Streetwise Professor

Yesterday’s news was dominated by the Facebook IPO.  I don’t have much to say about Facebook qua Facebook or IPOs: not my area.  I will just say that it is hard to justify the valuation.  The only rationalization I could provide is that the $100 billion plus market cap is the premium on the option to monetize its huge base of users.  I say option, because its clear that the existing sources of revenues can’t support the stratospheric evaluation.  There is a tremendous amount of uncertainty about the ability to devise such a monetization strategy, and that can support some high option-driven valuation-but $100+ billion?  I’m skeptical.  (And if there are doubts about the ability to monetize Facebook’s user base, what does one even say about Twitter?)

I will comment on companies associated with the IPO that are closer to my comfort zone: NASDAQ and the underwriters, specifically Morgan Stanley.

The IPO was beset by technical hitches, with a delayed opening, difficulties in handing the avalanche of orders in the opening process, and a consequent delay in sending out trade confirmations-something that is guaranteed to generate extreme angst among those trading the stock.

The post-open trading was also chaotic, with crossed and locked markets.

This suggests that despite its extraordinary efforts to prepare, NASDAQ had insufficient capacity to handle the huge interest in Facebook.  This, in turn, harkens back to an issue that was the subject of the first SWP post, almost 6.5 years ago: exchange capacity and capacity outages.  I seriously doubt it would be efficient for NASDAQ to invest in sufficient capacity to handle such an extreme case without any hitches.  That is, in an efficiently scaled system, there should be occasions when capacity is maxed out. It doesn’t make sense to build capacity to handle all contingencies.

The benefit from investing in the additional capacity to handle the FB IPO would redound almost exclusively to FB and those who wanted to participate in the IPO opening.  It doesn’t make any commercial sense for NASDAQ to pay for that.  The investment is pretty much specific to FB, so if it wanted the additional capacity, it should have paid for it.

This raises another issue that I’ve discussed from time to time, although in a slightly different context: the pricing of exchange services.  What should NASDAQ have charged to handle the IPO, and what price would FB have been willing to pay to reduce the likelihood of SNAFUs?  This raises some interesting industrial organization issues as well, as in this context it involves the arms-length negotiation of a specific investment.  Integration is often the efficient response to such a situation, but that appears problematic to me in this context.

Insofar as the secondary market trading is concerned, this is an example (the Flash Crash being another) of the implications of the SEC’s “information and linkages” market structure choice inherent in RegNMS.  This approach results in fragmentation and locked and crossed markets during periods of extreme market activity.

The alternative is a central limit order book, but a CLOB would likely have experienced different problems, likely similar to those experienced in the NASDAQ open, since the huge amounts of trading activity likely would have taxed and perhaps overwhelmed the CLOB’s capacity.

Again, the exceptional nature of the FB IPO would have likely stressed any market mechanism.  What happened yesterday is how the information-and-linkage approach behaves under stress-fragmentation and crossed markets.

On to Morgan Stanley.  It is evident that the underwriters-of whom MS was the leader-bought large quantities of stock to support the $38 issue price.  The exact total amount, and the amount bought by any of the underwriters, is not known, but it could represent billions of dollars.  The underwriters can’t afford to grant free puts for very long, so it is quite possible that Facebook will trade below the issue price, thereby imposing losses on the underwriters.

This experience triggered my historical reflexes, and I thought about the experience of another legendary underwriter-Jay Cooke. There are some superficial similarities between Cooke and MS.  I don’t take them too seriously, but one can hear echoes.

Cooke was the lead underwriter of another innovative entity with a dicey revenue model: the Northern Pacific Railway, of which Cornelius Vanderbilt said “you can’t build a railroad from nowhere to nowhere.” Jay Cooke & Company underwrote sales of the railroad’s bonds, and ended up taking ownership of large quantities of them, in anticipation of selling them-and selling them particularly to Europe.  But it proved unable to market the bonds, due in large part to economic shocks emanating from Europe: there were several bank failures in Europe in Vienna that spread to other European countries.  Moreover, there was a monetary shock emanating in Germany-namely, that country’s decision to cease minting silver coins-that had averse consequences for the US. Furthermore, Germany demanded a large reparation from France in the aftermath of the Franco-Prussian War, which was also financially destabilizing.

Once Cooke & Company’s depositors became concerned about the company’s inability to market the bonds, a run commenced, and the firm suspended and went into bankruptcy. This sparked a broader financial panic in the US-the Panic of 1873.

So, in both 1873 and 2012 a big investment bank takes a large position in a company with a highly speculative revenue model, against the background of financial crisis in Europe.

We saw what happened in 1873.  We will see what will happen in 2012.  Almost certainly the outcomes will be quite different, because even if MS took a multi-billion dollar stake in Facebook, this is not a bet-the-company investment in the way that Cooke’s foray into the NPRR was.  It may cause some discomfort for MS and its shareholders, but likely nothing more than that.

And of course, the biggest difference between 1873 and 2012 is that there was no Fed in 1873. Again, I do not consider it at all likely that Morgan Stanley would be mortally harmed even if Facebook stock falls well below $38, but if it were the post-Lehman-we’re-not-going-to-let-that-happen-again-Fed would no doubt ride to the rescue, raising the question: would it take Facebook shares as collateral?

This seems like a highly speculative question, and perhaps even an idle one, but in these times one cannot rule out anything, no matter how fantastical it appears.

Addendum: The most likely reason why the Fed would be taking FB shares as collateral is if Europe well and truly implodes, and threatens to take down US institutions along with it.  The risk of a FB position alone is not great.

China and Russia are holding joint naval exercises in the Yellow Sea.  This comes at an interesting time.  China has been involved in a serious of confrontations with virtually every nation bordering the South China Sea, including one currently ongoing with the Philippines.  Chinese obstreperousness has had an effect quite the opposite of what its leadership likely intended.  It has driven all of these littoral nations into deeper relationships with the United States.

China is a striving naval power, and Russia is a declining one, so Russia is definitely playing Sancho Panza in these exercises.  Moreover, China and Russia are rivals in many spheres.  Russia is deeply concerned about China’s rise, and the threat that poses to its vast Siberian territories.  Moreover, China’s rise, and Russia’s absolute and relative decline, is deeply humiliating to Russia.  For its part, China believes that it should exercise far more influence than Russia, given its greater economic heft.  There are also longstanding grievances between the countries, and China in particular has a very long memory.

Consequently, these joint exercises (like other ones the countries have put on) don’t presage the development of an enduring alliance based on deep common interests.  There are more points of contention than common goals.  But in the short run, both share an antipathy for the nation they perceive to be the hegemon that is thwarting their ambitions.  So they can come together to form a common front against the US.

But if anything, this is only likely to reinforce the concerns that east Asian nations have about China.  Moreover, the decrepitude of the Russian fleet makes this gesture purely symbolic.  Even if this is more than just a one-off display of solidarity against the US, Japan, South Korea, and other American allies in the region, it will have virtually no effects on the balance of sea power in Asia.

Everyone knows that about the only thing that China and Russia have in common is a desire to overcome American hegemony, especially in areas they perceive to be their special spheres of influence.  These exercises are merely a reflection of that well-known fact, and little more.

Sgt. Mom at Chicagoboyz has a very good post detailing the history of the Texas War of Independence and the climactic Battle of San Jacinto.  It is edifying reading, though I’m sure its meaning will be lost on certain of you who cannot distinguish between a truly inspiring story of a struggle for independence and revanchist and paranoid nationalist rantings.

As a postscript, given the link to the Scott Miller song about Sam Houston, I was going to title yesterday’s post “Say Ho” but I thought that would be misleading by causing people to think I was writing about the Secret Service.

The pretense behind the Reset is belied by Russian truculence around the world, but most notably by the marked intensification of Russian intelligence operations.  Edward Lucas’s new book focuses on the relentless Russian espionage campaign being waged against the West under Putin.  An oped in yesterday’s WSJ tackles the same subject.  The “illegals” spy case of 2010-which Lucas argues forcefully was far more ominous than it was treated at the time-is the most prominent example of this.  But it is not the only one.

A case that hasn’t received much attention at all, but which should, is from Canada:

Sources familiar with a breaking spy saga in Halifax say Russian envoys were after military secrets from a Canadian forces member who worked at a highly secure naval operations centre here.

That information was substantiated Wednesday. It had been rumoured since Sub-Lt. Jeffrey Paul Delisle was arraigned on espionage charges Monday in Halifax.

While the 40-year-old naval intelligence officer awaits another court appearance on Jan. 25, experts in the cloak-and-dagger world of counter-intelligence say Russian or other nations’ agents working in Canada is nothing new.

Russians regularly hunt for secrets in Canada, including Halifax, spy experts say.

“We don’t understand that Canada is a target for espionage,” said counter-intelligence expert Martin Rudner. “Most Canadians would say ‘Us?’”

Rudner, a professor emeritus at Carleton University specializing in intelligence and national security, said Canadians forget we’re a superpower, a member of the G8, an “energy superpower” and a member of NATO. Our navy also has significant experience in anti-submarine warfare, he said.

Rudner is right on all this, and he omitted something of particular interest to the Russians: Canada is an Arctic nation.

The details of this particular espionage effort are chilling (no pun intended):

Delisle’s job at the top secret HMCS Trinity intelligence centre in Halifax would potentially open doors to codes and ciphers used by the Canadian navy and our allies, said Rudner, adding he was speculating on what might be available to Russian spies.

Trinity reportedly also specialized in subsea surveillance systems for the U.S. Navy and NATO countries, according to Internet reports.

Other targets could include our technologies and tactical secrets used in potential blockades, said Rudner. For example, the navy has a ship dispatched to the Mediterranean, he said, adding Russia might seek details about how Canada would enforce a blockade against its friend, Syria.

“Those would be the kinds of secrets…they would want to know,” said the expert. “This happens to all of our allies. We shouldn’t be surprised…if they target us.”

Chilling especially if you remember the Walker Family Spy Case, which focused on US Navy submarine codes and was likely the most damaging espionage case in the Cold War-at least it is likely the most damaging one that is publicly known.

Some more detail about the Trinity facility can be found here and here.

I would very much like to learn commenter Mark’s views on this.

For an all too predictable Russian response, take a look at RT‘s headline:”Sensation drive stirring Canadian media hype?

No, this is very serious.  And expect the intensity to ramp up even more with Putin’s return to the tendency.  Indeed, expect the truculence to move beyond spying, as this article about the forthcoming vote on Scottish independence suggests:

One of Vladimir Putin’s US political counsellors was recently dispatched to a symposium in Washington on the “political and economic implications for the United States should Scotland leave the United Kingdom to become an independent nation”.

The future of the Faslane and Coulport nuclear missile nuclear missile bases and Scotland’s continuing membership of NATO were both on the agenda.

Moscow’s interest sent a jolt through Capitol Hill and senior figures in the American government are now said to be waking up to the full implications of Alex Salmond’s referendum.

Dmitry Cherkashin from the Russian Embassy in Washington attended the National Capital Tartan Day Committee’s (NCTDC) Tartan Day 2012 Symposium at the Capitol Visitors Centre on March 28.

According to observers, he was particularly interested in the discussion about Trident and the future of Britain’s nuclear deterrent should the SNP force the fleet to leave Scotland.

I’ll bet he was.

A self-styled proud Chekist rules Russia. He plays by Chekist rules. No doubt the Canadian case is merely the tip of the iceberg.

Alexy Navalny achieved prominence by revealing corruption at Russian oil pipeline operator Transneft. He doggedly pursued other cases of corruption.  He is among the most well-known Russian bloggers, and is the most widely known of the leaders of the opposition.

Although Navalny is widely viewed as a liberal, he has made inroads with nationalists in Russia; he participated in a somewhat notorious nationalist march. He was expelled from Yabloko in 2007 for his nationalist activities.

Recently Navalny entered into the debate over the NATO transport hub at Ulyanovsk-Lenin’s birthplace.  Communists are up in arms about the operation and are attacking the government. Rogozin the Ridiculous pushed back, claiming that the allegations that there will be a NATO “base” there are a provocation: “I don’t think that the transit of NATO toilet paper through Russia can be considered the betrayal of the fatherland.”

Navalny has associated himself with the nationalist critics, although his remarks were apparently oblique and ironic:

We need to find the [Russian] politicians who take orders from the global cabal and beg for scraps at NATO’s offices. Channel One is silent. NTV doesn’t film [GV link] ‘The Anatomy of the Military Base.’ Clearly, the American spies have already infiltrated quite deeply.

Another noted liberal (by Russian standards), Vladislav Naganov, was far more inflammatory in his criticism:

These scum fool Russian citizens as a service to another country. They’re all traitors to the Motherland, unashamedly masked as patriots actively battling the United States and NATO — all in order to cover their tracks and promote themselves.

. . . .

Putin’s] seat as President of Russia was exchanged for the NATO base in Ulyanovsk, disguised by anti-Western hysterics in the media, and agreed upon [in advance] with the Americans.

So, the ostensible liberals in the opposition movement are making common cause with the most rabidly anti-American and revanchist nationalist elements.  Hardly encouraging. Perhaps it is a cynical political ploy, based on the enemy-of-my-enemy-is-my-friend principle. But perhaps it represents more than a political calculation, and reflects some points of ideological contact. Either way, it demonstrates that any hopes that the opposition will be even passably liberal are faint indeed. Perhaps the “liberals” are not that liberal.  Or even if they are, they realize that they are so weak that they have to make common cause with the most illiberal elements in Russia in order to have any chance of success.

This illustrates a couple of points.

First, Russian politics are hopelessly reliant on personalities.  There is an institutional deficit in Russia, especially outside the state. The opposition is unduly dependent on individual personalities like Navalny, and these individual personalities tend to be extremely flawed.

Second, nationalism is a dominant component of the Russian mindset, even among those who are opposed to the current government.   The example that comes to mind is the Whites in the Civil War, particularly in 1919-1920.  The Whites insisted on maintaining as much of the Russian Empire as possible.  For instance, they begrudgingly conceded the existence of an independent Poland, but wanted it limited to a rump like the Napoleon-created Grand Duchy of Warsaw.  The Poles had much bigger ambitions, including a Poland that incorporated large portions of Ukraine and the Baltic states (essentially recreating the Polish-Lithuanian Empire.)  The Whites refused to make any concessions to the Poles on these territorial issues.  The Reds, being much more cynical and flexible, were more accommodating to the Poles, figuring they would deal with the Poles once the Whites were out of the way.

At a critical juncture of the war, when the Whites were advancing inexorably north, the Reds raced all their forces south to meet them.  This left the Red rear wide open to the Polish forces under Pilsudski.  But Pilsudski deliberately held back, because he feared a White victor more than a Red one, due to the inveterate nationalism of the former.  The Reds prevailed: the Whites’ choice of nation and empire doomed them to defeat.

It is this decided nationalist/imperial tendency that makes what Yeltsin did so remarkable.  And it explains why many Russians revile Yeltsin so vehemently, considering him a traitor.

So one must have low expectations about the prospects for the opposition’s political success.  One must also have low expectations about the prospects for any fundamental changes in Russian foreign policy, or attitudes towards minorities in Russia on the off chance that they do succeed.

On 21 April, 1836, the Texians under the command of Sam Houston avenged the Alamo and Goliad, and routed Santa Ana’s Mexican Army.  This victory secured Texas’s de facto independence.

Here’s Scott Miller’s tribute to Sam Houston-Say Ho:

The Taliban launched high profile attacks in Kabul, focusing on political targets, including the Afghan parliament, NATO headquarters, and western embassies.  The attacks were repelled after 18 hours of fighting.

These attacks immediately brought to mind a part-and just a part-of the Tet Offensive in Viet Nam in January, 1968.  Specifically, they remind me of the Viet Cong attacks in Saigon, and in particular on the US Embassy compound.  These attacks were made soon after the US turned over security in the capital to South Vietnamese (ARVN) troops.  The attacks produced surprise, but were quickly crushed, resulting the deaths of virtually all of the VC sappers engaged.

These attacks had a political impact far beyond their their utterly trivial military consequences.  As detailed in Peter Braestrup’s Big Story, these attacks convinced an already skeptical US press of the futility of the war.  Walter Cronkite witnessed the attacks, and supposedly said: “What the hell is going on? I thought we were winning this war?”  Cronkite returned from Viet Nam and announced on the air that the war was lost. (A perfect illustration of the idiocy of drawing broad conclusions about the progress of a war on the basis of a single skirmish.  No unflappable U.S. Grant he.)  Cronkite’s disaffection specifically, and that of the media generally, signally contributed to LBJ’s collapse of will, which culminated in his decision not to seek reelection in 1968.

The North Vietnamese planners of Tet, most notably General Giap, understood that Washington, DC was the strategic center of gravity in the conflict, and that the media provided a way to attack it.  That part of Tet succeeded brilliantly, far beyond anything Giap could have hoped.  For the VC, the rest of Tet was an utter disaster militarily.  They were savaged, and the VC was never effective militarily thereafter: North Vietnamese regular forces bore the brunt of the fighting afterwards.

But that didn’t matter, because the strike at the center of gravity was so wildly successful.  The Taliban appear to be  attempting to adopt a similar strategy, but to avoid Giap’s errors.  They are evidently focusing on the high profile attacks aimed at the political center of gravity-western capitals-and eschewing broad scale attacks against US and NATO military forces that would result in crushing losses.

Given the Obama administration’s obvious distaste for the war, particularly in the face of an election, and Sarkozy’s fraught political situation in France (where he looks doomed to defeat), the Taliban are right to conclude that squishy political leadership is the center of gravity in Afghanistan.  However, Afghanistan is not at the forefront of American minds in 2012 as Viet Nam was in 1968.  Media coverage is sporadic at best, and for a variety of reasons the electorate is not happy with the conflict, but for most the conflict is a peripheral one.  The number of troops engaged is small by comparison to 1968, and the number of casualties far smaller.  This all means that the political impact of the Taliban attacks is likely to be far less than that of the VC assault in 1968.

Moreover, whereas Viet Nam deeply divided the Democratic Party in 1968, Afghanistan does not pose the same threat of intra-party insurrection to Obama as Viet Nam did to LBJ.

As a result, I don’t think that these attacks will have the same seismic effects as the Saigon assault.  Indeed, the Taliban are pretty much pushing on an open door.  Obama wants out, has long wanted out, and put the US on a trajectory to get out two years ago.  His will was never engaged here: the Afghanistan issue was a prop in the 2008 campaign that he used to deflect charges that he was weak on national security, and after that became an irritant and distraction to him. Moreover, Afghanistan is marginal as a political issue, and what happens there is highly unlikely to affect political events here.

I therefore expect that these attacks will not alter significantly the course of events in the coming months.  That course was set long ago, and will continue largely unchanged as a result of what transpired in Kabul over the last couple of days.  At most, it will confirm to Obama that getting out is the correct course.

Yesterday’s New York Times carried an essay by a Columbia University philosophy professor, Philip Kitcher, that waved the pom-poms for Obama’s claim that Republicans are Social Darwinists (h/t R).  And what a low, dishonest essay it is.

Kitcher’s identification of Social Darwinism with Republicans is the epitome of weaseling insinuation:

It is not entirely implausible to think that doctrines like these stand behind a vast swath of Republican proposals, including the recent budget, with its emphasis on providing greater economic benefits to the rich, transferring the burden to the middle-classes and poor, and especially in its proposals for reducing public services.

“It is not entirely implausible.”  Is that the standard of evidence for Columbia full professors and the New York Times? “Not entirely implausible”?  Really?  Is Philip Kitcher, PhD, incapable of finding a single direct quotation from a major Republican figure (e.g., Paul Ryan, the primary author of the budget that Kitcher savages) that demonstrates belief in Social Darwinism?  Or is it that he just cannot be bothered? Or maybe he just Knows It, like some sort of Revealed Truth.  Or believes that it is self-evident.

Presumably he has research assistants.  Maybe they can help him out.  If Republicans and those in favor of smaller government (which are definitely not the same groups, but which Kitcher lumps together in typical leftist fashion) are so wedded to the idea of Social Darwinism, the evidence should be quite easy to collect. Even for a philosopher.  Hell, there should be entire books in which evil non-lefties expound on the subject.

From this dishonest beginning, Kitcher commences bashing around straw men.  In his telling, those who disagree with an expansive role for government like that advocated by Obama believe that individuals should be social atoms, without any social support or public goods:

If the vast majority of citizens (or, globally, of people) are to enjoy any opportunities to develop the talents they have, they need the social structures social Darwinism perceives as pampering and counter-productive. Human well-being is profoundly affected by public goods, a concept that is entirely antithetical to social Darwinism or to contemporary Republican ideology, with their mythical citizens who can fulfill their potential without rich systems of social support. It is a callous fiction to suppose that what is needed is less investment in education, health care, public transportation and affordable public housing.

Again.  Not one piece of evidence to support this sweeping assertion about “Republican ideology.”  One effing piece.

Does Philip Kitcher, PhD, stir himself to examine the writings of any scholar of note who is widely recognized as an advocate of smaller government, and who provides the intellectual foundations for such a position? Adam Smith? Friedman? Hayek? Or, to throw in a more recent name, Deirdre McCloskey?

Of course not.  He just knows. Or doesn’t care, because the “not entirely implausible” standard is good enough for Columbia professors of philosophy (and the New York Times).  Kitcher’s description fits anarchists, perhaps-and anarchists actually despise Friedman and Hayek, it should be noted.  And I don’t think the Anarchist Caucus is all that influential in the Republican Party.

If he did so bestir himself to read anything by any of those authors, he would realize his claim is complete bunk.  Complete and utter bunk.  Each supports the provision of public goods.  Each supports public funding of education.  Each supports some form of welfare for the indigent and disabled.  The questions they wrestle with are how much of each should be provided, and what are the best mechanisms for making those choices. That’s what Kitcher should really be debating, but he evades engaging in any such honest exchange by caricaturing his political and intellectual opponents.

And none of the authors I cited could remotely be considered a Social Darwinist.  Not even close.  That Philip Kitcher, PhD, thinks so only reveals his stunning ignorance and smug sense of superiority.  Smith, Friedman, Hayek, McCloskey and myriad others who favor a greater reliance on individual liberty and a reduced reliance on the state do not believe that this will result in ruthless, cutthroat competition.  They view it as the most efficacious way of creating “rich systems of social support.”  They view it as a way of facilitating cooperation among disparate individuals, through the mechanism of voluntary trade.  Any market system is a mix of cooperation and competition: individuals engage in various cooperative activities (e.g., the formation of firms) that compete to provide greater value to potential trading partners.

The basic belief underlying this vision is that voluntary mechanisms are far more efficacious in building “social support networks” than government-based mechanisms that operate on the principle of coercion.  This greater efficacy derives from a variety of sources, most notably the superior ability of decentralized and voluntary systems to create and utilize information, and meet the diverse needs of diverse individuals in a flexible and adaptive way.

But it also derives from the fact that competition to provide value to willing trading partners channels self-interest into beneficial activities that help others,  whereas statist mechanisms reliant on coercion channel self-interest into wasteful, destructive, and often violent actions that benefit some but make others worse off.  Government provision does not eliminate competitive drives: it usually results in these drives finding their outlet in rent seeking, corruption, expropriation, and worse.

That is the essence of the small government, small-l libertarian, classical liberal critique of statism and progressivism of the sort that Obama (and Philip Kitcher, PhD) advocate. It is virtually antithetical to Kitcher’s grotesque caricature.  Presumably Kitcher objects to the Smithian view, on either philosophical or empirical grounds.  Fine.  Let’s have that debate.  But to have it, it is necessary to characterize the views of the opposing party in a fair and honest way.  And that Kitcher does not do. In fact, he does the exact opposite.  Meaning he is either completely clueless or mendacious. Or both. (That’s where I’m putting my money.)

I wish I could say that it is truly remarkable that a professor at a highly reputable university stoops to such low and dishonest rhetoric to advance his political positions.  And it is low and dishonest.   And arrogant in its smug refusal to provide actual evidence to support his slanderous claims about his political foes.

But it is all too common in academia, alas, especially in the humanities and some social sciences-like philosophy.

Finally, note that Professor Kitcher’s Columbia University is the academic milieu which Obama inhabited for several years.  The oft-remarked upon absence of any Obama paper trail at Columbia (or anywhere, for that matter) is really irrelevant. Kitcher’s piece, and Obama’s dishonest rhetoric and statist policies make it clear that he learned his lessons well. Quite well, in fact.

Per usual, the Russians have been throwing hissy fits over US ballistic missile defense plans, which the Russians believe are directed at them.  Medvedev has been warning that the time is fast closing for a deal to be done.  Rogozin has been venting about BMD.  And on and on.

And apparently Obama wants to deal, but feels constrained by, oh, you know, the fact that the American electorate is not nearly so enthusiastic.

In one of the most remarkable videos I have seen in a long time, before a live microphone Obama gives Medvedev the wink-wink, nudge-nudge, say-no-more routine:

President Obama: On all these issues, but particularly missile defense, this, this can be solved but it’s important for him to give me space.

President Medvedev: Yeah, I understand. I understand your message about space. Space for you…

President Obama: This is my last election. After my election I have more flexibility.

President Medvedev: I understand. I will transmit this information to Vladimir.

The body language is even more amazing than the words.  Look at Obama’s reassuring grasp of Medvedev’s arm.

Obama is trying to deceive someone.  He is either deceiving the American people, by his refusal to be honest with his intentions regarding missile defense, or he is attempting to deceive Medvedev (and Putin-the “him” referred to in Obama’s “give me space” remark), by insinuating that he will make a deal after the election.  But even the latter interpretation involves an attempt to dodge the US electorate: if he convinces Russia to tone down its rhetoric on BMD, he takes this issue-and the issue of Russia generally-away as a campaign matter.  This relieves him of the necessity of dealing honestly and forthrightly with a potentially contentious issue, and permits him to avoid accountability for the complete lack of concrete results arising from the vaunted Reset.  If the Russians continue to be cantankerous about missile defense, the Reset looks like a sham.  (Well, it is, but it will be obvious to everyone.) If Putin tones it down, based on Obama’s wink and stroke, Obama can continue to claim that he has improved relationships with Russia.

But given the fact that Obama is obviously playing somebody, do you really believe that Putin will conclude that Obama is playing the American electorate, and not Putin?  Given Putin’s suspicions of the US, I doubt it.

But I think that Americans have to take seriously the possibility that Obama is planning to conceal actively his intentions regarding a second term.  If he is willing to be “flexible” after the election-i.e., if he is willing to do things after the election that are contrary to what he says before it–about Russia and missile defense, what else is he being “flexible”-i.e., lying-about?

In other words, this exchange with Medvedev raises serious additional questions about his sincerity and honesty.  I don’t think he deserves space.  He deserves to be pressed repeatedly on his intentions, and this video provides a perfect pretext for the pressing.

The exchange with Medvedev was also notable for its confirmation of Medvedev as Putin’s errand boy: “I will transmit this information to Vladimir.”  How embarrassing, mainly because Medvedev says that without a trace of embarrassment.  He is well and truly whipped. He has his mind right.  He knows who is boss.

In fact, pretty much anybody paying attention knew who was boss from day 1.  But Obama predicated the Reset on the idea that Medvedev was a rival of Putin’s.  How’s that looking now?

Speaking of missile defense, over the weekend Rogozin the Ridiculous tweeted that “Russian missile systems are able to overcome missile defense of any kind.” To which I responded: “So then why are you so fussed about US ABM system? You should welcome us wasting $ on it. So which is it?”

Which means that Rogozin is also attempting to deceive.  Either his fulminations against US missile defense are deceptive (because these really pose no threat to Russia because its ICBMs are invulnerable) are dishonest or his claims that Russian missiles are invulnerable  are lies.

Sad to say, Rogozin didn’t reply.  I’m shocked.  But a troll did claim that Russia was fussed because “it is indicative of NATO’s arrogant disrespect for Russian sovereignty.” Uhm, American missiles or ABM facilities- on Polish, Romanian and Czech violate Russian sovereignty how, exactly?

In a post earlier this evening, I said that anti-speculation frenzies dated from the 19th century.  But they in fact date back much further. In Book IV, Ch. 5 of Wealth of Nations, Adam Smith analyzed the irrational attacks on commodity speculation:

The popular fear of engrossing and forestalling [types of speculative activity outlawed in England] may be compared to the popular terrors and suspicions of witchcraft. The unfortunate wretches accused of this latter crime were not more innocent of the misfortunes imputed to them than those who have been accused of the former. The law which put an end to all prosecutions against witchcraft, which put it out of any man’s power to gratify his own malice by accusing his neighbour of that imaginary crime, seems effectually to have put an end to those fears and suspicions by taking away the great cause which encouraged and supported them. The law which should restore entire freedom to the inland trade of corn would probably prove as effectual to put an end to the popular fears of engrossing and forestalling.

Sadly, I think that Smith’s belief that legalizing speculation would end attacks against it is quaint, but wrong.  Indeed, it appears that the reverse is true: popular terrors and fears-stoked by opportunistic politicians eager to divert blame for high prices to others-lead to attempts to restrict speculation.

But Smith’s analysis of the counterproductive effects of these restrictions does stand the test of time.  It is worth a read.