Streetwise Professor

Obama made another unilateral move, this time on student loans.  Here’s the uhm, highlight of the article:

Obama is going to take steps that bypass Congress “every week going forward,” White House Communications Director Dan Pfeiffer told reporters yesterday in Washington.

I’m waiting for the NYT editorial raging against the Imperial Presidency.  Any minute now.

All this debt forgiveness somehow brings Shay’s Rebellion to mind.  Or the Populist and Granger ferment of the late-19th century.  It is inherently divisive, because every dollar that the debtor gets is a dollar the creditor–or the taxpayer–has to pony up.

Obama also warned that if he loses in 2012, the government won’t help you: “You’ll be on your own”:

At a million-dollar San Francisco fundraiser today, President Obama warned his recession-battered supporters that if he loses the 2012 election it could herald a new, painful era of self-reliance in America.

“The one thing that we absolutely know for sure is that if we don’t work even harder than we did in 2008, then we’re going to have a government that tells the American people, ‘you are on your own,’” Obama told a crowd of 200 donors over lunch at the W Hotel.

“If you get sick, you’re on your own. If you can’t afford college, you’re on your own. If you don’t like that some corporation is polluting your air or the air that your child breathes, then you’re on your own,” he said. “That’s not the America I believe in. It’s not the America you believe in.”

Count me out of that “you”, pal.  No, the America I believe in produced Ralph Waldo Emerson.  You know, the author of “Self-Reliance.”  Somehow I think nanny-in-chief BHO is not a big RWE fan.

Inspired by the “self-reliance” reference in the story quoted above, I found Emerson’s essay on line, and began to read it.  (It’s been a while since I have read it.)  I stopped short at the first line of the second paragraph:

There is a time in every man’s education when he arrives at the conviction that envy is ignorance

That is obviously an anachronistic statement, and a comment on how education has devolved.  Listen to the sociology majors in OWS and you’ll understand that many have received an education, such as it is, that celebrates–worships, fetishizes–envy.

The polarization between the Emersonian America, and the anti-Emersonian America epitomized by Obama is becoming more extreme by the day.  It is, to use the title of a Sowell book, the conflict of visions that will define 2012 and the years that follow.  The visions are so fundamentally different that the prospects for compromise are nil.  Meaning that the next 12 plus months are going to be like nothing seen in this country for a long time indeed.

All you clearing and market infrastructure aficionados must read Bill Hodgson’s piece on collateral transformation at DerivSource.  He points out quite accurately the new sources of fragility and vulnerability to stress that will arise from collateral transformation services that are being offered to finance CCP margins in the aftermath of clearing mandates.

The bitter irony here is that many derivatives end users (real money investment funds, industrial hedgers) did not pose any real systemic risk under bilateral structures.  But forcing them to clear drives them to utilize funding mechanisms that are systemically risky.  As one big corporate end user told me: clearing mandates have transformed credit risks into liquidity risks: I can manage the first, but the second scares me.

I continue to gape in amazement that the sorcerer’s apprentices that created these mandates did not think to step two.  They did not step back and ask: “Gee, we’re imposing a major change on the structure of financial markets.  How will market participants respond?”  This is especially unbelievable since a big component of the narrative of the financial crisis is that it was the result of excessive financial engineering.  What, did FrankenDodd, Timmy!, GiGi, the G-20, the EC, etc., think that the big changes that they imposed would not lead to a new burst of financial engineering?  Are they really that clueless?

I think I know the answer.  I think you do too.

Markets do not stand still.  Market participants will adjust contracts in response to regulations and laws motivated by beliefs that the existing system of contracts is flawed.  A useful first approximation is that these contractual adjustments will try to reproduce the economic substance of the banned or restricted contracts.  However, many of the work-arounds necessarily utilize less efficient–and often more fragile–ways to achieve that substance.  Which means that vulnerabilities have largely been relocated, rather than eliminated, and in many cases the new vulnerabilities are more dangerous than the old.

Read Bill’s piece to get an excellent illustration of this dynamic at work.  And then remember that the biggest systemic risk is government, and in particular, ill-considered government policies.  And that’s especially true when static-minded legislators and regulators attempt to impose their vision on a dynamic, strategic, reacting, self-ordering system.

There is an increasing drumbeat of stories warning about the systemic risks posed by CCPs.  This FTAlphaville article discusses several dangers I’ve discussed repeatedly, including the stresses put on liquidity, the concentration of risk resulting from the reconfiguration of the topology of the financial network that results from central clearing, and wrong way risks.  Several articles, including this one, report on the BOE’s Deputy Governor Paul Tucker warning about the lack of plans for resolving insolvent clearinghouses–a fear echoed by the ECB’s Peter Praet. Risk has a long article about various CCP risks; particularly interesting is the discussion of the contingent liability that clearing members face in the event of a “forced allocation” of a defaulting member’s portfolio.  The Risk article also reprises an SWP theme about the stupidity of limiting clearing member ownership and control of CCPs.

And the beat goes on.  Although not about clearing directly, this story on the downgrading of MF Global does have implications for clearing, given the CFTC’s decision to require admission of firms with as little as $50 million in capital to CCPs.  And speaking of the CFTC, its recently adopted clearinghouse rule requires CCPs to have enough capital to cover the failure of its single largest member, not the two largest: as I noted in my ISDA white paper, not only should a CCP have enough capital to cover two big defaults, it should have plan to replenish capital after even a single failure.  Although the CFTC may revisit the requirement later, pending negotiations with the Financial Stability Oversight Council, a failure of a single member–not even the largest one–of a CCP will likely require the services of Kevin Bacon do deal with the resulting run:

Needless to say, none of these stories are a surprise to me. I’ve been warning that CCPs could be Trojan Horses packed with systemic risk for a long time, to no avail. I hope that, unlike Cassandra, my warnings are mistaken. But it is becoming abundantly plain that these concerns are becoming far more widespread. It would have been better had that happened before politicians, regulators, and central bankers fallen victim to groupthink and seized on clearing as a “solution” before they had closely analyzed the problem in all its complexity. But the G-20 put its imprimatur on clearing, and the groupthinkers are not about to admit a mistake and start all over. So market participants and regulators are having to deal with the realities of a framework that poses dangers that may be different than, but just as threatening, as those clearing was intended to address.

So now we know where commenter “a” (he of the Chicago obsession) has been hanging out (courtesy AT):

I actually love this.  Chicago, and Friedman in particular, are so in their heads it isn’t even funny.  Obsession is the sincerest form of flattery.

Ever since the financial crisis began, those who had been smarting at the whipping that Friedman had delivered over the previous decades leaped on the crisis as an opportunity to heap scorn on him, who conveniently for his critics, was dead.  Had he been alive, he would have delivered another whipping.

This attempt to blame the crisis on Chicago is rather pathetic–and a fact- and logic-free exercise.  Anybody who thinks that recent American, let alone European, policy was designed, built, or even approved at 59th and University is, quite frankly, an ignoramus.

Bleating about “deregulation”–whatever.  Many deregulatory policies that did bear the Chicago stamp, and which were actually implemented, in things like trucking, rail,  and air transport, have worked pretty much as advertised–and had nothing to do with the crisis.  But to think that financial policy over recent decades is largely Chicagoan is just wrong.  Yeah, Chicago types generally supported changes to Glass-Steagall, but these changes had absolutely nothing to do with the crisis, just as Glass-Steagall itself changed things that had nothing to do with causing the Great Depression.

I could go on about this for far longer than I have time for right now, but let me just mention a couple of things about Friedman in particular that prove just how bogus it is to heap blame on him for what blew up in 2008.

The first is monetary policy.  Friedman was an arch foe of the discretionary monetary policy implemented by Greenspan and then Bernanke in 2001-2008.  You may criticize Friedman’s monetarism, and if it was implemented during the 90s and 00s maybe different problems would have occurred.  But if Greenspan and Bernanke had been acting according to Friedman’s lights, they never would have committed the egregious errors that they did.  Friedman did not believe in “maestroes.”  Indeed, he believed they were dangerous.  He was utterly correct in his beliefs.

The second is the nexus between finance and government.  One of the foundations of Friedman’s belief in small and limited government is that private interests would exploit government power to seek rents. A lot of that went on in the lead up to the crisis.  To blame it on Friedman-Chicago libertarianism is farcical.

The third relates to the current crisis, which has the potential to make one look back wistfully on the halcyon days of 2008 and 2009.  It is a crisis of government spending, government entitlements, and government debt.  All of which Friedman in particular warned about for virtually his entire life.

I could go on.  The Euro and the EU, for example.  But suffice it to say that blaming Crisis I or Crisis II on Friedman and Chicago economics is delusional.

But we enjoy the attention!

And we really enjoy living rent free in your heads, particularly since there is so much available space.  Beats rent control any day.

If you were wondering whether the Fed has run out of ideas, wonder no longer:

Federal Reserve officials are starting to build a case for a new program of buying mortgage-backed securities to boost the ailing economy, though they appear unlikely to move swiftly.

The idea would be to target any new efforts by the central bank at the parts of the economy that are most severely impeding a recovery—the housing and mortgage markets—by working to push down mortgage rates.

Lower mortgage rates, in turn, could encourage more home buying and mortgage-refinancing, and help the economy by freeing up cash for consumers to spend on other goods and services. Mortgage rates are already very low, but some Fed officials believe they might be pushed lower. Moreover, Fed officials believe their past purchase programs helped to lift stock markets, by driving investors from low-risk investments toward riskier investments.

What is it that Einstein said about doing the same thing repeatedly, and expecting a different result?  Now I remember: insanity is what he called it.  The emphasized paragraph suggests that the Fed is ready for the rubber room.

OK.  Don’t look for help from monetary policy.  What about fiscal policy?  Well, today’s WSJ presents a Keynesian lament that Americans’ saving is impeding a recovery:

Since the financial crisis erupted, millions of Americans have ditched their credit cards, accelerated mortgage payments and cut off credit lines that during the good times were used like a bottomless piggybank. Many have resorted to a practice once thought old-fashioned—delaying purchases until they have the cash.

As a result, total household debt—through payment or default—fell by $1.1 trillion, or 8.6%, from mid-2008 through the first half of 2011, according to the Federal Reserve Bank of New York. Auto loan and credit-card balances in August had their biggest drop since April 2010, the Federal Reserve said.

The national belt-tightening, known as deleveraging, comes as the U.S. economy struggles to fend off a double-dip recession. Paying off bills slows consumer spending on appliances, travel and a slew of other products and services. Home sales, the engine of past economic recoveries, remain depressed.

Is it somehow shocking that Americans are trying to rebuild ravaged balance sheets?  Is it shocking that they realized they were overleveraged prior to the financial crisis, and are trying to achieve a more sane level of debt?

This also means that Krugmanesque, Old School Keynesian borrowing solutions are unlikely to work either.  Those solutions depend on leveraging up on behalf of households, but those households can undo–and are likely to undo, given their recent behavior–most of all of that by reducing private leverage in response.  Hair of the leverage dog will not cure the hangover.

Which all means that both fiscal and monetary policies are at dead ends.  There are no quick policy fixes.  Indeed, frenetic attempts to find and implement such fixes are likely to make things worse, not better.

I have only had time to skim press coverage of the new Mifid & Mifir promulgated by the European Commission, but on my initial read, that appears to be a fair description.  All of the bad ingredients of Frankendodd made worse, with some special Euro accents of a decidedly dirigiste flavor.  The same deep suspicion of markets, the same cartoonish view of why market structures have evolved as they have, the same conceit of knowledge and control, the same breezy disregard for unintended consequences.

Sorcerer’s apprentices run amok, again.  Led by a French apprentice no less.

After July 21, 2010, who woulda thunk that regulatory arbitrage would have thrown business in the US’s direction?  If Mifid and Mifir go through anything like what Barnier et al propose, that could well happen.

I’m in New York.  No, I’m not joining OWS down in Zuccotti Park.  Quite the opposite.  I was speaking at event sponsored by the object of their ire, at the JP Morgan Chase Commodity Forum.

I spoke about Dodd-Frank and commodity trading.  I did my shtick, and it went over pretty well: I was surprised that “Frank-n-Dodd” was something most hadn’t heard before.  The audience found the phrase amusing, and more than a few people remarked on the phrase afterwards.

Substantively, the most interesting thing I heard was said by Morgan’s head of commodities, Blythe Masters.  She noted that F-n-D imposed huge compliance and administrative burdens.  Huge.  Moreover, these are fixed costs.  So Frank-n-Dodd increases economies of scale in banking, which will favor the big over the small, and encourage the big to get bigger and the small to go away.

In other words, something ostensibly intended to address too big to fail will encourage big banks to get bigger through regulation-induced scale economies. The effect will be the exact opposite of the intent.

The road to hell is paved with good intentions.  Frank-n-Dodd just well may be the world’s largest paving company.

The CFTC voted out two rules today, one on position limits, the other on clearing.  I’ve beaten both issues to a bloody pulp over the last couple of years, so I don’t have too much to add.  Just a couple of high level comments.

Bottom line: Both rules are highly ill-advised.

Regarding position limits, some of the most inane provisions of the original proposal are gone, notably the “class” limits that constrained netting across the futures and OTC swaps.  This was a hidden constraint on market making by dealers, and made no economic sense.  Fortunately it is gone.  Also gone–for the most part–is the conditional spot month limit that treated cash-settled and delivery-settled contracts differently.  This made zero economic sense too, and it is also gone.  The one exception is that there are different limits for cash- and delivery-settled contracts for Henry Hub nat gas.  This makes zero economic sense too, and is a blatant political compromise by the Commission intended to throw a bone to ICE that lost on the conditional limit issue generally.  Laws, sausages–and CFTC rules.

My comment letter on position limits criticized both stricken provisions.  But other provisions I inveighed against, particularly those that constrain ETFs like USO and US Nat Gas funds, remain.

The partisan rancor on this issue came through loud and clear at the meeting, as this piece by Jeremy Grant makes clear.  Jill Sommers and Scott O’Malia were very outspoken:

“We went beyond the statute” by doing things like narrowing the bona fide hedge exemption, Sommers told Reuters. “Those are the things that people can use for a legal challenge.

O’Malia said: “over-reached in interpreting its statutory mandate to set position limits.”  O’Malia also emphasized the lack of empirical evidence of a need for limits, echoing my “No Theory? No Evidence? No Problem!” refrain.

As I was quoted saying in the Reuters piece, this statutory overreaching will be the basis for a legal challenge.  Not just on the hedge exemption issue, but on the more fundamental issue of whether it is necessary for the Commission to find that “excessive speculation” has indeed caused “unwarranted” fluctuations in prices, i.e., the “no evidence” point.  I would not be surprised if the cost-benefit analysis, such as it is, is not challenged as well.

The disappointing guy was Dunn, who blasted the idea of position limits, but voted for them anyways.  Not exactly a profile in courage or conviction by a retiring commissioner.

The other rule would require CCPs to admit firms with a minimum of $50 million in capital.  I think this is a terrible idea.  I understand that CCPs could potentially use excessively onerous admission requirements to reduce competition: hell, I’ve been making that point for well over a decade.  But I also understand that undercapitalized members, and members who cannot contribute constructively to the auctioning of a defaulter’s position, can undermine the effectiveness and even the safety of the clearinghouse.

There is a tension between encouraging competition, and making CCPs secure: Gensler and the majority focused on competition, and I think that is a major mistake, particularly given the fact that the clearing mandate in Dodd-Frank is intended to reduce systemic risk. Micromanaging CCP operations is a horrible, horrible idea.

Grounds for challenge?  Maybe.

No surprises here, really. Gensler is hell-bent on ramrodding through his agenda.  And that’s probably the best way to phrase it: the agenda is pretty bent, and will create some regulatory hell.

Last Friday I was part of a group of 8 economists who made presentations to the Board of Governors of the Federal Reserve.  Once or twice a year the Board invites academics to discuss a policy-relevant economic issue.  The subject of Friday’s session was Network Economics, and Alistair Milne and I spoke about network issues in clearing and trading.

The Parthian shot in my presentation was that it was essential not to ignore the unintended effects of derivatives regulation.  In particular, clearing mandates, capital and collateral rules, and the like are all intended to reduce the amount of leverage in the financial system.  But even if you require extensive collateral against derivatives trades, market participants can offset the reduction in leverage inherent in derivatives trades by using the freed up debt capacity to add leverage in other forms.  What goes out through the front door can return through the back door.  This can be particularly dangerous if you think you’ve solved the problem when Mr. Leverage walks out the front and ignore that he’s snuck back in.

Put differently, it is very hard to reduce leverage in the system as a whole by regulating just a piece of firms’ capital structure.

Another example.  Reducing derivatives counterparty credit risk through clearing and netting and collateralization works by increasing the priority of derivatives in bankruptcy.  But if you move derivatives towards the head of the line, somebody else ends up further back.  Like unsecured creditors, including money market funds who buy short term bank debt.  They can be systemically important, too, meaning that the regulations have primarily shifted the locus of systemic risk, and not really reduced it.

Focusing on the collateral issue, the numbers here are huge.  Tabb Group estimates that interest rate derivative collateral alone will total $1.4 trillion.  Credit, equity, and commodity derivatives-related collateral will likely add hundreds of billions to the total: although these markets are smaller, they are riskier, requiring more collateral per dollar of notional.

So where is all this collateral going to come from?  I’ve written about collateral management services, by which banks will effectively lend cash that can be used for margins, with the loans collateralized by assets that CCPs will not accept directly.  In other words, Mr. Leverage is  a Back Door Man.

CME Group’s Craig Donohue talked about the need for such services:

“There will be a need and a value for the collateral transformation services,” Donohue, chief executive officer of CME said today during a panel discussion at the Futures Industry Association annual conference in Chicago.

The types of accepted collateral may need to be expanded as thousands of new users seek to back trades. While cash and government securities will always be the least costly way to pay for margin, some who want to pledge “three chickens and an old Ford” will find it more expensive to have non-standard collateral transformed into acceptable form, said Jeffrey Sprecher, chief executive officer of Atlanta-based Intercontinental Exchange Inc.

The demand has created a “cottage industry” of firms and units within banks that will charge a fee to hold securities or other assets for investors in return for acceptable margin, said Richard Prager, managing director and head of global trading for BlackRock Inc. (BLK)

Cottage industry.  Somehow this brings to mind all the stories about shadow banking system in China that mushroomed after the government tried to crack down on bank lending.

And CCPs are looking to expand the assets they are willing to take as collateral.  This exposes the CCPs to higher risks, including valuation risks.  As an example, LCH.Clearnet (which has already begun accepting gold) is going to accept some corporate debt as collateral (no link yet, but it’s from a Matt Leising Bloomberg story that Matt emailed to me):

LCH.Clearnet Ltd., the biggest interest-rate swap clearinghouse, is considering accepting corporate bonds for the first time to meet an anticipated surge in demand for a broader array of collateral in the $601 trillion over-the-counter derivatives market.

“We want to be able to have more clients come to clearing,” Floyd Converse, head of U.S. sales and marketing for London-based LCH.Clearnet, said in an interview in Chicago this week at the Futures  Industry Association annual conference.  The world’s biggest swaps clearinghouses are expanding the
types of securities they accept as regulations force thousands of new users in the U.S. and Europe to use clearing. Among them, CME Group Inc., the world’s largest futures exchange, is broadening the variety of company debt it accepts as margin for its customers.

(Quick thoughts off the top.  “Investment grade” doesn’t really give the warm and fuzzies, does it?  Will corporate debt be accepted as collateral against CDS trades?  I know LCH.Clearnet doesn’t clear CDS, but there is a reason to wonder whether competitive pressure would lead to such an outcome.  Wouldn’t this expose a CCP to substantial credit correlation risk, which is devilishly difficult to quantify and manage?)

And it is becoming far more widely accepted that CCPs will require central bank liquidity during periods of extreme systemic stress.

All of these stories suggest that mandates are first and foremost just leading to a reshuffling of leverage and risk.  There is room for deep skepticism that this reshuffling will reduce systemic risks.

Indeed, if Gary Gorton is right, and shadow banking was first and foremost a mechanism designed to create informationally insensitive debt that could be posted as collateral, the potential increase in demand for collateral could catalyze a similar process.  This process is systemically risky because it increases fragility and creates substantial tail risks, as this new Gorton paper discusses.

There is also reason to doubt that this is a good use of capital, and could lead to lower growth.  Just what we need.  The cost-benefit trade-off appears particularly unfavorable with respect to collateral posting by long-only buy side investors (e.g., pension funds) and “end users” who do not pose substantial systemic risks.

So, do Ben et al get it?  My sense is that they do, although Bernanke was pretty inscrutable through the entire morning.

One person who obviously doesn’t get it, or is pretending that he doesn’t (which would be even more disturbing) is Gary Gensler.  October is sprinkled with major conferences, and Gensler has been doing the rounds.  Despite all of the advances in understanding of the complexity of the issues involved, Gensler continues to peddle his cartoonish morality play:

“While the crisis had many causes, it is evident that swaps played a central role,” Mr Gensler said. “Swaps added leverage to the financial system with more risk being backed by less capital.

“They contributed, particularly through credit default swaps, to the bubble in the housing market. They contributed to a system where large financial institutions were thought to be not only too big to fail, but too interconnected to fail. Swaps – developed to help manage and lower risk for end-users – also concentrated and heightened risk in the financial system and to the public.”

No recognition of the ability of firms to substitute swap-based leverage with other types of leverage, and their willingness to do so.  No acknowledgement of how mandates re-order priorities in bankruptcy, and the implications thereof.    No appreciation for the potentially destabilizing effects of rigid variation margin mechanisms, and the pro-cyclicality of these mechanisms.   And yeah, Gary: clearing mandates don’t concentrate risk and create their own interconnections.

Gensler is also still pushing the transparency nostrum.  He links the crisis of ’08 to the opacity of the swaps market.  Well, lack of pricing information was arguably an important problem with AIG in particular, his proposed cure–the SEF mandate–will have no effect on this.  The problem with the instruments that AIG bought wasn’t that they weren’t traded on transparent markets: it was that they weren’t traded.  Markets are not the Field of Frickin’ Dreams: If you build it, there’s no guarantee anybody will come.  Comparisons of markets for illiquid products to exchange traded futures are superficial and silly.

In sum, Gensler continues to say foolish things.  Is he a fool, or does he just believe his audience is?  He batters straw men.  He sticks to a cartoonish narrative of the events of 2008.  He pushes nostrums.  He ignores deep complexities, and the huge potential for unintended consequences of the policies he advocates.

Nonetheless, he is not shy about telling others what to do. @OTCderivatives tweets that Gensler said the CFTC should be “top dog” in IOSCO because of the size of US markets.   In London, he chided the Europeans for not including exchange traded derivatives in Emir:

It is critical, though, that those swaps traded on regulated exchanges also are subject to the clearing requirement to bring the benefits of clearing to swaps, regardless of where they are traded – on exchange or off exchange.

This will no doubt thrill the Germans, because an expansion of the Emir remit would also force open access to exchange CCPs.

But given that the Germans have been quite adept at slapping Timmy! around, I doubt that a mere agency head will give them much trouble.

[Interesting aside.  Risk Magazine’s Laurie Carver tweeted that Gensler blew him off to allow “other less aggressive journalists ask him comfy things.”   Go figure.]

To sum up.  Dodd-Frank has set off a very complex dynamic of unintended consequences, many of which will undermine the intent of the law.  One of the figures primarily responsible for implementation of Dodd-Frank has a very simplistic view of the world that ignores these complexities.  What could go wrong?

Watching Vladimir Putin the last couple of days has been like witnessing a slow motion train wreck.  He’s driving the train, but just think about the poor schmucks that are along for the ride.

Exhibit 1.  Putin says Russia ready to handle Euro debt crisis.

Putin, who turns 59 on Friday, said Russia was ready to handle any fallout resulting from the slowdown in global growth and sovereign debt problems faced by the developed economies of the West.

“I will say straight away that Russia is better prepared than it was in 2008,” Putin said. “We have built up serious experience, a reserve of durability — in the economy and in the financial sector.”

Uh huh.  And that’s exactly what he said in 2008.  Right at the time of Lehman.  When Russia had bigger reserves.  When Russia was coming off several years of robust growth rather than slowly coming back from the ’08-’09 calamity.  When its fiscal balance was better.  When it hadn’t committed to vast increases in social spending, subsidies for utilities, and defense spending.  When there was some prospect, however faint, that the country would modernize somewhat.   When years of kleptocratic stasis did not appear to be fated.

So yeah.  Much better prepared.

Exhibit 2.  In the same speech to western investors, Putin just spun out grandiose fantasies that even the most glassy-eyed Nashibot would realize is utter tripe:

Throughout his remarks, Putin was big on promises. Russia, he said, would soon return to 6-7 per cent GDP growth (versus an estimated 4 per cent this year), while investments would increase to being 25 per cent of GDP instead of 20 per cent.

Twenty-five percent investment.  Riiiggghhtt.  At a time when domestic capital is packing its bags (to the tune of an estimated $50 billion, with the pace accelerating dramatically in September) and foreign investors keep their track shoes laced for a quick getaway—if they are stupid enough to invest in the first place.  Russia has never invested 25 percent of GDP.  Except under Stalin, maybe, and that was literally and figuratively at the point of a gun.

Exhibit 3.  In response to laments that Putin’s standing for election represented a return to Brezhnevian stagnation, his spokesman Dmitri Peskov says: “Hey, that’s a feature, not a bug!”

“Brezhnev is not a minus sign,” Peskov said. He was a “huge plus for our country. He laid the foundations for the economy and agriculture.”

That would be the foundation that is crumbling everywhere, if you haven’t noticed.

Insofar as foundations goes, it reminds me of this bit: scroll forward to the riff about the castles falling into the swamp:

Said spokesman also admitted that the epic Sea Hunt episode in which Putin, doing his best Lloyd Bridges impersonation, recovered the long lost Greek vases was staged.  I’m sure you’re stunned at the revelation.

If you want to get a dose of the reality that is on its way, listen to this interview of my friend Sergei Guriev. Pay special attention to the part where he is asked about whether Russian under Putin risks a Soviet-style collapse. That should tell you all you need to know about where Russia is and where it is going. If you can’t even talk about the prospect for collapse if changes are not made, you are flirting with disaster.

Since Jesus is not on his way, I guess Russians will just have to sing that Brezhnev/Putin is just all right, because that’s what they’re stuck with.