvantage relative to say Goldman, which can offer customers who trade both swaps and futures one stop shopping for clearing services at lower cost because of these scope economies.
So much for clearing mandates making the financial markets less concentrated and less interconnected: instead we (predictably and predicted) have a derivatives marketplace dominated by a small number of CCPs each dominated by a small number of large bank clearing members who are members of all major CCPs, which makes entire world clearing space concentrated and highly interconnected. That anybody thought the post-crisis regulations would reduce concentration and interconnections in swaps markets is illuminating. It demonstrates that those primarily responsible for implementing Frankendodd didn’t really understand the economics of what they were attempting to regulate, and as a result, they didn’t really know what they were doing. They thought they were striking a blow against too big to fail and a collusive dealer oligopoly. They were wrong, and State Street’s abandonment of its swaps clearing effort is just further proof of how wrong they were.
Putin’s LSD flashback of a presidential speech continues to attract comment, most of it critical, bemused, or shocked. (Maybe the deviously clever CIA has drugged him!)
His remarks about the holiness of Crimea have sparked the most commentary. A common reaction is that it was a misstep, not because it was delusional, but because it affirmed Ukraine’s claim over Crimea because the sainted Vladimir the Great* was Grand Prince of Kiev:
“Prince Vladimir was Kievan, not Muscovite, and this probably only underlines the right of Kiev and not Moscow to Crimea,” Andrei Zubov, a Russian historian and political scientist, said in an interview.
This is a serious error, because it presumes that Putin believes that the Ukrainian government in Kiev is legitimate, and that Ukraine is an independent nation. He has made it abundantly clear that he believes nothing of the kind. He believes the exact opposite, in fact.
One historian quoted in the linked Bloomberg article indicates that Kiev is of greater significance to Russian Orthodox believers than Crimea. Exactly! Meaning that if Moscow has a sacred duty to claim Crimea, it has an even greater duty to liberate Holy Kiev from the godless Nazi American puppets.
In other words, Putin’s sanctification of Crimea has very dire implications for Kiev.
Of course the reason that Putin uses such hyperbole about Crimea is that it is all he has to show for his machinations of the last year. The price Russia has paid is high, and growing. Hence he must inflate the value of Crimea as well to make it all seem worthwhile.
The rather pathetic economic parts of the speech-which filled up almost half of it-also drew substantial criticism. Commenter Pat right points out that I did not mention one important part:
I propose using our reserves (above all, the National Welfare Fund) to implement a programme for recapitalisation of leading domestic banks, with funding to be provided under clearly specified conditions to be funnelled into the most significant projects in the real economy at affordable interest rates. Furthermore, banks will have to introduce project financing mechanisms.
The use of reserves means investing dollars and euros into “leading domestic banks,” which presumably means Sberbank and VTB, and perhaps some others. As Pat notes, this is a stunning confession of vulnerability.
What will the banks use these dollars and euros for? They can’t fund their current forex needs due to sanctions. So presumably, the “leading banks” would use the dollars and euros received from the central bank to repay maturing forex liabilities. Thus, the forex assets on the RCB’s balance sheet (e.g., Treasury securities) would be replaced with dollar/euro loans to the banks. How are the banks going to pay these back? This may buy some time, but eventually Sberbank, VTB, and any others receiving the RCB funds will have to raise dollars and euros to pay back the loan, or the RCB will have to extend the loan, or the RCB is going to have to write down the loan in whole or in part. Given that the end of sanctions is nowhere in sight, the first alternative is unlikely. Meaning that the RCB will be replacing high quality dollar and euro assets with very risky dollar and euro assets. The likely outcome is a reduction in CB reserves.
The Central Banks is also spending money to try to prop up the Ruble (or is that the Rubble?) It intervened to stem the post-speech bloodbath on Wednesday, and supposedly spent $1 billion (on top of $700 million spent earlier in the week). It evidently intervened today as well; no reports yet on how much money it spent today.
Drip. Drip. Drip.
Of course, there are other hands out, begging for funds from the reserves. Rosneft, for interest, and other large “national champions.” Again, this would involve the RCB exchanging high quality dollar assets for the liabilities of companies of marginal credit quality, and who can exert political pressure to get favorable pricing terms, and to stall repayment later.
Drip. Drip. Drip.
And of course there are pensions and other “social obligations”.
Drip. Drip. Drip.
Is it any wonder then, why Russian CDS are trading at over 370 bp, wide of every other nation in the world except for Argentina, Venezuela, and Ukraine(!)? Great company, eh? To put things in perspective, Kazakhstan is trading at 15obp, Russia at about 370.
Russia’s government debt yields have gone stratospheric. The 10y is now trading at 11.76 percent. Russia, in other words, dreams of being Greece.
And Putin has no clue as what to do.
Putin also praised Russian athletes, especially the victors at Sochi (no mention of the hockey team, though):
The 2014 Winter Olympics in Sochi played an enormous role in promoting a healthy lifestyle. Once again, I’d like to congratulate our Olympians on their success.
This paean also fell flat, given another news story claiming that virtually all Russian athletes dope:
As many as 99% of Russian athletes are guilty of doping, a German TV documentary has alleged.
The programme claims that Russian officials systematically accepted payment from athletes to supply banned substances and cover up tests.
The documentary, shown by Das Erste, also implicates the International Association of Athletics Federations (IAAF) in covering up the abuse.
The Russian Athletics Federation (RAF) says the allegations are “lies”.
However, both the IAAF and the World Anti-Doping Agency (Wada) have said they will look into the claims.
The IAAF said it had “noted a number of grave allegations” and revealed that an investigation into some of the claims was “already ongoing”.
The BBC has not independently verified the documentary’s allegations and is awaiting responses from athletes targeted in the programme.
In the documentary, broadcast on Wednesday, former discus thrower Yevgeniya Pecherina claimed that “most, the majority, 99%” of athletes selected to represent Russia use banned substances.
“You can get absolutely everything,” added the 25-year-old Russian. “Everything the athlete wants.”
Pecherina is currently serving a 10-year doping ban that is due to end in 2023. She had already been handed a two-year suspension in 2011.
The entire speech, in other words, would have done Potemkin proud.
* Methinks Putin wants to appropriate that title.
Putin gave his annual Presidential address today. It was the by now familiar combination of anti-American paranoia, historical fiction, hyper-nationalism, and economic idiocy.
The most notable thing about the speech is how much in Putins head the US is. Everything that ails Russia originates in the US. A sample:
Speaking of the sanctions, they are not just a knee-jerk reaction on behalf of the United States or its allies to our position regarding the events and the coup in Ukraine, or even the so-called Crimean Spring. I’m sure that if these events had never happened – I want to point this out specifically for you as politicians sitting in this auditorium – if none of that had ever happened, they would have come up with some other excuse to try to contain Russia’s growing capabilities, affect our country in some way, or even take advantage of it.
The policy of containment was not invented yesterday. It has been carried out against our country for many years, always, for decades, if not centuries. In short, whenever someone thinks that Russia has become too strong or independent, these tools are quickly put into use.
However, talking to Russia from a position of force is an exercise in futility, even when it was faced with domestic hardships, as in the 1990ies and early 2000ies.
We remember well how and who, almost openly, supported separatism back then and even outright terrorism in Russia, referred to murderers, whose hands were stained with blood, none other than rebels and organised high-level receptions for them. These “rebels” showed up in Chechnya again. I’m sure the local guys, the local law enforcement authorities, will take proper care of them. They are now working to eliminate another terrorist raid. Let’s support them.
Let me reiterate, we remember high-level receptions for terrorists dubbed as fighters for freedom and democracy. Back then, we realised that the more ground we give and the more excuses we make, the more our opponents become brazen and the more cynical and aggressive their demeanour becomes.
Despite our unprecedented openness back then and our willingness to cooperate in all, even the most sensitive issues, despite the fact that we considered – and all of you are aware of this and remember it – our former adversaries as close friends and even allies, the support for separatism in Russia from across the pond, including information, political and financial support and support provided by the special services – was absolutely obvious and left no doubt that they would gladly let Russia follow the Yugoslav scenario of disintegration and dismemberment. With all the tragic fallout for the people of Russia.
In Leninist terms, the US is Who, Russia is Whom. The object, not the subject. Putin even blames the US for Chechen terrorism. The last paragraph is a great example of Putin’s historical distortions. In fact, the US was deathly afraid of a chaotic, Yugoslavia-like break up of a nation with thousands of nukes and massive stocks of chemical weapons: recall that Bush I even opposed the breakup of the USSR, let alone Russia.
The irony, of course, is that whereas Putin (and Russians generally) imagins that every American goes to bed at night and wakes every morning scheming to subjugate Russia and rob it of its riches, the truth is that 99+ percent of all Americans couldn’t care less about it. That’s a truth Putin and other Russians just can’t handle. So they construct this alternate reality in which the US is obsessed with Russia.
The cooperation on “the most sensitive issues” that Putin’s mentions involved mainly the Nunn-Lugar Cooperative Threat Reduction Program, which involved the US spending billions of dollars in Russia to secure nukes. Moreover, the Russian Federation assumed the USSR’s Security Council seat (with its veto), and was admitted to international organizations such as the G-8 for which it was manifestly unqualified.
Putin’s historical revisionism did not stop there. He elevated Crimea to a central-indeed holy-place in Russian history:
All of this allows us to say that Crimea, the ancient Korsun or Chersonesus, and Sevastopol have invaluable civilisational and even sacral importance for Russia, like the Temple Mount in Jerusalem for the followers of Islam and Judaism.
The equation of Crimea to the Temple Mount is, well, original. It is bizarre that Putin makes the “Temple Mount” sacral for Muslims, and puts them ahead of Jews. Yes, al Aqsa mosque is on what the Jews (with abundant historical and archeological support) claim to be the site of their Temple, but Islam’s veneration of the site has nothing to do with it being the “Temple Mount”, and indeed, there is an active campaign to deny that this was the site of the Jewish temple.
A good rule for reading the speech is to play the opposite game: take what Putin says, and interpret it the opposite way. There are far too many cases of this to cover them all, so I’ll just mention a couple of the greatest hits:
I could go on. And on. And on.
Some commentary I read said that Putin did not mention anti-corruption efforts, but this isn’t true. He did, but very obliquely:
A huge economic reserve is lying on the surface. It is enough to look at government-financed construction projects to see this. At a recent forum of the Russian Popular Front, examples were cited of funds being invested in grandiose buildings or the construction costs of same-type – I want to emphasise this point – facilities, differing several times over, even in neighbouring regions.
I believe that it is necessary to phase in a system of a single technical contracting authority, and centralise the preparation of standard projects, construction documentation and the choice of subcontractors. This will make it possible to overcome the existing disparity in construction costs and ensure significant saving of public funds spent on capital construction projects, between 10 percent and 20 percent. This practice should be extended to all civil construction projects financed from the federal budget. I instruct the Government to submit relevant proposals.
Yesterday, the Prime Minister and I discussed this topic. Of course, there are some pitfalls here, and knowing what they are, it is important to avoid them, move with caution, implement several pilot projects in several regions and see what happens.
However, leaving the situation as it is today is no longer an option. As I said earlier, construction costs of similar facilities in neighbouring regions differ many times over. What is this?
Diversion or embezzlement of budget funds allocated for federal defence contracts should be treated as a direct threat to national security and dealt with seriously and severely, as in the suppression of the financing of terrorism. I mention this for a reason.
I don’t think there is anything to hide or gloss over here. We have just held our traditional meeting in Sochi under the leadership of the Defence Ministry, combat arms and services commanders and leading defence company designers.
On certain positions, prices double, triple or quadruple, and in one case they grew 11 times. You realise that this has nothing to do with inflation or with anything, considering that practically 100 percent of funding is provided in advance.
In other words, state construction projections and defense contracting are rife with corruption. But Vlad has it under control. He has decreed more intensive oversight of contracting. That’s never been tried before, surely, and just as surely will work like a charm.
Putin acknowledged the fraught economic situation, including the Ruble’s decline. In that fine demagogic tradition, he rounded up the usual suspects: speculators:
Today we are faced with reduced foreign exchange proceeds and, as a consequence, with a weaker national currency, the ruble. As you are aware, the Bank of Russia has switched to a “floating” exchange rate, but this does not mean that the Bank of Russia has withdrawn from controlling the exchange rate, and that the ruble may now be the object of unchecked financial speculation.
I’d like to ask the Bank of Russia and the Government to carry out tough and concerted actions to discourage the so-called speculators from playing on fluctuations of the Russian currency. In this regard, I’d like to point out that the authorities know who these speculators are. We have the proper instruments of influence, and the time is ripe to use them.
At this point, Central Bank head Nabiullina was probably looking for sharp objects to jab into her carotid artery. The “proper instruments of influence”-presumably burning reserves to buy Rubles and hiking interest rates-will dent Russia’s reserves and hammer its already reeling economy.
Hilariously, the moment Putin mentioned the Ruble, it resumed its inexorable decline, going from 52.65 before he opened his mouth to 54.45 (more than 3 percent) by the end of the trading day.
Putin recognized the inflationary impact of the Ruble’s decline, but he has a solution! Controlling prices:
Of course, a weaker ruble increases the risk of a short-term surge in inflation. It’s imperative that we protect the interests of our people, first and foremost, those with low incomes, and the Government and the regions must ensure control over the situation on the food, medicine and other basic goods markets. I’m sure this can be done without any problem, and it must be done.
Yes. It can be done “without any problem,” just like it has been since Diocletian.
Putin also mentioned capital flight, and proposed a complete amnesty to those repatriating their money, no matter how dirty it is:
Of course, it is essential to explain to the people who will make these decisions what full amnesty means. It means that if a person legalises his holdings and property in Russia, he will receive firm legal guarantees that he will not be summoned to various agencies, including law enforcement agencies, that they will not “put the squeeze” on him, that he will not be asked about the sources of his capital and methods of its acquisition, that he will not be prosecuted or face administrative liability, and that he will not be questioned by the tax service or law enforcement agencies. Let’s do this now, but only once. Everyone who wants to come to Russia should be given this opportunity.
We all understand that the sources of assets are different, that they were earned or acquired in various ways. However, I am confident that we should finally close, turn the “offshore page” in the history of our economy and our country. It is very important and necessary to do this.
Somehow I doubt that anyone who spirited any ill-gotten gains-or even honestly-gotten gains-out of Russia will put much faith in those assurances, so don’t look for the money to start flowing east anytime soon.
The last half of the speech focused on economics, and presented a laundry list of goals without anything resembling even an outline of how to achieve them. Productivity growth, diversifying the economy, import substitution, high tech exports, and on and on and on. But unless Putin gets some ruby slippers or finds a genie who grants unlimited wishes, none of this is going to happen. This part of the speech was just another spin of Putin’s Hamster Wheel From Hell.
Nothing in the speech should be a surprise. Putin has no economic ideas, and just repeats the same nostrums year after year after year. In foreign policy, he is doubling down on truculence and confrontation. In other words, stagnation at home and aggression abroad. The foreign adventures will rest on a crumbling economic foundation. Collapse is inevitable. The only problem is that Putin can wreak much havoc and inflict much harm before the inevitable occurs.
The Soviet Constitution was full of guarantees of individual rights and democratic political processes. But of course it was honored far more in the violent breach than the promise.
This comes to mind when reading Transparency International’s most recent rankings, which put Rosneft above ExxonMobil and Gazprom on a par with Chevron. The main reason for the Russian companies’ high ranking is their formal, written anti-corruption rules.
This is so farcical that I am tempted to demand transparency from TI: How much money did you get from the Russians?
If you want to understand Gazprom’s transparency and the complete disconnect between its formal anti-corruption policy and its corrupt deeds, this Reuters report is a must read. It details how Gazprom entered into completely opaque deals with Ukrainian oligarch Dmitry Firtash. In these deals, Gazprom sold to Firtash entities at very low prices, and Firtash then sold at huge markups to Ukrainian companies:
According to Russian customs documents detailing the trades, Gazprom sold more than 20 billion cubic meters of gas well below market prices to Firtash over the past four years – about four times more than the Russian government has publicly acknowledged. The price Firtash paid was so low, Reuters calculates, that companies he controlled made more than $3 billion on the arrangement.
There is a huge omission in the Reuters report: it doesn’t trace where the money went. Gazprom did not do this because it was inordinately fond of Dmitry Firtash. The $3 billion was certainly split between Firtash, and people connected to Gazprom. (One wonders if the initials of the person getting the biggest cut are VVP.)
This isn’t a slam on Reuters: I am sure that they tried to follow the money, but it proved impossible in the utterly dark world of Cypriot, Russian, and Ukrainian companies. Which demonstrates just how farcical the TI report is.
It’s not like no one knew that there were murky dealings between Gazprom and Firtash, even though Reuters has provided valuable detail. Enough was known to conclude that Gazprom’s formal anti-corruption policy was the corporate equivalent of the Soviet Constitution. Fine sounding words on paper bearing no relationship to reality whatsoever.
Update. Jake Barnes points out in the comments some other things that show how risible this list is. It ranks ENI number one: Italy is notorious for corruption at all levels, and for further confirmation see Nick’s comment about investigating corruption in Italy. Also, TI ranks Petrobras above Exxon, Shell, and Chevron. You know Petrobras. It’s the company that is eyes deep in a corruption scandal that threatens to blow up the entire Brazilian political class.
Siemens is also high on the list. Siemens paid the highest Foreign Corrupt Practices Act fine in history, and has been enmeshed in what has been called A World Wide Web of Corruption Just Google “Siemens corruption” and you’ll have hours of reading fun! It is involved in corruption in Brazil. And of course it is deeply enmeshed in Russia. Take that into account whenever you hear German execs, and especially Siemen’s execs, whinging about sanctions against Russia.
Which makes this truly hilarious. Siemens runs the International Anti-Corruption Academy:
Project Summary
The International Anti-Corruption Academy (IACA) is an international centre of excellence for a new and holistic approach to fighting corruption.
This, plus the TI report, makes it clear that hypocrisy and corruption go hand-in-hand.
The bottom line is quite clear: the Transparency International rankings are an utter travesty that bear no relationship to reality.
There are idiots. There are morons. Then there are gold bugs. It would be a full time job fighting their insanity, and doing so is like kicking a manure pile: it raises a stink and a cloud of flies. But sometimes it just has to be done.
Recently it was reported that Russia has been buying gold at a furious rate. Gold now represents almost 11 percent of the country’s reserves.
The gold bugs buzzed in glee. To them, it represented another nail in the coffin of the doomed dollar, and Putin was an economic genius making a decisive move in his war against the US. And of course, Zero Hedge peddled this line (by posting an article by a bug site):
Russia’s central bank Governor Elvira Nabiullina told the lower house of parliament about the significant Russian gold purchases. She is an economist, head of the Central Bank of Russia and was Vladimir Putin’s economic adviser between May 2012 to June 2013.
This announcement is unusual and to our knowledge has not happened before. The announcement by the Russian central bank governor was likely coordinated with Putin and the Kremlin and designed to signal how Russia views their gold reserves as a potential geopolitical and indeed financial and currency war weapon.
(The comments are priceless.)
Reserve Currencies In History – Dollar’s Demise Cometh
Central banks continue to be buyers of gold at these attractive price levels. As sanctions, economic war and currency wars intensify we expect Russian and Russian ally buying of gold reserves and selling of dollars to intensify. Aggressive buying of gold and particularly silver by Russia will likely lead to defaults on the COMEX gold and silver futures exchanges and potentially an international monetary crisis.
See important guide to Currency Wars here Currency Wars: Bye, Bye Petrodollar – Buy, Buy Gold
The truth, of course, is much different. This is actually another symptom of Russian economic desperation, rather than a diabolically brilliant blow against the dollar:
Russia’s central bank has been forced to step up its gold buying this year to absorb domestic production that Western sanctions are making it hard for miners to sell abroad, and to boost liquidity in its foreign reserves, sources said.
Most Russian gold mine production is sold to domestic commercial banks, such as Sberbank or VTB, which can then sell the metal on to either the central bank or to foreign banks.
This year, sources say, foreign banks are holding off buying Russian gold after Western powers implemented sanctions against the country over the Ukraine crisis.
The central bank has therefore had no choice but take domestic mine production that cannot be sold to foreign banks, two sources said, and has bought most of the metal that commercial banks had available.
. . . .
While the sanctions do not expressly prohibit them from buying gold, Western banks are cautious over any business done with their Russian counterparts, sources said.
What’s more, the Russian CB can pay for the domestically-produced gold with rubles. It’s the only way it can really bolster reserves without selling rubles for dollars or euros.
Thus, rather than a blow against sanctions, it is yet another action forced on the Russians by them.
It’s also interesting to note that gold hasn’t been a great investment for the Russians. Gold purchase data is available on a quarterly basis. Assuming that Russia purchased gold in a quarter at the average price during those three months, based on IMF data and the current spot price of gold, I estimate that Russia has lost well over $1 billion on the gold purchased since 2009.
Speaking of Russia’s reserves, this piece by Anders Aslund is well worth reading. When he breaks down the numbers, Russia’s vaunted reserves look much less impressive. In particular, Anders points out that the National Wealth Fund and the Reserve Fund are not under control of the Central Bank, and committed to supporting pensions and the federal budget. Moreover, sharks like Sechin are already laying claim to big pieces of it. Further, Russia’s large external corporate debt cannot be refinanced due to sanctions, and payment commitments over the near to medium term will rapidly draw down the remaining reserves, and the current account surplus will fall substantially due to lower oil prices.
One last gold item. ISIS are gold bugs. They have announced the creation of a currency, based on circulating gold, silver, and copper coins. They really believe the gold bug stuff. They are aficionados of ZH and currency warrior James Rickards (whose mug pops up everywhere, including on mainstream media websites like WaPo, in advertisements for his buy gold, buy a bunker, for the end is nigh book).
I was particularly amused by this:
The gold and silver purchases are strange enough, he said. “But what is striking is how elements of the organization have seized power transmission cables and other copper components,” Obeidi said. The fighters are burning the insulation off the cables and harvesting the copper [to fashion into coins], he said.
So they’ll have metallic coins but no electricity. Which may be OK with them, given how much they want to live a 7th century lifestyle.
This is great news. If a shambolic Iraqi military can’t destroy the Islamic State, economic mismanagement based on wacko gold bug theories might achieve that result instead. I suggest that the CIA carry out a mission to translate Rickards’ Currency Wars into Arabic, and clandestinely distribute it in ISIS-controlled lands. A very cheap, but very effective, form of subversion.
Bloomberg reports that Putin “stunned advisors” by backing an anti-corruption campaign:
Vladimir Putin sat motionless as the minister, seizing on the Russian leader’s first major meeting with his economic team in months, itemized the challenges.
A recession is imminent, inflation is getting out of hand and the ruble and oil are in freefall, Economy Minister Alexei Ulyukayev told Putin, according to people who attended the meeting at the presidential mansion near Moscow in mid-October. Clearly, Ulyukayev concluded, sanctions need to be lifted.
At that, Putin recoiled. Do you, Alexei Valentinovich, he asked, using a patronymic, know how to do that? No, Vladimir Vladimirovich, Ulyukayev was said to reply, we were hoping you did. Putin said he didn’t know either and demanded options for surviving a decade of even more onerous sanctions, leaving the group deflated, the people said.
Days later, they presented Putin with two variants. To their surprise, he chose an initiative dubbed “economic liberalization,” aimed at easing the financial burden of corruption on all enterprises in the country, the people said. It was something they had championed for several years without gaining traction.
The policy, which Putin plans to announce during his annual address to parliament next month, calls for a crackdown on inspections and other forms of bureaucratic bullying that cost businesses tens of billions of dollars a year in bribes and kickbacks, the people said. It entails an order from the president to end predatory behavior, with prosecution being the incentive for compliance, they said.
A few comments.
First, Putin’s resignation to the persistence of sanctions means that he has no intention of backing down in Ukraine or elsewhere. No surprise there.
Second, the motives behind the anti-corruption campaign are much more equivocal than the article suggests. Although the ostensible reason for it is to ease burdens on the Russian economy, there is obviously a political dimension too. Such campaigns can be a way of asserting power over the bureaucracy, maintaining political discipline, and strengthening the vertical of power. Putin is obviously paranoid about asserting control throughout Russian society, especially now, and especially in times of economic difficulty, and maintaining a tight rein on the bureaucracy can advance that objective. “Maintaining party discipline” through draconian measures has a long history in Russia and the USSR. Does the word “purge” come to mind? And Putin has a contemporary example as well: China’s Xi is using an anti-corruption campaign to achieve dominance over the Chinese political and economic elites.
Third, this will no doubt be popular, because it is directed at the kinds of corruption that plagues Russians in their everyday lives and business. This very fact could mean that Putin’s move betrays a certain uneasiness about the durability of his popularity, currently at stratospheric levels (if polls are to be believed). This is a way of shoring up his popular flank.
Fourth, these things said, the prospects for success are rather dim. Corrupt bureaucrats and police are like cockroaches. Yes, you can squash or poison quite a few, but the species will survive and even thrive. Indeed, these campaigns paradoxically create new corruption opportunities: the enforcers can extort from the targets in exchange for turning a blind eye. Thus, any initial burst of popular enthusiasm is likely to lapse into cynicism and resignation.
Fifth, even if retail corruption is targeted, I seriously doubt that wholesale corruption at the elite level will be touched, at all, except as a weapon to destroy political enemies, or those who Putin believes have ideas about grabbing for political power, or who hold assets that more favored individuals covet.
Sixth, Putin apparently rejected a “mega-projects” alternative advanced by Timchenko. This only shows that Putin is not completely delusional. For given that he realizes that as a result of sanctions and low oil prices the Russian economy is in a precarious state, he knows that mega-projects are unaffordable. As a great illustration of that, after canceling five previous auctions, today Russia tried to auction $100 million in government debt. It ended up selling $10 million.
In other Putin news, he whined about American attempts to subdue Russia. Yeah, as if Obama is obsessed with exerting American hegemony, and as if Obama gives a damn about Russia (being in this way, any was, at one with the vast majority of Americans). Putin (and Russians) are so convinced of their importance, that they imagine that others must be too. Putin also demanded that relations be based on “respect.” Mobsters and gangstas are obsessed with respect, so Putin is only acting according to type.
Lastly, Putin’s mouthpiece Peskov demanded that Nato give Russia a “100 percent guarantee” that the organization would not admit Ukraine. Apparently Nato’s approach to the Russian border makes the poor dears “nervous,” notwithstanding that Nato’s capability to and interest in projecting force into Russia is zero. Truth be told, other than the US, Nato’s military capability is zilch: with the exception of the (shrinking) British army and parts of the French, European Nato troops couldn’t fight their way out of a “piss-soaked paper bag” (in Patton’s graphic but timeless phrase). And perhaps someone should remind Peskov and his boss that Ukrainians had shown zero interest in joining Nato until Russia invaded. Go figure.
When he said that oil shipped from Canada to the Gulf Coast would be “sent everywhere”, Obama was regurgitating a mantra of the enviro left and mainstream media outlets (but I repeat myself). Remarkably, his own government disagrees.
The State Department’s very detailed analysis of KXL addressed this specific issue in the market analysis chapter of the Environment Impact Statement. The relevant section, on page 1.4-140 specifically notes that it had received comments throughout the review process claiming that KXL-shipped oil would be exported, and that it felt obliged to respond to these claims. It did so, and delivered a smackdown:
However, such an option appears unlikely to be economically justified for any significant durable trade given transport costs and market conditions.
. . . .
In short, while it is possible that some cargos of heavy WSCB crude could be exported, it is unlikely for a range of economic factors that any such trade flows would be significant or durable in the long run
The supporting analysis basically repeats and supports the arguments I made in my Keystone posts. This analysis is based on an exhaustive review of available data and a firm grasp of refining and transportation economics. Unlike Obama’s, in other words. The analysis states that two alternative models, including one from the EIA (another part of the government) predict no appreciable exports of Canadian heavy crude piped to the US via Keystone, and that this conclusion is robust to various assumptions about available transportation options.
To summarize, President Science!© did not perform, or rely on, any systematic economic analysis when he delivered his verdict on the economics of KXL. He just parroted claims from NRDC, Earth First! and the like that had been thoroughly debunked by a careful analysis of US government economists.
Why does anyone pay the slightest attention to anything he says? He speaks authoritatively about things of which he knows nothing. He is not just ignorant, he is willfully ignorant. His own government did the work that definitely demonstrates the falsity of his arrogantly-delivered claims. Yet he and his acolytes presume to lecture the hoi polloi about Science!©
As an aside, a bill to authorize KXL went down in the Senate yesterday, delivering a likely final blow to the dead parrot candidacy of Louisiana’s Mary Landrieu. Her soon to be erstwhile colleagues preferred to kick her to the curb, rather than force Obama to veto KXL. Now, anyways, because the Republicans will almost surely pass the bill in January, after Mary has moved back to Louisiana, that is if she can bear to leave her DC mansion.
The best part of the day was that a group of Rosebud Sioux (you read about them here first!) interrupted the session with protest chants while Elizabeth Warren was presiding. Senator Warren was not amused. Perhaps if they’d chanted in Cherokee she would have been more sympathetic.
Tweeting my post about Obama’s Keystone mendacity unleashed a vortex of leftist idiocy that was stunning even by Twitter standards. Between a visceral and unthinking hatred of Keystone, and the need to rally to the defense of their cult leader (who also has a visceral and unthinking hatred of Keystone), the lunatics felt compelled to swarm from the hive.
One idée fixe was that Obama was right, and the oil is just going to travel down Keystone (spilling huge quantities all the way!), be put on tankers, and sail on its merry way to furriners abroad, especially the Chinese. The fact that the terminus to KXL is located at the heart of the largest concentration of refineries in the US, and refineries tailored to refine heavy crude to boot, could not shake them from their conviction. Apparently refiners in Texas are just going to stand by the Houston Ship Channel and wave as tanker after tanker of oil that they could be refining passes them by on its way to distant markets with much less efficient refineries. It’s rather amusing that some people believe (I won’t say think) that 830kbd is somehow supposed to sneak past the world’s largest concentration of sophisticated refineries tailor-made to process it, and end up in China.
Nor could they be budged by the fact that large quantities of Canadian crude, including oil sands, are already being shipped (via rail, barge, and rail then pipeline) to PADD 3 refineries and refined here. (Canadian oil sands already represent the largest single source of crude imported to, and refined in, the US.) Nor could geography sway them: if you want to ship oil from northwestern Canada to China, going via the Gulf would be a pretty stupid way to do it. Far better to pipe it to Canada’s Pacific coast: indeed, Canada has suggested that’s what it will do if KXL is blocked, which indicates that even that is the 2d best alternative, the best being to refine it in the US. If heavy oil is to go to China, it’s cheaper to substitute Canadian oil for Venezuelan, and have the Bolivarians ship it to the Maoists. (One Einstein said that the expansion of the Panama Canal proves that the oil is destined for China. Er, no. Even after expansion, the Canal can handle only ships with about 1/2 to 1/3 of the capacity of a VLCC that is the most efficient way to ship crude long distances.)
A few grudgingly conceded that it would be refined in the US, but that wouldn’t benefit Americans, because then the refined products would be snapped up by the voracious Chinese. That there is EIA data showing that 80 percent of US refinery output is consumed domestically, and that less than 4 percent of US refinery exports (and hence less than 1 percent of refinery output) goes to China (and most of that from PADD 5 on the West Coast) made not a dent. And irony is apparently lost on some people: Canada is the 2d largest importer of US refined products. Meaning that a gallon of Keystone crude is far more likely to wind up in a Canuck gas tank than a Chinese one.
One genius Tweeted a Guardian article saying that most of Keystone oil would be exported. Obama is right! QED! Except that the article clearly meant that it would be exported from Canada. Or would that be Cana-duh?
Nor did the fact that transport of oil by rail is much more dangerous, and poses far greater environmental hazards have the slightest impact on those who are allegedly so sensitive to the fraught state of the planet.
Then it got really nuts. It became all about the Indians. Apparently the ogichidaag* of the Rosebud Lakota Sioux tribe have stated that the House’s approval of Keystone was an act of war:
“The House has now signed our death warrants and the death warrants of our children and grandchildren. The Rosebud Sioux Tribe will not allow this pipeline through our lands,” said President Scott of the Rosebud Sioux Tribe. “We are outraged at the lack of intergovernmental cooperation. We are a sovereign nation and we are not being treated as such. We will close our reservation borders to Keystone XL. Authorizing Keystone XL is an act of war against our people.”
In February of this year, the Rosebud Sioux Tribe and other members of the Great Sioux Nation adopted Tribal resolutions opposing the Keystone XL project.
“The Lakota people have always been stewards of this land,” added President Scott. “We feel it is imperative that we provide safe and responsible alternative energy resources not only to Tribal members but to non-Tribal members as well. We need to stop focusing and investing in risky fossil fuel projects like TransCanada’s Keystone XL pipeline. We need to start remembering that the earth is our mother and stop polluting her and start taking steps to preserve the land, water, and our grandchildren’s future.”
Yes. The Indians hate oil as a despoiler of land. They are all about sustainability and alternative energy. They would never have anything to do with the stuff. Never mind the 30mm bbl of oil produced on reservations, an amount that has spiked up in recent years, primarily because of the fact that the Three Affiliated Tribes on the Fort Berthold Reservation have been major beneficiaries of the Bakken boom.
Keystone’s alleged oppression of Indians brought forth a torrent of race-based idiocy, culminating in this gem.
And I thought Custer died for my sins.
It is also bizarre that Keystone turns prog Citizens of the World into ranting America Firster nationalists. Keystone just helps the Canadians! The Chinese! Apparently, the Chinese get the oil, the Canadians get the money, and ‘Mericans get the pollution. When @libertylynx pointed out that some good ol’ made in the USA Bakken oil would be shipped on Keystone (a true fact, as there will be a Bakken MarketLink on-ramp that will pump US oil into KXL), someone responded, YOU LIE!!! (yes, complete with caps and exclamation marks). Some people just can’t handle the truth.
And yes, of course I was accused of being a Fox News watching (not), Tea Party (not), Koch Brothers shill (not). And a racist by implication.
I was almost tempted to see if I could make things truly nuts by figuring out some way to bring gold bugs into the conversation. I decided against it, figuring that it would risk creating a singularity of stupidity that could destroy the universe. (I will tempt fate, probably tomorrow, by writing a post on recent Russian gold purchases, which will bring out the gold bugs and the Russian trolls.)
I have very low expectations on the level of debate on Twitter. Subterranean expectations, in fact. But even given that, I was stunned at the level of insanity, stupidity, ignorance, and venom that the topic of Keystone unleashed. I guess it represents a convergence of prog bugbears (oil, capitalism, “climate change”, criticism of Obama), compounded by the trauma of a rout at the polls.
This may seem like a small thing, but I regretfully conclude that it is a harbinger of something bigger. Obama will spend the next two years dog whistling and throwing red meat to his rabid progressive pack as a part of his post-election, lame duck (or would that be lame loon?) guerrilla campaign. Since he can no longer play Moses, he will become Sampson. Keystone is just one of the columns that he will use to pull down the temple around our ears.
It is going to be ugly, ugly, ugly. And Elizabeth Warren is waiting in the wings.
*This is weird, since this is apparently an Ojibwe (Chippewa for you old timers) word for warrior, and not a Lakota word. The Ojibwe are/were a helluva long way from the Great Plains generally, and Nebraska or the Dakotas specifically. Indeed, it gets better! The Ojibwe and the Lakotas were inveterate enemies. (I am always amused at the romanticization of Indians by prog peaceniks: just who the hell were those warriors and braves fighting before the arrival of Europeans? Other tribes, of course.) The Ojibwe got firearms before the Lakota, and drove the Sioux into the Dakotas.
The Gruber Gone Wild video collection (with a release a day!) demonstrates graphically that Obamacare is a 900+ ply tissue of lies. And Obama himself was the lead retailer of those lies.
Today gives another example of Obama’s mendacity. He came out against Keystone, again, but this time on the grounds that it just helps Canada, and doesn’t benefit the US one whit:
“Understand what this project is: It is providing the ability of Canada to pump their oil, send it through our land, down to the Gulf, where it will be sold everywhere else. It doesn’t have an impact on U.S. gas prices,” Mr. Obama said, evidently frustrated with questions about the Canadian-backed project while he was standing alongside Myanmarese opposition leader Aung San Suu Kyi.
(Using a human rights champion-whom he is going to toss aside-as a prop is a great touch.)
Like a good leftist, Obama apparently aspires to become Lillian Hellman, for every word in that statement is a lie, including “and” and “the”.
Where would Canadian heavy crude pumped through Keystone go? The US Gulf.
Now think hard, people. What is located on the Gulf Coast? Think, think, think.
Got it yet? Of course you do: Refineries! You know, those things that turn crude gunk into stuff we can actually use. I know that even idiot leftists know that there are refineries in Texas, because each of the 4 times a Bush ran for president, they told us ad nauseum about the pollution in Houston/Texas from the eeeeeevvvvillll refineries.
US refineries are optimized to handle heavy crude like that produced from oil sands in Canada. At present, we get most of that from Venezuela and Mexico. Canadian crude would displace most, and perhaps all, of that. (Maybe that’s what frosts Obama: boring, pasty white, Anglo Saxon Canadians benefit, and Bolivarians/Chavistas lose out!) Meaning that US refineries would benefit from cheaper crude which would, inevitably, reduce gasoline prices in the US. (It will also alleviate some of the excess supply of condensate and light crudes produced in the US-particularly the Bakken-as these can be used as diluents. And I know Obama has totally mastered all of the intricacies of pipeline transportation.)
Indeed, Gulf refineries are already processing Canadian heavy crude. More than 100kbd is reaching the Gulf, via rail or barge, and via rail to Cushing and then pipeline to the Gulf. Keystone would just make those flows cheaper-and safer.
So the “it goes everywhere else” line is a total crock. It comes here, is refined, and fuels our cars, and airliners and homes, and is sold overseas so that we can buy other things foreigners produce that we like to consume.
The only question is: What is worse? That Obama actually believes this crock, or he doesn’t but is willing to say anything to defend an indefensible position?
Obama poses as a great environmentalist. Pray tell, how does relying on riskier forms of transport (tankers from Venezuela and Mexico, barges down the US inland waterways, and rail) rather than pipelines help the environment?
And I am sure it is a total coincidence that Obama booster Warren Buffett, he of the BNSF and Union Tank Car Company, is a major beneficiary of the stonewalling of Keystone.
The mendacity is not all that’s appalling about this statement. One of Obama’s worst habits has been giving allies the back of his hand, while he sucks up to sworn enemies. Canada is a close ally, and has been for decades. Indeed, even now Canada is actually contributing military force to Obama’s otherwise farcical anti-ISIS coalition.
Fat lot of good that it does them. Who needs friends like Canada when you have Iran? Can Canada help Obama build a legacy? No! So what good are they? (Please ignore the fact that the legacy will really be a nuclear arms race in the other Gulf: the Arab/Persian one.)
The sad thing is that we are in for two years of this mendacity. It will be all Alinsky, all the time. Non-stop demagoguery in the service of progressive causes. He lost, but we’ll pay.
So we will have to update Twain. No longer should you say “lies, damn lies, and statistics.” The version that will describe the next two years is: “lies, damn lies, and Obamaisms.”
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