Streetwise Professor

To further the last sentence of my last post: I am not sanguine about those who hold office in the US and Europe to rise to the challenge that Putin has laid before the world.

Obama, certainly, was less than Churchillian or Reaganesque in his first response to the crime over Donetsk. Sayeth Barry: “It looks like it may be a terrible tragedy.”

First: it was not a tragedy. It was an atrocity.

Second: “looks like”? “May be”?

Go out on a limb there, Barry.

Words fail. Truly.

With that box checked, Barry went on to tell some jokes. And give a banal speech about infrastructure or some such. Then he jetted off to a fundraiser. Or maybe it was (according to CBS News) a “political meeting”, as if that makes it all better.

I have a serious question. I mean it. I ask this in all seriousness: Just what would it take for Obama to cancel a fundraiser? Anything short of Armageddon? For we have yet to see any atrocity sufficiently horrific (Benghazi, Donetsk, the chaos on the Rio Grand) sufficient to deflect Barry from his appointed rounds of feeding red meat to the partisan faithful, and raking in their dough.

I guess we can be grateful that he did not give a shoutout to Joe Medicine Crow. So there’s that. He’s growing in the job.

Some have praised him for being “no drama Obama.” I have a different take. I view his behavior in response to atrocity as revealing a  lack of affect that is deeply disturbing.

Regardless of the psychological roots for his behavior, it is all too clear that Obama is not up to the challenge that Putin poses, because of a lack of ability, a lack of interest, or more likely, both. Narcissist that he is, the only thing that is likely to engage him is if he believes that Putin has insulted or slighted him. But I doubt that even that is sufficient to rouse him to actions appropriate to the circumstances.

There are pros and cons of both parliamentary systems, and the US system. One of the disadvantages of the US system is that we are cursed to endure incompetent chief executives until their terms expire. Think of James Buchanan, dithering in the White House while Kansas bled and the nation spiraled into Civil War. In contrast, Chamberlain was ousted after the debacle in May, 1940. But we-and by that I mean the world, not just the US-have to endure Obama until 20 January, 2017. An incompetent, disengaged, lame duck holds the Office Formerly Known As Leader of the Free World. What havoc can occur in 30 months with such a man holding the highest office in the land, and the most powerful position in the world.

I had been planning to write on the latest round of sanctions, but of course that story has been overtaken by an utterly horrific event: the shooting down, by a surface-to-air missile, of a Malaysian Air 777 flying over Donetsk.

This is an unspeakable crime. Unspeakable.

I can state with near metaphysical certainty that this was the work of Russian-supported and inspired rebels from the Donetsk People’s Republic, or perhaps even the Russian military itself. The jet was downed in the same area where two Ukrainian military planes were destroyed by SAM fire in the last couple of days. The ex-FSB (or maybe not ex-) creature Girkin (aka “Strelkov”-the recent event gives new meaning to the word “shooter”) bragged on V Kontakte about shooting down a Ukrainian transport plane today . . . and then scrubbed the site once it was revealed that a civilian airliner had been destroyed. The rebels had bragged about, and Russian state media had bragged about, the rebels possession of an SA-17 Buk SAM system-which they now deny. Ukraine released transcripts of communications between rebels, and between rebels and one of their freakazoid Cossack contacts in Russia, blaming the shootdown on Cossacks rebels stationed near the border.

I could go on, but it’s not necessary.

I would hope that this is the KAL 007 moment of the New Cold War. The KAL 007 moment of Putinism. For those old enough to remember-and my memories are extremely vivid-in the aftermath of the KAL atrocity the Soviets denied, denied, denied. Then Jeanne Kirkpatrick made a presentation at the UN Security Council that played intercepted communications between the Soviet pilots that shot down the plane and Soviet air defense commanders that made it clear beyond all possible doubt that the Soviets had shot down the plane.

We certainly have the national technical means to determine who launched the weapon, and from where. We have the means to intercept communications. Satellites will have recorded exactly where the weapon was launched. Depending on the sensors we have deployed, or the Ukrainians may have deployed, we can monitor and record the radar transmissions of any air defense systems in the area. The radar signature of different systems is unique, so this would permit definitive identification of missile type as well as location.

Let’s put that all out there in the UNSC, and watch the loathsome Vitaly Churkin squirm.

But that should only be the beginning. The crucial task is to lay out information connecting the rebels to the Russian government, military, and intelligence services. Again, we no doubt have such information, even if (as is likely) that Snowden information revealed weaknesses in Russian communications security that they have closed. But I doubt that things have gone totally dark for us. What’s more, we have the means, motive, and opportunity to track movements of equipment from Russia to the Donbas.

This is the time where the NSA, CIA, DIA, and National Reconnaissance Organization demonstrate their true functions and capabilities. It’s not about snooping on Fritz’s Amazon’s purchases: it’s about uncovering Ivan’s evil acts.

Moreover, just consider the fact that the Russians would not be  so nuts as to allow a SAM battery (or even a single launcher) operate right on the border, in an area where Russian military and civilian aircraft are operating and within range, without coordinating with Russian air defense system controllers and Russian air traffic control. Hell, given what control freaks the Russians are, it’s highly likely that the Russians have to give permission for that battery to fire.

We have to lay all this out there. Put Putin on the spot. Show the world just what he has done, and what he is doing, in Ukraine. Of course, anyone who is willing to look at the facts objectively already knows, but that category excludes vast swathes of Europeans and many Americans. Maybe 295 dead, innocent Dutch, French Germans, Brits, etc., including 80 children, will be enough to get them to face reality. There are none so blind as those who will not see. Make them see, and shame them mercilessly if they still resist.

Merkel is now on the spot. France too: if it goes ahead with the Mistral sale after this, we should sink the damn things. And then text Hollande pictures of the dead babies strapped in their seats, lying bloodied in the Ukrainian dirt.

The KAL shootdown was a turning point in the Cold War. It revealed the Soviet leadership to be both evil and drastically out of touch. Their handling of the affair was utterly embarrassing. Indeed, it helped usher in the rise of Gorbachev, and had a dramatic effect on European public opinion: after having resisted, Germany approved deployment of Pershing II missiles post-KAL 007, in large part because of what it revealed about the true nature of Soviet leadership. (Think on that one, Angela. Think hard.)

We should hope that out of this horror something positive like that occurs now. Putin is doing his part, blaming the shootdown on Ukraine for failing to capitulate to the Russian proxy invasion. Russian state media has gone one better, claiming that the Ukrainians shot down the plane while they were targeting Putin’s.

In other words, this event has the potential to be like Napoleon’s assassination of the Duc d’Enghien: as Talleyrand said, “it was worse than a crime. It was a blunder.”

295 innocent people should not have died: or, to be more accurate, 295 innocent people should not have been murdered. But if their deaths hasten the demise of the criminal Putin regime, at least they will not have died in vain. It is the duty-if they understand the meaning of the word-of people like Obama and Merkel to make sure that the innocents’ sacrifice was not in vain.

Are they-are we-“highly resolved that the dead shall not have died in vain”?

I wish I were more sanguine about the answer to that question.

Germany has won the World Cup, which is somewhat annoying because they will become even more insufferable. And that is saying something given their recent behavior, especially with regards to Russia, and the spying imbroglio with the US.

Regarding Russia, it was particularly nauseating to see Merkel being quite chummy with Putin at the Cup final game. The Euros had pressured Ukrainian president Poroshenko to go as well, so that he could have a chat with Vlad. Poroshenko wisely begged off, staying home to direct the counterattack against the Russia-supported, inspired, and supplied rebellion in two eastern provinces. He no doubt realized that he would be sandbagged if he went to Rio, and for that he could have blamed it on Angela.

For despite her reputation as the bad cop in dealing with Putin (earned only by comparison with outright enablers, understanders, and collaborators like Steinmeier and Schroeder), Merkel has been putting much more pressure on the beleaguered Poroshenko than on Putin. The Euros, led by Germany, have been pushing Ukraine to negotiate directly with the freakazoid “leaders” of the “republics” of Donetsk and Luhansk. Moreover, Merkel tutted that Ukraine’s counterattack should be “proportionate.”

Well, “proportionality” is usually trotted out by the friends of those who are losing to stymie the advance of the stronger side that is winning by preventing it from exploiting its advantages. In this instance, moreover, “proportionate” would involve Ukraine sending armor across the border into Belgorod and Voronezh, and supporting separatists in Dagestan and Chechnya. BUt somehow I don’t think that’s what Angela means. I think she means that Ukraine should not fight to win, and that suits Putin just fine.

The Ukrainians are fighting a rebel force that has inflicted large casualties on it; has embedded itself in civilian areas; committed (per the UN) widespread “stomach churning” atrocities; destroyed bridges and rail lines; and deployed landmines and booby traps. Under the circumstances, Poroshenko has been restrained.

But Angela is running interference for her soccer buddy. In other ways as well. For instance, she is resisting the permanent deployment of NATO troops in new eastern European member states, like Poland and the Baltics. She brought up the NATO-Russia Founding Act in order to rationalize her position, but this has absolutely nothing to do with the deployment of conventional troops: it only discusses the deployment of nuclear weapons in former Warsaw Pact states.

Then there’s the spying issue, which contrary to usual practice, the Germans are making into a major public spectacle, culminating in its request that the head CIA official in Germany depart the country.

The Germans really need to get over themselves on this one. As I’ve written before, they have earned the scrutiny they get. Indeed, their heel-dragging on Russia warrants skepticism about them. They have often worked against the US within NATO. The rejection of Georgia and Ukraine in 2008 is one example. Libya is another. It has contributed to the rejuvenation of the Russian military (a tradition going back to the 1920s). It is an important country that bears watching. Not just for those reasons, but because (as I have noted before) the country is well-known to have been heavily penetrated by Soviet then Russian intelligence, and its businesses are rather notorious for their use of bribery to get international sales and contracts: this summary of Siemens’ sins over the years makes for enlightening reading. Since the US can have little confidence that Germany will advance US interests, and since the US has strong reasons to believe Germany might actually work against US interests, it is definitely in our interest to know what Germany is thinking and planning.

In other words, Germany wants it both ways, in a very adolescent way. It wants to pursue an independent policy that is often at odds with US policy and interests, but it also expects the US to treat it like a country whose interests are strongly aligned with ours. Sorry. If you want to act routinely contrary to US interests, the US is more than justified in not trusting, and verifying. And that involves espionage.

One of the things that has exercised the Germans most about the current spy scandal is that the man in question, “Marcus R,” passed documents relating to a German parliamentary investigation of the Snowden allegations. Well, that brings up another thing, doesn’t it? Snowden inflicted major damage on the US, and his collaborators (notably Appelbaum and Poitras) are living large in Berlin. A good part of the German establishment has been very supportive of Snowden. All of these things are rather hostile to the US, so what, we’re supposed to shrug and say “whatever”? Given Snowden’s current location, this also plays into the earlier-mentioned problem of German enabling of Putin and Russia. German dealings with Snowden are very much a matter of American national security.

It’s also rather annoying that the Germans are getting so exercised about American espionage, but direct no outrage whatsoever at Russian activities in the country.

The linked article says that public pressure has forced Merkel to act. With respect to the most recent spying issue, that’s not much of an excuse: the public pressure is the result of Germany’s publicizing the episode.

What’s more, Germany made claims that it had uncovered a second US spy, but that story pretty much evaporated on exposure to the sunlight. It now appears that the military officer in question was in touch with the State Department, not the CIA or any other US intelligence agency. Moreover, a search of the man’s home revealed nothing. So the Germans went off half-cocked and inflamed an already difficult situation, rather than acting in a more responsible way in an attempt to tamp down the passions. Another adolescent and self-absorbed political move.

Perhaps the only good thing to come of this is that it has united Congress and the administration on at least one thing. Both are heartily annoyed at the German teenage temper tantrum.

The bottom line for the US is that its interests and those of Germany are not closely aligned, especially on issues relating to Russia. So be it. But this is precisely why Obama’s policy of largely deferring to Europe (which de facto means largely deferring to Germany) on policy towards Russia and Ukraine is so problematic. Yes, the Germans (and Italians and Austrians etc.) will squeal. But doing things their way will embolden Putin, and that will just lay the groundwork for even bigger problems in the future. If Angela Merkel is the bad cop, Putin has it made.

Today is the 25th anniversary of the most important event in my professional life. On 11 July, 1989, the Chicago Board of Trade issued an Emergency Order requiring all firms with positions in July 1989 soybean futures in excess of the speculative limit to reduce those positions to the limit over five business days in a pro rata fashion (i.e., 20 percent per day, or faster). Only one firm was impacted by the order, Italian conglomerate Ferruzzi, SA.

Ferruzzi was in the midst of an attempt to corner the market, as it had done in May, 1989. The EO resulted in a sharp drop in soybean futures prices and a jump in the basis: for instance, by the time the contract went off the board on 20 July, the basis at NOLA had gone from zero to about 50 cents, by far the largest jump in that relationship in the historical record.

The EO set off a flurry of legal action. Ferruzzi tried to obtain an injunction against the CBT. Subsequently, farmers (some of whom had dumped truckloads of beans at the door of the CBT) sued the exchange. Moreover, a class action against Ferruzzi was also filed. These cases took years to wend their ways through the legal system. The farmer litigation (in the form of Sanner v. CBT) wasn’t decided (in favor of the CBT) until the fall of 2002. The case against Ferruzzi lasted somewhat less time, but still didn’t settle until 2006.

I was involved as an expert in both cases. Why?

Well, pretty much everything in my professional career post-1990 is connected to the Ferruzzi corner and CBT EO, in a knee-bone-connected-to-the-thigh-bone kind of way.

The CBT took a lot of heat for the EO. My senior colleague, the late Roger Kormendi, convinced the exchange to fund an independent analysis of its grain and oilseed markets to attempt to identify changes that could prevent a recurrence of the episode. Roger came into my office at Michigan, and told me about the funding. Knowing that I had worked in the futures markets before, asked me to participate in the study. I said that I had only worked in financial futures, but I could learn about commodities, so I signed on: it sounded interesting, my current research was at something of a standstill, and I am always up for learning something new. I ended up doing about 90 percent of the work and getting 20 percent of the money 😛 but it was well worth it, because of the dividends it paid in the subsequent quarter century. (Putting it that way makes me feel old. But this all happened when I was a small child. Really!)

The report I (mainly) wrote for the CBT turned into a book, Grain Futures Contracts: An Economic Appraisal. (Available on Amazon! Cheap! Buy two! I see exactly $0.00 of your generous purchases.) Moreover, I saw the connection between manipulation and industrial organization economics (which was my specialization in grad school): market power is a key concept in both. So I wrote several papers on market power manipulation, which turned into a book . (Also available on Amazon! And on Kindle: for some strange reason, it was one of the first books published on Kindle.)

The issue of manipulation led me to try to understand how it could best be prevented or deterred. This led me to research self-regulation, because self-regulation was often advanced as the best way to tackle manipulation. This research (and the anthropological field work I did working on the CBT study) made me aware that exchange governance played a crucial role, and that exchange  governance was intimately related to the fact that exchanges are non-profit firms. So of course I had to understand why exchanges were non-profits (which seemed weird given that those who trade on them are about as profit-driven as you can get), and why they were governed in the byzantine, committee-dominated way they were. Moreover, many advocates of self-regulation argued that competition forced exchanges to adopt efficient rules. Observing that exchanges in fact tended to be monopolies, I decided I needed to understand the economics of competition between execution venues in exchange markets. This caused me to write my papers on market macrostructure, which is still an active area of investigation: I am writing a book on that subject. This in turn produced many of the conclusions that I have drawn about HFT, RegNMS, etc.

Moreover, given that I concluded that self-regulation was in fact a poor way to address manipulation (because I found exchanges had poor incentives to do so), I examined whether government regulation or private legal action could do better. This resulted in my work on the efficiency of ex post deterrence of manipulation. My conclusions about the efficiency of ex post deterrence rested on my findings that manipulated prices could be distinguished reliably from competitive prices. This required me to understand the determinants of competitive prices, which led to my research on the dynamics of storable commodity prices that culminated in my 2011 book. (Now available in paperback on Amazon! Kindle too.)

In other words, pretty much everything in my CV traces back to Ferruzzi. Even the clearing-related research, which also has roots in the 1987 Crash, is due to Ferruzzi: I wouldn’t have been researching any derivatives-related topics otherwise.

My consulting work, and in particular my expert witness work, stems from Ferruzzi. The lead counsel in the class action against Ferruzzi came across Grain Futures Contracts in the CBT bookstore (yes, they had such a thing back in the day), and thought that I could help him as an expert. After some hesitation (attorneys being very risk averse, and hence reluctant to hire someone without testimonial experience) he hired me. The testimony went well, and that was the launching pad for my expert work.

I also did work helping to redesign the corn and soybean contracts at the CBT, and the canola contract in Winnipeg: these redesigned contracts (based on shipping receipts) are the ones traded today. Again, this work traces its lineage to Ferruzzi.

Hell, this was even my introduction to the conspiratorial craziness that often swirls around commodity markets. Check out this wild piece, which links Ferruzzi (“the Pope’s soybean company”) to Marc Rich, the Bushes, Hillary Clinton, Vince Foster, and several federal judges. You cannot make up this stuff. Well, you can, I guess, as a quick read will soon convince you.

I have other, even stranger connections to Hillary and Vince Foster which in a more indirect way also traces its way back to Ferruzzi. But that’s a story for another day.

There’s even a Russian connection. One of Ferruzzi’s BS cover stories for amassing a huge position was that it needed the beans to supply big export sales to the USSR. These sales were in fact fictitious.

Ferruzzi was a rather outlandish company that eventually collapsed in 1994. Like many Italian companies, it was leveraged out the wazoo. Moreover, it had become enmeshed in the Italian corruption/mob investigations of the early 1990s, and its chairman Raul Gardini, committed suicide in the midst of the scandal.

The traders who carried out the corners were located in stylish Paris, but they were real commodity cowboys of the old school. Learning about that was educational too.

To put things in a nutshell. Some crazy Italians, and English and American traders who worked for them, get the credit-or the blame-for creating the Streetwise Professor. Without them, God only knows what the hell I would have done for the last 25 years. But because of them, I raced down the rabbit hole of commodity markets. And man, have I seen some strange and interesting things on that trip. Hopefully I will see some more, and if I do, I’ll share them with you right here.

The military and diplomatic situations in Ukraine are fluid and highly uncertain.

Under pressure from the Ukrainian army’s “Anti-Terrorist Operation” (“ATO”),  “separatists” in Slavyansk decamped suddenly for the city of Donetsk. Their shadowy commander, Girkin, offered another plea for Russian assistance, which has not been forthcoming-in the form of an outright invasion, anyways. The Ukrainian army is advancing elsewhere in the Donbas.

One would have thought that the fleeing rebels would have been extremely vulnerable to air attack, but most reports indicate that they made it to Donetsk largely unhindered. (I did see one Tweet that purports to show rebel vehicles that had been destroyed on the road, but one must be cautious about the veracity of Tweets, and even the Ukrainian government reports that the separatists are regrouping in Donetsk and does not claim to have mauled the rebels in their retreat.) This suggests (a) that the separatists left in a hurry,  (b) poor intelligence and reconnaissance by the Ukrainians, or (c) Ukrainian fear of MANPADS that have brought down several of their aircraft: the retreating column would have been vulnerable to air attack while on the run.

The priority for Ukraine should be to secure the border and to cut off the rebels from Russian logistical support. Deprived of supplies, arms, and reinforcements, the separatist force will surrender, disintegrate, or just fade away.

This puts Putin on the horns of a dilemma. He is already being blasted for abandoning the Russophone/Russophile forces. But overt intervention risks a more robust Western response, and the prospect of a military quagmire.

Of these, the military problem is more acute. Russia’s military still has (conscripted) feet of clay, and the invasion and occupation of a large territory is almost certainly beyond its capability.

What’s more, every signal emanating from the West is equivocal at best.

Multi-party talks last week saw Germany and France putting pressure on Ukraine to make concessions. The talks were held in Berlin, but Munich would have been a more appropriate setting for the appeasement and pressuring the victim of aggression that was on display:

Germany’s Foreign Affairs Minister, Frank-Walter Steinmeier, convened this meeting as an emergency response to Ukraine’s June 30 resumption of military operations against Russia’s proxy forces on Ukraine’s territory. Those forces had inflicted serious losses on Ukraine during the ten days’ ceasefire that Ukraine had unilaterally adhered to. Berlin had nudged Kyiv into that unilateral ceasefire (see EDM, June 21 through June 30).

Recognizing that the pro-Russia forces breached the ceasefire massively, Germany now seeks to establish a bilateral ceasefire and follow-up negotiations between the Ukrainian government and the pro-Russia secessionists, in a framework that includes Russia while excluding the West. These elements form the basis of a Russo-German consensus regarding Ukraine.

The “Joint Declaration by the Foreign Ministers of Germany, France, Russia, and Ukraine” (www.auswaertiges-amt.de, July 2) “stress[es] the necessity of a sustainable ceasefire to be agreed upon swiftly and observed by all concerned…Ministers agree to take all necessary measures and use their influence on the concerned parties with a view to achieving this goal.”

That implies: a) an unconditional ceasefire, thereby throwing out Ukrainian President Petro Poroshenko’s June 20 peace plan, in which ceasefire is conditional upon disarmament of pro-Russia forces (in return for amnesty) and/or the evacuation of those forces from Ukraine to Russia; b) treating the “parties” (Ukrainian government and Russia’s armed proxies) on an equal footing by the Berlin document; c) Russia is asked to control its protégés in the field more tightly, in return for Germany and other West-European governments pressing Ukraine into giving up its right to self-defense.

Insofar as the British are concerned, Cameron gave a deadline of June 30 for Russia to bring the separatists into line. That deadline has passed, with not a peep from the UK. And the US is no better. On June 26, Kerry told Russia to disarm the separatists “within hours.” That is now more than 240 hours ago. And the US has done nothing. Not even the usual Kerry bluster followed by Obama inaction. Just. Nothing.

Yes, there are stories that Merkel is losing patience, and taking a “harder stance.” Maybe in the sense that pasta cooked for 15 minutes is harder than pasta cooked for 20. But it’s still limp. And you know that in the face of  intense whinging by big German businesses like that quoted in the linked FT story, and the even more intense opposition of the Putin understanders (especially in the SDP) she’ll find a pressing reason to do nothing, to find some hint of a “de-escalation” (ugh) by Putin. The fact that Nato just announced that it will not admit new members out of fear of offending Russia will only strengthen Putin’s conviction that the West not confront him in Ukraine even if he continues, or even increases, his support for the rebellion.

This all makes the current situation highly unpredictable. The military momentum has shifted decisively in favor of the Ukrainian government. Even though its military is a shambolic Sovok relic, it still overawes the rebels. Unless the rebels are reinforced, or the Russian military invades, the rebellion will eventually be crushed (or suffocated). This would be a stinging defeat for Putin.

Putin’s military instrument is superior to Ukraine’s, but only in the sense of being somewhat less shambolic. Moreover, its mission in Ukraine would be more challenging than what the Ukrainians are attempting. Moreover, the West might stir to do something that seriously hurts Russia if Putin escalates, and particularly if he invades. But there is substantial uncertainty about what the Western response would be, and it has been sufficiently pusillanimous heretofore that Putin could reasonably conclude that he could intervene more robustly without triggering a serious response.

My best guess is that due to the frailties of his military, and the risk of serious sanctions, Putin will not go all in and invade. He can achieve his basic objectives by maintaining a frozen conflict in eastern Ukraine. As long as the Ukrainian government does not achieve a decisive victory, and as long as the rebels remain a force-in-being that occupy some major cities, Ukraine will be deprived a victory and will be hamstrung in its ability to reform and integrate more closely with Europe.

This means that it is imperative that Putin prevent the Ukrainians from sealing the border, and that he maintain a corridor to Donetsk and wherever else the separatists dig in. Maybe he will achieve this through the oxymoronic “peacekeeper” gambit employed previously in Abkhazia, South Ossetia, and Transnistria. Maybe he will employ artillery and air power, and justify this by claiming it is a response to a Ukrainian incursion into Russia. I don’t know, exactly. But in my view, Putin will try to modulate the violence. Just enough to keep a frozen conflict alive, but not so much as to compel the Euros and US to take actions that would hurt Russia seriously. Unfortunately, the obvious reluctance of Merkel, Obama, and Cameron, not to mention Hollande, to do anything serious gives Putin  considerable latitude.

If Ukraine does move robustly to seal the border things will come to a head quickly. No doubt the Euros will put pressure on Ukraine not to do that (and Obama will vote “present”-or maybe even “not present”). If this pressure prevails, the conflict will continue to simmer. If the Ukrainians buck the pressure, it will be Putin’s move. I doubt he will back down. I doubt that he will double down. He will instead strive for some middling way that will keep the rebellion alive but not provoke a serious confrontation with the West.

Given the dreary news emanating from about everywhere, a little levity is needed. And what better way to enjoy a Friday than to exult in Putin’s embarrassment.

Putin went to a rather flamboyantly decorated room to watch the launch of Russia’s new rocket, the Angara. And he sat and watched. And sat and watched. And sat and watched. And nothing happened.

Due to a technical problem, the launch had to be scrubbed.

Some obviously scared military officials reported the bad news to him. (One hopes they planned ahead and wore their Depends!) Then Putin went off on them, saying something like “Yeah-it didn’t work.” (Echoes of his response to a question about the Kursk: “It sank.” I think the “it didn’t work” line was sarcastic. Sort of “no shit Sherlock. Tell me something I can’t see with my own effing eyes.”) He is obviously furious.

But I’d like to help out Vlad. I think I have found the culprit. Look at the gophers that appear at about the 25 second mark in this video:

Obviously Amerikan agents and saboteurs! After all, if the evil Zionists can train sharks and vultures to carry out their fiendish plots, the Americans could train gophers to carry out theirs. Because remember, according to some Russian officials, American plots were responsible for the crashes of the Sukhoi Superjet and the Phobos-Grunt space probe. The theories advanced in those cases were about as plausible as the Gopher Saboteur theory.

And I have video proof of the destructive power of American gophers!

Just ask Bill Murray about them. I’m sure the FSB is trying to get ahold of him now for advice on how to deal with them.

Even if the theory advanced does not involve rodents, I think it’s only a matter of time before there are dark mutterings about the role of the US in this.

Which will only add to the levity.

Both the US and Germany are making noise about ratcheting up sanctions on Russia. Kerry told the Russians to disarm separatists “within hours” or else. That was hours ago, and nothing has happened.

Germany’s Merkel has also toughened “sanctions talk.”

Angela Merkel, German chancellor, has raised the prospect of broader economic sanctions against Russia, just two days before an EU summit at which her hardening stance against Moscow is expected to steer the diplomatic agenda.

One theory is that Merkel and Steinmeier are playing good cop, bad cop, with Angela in the role of the heavy. If Merkel is the bad cop, Putin and his clique have absolutely nothing to worry about.

Merkel has talked (relatively) tough before, but has always found some reason to back off. This time, no doubt Putin’s transparently phony call for his senate (and it is his, in the same sense that his dog is his) to repeal the authorization to invade Ukraine will give Merkel the excuse she needs to keep her finger off the sanctions trigger. That plus Putin’s typically convoluted (and contradictory) support for a ceasefire. Meanwhile, the war of subversion in Donbas goes on, transparently supported by Russia. Only those who will not see don’t understand this.

But Angela has found someone to sanction: the US, or more specifically, US telecom Verizon. German outrage over the Snowden revelations was a major reason for the decision.

Yes, there is reason for outrage here–outrage directed at Germany. Here is a nation that bends over backwards to find reasons not to sanction any Russian company. Even the pathetic sanctions  it has meted out (as part of the EU) are directed primarily at individuals, most of whom are nobodies. Talk of sanctioning Russian companies elicits howls of anger and pain from the German business community. There is constant talk of the need to “understand” the Russians, with the result being described by the French proverb “to understand all is to forgive all.” All including the anschluss in Crimea and the ongoing subversion in Ukraine. There is even a German phrase to describe this lot: Putin Verstehers. Putin understanders. Germans-and Merkel in particular-look for the slightest sign of compromise by Putin, and when they see it, they back off doing anything to penalize him, Russia, or any Russian company. Russia/Putin get the benefit of every German doubt.

But evidently the US does not get the benefit of any German doubt. So they sanction Verizon (not my favorite company, by the way) in their very narcissistic pique and outrage over US surveillance of Germany. No attempt to understand the US whatsoever, let alone an attempt to be as understanding as the Germans are with the corrupt autocrat and oligarchic thugs and espionage-crazy security service in the nation to their east.

But oh, there is a lot that the Germans need to understand about why they are a surveillance target, and not given the same deference as the Five Eyes nations. (I will let pass in silence the fact that Germany’s intelligence service the BND has long cooperated with the US.) One thing to understand: the fact that 911 hijackers made themselves at home in Germany. Another thing to understand: German politics and government has long been penetrated by Soviet, and then Russian, agents and collaborators. And yet another thing to understand: the fact that the German business community and government have clearly been suborned by Russian money. German companies (notably Siemens) have been deeply involved in corrupt dealings in Russia. And yet another thing: although it has cleaned up its act some lately, for a long time German businesses assisted Iran in its efforts to develop nuclear weapons.

In brief: Germany has earned the scrutiny that it has received from the NSA. Indeed, its continued enabling of Putin’s behavior just provides further evidence that it is an unreliable partner and uncertain ally that needs watching.

Germany only has the luxury to engage in its moral preening and biting American ankles and corrupt canoodling with the Russians because the US kept out the Russians for 45 years. And I thought the French were ingrates.

News from Iraq careens from bad to worse. In response, Obama is pressuring for changes in the Iraqi government, and providing a minimal force (300 special forces personnel) to aid in the training of Iraqi military and potentially providing targeting for future US airstrikes.

Obama is mainly doing two things. First, saying what he is not going to do, e.g., commit US troops. Second, playing revisionist historian.

Obama is desperate to avoid any blame for the current Middle East sh*t show. So whereas during the 2012 he trumpeted the total withdrawal as US troops, and took credit for ending the war in Iraq, now he says that the bugout was not his doing, but that of the Iraqi government.

The revisionism gets better, which of course means worse. In an interview yesterday, he minimized the importance of ISIS, by comparing it to other Islamic terror organizations like AQAP and Boko Haram:

“Their extreme ideology poses a medium and long-term threat,” the president said, of the group now taking control of large swaths of Iraq.

. . . .

He added that the immediate problem is that ISIS is “destabilizing a country that could spill over,” but they are “just one of a number of organizations that we need to stay focused on,” including al-Qaeda in Yemen and Boko Haram.

To put this in context, consider how Obama described AQAP in his speech justifying his drone campaign (and no, I’m not referring to John Kerry’s diplomacy):

But despite our strong preference for the detention and prosecution of terrorists, sometimes this approach is foreclosed. Al Qaeda and its affiliates try to gain foothold in some of the most distant and unforgiving places on Earth.  They take refuge in remote tribal regions.  They hide in caves and walled compounds.  They train in empty deserts and rugged mountains.

In some of these places — such as parts of Somalia and Yemen — the state only has the most tenuous reach into the territory.  In other cases, the state lacks the capacity or will to take action.  And it’s also not possible for America to simply deploy a team of Special Forces to capture every terrorist.  Even when such an approach may be possible, there are places where it would pose profound risks to our troops and local civilians — where a terrorist compound cannot be breached without triggering a firefight with surrounding tribal communities, for example, that pose no threat to us; times when putting U.S. boots on the ground may trigger a major international crisis.

In other words, mere months ago, Obama characterized AQAP and other groups as “lethal yet less capable al Qaeda affiliates” marooned in far away places. Now he compares ISIS to these groups. This comparison is farcical.

First, the ISIS threat is immediate, not medium to near term. Second, the ISIS threat is far more severe than either AQAP or Boko Haram, because it is a large force capable of taking on main force Iraqi units; it is extremely well-funded (some call it the richest jihadi group ever), and it is located in the cockpit of the Middle East, controlling vast swathes of two major countries, rather than being located in caves and villages in the “most distant and unforgiving places on earth.” What’s more, it’s not just the ideology that matters: it’s the fact that the adherents to this ideology have the power to create a base from which those espousing that ideology can launch attacks on vital US interests.

To equate ISIS with AQAP or Boko Haram is an outrageous distortion of the real threat that ISIS poses. It is grotesque for Obama to minimize this group’s importance, especially because his primary reason for doing so is to attempt to shift blame.

ISIS is wreaking havoc in Iraq now, but for the last couple of years the focus of its activity was Syria. As the Syrian war dragged on, the opposition to Assad became progressively radicalized. ISIS thrived in this environment. What’s more, there is reason to believe that Assad actually supported ISIS by releasing radicals from prison, for instance, and not attacking ISIS the way his forces attacked other opposition groups. This made sense for Assad, because ISIS fought against other opposition groups, including Al Qaeda-linked groups like Al Nusra as well as the Free Syrian Army.

The fact that ISIS metastasized in the years that the Syrian civil war dragged on also makes it necessary for Obama to argue that there was nothing that could have been done to bring the war to a quicker conclusion. And so he does:

The president rejected the idea that the power “vacuum” in Syria, and thus the current threat from ISIS, could have been averted if the U.S. had backed moderate rebels in Syria against Bashar Assad.

“I think this notion that somehow there was this ready-made moderate Syrian force that was ready to defeat al-Assad was simply not true,” he said. “The idea that they could have defeated” Assad and jihadist groups, he added, “if we just sent a few arms, was a fantasy.”

What would an Obama defense be without the ritual slaying of numerous straw men? “Ready made.” “A few arms.” Who ever said these things?

The fact is that the Obama CIA, Pentagon and State Department (!) all recommended arming the opposition, and Obama refused. Meaning that Obama is basically accusing the entire national security establishment-including his appointments to the top jobs in that establishment-of being fantasists.

Of course it is impossible to know whether this would have been decisive, but it is hard to imagine how it could have turned out any worse than it has.

I would further note that Assad was indeed tottering for a time. His bases were falling. Major cities were falling. Troops were deserting. At that time, additional help to the rebels could have been decisive. But Obama demurred. Russia and Iran did not. They rushed support-arms and fuel and money (literally-Putin flew in planeloads of currency) from Russia, arms and fighters (primarily from Hezbollah but also from the Qods force) from Iran. Assad was brought back from the brink, the war turned into stalemate, and the opposition became increasingly radicalized.

Obama is not entirely to blame here, of course. This is the culmination of years of US policy under both Bushes and Clinton. But in Iraq, Obama was like a doctor who ended an antibiotic treatment prematurely, allowing an infection that had been controlled to come back more virulent than before. And the abdication of any role in Syria made inevitable that the opposition would radicalize.

This is where we are. We are confronted with a choice between a pile of dung and a pile of manure. In other words, no good choices. Allying with Iran is insane. Putting in a token force of 300, which will serve in smaller groups that will have to spend most of their time watching their backs because even our ostensible allies hate Americans and are more than willing to kill us, seems a recipe for disaster. The only non-insane, non-virulently anti-American , and militarily capable force in the region is the Kurds. Maybe we should just throw in with them as a way of containing ISIS.

But our biggest obstacle is that the man that has to make the hard choices has proven utterly incompetent in his past decisions, and what’s more, is totally unwilling to acknowledge that he has made any mistakes in the past. Indeed, rather than acknowledge past misjudgments, he engages in wholesale historical revisionism, and misrepresentations of the current threat, in order to deflect blame. With that attitude and mindset, it is almost inevitable that further debacles will follow on his past blunders. Satayana said those who don’t remember the past are condemned to repeat it. The outcome has to be even worse when someone not just doesn’t remember history, but actively and aggressively distorts it, as Obama is doing now.

Stephen Blank, formerly of the Army War College and now of the American Foreign Policy Council, is one of my favorite analysts of Russia. And not just because he is a Chicago PhD. He has written some of the most incisive analyses of Russian foreign policy in the Putin era that I have read.

As an illustration, consider this piece written in 2008. Read it, and you’ll have a very good understanding of what Putin is doing in Ukraine and why.

Two things stand out in Blank’s analysis that are particularly apposite today.

The first relates to Putin’s objectives. Blank shows quite clearly that Putin does not accept the post-Soviet settlement in Europe, and will not countenance any FSU state entering into a formal relationship with the EU, let alone NATO. (Indeed, Putin and the Russian elite do not really recognize Ukraine or Georgia or Armenia or Moldova as sovereign states.)

The second relates to means. The Russians have used frozen conflicts-not war, not peace-to make these places unsuitable for closer integration with Europe.

Both elements are clearly present in Ukraine. Ukraine’s move towards the EU is what precipitated the current crisis. What is going on in Donbas is creating a frozen conflict there. It is more on the not peace end of the not war, not peace spectrum, but Putin has abstained from outright invasion. But as long as the conflict persists, Ukraine will find it very difficult to make the changes necessary to integrate more closely with Europe, and Europe will be reluctant to embrace Ukraine closely.

So Putin does not need to rule Ukraine in order to achieve his primary objective: he just needs to keep it away from Europe. Low level conflict is a proven way of achieving that objective. Putin has employed this in Moldova/Transnistria, Georgia, and Nagorno-Karabakh. It’s worked before, and it is working now. Expect Putin to continue to use this method as long as it continues to work.

He will certainly continue to use it in Ukraine. One needs to ask whether he will attempt to employ it elsewhere. Like the Baltics.

Russia has apparently been developing and implementing the doctrine of low intensity, frozen conflict since the mid-2000s.  The west has proved utterly unable to deal with this. Unless that changes, and NATO develops an effective counter-doctrine, the FSU and eastern Europe may experience an ice age of conflict. Stephen Blank recognized this years ago, and too few paid attention to him. It would be wise to pay heed to him now.

One of the reddest of herrings is that the movement to for-profit exchanges is the source of our current woes in securities and derivatives markets. The herring were running today in DC, at a hearing on HFT held by  the Permanent Subcommittee on Investigations. One of the witnesses, Andrew Brooks of T. Rowe Price testified thus:

We question whether the functional roles of an exchange and a broker-dealer have become blurred over the years creating inherent conflicts of interest that may warrant regulatory action. It seems clear that since the exchanges have migrated to “for-profit” models, a conflict has arisen between the pursuit of volume (and the resulting revenue) and the obligation to assure an orderly marketplace for all investors. The fact that 11 exchanges and over 50 dark pools operate on a given day seems to create a model that is susceptible to manipulative behaviors. If a market participant’s sole function is to interposition themselves between buyers and sellers we question the value of such a role and believe that it puts an unneeded strain on the system. It begs the question as to whether investors were better served when exchanges functioned more akin to a public utility. Should exchanges with de minimus market share enjoy the regulatory protection that is offered by their status as exchanges, or should they be ignored?