Sonntag, September 28, 2008

Chinese Colonialism...

I've written on how the Chinese see the world before.

Now Peter Hitchens in the Mail Online writes this. As the pundits say, read the entire thing.

History is repeating itself once again, but has entered the tragedy phase, one that never ends.

Here's the core of the story:

These poor, hopeless, angry people exist by grubbing for scraps of cobalt and copper ore in the filth and dust of abandoned copper mines in Congo, sinking perilous 80ft shafts by hand, washing their finds in cholera-infected streams full of human filth, then pushing enormous two-hundredweight loads uphill on ancient bicycles to the nearby town of Likasi where middlemen buy them to sell on, mainly to Chinese businessmen hungry for these vital metals.

Out of desperation, much of the continent is selling itself into a new era of corruption and virtual slavery as China seeks to buy up all the metals, minerals and oil she can lay her hands on: copper for electric and telephone cables, cobalt for mobile phones and jet engines - the basic raw materials of modern life.

That's right, this time it's the Chinese. Their own propaganda sells Chinese involvement as enlightened and bringing nothing but benefits to the Africans, but reality has a nasty way of not following the party line.

The Chinese leadership may even believe that they are doing good. But anyone who would bother to really look at Africa knows the problems of endemnic corruption and the zero-sum way of life there, and you have to change the culture before you will have economic growth: the Chinese leadership, of course, believe that they have subdued their citizens (hah!) and that they can do the same for the Africans.

They can: it will require the same kind of mass starvation and megadeaths that Chinese communism required until a painful status quo was achieved between power and responsibility in China, one that is vastly less stable than one would be led to believe.

But this time it's Africa, and this is nothing less than the worst colonialism since Belgium ran the Congo, and that is saying a lot.

China offers both rulers and the ruled in Africa the simple, squalid advantages of shameless exploitation.

For the governments, there are gargantuan loans, promises of new roads, railways, hospitals and schools - in return for giving Peking a free and tax-free run at Africa's rich resources of oil, minerals and metals.

For the people, there are these wretched leavings, which, miserable as they are, must be better than the near-starvation they otherwise face.

Persuasive academics advised me before I set off on this journey that China's scramble for Africa had much to be said for it. They pointed out China needs African markets for its goods, and has an interest in real economic advance in that broken continent.

For once, they argued, a foreign intervention in Africa might work precisely because it is so cynical and self-interested. They said Western aid, with all its conditions, did little to create real advances in Africa, laughing as they declared: 'The only country that ever got rich through donations is the Vatican.'

Why get so het up about African corruption anyway? Is it really so much worse than corruption in Russia or India?

Is it really our business to try to act as missionaries of purity? Isn't what we call 'corruption' another name for what Africans view as looking after their families?

And what about China herself? Despite the country's convulsive growth and new wealth, it still suffers gravely from poverty and backwardness, as I have seen for myself in its dingy sweatshops, the primitive electricity-free villages of Canton, the dark and squalid mining city of Datong and the cave-dwelling settlements that still rely on wells for their water.

After the murderous disaster of Mao, and the long chaos that went before, China longs above all for stable prosperity. And, as one genial and open-minded Chinese businessman said to me in Congo as we sat over a beer in the decayed colonial majesty of Lubumbashi's Belgian-built Park Hotel: 'Africa is China's last hope.'

I find this argument quite appealing, in theory. Britain's own adventures in Africa were not specially benevolent, although many decent men did what they could to enforce fairness and justice amid the bigotry and exploitation.

This colonialism is worse than what Hitchens tells: it is wrapped in the mantle of progressivsm, that same mantle that took the lead in poisoning the post-colonial discussion with its rampant anti-Western rhetoric. This is truly where the lunatics are running the asylum.

I know from personal experience with Chinese authority that Peking regards anything short of deep respect as insulting, and it does not forget a slight.

I also know that this over-sensitive vigilance is present in Africa.

The Mail on Sunday team was reported to the authorities in Zambia's Copper Belt by Chinese managers who had seen us taking photographs of a graveyard at Chambishi where 54 victims of a disaster in a Chinese-run explosives factory are buried. Within an hour, local 'security' officials were buzzing round us trying to find out what we were up to.

But that's just the Chinese making sure that there is no interference in what they are doing, and it's all based on "legitimate concerns": poppycock.

Everyone in Africa knows China's Congo deal - worth almost £5billion in loans, roads, railways, hospitals and schools - was offered after Western experts demanded tougher anti-corruption measures in return for more aid.

Sata knows the Chinese are unpopular in his country. Zambians use a mocking word - 'choncholi' - to describe the way the Chinese speak. Zambian businessmen gossip about the way the Chinese live in separate compounds, where - they claim - dogs are kept for food.

There are persistent rumours, which cropped up in almost every conversation I had in Zambia, that many of the imported Chinese workforce are convicted criminals whom China wants to offload in Africa. I was unable to confirm this but, given China's enormous gulag and the harshness of life for many migrant workers, it is certainly not impossible.

In other words, China is the new colonial power. History repeats, this time as tragedy.

Dienstag, September 23, 2008

Understanding The Mess...

This from the WSJ does a good job of clearing the air.

In order to curry congressional support after their accounting scandals in 2003 and 2004, Fannie Mae and Freddie Mac committed to increased financing of "affordable housing." They became the largest buyers of subprime and Alt-A mortgages between 2004 and 2007, with total GSE exposure eventually exceeding $1 trillion. In doing so, they stimulated the growth of the subpar mortgage market and substantially magnified the costs of its collapse.

Hence it was Fannie Mae and Freddie Mac who brought this about: why?

It is important to understand that, as GSEs, Fannie and Freddie were viewed in the capital markets as government-backed buyers (a belief that has now been reduced to fact). Thus they were able to borrow as much as they wanted for the purpose of buying mortgages and mortgage-backed securities.

This is a very important point: they were the market makers in this segment: what they wanted, they got, since it was the simplest and fastest way of doing business.

Their buying patterns and interests were followed closely in the markets. If Fannie and Freddie wanted subprime or Alt-A loans, the mortgage markets would produce them. By late 2004, Fannie and Freddie very much wanted subprime and Alt-A loans. Their accounting had just been revealed as fraudulent, and they were under pressure from Congress to demonstrate that they deserved their considerable privileges. Among other problems, economists at the Federal Reserve and Congressional Budget Office had begun to study them in detail, and found that -- despite their subsidized borrowing rates -- they did not significantly reduce mortgage interest rates. In the wake of Freddie's 2003 accounting scandal, Fed Chairman Alan Greenspan became a powerful opponent, and began to call for stricter regulation of the GSEs and limitations on the growth of their highly profitable, but risky, retained portfolios.

Hence it became critical for those in the pocket of Fannie Mae and Freddie Mac to fight any sort of reforms: as far as they were concerned, it was killing the goose that laid the golden eggs...

But wait: that paragraph says more: despite their ability to borrow at subsidized rates, they did not, in fact, reduce mortgage interest rates in a meaningful way. Where did that money go? We now know the answer: it went to pay political appointees salaries way above their nominal pay scale, and it went to lobbying efforts, aka bribery.

If they were not making mortgages cheaper and were creating risks for the taxpayers and the economy, what value were they providing? The answer was their affordable-housing mission. So it was that, beginning in 2004, their portfolios of subprime and Alt-A loans and securities began to grow. Subprime and Alt-A originations in the U.S. rose from less than 8% of all mortgages in 2003 to over 20% in 2006. During this period the quality of subprime loans also declined, going from fixed rate, long-term amortizing loans to loans with low down payments and low (but adjustable) initial rates, indicating that originators were scraping the bottom of the barrel to find product for buyers like the GSEs.

This is where the Fannie Mae and Freddie Mac gamed the system: in order to stay afloat, they increased the risk to the entire economy.

The strategy of presenting themselves to Congress as the champions of affordable housing appears to have worked. Fannie and Freddie retained the support of many in Congress, particularly Democrats, and they were allowed to continue unrestrained. Rep. Barney Frank (D., Mass), for example, now the chair of the House Financial Services Committee, openly described the "arrangement" with the GSEs at a committee hearing on GSE reform in 2003: "Fannie Mae and Freddie Mac have played a very useful role in helping to make housing more affordable . . . a mission that this Congress has given them in return for some of the arrangements which are of some benefit to them to focus on affordable housing." The hint to Fannie and Freddie was obvious: Concentrate on affordable housing and, despite your problems, your congressional support is secure.

The key word is Congress, particularly Democrats, who allowed them to dig the hole deeper and deeper without restraint: Congress failed in its oversight role, and the blame must be placed where it belongs: the Right Honorable Representative Barney Frank, Democrat from Massachusetts, as the Chair of the House Financial Services Committee. He is the main culprit at this point.

In light of the collapse of Fannie and Freddie, both John McCain and Barack Obama now criticize the risk-tolerant regulatory regime that produced the current crisis. But Sen. McCain's criticisms are at least credible, since he has been pointing to systemic risks in the mortgage market and trying to do something about them for years. In contrast, Sen. Obama's conversion as a financial reformer marks a reversal from his actions in previous years, when he did nothing to disturb the status quo. The first head of Mr. Obama's vice-presidential search committee, Jim Johnson, a former chairman of Fannie Mae, was the one who announced Fannie's original affordable-housing program in 1991 -- just as Congress was taking up the first GSE regulatory legislation.

In other words, Obama is part of the problem, not part of the solution: McCain is part of the solution. And why is this even a contest?

In 2005, the Senate Banking Committee, then under Republican control, adopted a strong reform bill, introduced by Republican Sens. Elizabeth Dole, John Sununu and Chuck Hagel, and supported by then chairman Richard Shelby. The bill prohibited the GSEs from holding portfolios, and gave their regulator prudential authority (such as setting capital requirements) roughly equivalent to a bank regulator. In light of the current financial crisis, this bill was probably the most important piece of financial regulation before Congress in 2005 and 2006. All the Republicans on the Committee supported the bill, and all the Democrats voted against it. Mr. McCain endorsed the legislation in a speech on the Senate floor. Mr. Obama, like all other Democrats, remained silent.

Let's see: the Republican controlled Senate Banking Committee tried to reform both Fannie Mae and Freddie Mac, and the vote went along clear party lines, with the Democrats voting against it.

Now can anyone tell me why we should be listening to any Democrat on how to deal with the problem that they created? The Democrats have lost complete and total moral, political and whatever other authority that they may have at one time commanded regarding this, and to listen to them would be, plain and simple, folly of the worst kind.

Now the Democrats are blaming the financial crisis on "deregulation." This is a canard. There has indeed been deregulation in our economy -- in long-distance telephone rates, airline fares, securities brokerage and trucking, to name just a few -- and this has produced much innovation and lower consumer prices. But the primary "deregulation" in the financial world in the last 30 years permitted banks to diversify their risks geographically and across different products, which is one of the things that has kept banks relatively stable in this storm.

It's not a canard, it is an outright lie and an attempt to save their sorry butts. The problem wasn't deregulation, but the fact that those who were regulated subverted the regulators - the House Financial Services Committee - and that the Democrats blew it. Big, big time.

As a result, U.S. commercial banks have been able to attract more than $100 billion of new capital in the past year to replace most of their subprime-related write-downs. Deregulation of branching restrictions and limitations on bank product offerings also made possible bank acquisition of Bear Stearns and Merrill Lynch, saving billions in likely resolution costs for taxpayers.

If the Democrats had let the 2005 legislation come to a vote, the huge growth in the subprime and Alt-A loan portfolios of Fannie and Freddie could not have occurred, and the scale of the financial meltdown would have been substantially less. The same politicians who today decry the lack of intervention to stop excess risk taking in 2005-2006 were the ones who blocked the only legislative effort that could have stopped it.

This is the truth, folks: every single US taxpayer should ask the Democrats why they, the tax payers, should now pay for a politically motivated boondoggle of the worst kind. This is costing real money and is going to have real, long-term negative effects on growth, leading to lower wealth for everyone.

Except those who have profited. The system was gamed, but let's make sure that those who made that possible at least pay the price.

Get out there and vote Republican: you deserve nothing less.

Freitag, September 19, 2008

And The Reason Why...

...the Democrats have no idea what to do about the financial crisis is a simple one.

They're too busy pulling in the pork.

According to this, the Democrats have been pre-occupied...

Senate Majority Leader Harry Reid of Nevada was preoccupied with protecting billions of dollars worth of earmarks contained in a separate, unpublished committee report that got a one-sentence reference in a giant $612 billion defense bill. Reid engineered the 61-to-32 vote to limit debate on the bill, thus barring consideration of an amendment offered by Sen. Jim DeMint. The South Carolina Republican's amendment would have deleted the reference to the committee report so that it would have to be considered separately. By leaving the language in the bill, the lawmakers were able to carry out one of their favorite maneuvers: Incorporating committee reports into omnibus bills so they can give billions of tax dollars to their cronies without recorded votes on specific spending measures. This is the same Harry Reid who with House Speaker Nancy Pelosi promised to "drain the swamp" of Republican corruption if voters would return the Democrats to the majority.

But Reid's move was not just a slap at DeMint. Under pressure from a bipartisan coalition of fiscal watchdog groups, including Porkbusters, Club for Growth, Citizens Against Government Waste, National Taxpayers Union and Taxpayers for Common Sense, President George W. Bush signed an executive order last January that directed federal agencies to ignore earmarks that only appear in committee reports. If DeMint's proposal had passed, the earmarks in the defense bill's committee report would have been merely suggestions – not legally binding spending instructions. No wonder Reid made sure the South Carolinian's amendment never made it to the Senate floor.

A task force created by Senate Minority Leader Mitch McConnell, R-Ky., recommends that all earmarks and their congressional sponsors be included explicitly in spending bills, so they can be honestly debated and voted upon by the House and Senate, as the Constitution requires. This would give members of Congress sufficient leeway to direct public funds to worthy projects in their home districts, while making the lawmakers accountable to taxpayers. It is significant that Armed Services Committee chairman Carl Levin, D-Mich., who opposed the DeMint amendment, admitted that it would have created "a huge shift in the power of the purse." He's right about that. But a shift from shady legislative maneuvers like Reid's to full public disclosure and accountability is exactly the kind of change most needed on Capitol Hill. Voters are still waiting for that swamp to be drained.

Remind me why anyone with a functioning mind thinks that electing Obama will change any of this? The Democratic Party should be renamed "The Earmark Party": if not, then we should all start referring to members of Congress, especially the Democrats, as "The Earmarkers".

If the shoe fits...

You Read It Here First...

I've posted a number of times here on the problems of Fair Value in accounting: not it appears I'm not the only one who is concerned.

William M. Isaac, in the WSJ (link here) has this to say:

I am astounded and deeply saddened to witness the senseless destruction in the U.S. financial system, which has been the envy of the world. We have always gone through periods of correction, but today's problems are so much worse than they needed to be.

The Securities and Exchange Commission and bank regulators must act immediately to suspend the Fair Value Accounting rules, clamp down on abuses by short sellers, and withdraw the Basel II capital rules. These three actions will go a long way toward arresting the carnage in our financial system.

Bingo. The first and foremost lesson to be learned is that problems have been made worse by attempts to solve them, not better: the massive write-offs of the last several days, let alone months, are a fiction of accounting rules, rather than real-world losses, and we are seeing the catastrophic effects of pro-cyclic effects, of error-correcting mechanisms that fail to correct errors and instead magnify them. That is true folly.

At the outset of the current crisis in the credit markets, we had no serious economic problems. Inflation was under control, GDP growth was good, unemployment was low, and there were no major credit problems in the banking system.

This is why McCain can say that the economy is fundamentally sound: it is.

The dark cloud on the horizon was about $1.2 trillion of subprime mortgage-backed securities, about $200 billion to $300 billion of which was estimated to be held by FDIC-insured banks and thrifts. The rest were spread among investors throughout the world.

The likely losses on these assets were estimated by regulators to be roughly 20%. Losses of this magnitude would have caused pain for institutions that held these assets, but would have been quite manageable.

And let us do remember where the subprimes came from: from the severely misguided CRA intervention in the market operations of issuing banks, requiring them to issue the subprimes regardless of merit, coupled with Democratic malfeasance and corruption at Fannie Mae and Freddie Mac, abandoning prudent and functional risk management for political gain at taxpayer cost.

How did we let this serious but manageable situation get so far out of hand -- to the point where several of our most respected American financial companies are being put out of business, sometimes involving massive government bailouts?

Lots of folks are assigning blame for the underlying problems -- management greed, inept regulation, rating-agency incompetency, unregulated mortgage brokers and too much government emphasis on creating more housing stock. My interest is not in assigning blame for the problems but in trying to identify what is causing a situation, that should have been resolved easily, to develop into a crisis that is spreading like a cancer throughout the financial system.

The biggest culprit is a change in our accounting rules that the Financial Accounting Standards Board and the SEC put into place over the past 15 years: Fair Value Accounting. Fair Value Accounting dictates that financial institutions holding financial instruments available for sale (such as mortgage-backed securities) must mark those assets to market. That sounds reasonable. But what do we do when the already thin market for those assets freezes up and only a handful of transactions occur at extremely depressed prices?

This is why accountants and lawyers should be banned from policy making: both groups lack the fundamental understanding of how markets actually work and what the goal of accounting actually is: it is not and cannot be the attempt to present the status of a company as if the company were to be liquidated on that day, but rather is a snapshot of that company as a going concern on a given day.

The answer to date from the SEC, FASB, bank regulators and the Treasury has been (more or less) "mark the assets to market even though there is no meaningful market." The accounting profession, scarred by decades of costly litigation, just keeps marking down the assets as fast as it can.

This is the key: what is the fair market value? I've worked doing exactly that - fair market valuation of the sale of radio and TV stations - and it is nothing other than the price of a going concern - in this case radio and TV stations - based on the physical plant and equipment, properly depreciated, plus the dollar amount that can be generated by using the company's business model to generate a future cash flow that is then used to finance the purchase. That is the fair market value, and it corresponds very well to actual price developments for the sale of radio and TV stations (there are additional factors that go into this, but that is the core).

But that isn't what we are talking about here: it's an accountant placing an arbitrary value on assets without having any idea of what those assets are actually worth: it elevates the accountant to a position way beyond their pay scale, which was the point of implementing such rules, if you pardon my cynicism.

This is contrary to everything we know about bank regulation. When there are temporary impairments of asset values due to economic and marketplace events, regulators must give institutions an opportunity to survive the temporary impairment. Assets should not be marked to unrealistic fire-sale prices. Regulators must evaluate the assets on the basis of their true economic value (a discounted cash-flow analysis).

Absolutely correct: the regulations as they exist today, with fair market valuations, will destroy the banking system. Otherwise you will see massive losses and gains during the business cycle, which is something that almost any economics major could have told the accountants. Instead, the accountants wanted the power, so to speak, of corporate valuation, and they are now in the position of a 13-year old who is out driving Dad's Hummer, knocking down mailboxes and bouncing off of cars like there is no tomorrow. Which there won't be if things are not changed.

If we had followed today's approach during the 1980s, we would have nationalized all of the major banks in the country and thousands of additional banks and thrifts would have failed. I have little doubt that the country would have gone from a serious recession into a depression.

Again, bingo: the remedy is killing the patient.

If we do not halt the insanity of forcing financial firms to mark assets to a nonexistent market rather than their realistic economic value, the cancer will keep spreading and will plunge the world into very difficult economic times for years to come.

This is not a forecast: this is what will happen and is a function of the laws of economics. Destroying capital like this is criminally stupid, and even worse, it's a mistake.

I argued against adopting Fair Value Accounting as it was being considered two decades ago. I believed we would come to regret its implementation when we hit the next big financial crisis, as it would deny regulators the ability to exercise judgment when circumstances called for restraint. That day has clearly arrived.

Again. absolutely correct...

Equally egregious are the actions by the SEC in recent years lifting the restraints on short sellers of stocks to allow "naked selling" (shorting a stock without actually possessing it) and to eliminate the requirement that short sellers could sell only on an uptick in the market.

Naked shorting is nothing less than direct fraud: it is selling you something that the seller does not have legal right to (you can short with the appropriate options, but without the options you are defrauding your customer).

On top of this, it is my understanding that short sellers are engaged in abuses such as purchasing credit default swaps on corporate bonds (essentially bets on whether a borrower will default), which lowers the price of the bonds, which in turn causes the price of the company's stock to decline further. Then the ratings agencies pile on and reduce the ratings of a company because its reduced stock price will prevent it from raising new capital. The SEC must act immediately to eliminate these and other potential abuses by short sellers.

Naked shorting, in other words, is a license to destroy a company: it creates an open-ended positive reinforcement loop that benefits only one person, the one who is doing the naked shorting.

The Basel II capital rules adopted by the FDIC, Federal Reserve, Office of Thrift Supervision and the Comptroller of the Currency last year are too new to have caused big problems, but they must be eliminated before they do. Basel II requires the use of very complex mathematical models to set capital levels in banks. The models use historical data to project future losses. If banks have a period of low losses (such as in the mid-1990s to the mid-2000s), the models require relatively little capital and encourage even more heated growth. When we go into a period like today where losses are enormous (on paper, at least), the models require more capital when none is available, forcing banks to cut back lending.

Again, correct: this is a system of positive reinforcement, a pro cyclical system, which is exactly the opposite of what is actually needed.

As I write this article, I am seeing proposals by some to create a new Resolution Trust Corp., as we did in the 1990s to clean up the S&L problems. The RTC managed and sold assets from S&Ls that had already failed. It was run by the FDIC, just like the FDIC. We needed to create the RTC in the 1990s only because we could not comingle the assets from failed banks with those of failed thrifts, because we had two separate deposit insurance funds absorbing the respective losses from bank and thrift failures.

I can't imagine why we would want to create another government bureaucracy to handle the assets from bank failures. What we need to do urgently is stop the failures, and an RTC won't do that.

Again, absolutely correct: stop the cause, not deal with the symptoms.

Again, we must take three immediate steps to prevent a further rash of financial failures and taxpayer bailouts. First, the SEC must suspend Fair Value Accounting and require that assets be marked to their true economic value. Second, the SEC needs to immediately clamp down on abusive practices by short sellers. It has taken a first step in reinstituting the prohibition against "naked selling." Finally, the bank regulators need to acknowledge that the Basel II capital rules represent a serious policy mistake and repeal the rules before they do real damage.

We are almost out of time if we hope to eradicate the cancer in our financial system.

And the problem is one of a cancer: someting that takes a long time to develop, insidious and invisible until it suddenly crops up. Remember what a cancer is: it is the cells of the body becoming autonomous, working for their own aims and living off the body until the body can no longer function.

And the real problem is that this isn't limited to the US: if the US goes down because of these fundamental errors of policy, it takes the rest of the world with it.

We are living in interesting times. Let's just hope we can survive them.

And the Democrats in Congress want to adjourn and go home rather than deal with this?

Don't believe that? What of this?

Wall Street would respond positively ``if the president and Treasury Secretary Paulson and a couple of Cabinet members and the Republican and Democratic leadership all went on the White House lawn and said that we are resolved to taking additional measures in the coming weeks despite the elections to ensure that confidence is restored,'' Gabriel said.

``But the odds of that seem very, very low.''

In other words, instead of banding together and dealing with the problem, political considerations have a higher priority for the Democrats, and the country's economy can go to hell as a result. "We don't know what to do" is about the lamest thing I've ever heard.

Of course, some are using this for political advantage, trying to pin the blame on someone convenient and desperately trying to avoid having anyone see their blood-smeared hands:

Some committee chairmen have scheduled hearings and promised better oversight.

Representative Henry Waxman, chairman of the House Oversight and Government Reform Committee, will hold two days of hearings on Oct. 6 and 7 ``to examine what went wrong and who should be held to account'' at AIG and Lehman Brothers, which filed for bankruptcy on Sept. 15.


House Speaker Nancy Pelosi defended the decision of Congress to adjourn. Lawmakers can always be recalled to Washington ``if there is a need to do so,'' she told reporters yesterday. In the meantime, House and Senate committees will hold hearings and the financial crisis will be studied by Congress, she said. ``Our work will continue even if we are not still on the floor,'' she said.

In other words, Congress is irrelevant to the whole situation: what is really going on with Congress is that it is paralyzed in fear that them chickens is coming home to roost and that the resulting revelation of fundamental incompetence will tear down the carefully constructed facade of fraud and deceit.

Then again, the relevance of Congress is deeply in question at this point:

Senator Johnny Isakson, a Georgia Republican active on housing issues, scoffed at suggestions that lawmakers postpone adjournment to rewrite laws governing the financial markets.

``The last thing you need,'' he said, ``are 535 people, not many of whom are that well-versed in financial markets, trying to do quick fixes to a market correction that's one of the more significant that we've ever seen.''

That's perhaps one explanation of why Congress' popularity is at an all-time low: the level of competence here is probably significantly lower than a sample of 535 people chosen at random.

From the world's population at that.

Christ, this is turning into a real nightmare: I'm not one to call out "The Sky Is Falling", but ... this is increasingly a case of unintended consequences: the creation of a market inequilibrium with the subprimes; accounting rules that creates positive feedback; and reserve requirements that creates positive feedback.

These are all politically motivated interferences in the market: as an economist who has been preaching the sheer stupidity of this for decades, all I can say now is this:


Unfortunately, that doesn't make me feel better. Better figure out what your options are besides Plan A, because if you don't have Plans B, C and D, you're not going to be a happy camper.

Donnerstag, September 18, 2008

What It Means To Live In A Multipolar World...

This is a very, very interesting article in The China Daily.

While it's not official, nothing appears in The China Daily that hasn't been vetted, and this is certainly an interesting take on some current Chinese strategic thinking. Makes some of China's recent moves into Africa and elsewhere a tad more understandable, at least.

Let's start:

With the clout of China and India rising on the international arena, some people in the West, who are concerned over the already fragile, US-dominated unipolar world political structure or the Western hegemony, have rushed to offer a variety of recipes for inter-power relations in the 21st century and for the world's new power structure.

What is being said here? First of all, that China and India are losing their role in world affairs as scarcely anything better than markets. This may seem obvious to the pundits, but is a critical point: both countries are the most populous, and given the vacuum in current world geopolitics - because the US declines, thank you very much, the role of world hegemon as the Chinese authors of this piece expect it to play, the vacuum will be filled with regional players. This is a key point: regional players, and not a new hegemon.

These recipes include multi-polar, non-polar or collective power models, a "democracy value alliance", a new trans-Atlantic union, and even a joint China-US governance idea.

The authors have done their homework: they've listed most hypothetical power constellations. What is missing is what I would call the Chinese nightmare, of a more democratic Russia unified with the West.

All these concepts are in essence changed versions of the new US or Western hegemonic model that proposes maintaining the world's established power structure through absorbing some emerging powers. The model also proposes carrying out reforms of the new power structure. In all this the idea is to keep the US and Western hegemonic position intact as much as possible. The new situation emerging from the very beginning of the 21st century indicates that neither the US nor the Western hegemony will last for ever, and there will not be a transfer of the old hegemony to a new one. In the 21st century, the world will see the end of not only the US-dominated hegemony, but also of the hegemonic model that allows a few world powers to control global affairs.

Here the authors are alos correct: most of these options are a continuation of the status quo, continuing things as they are today. Pointing this out lays the foundation for the fundamental questioning of this, which is what I think China is actually doing: rather than seeking to confront the US and the West directly - which, given the enormous military costs and geographic distances, is a very expensive proposition - the goal is to change the fundamentals of power relationships, breaking the hegemony in the interest of regional powers.

This is nothing new for China: if anything, it is a continuation of old Chinese divide-and-conquer methods, of allowing no major coalitions to grow up around it that can challenge China. China would be, I think, happiest in a world made up of individual political states that have no entangling alliances and which operate only according to their individual self-interests: this is the level playing field that China wants in order to flourish.

The last sentence tells it all: here the US is the world's last super-power, that there will be no further super-powers like we saw during the Cold War. This is indeed fairly perceptive of how world development is moving: the US does not care to shoulder the burden of being the world's only super-power for long, unwilling to do what is necessary in order to ensure that it remains on top (this would entail, for instance, forcing China and Taiwan to settle, forcing Israel and the bickering factions of a theoretical Palestine to settle, and deciding, basically, how geopolitics will be run: this requires a vastly more ruthless application of military force, one that the US is not willing to apply (but the Russians would have been: see Chechnya and Georgia for examples)).

The decease of the US and Western hegemony will not be caused by the challenge from such rising powers as China or other countries. It will be caused by the world's irreversible efforts for a hegemony-free political structure. As the result of this situation, we can expect a hegemony-free and harmonious world in the 21st century in which big countries will fulfill their responsibilities and obligations and small ones can enjoy equality, democracy and assistance from each other.

Again, this is very perceptive: the multi-polar world is the result of the defeat of the Soviets and the absolute military superiority of the US. By this I mean that conflicts will continue to take place, but they will be conflicts between all countries except the US, as no one will directly choose to fight the US, but they will choose to fight their counterparts. The authors interpret this through their standard ideological blinders - according to Maoist theory, hegemony powers are the cause of conflict, hence if you remove the hegemony, there is no conflict. This is where the authors - and by extension the Chinese intelligentsia - have a lot yet to learn about human nature and the polity of nations.

In the 21st century, the United States, the protagonist of the current unipolar world, will gradually evolve into a common power because of accelerated efforts of many countries which will advocate an end to the unipolar power pattern. Since the US invasion of Iraq in 2003, a "balance of power" has come into being among the major countries. Despite its sole superpower status, the United States cannot always succeed in solving some global issues. It is even incapable of handling some domestic issues such as the subprime crisis. All these transmit to the world a strong signal that the US hegemony and Western dominance are now in an irreversible process of decline and final disappearance.

Again, this is perceptive, but I'd extend this analysis with a twist to it: the US will not evolve to a common power, but it will behave as if it were a common power, but with the knowledge that it will not be attacked by conventional means. I see a tad of Chinese hubris here in reference to the US not being able to handle all of its problems: China is sitting on a multiplex of social and political issues that can, virtually at any time, explode in their faces and tear down the facade of modern China.

In dealing with some global issues, today's United States not only needs substantial support from staunch allies, but also needs understanding, participation and cooperation from other key world or regional players. Sometimes, it even has to give up its leading role to other big powers in finding settlements of some intractable issues.

Which again underscores the unique nature of the US in world affairs: the reluctant hegemon...

With the spirit of peace and democracy exercising strong restraint within their boundaries, European countries have lost the basic driving force for hegemonic wars against other countries. On the other hand, economic globalization and marketization of the world since the end of the Cold War have activated the urge for peace and development among a number of developing countries in Asia, Africa and Latin America. Especially the peaceful rise of some powers, such as China, India, Russia, Brazil, Mexico and South Africa, has prompted some Western countries to join the resistance to hegemonism.

This is exactly the perception that Russia has of the West: that Europe has completely lost its way in terms of being able to exercise any kind of power politics and hence can be simply written off for the time being.

Some new-generation European leaders, though, still want to maintain the Western hegemony with the US at its core. They want to do so by advocating the "values diplomacy" and setting up the so-called democracy and values alliance or by forming a new trans-Atlantic union. But all these wishes will be difficult to fulfill.

To coin a phrase: duh.

The emergence of some peace-promoting powers will be an irresistible historical tide in the 21st century. Their rise will lay a solid groundwork for the final end of the long-standing hegemonism in world politics.

Now here is where the article really starts to show some teeth, so to speak: the emergence of peace-promoting powers. What does this mean?

Fundamentally, it means that the Chinese are aiming at playing the power game without reverting to force, using instead their economic clout in a kind of economic colonialism that is somehow "ok" because it's not the old colonialism. Once you take a closer look at what the Chinese are doing, it has very little difference from business as usual in developing countries: the difference is that the Chinese build the roads and infrastructure, rather than giving the money to the local authorities directly (who of course then over the last 30 years have simply absconded with it). The question becomes one of ownership, which as far as I know has not been completely clarified, meaning that the Chinese retain control over the country's infrastructure to ensure that it a) continues to work and b) continues to be a source of income for Chinese, rather than local, companies. While admittedly not an approach that lends itself to corruption and thievery, it does place a foreign power in control of what are effectively the means of production, which is fundamentally a definition of what a colonial power does. Hence China is setting itself up, more or less on the sly, as creating and controlling the infrastructure in the Third World, providing indeed something that local authorities were too venal or incompetent to do, but at the same time putting itself effectively in control of this infrastructure and enabling it to dictate, at a later date, what economic policies will be and as a result ultimately also what political policies may be: consider this a form of neo-neo-colonialism, colonialism with a human face, as it were.

New Delhi has generally chosen a path of peaceful development in South Asia despite its position of supremacy in the sub-continent. China has been even more committed to a peaceful development and always condemns any use of force in solving international disputes.

This is the public face of the New China: peaceful development, no use of force in solving international disputes. Of course, they are defining the conflicts that they currently have not as international, but rather as being purely domestic (Taiwan, Tibet, minority repressions, etc.), which is code for "none of your business". Believe this at your peril.

The strong efforts and calls for a hegemony-free world from these new emerging powers and the massive populations of Asian, African and Latin American countries have exerted a huge pressure on hegemonic countries, prompting them to deal with others on an equal footing.

Here the authors believe their own propaganda a tad much: Chinese and Indian political opinions are of no interest to the West, outside of academia and some commercial interests. This is more the expressed desire that this should be the case: the idea of a world-wide plebescite democracy that would force the West to transfer its monies for past transgressions both real and imagined, whilst elitist-controlled countries - and China and India are such countries - could manipulate from the background public opinion: the Chinese ruling elite believe that they can continue to do this for the foreseeable future, as they have successfully up to this point.

The change of the world's hegemonic pattern pushed by newly emerging powers serves the basic interest of the whole world, including the West. It will also act as the main impulse to build a conflict-free and harmonious world in the new century.

A lovely appeal to a chicken in every pot and a car in every garage.

China is facing two major challenges: first of controlling its socio-economic development such that it can weather the next 30 years or so until the steep downward decline in population (in the wake of decades of one-child policies) alleviates the major challenges that China faces in terms of environmental mismanagement and the continuing absurdities of Chinese economic policy: second of spreading the kind of demographic colonialism that it has used in Southern Asia (the overseas Han minorities) to win friends and influence people to the rest of the world.

That is why this article is insightful and points out what it may mean to live in a multi-polar world. The Chinese are not dumb - far from it, as this article shows - but tend to keep very hidden and, keeping to character, inscrutable for the Western mind.

Mittwoch, September 17, 2008

From the Guys Who Were There...

This is a great view of the inside of Fannie Mae when things started their long slow decline into perdition.

Arnold Kling worked there and was involved with what went on. To quote:

After the multifamily debacle, Freddie Mac's policy was to focus on financial health and minimize the support for low-income housing.

This was the risk management culture that Richard Syron inherited when he became Freddie Mac's CEO in 2003. Syron wanted to do more for low-income housing, and he did not trust the people that he found at Freddie Mac. As we now know, there was a blow-up between Syron and Freddie Mac's Chief Risk Officer over loans with low down payments. The Chief Risk Officer argued that such loans were bad for borrowers, bad for Freddie Mac, and bad for the country. Syron fired him.
In practice, Syron's timing was awful. He pushed Freddie Mac into high risk loans just as the real estate bubble was in its final few years. He then compounded this mistake by ignoring those at Freddie Mac who said that if the company was going to take these risks, then it had to raise more capital.

And these are the comments of the two others involved there at the same time, Chet Foster and Bob Van Order of Foster-Van Order model that was used to produce estimates of default costs and capital charges for the mortgages in question:

Chet Foster:

First, the accounting system. Freddie started as a Federal agency that did not have much to do. It was set up as a secondary market for S&Ls. At that time S&Ls were not much interested in selling loans. The accounting system was the typical government accounting system, done by folks that did not have a sound understanding of mortgage risk and related accounting practice. Freddie knew that the accounting system was not good. But fixing it was a huge problem. When Syron took over at Freddie Mac, it was estimated that it would cost something like $500 million to fix, and Wall Street analysts I talked to thought that it would take a lot more. Imagine going to the Board and asking for $500 million!

One thing that irks me is the requirement that Fannie And Freddie are required to make specified proportions of their purchases in lower income and minority areas. This more than anything else has created this mortgage market disaster. The mortgage market is one of the most competitive markets in the country. We have National Banks, commercial banks, S&Ls, finance companies, Credit Unions, mortgage bankers, and mortgage brokers (I am sure I have left some out) all competing for the last nickel on the table. I live in a small town in Texas (pop. 8,911) and we have 6 Banks, a credit union and a mortgage broker. In such a market everyone should be able to get a loan as long as the property and borrower are reasonable risks.

and this from Van Order:

On the bubble I think the feedback goes both ways, but mostly it came out of the subprime market. The really big surge in house prices was after 2003 or so, which was when the Fannie Freddie share of purchases fell sharply.

The declining share may have had something to do with the risk profile after 2005.

I think the price decline is most of the story, but not all, re defaults. They also did a lot of Alt-A in the last few years (currently about 10% of book). These have high downpayments and high credit scores, but are performing lousy. They are tough to evaluate because some are in securities with subordination ahead of them and insurance. As far I I know all of the subprime is in senior pieces of securities, but the senior pieces are at risk. The problem there is more a liquidity one--noone wants to buy even senior pieces. These will take losses, but not as much as the market discount suggests. Unfortunately neither accounting equity or mark to market equity are very accurate.

There is the smoking gun: the mortgage market disaster was due to the political decision to remove right and proper risk management from Fannie Mae and Freddie Mac, coupled with the requirement to make specified proportions of their business in lower income and minority areas.

This isn't speculation: these are the facts.

And To Underscore...

This editorial from the IBD underscores what I've been saying here.

Except that the true initiators of this mess are Carter and ACORN, not merely Clinton: Clinton's people took the corruption to new heights, of course.

Now, other, such as here, insist that the data doesn't support the case, that there are no causal relationships between the legislature's move to enforce lending practices and the subprime crisis as such.

Well, of course there's no simple link of legislation on day 1, subprime crisis on day 1+n.

It's all about the creation of a structural imbalance in the system that, fundamentally, has taken 30 years to thoroughly screw up the process. That's the problem.

Anything else is the desperate desire of the left to defend one of their bastions of pork at the cost of the taxpayers and mortgage payers.

That'd actually be a great class-action suit: all prime mortgage payers suing for the excess interest that they've paid via government fiat to pay for loans to those who could not, can not and would not qualify. Plus the interest over all those years...

Someone tell Edwards that.

Assigning the Fox to Investigate Why the Henhouse was Raided...

This is really rich.

Pelosi has tasked Barney Frank to investigate what went down last weekend on Wall Street, what happened to Fannie Mae/Freddie Mac, and generally to see what went wrong.

And Waxman is to be involved as well.

This is going to be nothing but the modern version of show trials, people, with deliberate falsification of the role that people like Barney Frank played in this financial crisis.

To make this clear before history is re-written: Barney Frank used all of his influence to ensure that the Bush Administration could not reform Fannie Mae and Freddie Mac, both of whom were politically staffed - and stacked - with Democrats to ensure that the Democrats has a firm grip on the reigns of political spending by these two organizations.

This is perfidious: what the Democrats will try to do here is to shift the blame from themselves to the White House. They will claim it was Bush's responsibility to make sure that these institutions were properly run, but will deny to their graves that they blocked the reforms that the Bush administration tried to get through Congress - controlled, of course, by the Democrats - in order to do so. And by claiming now the right to investigate, they will effectively control the "truth-finding" process (I put that in quotes because they're not interested in the truth...) to ensure that this doesn't blow up in their faces before the election, but rather first in the new year.

For them, it's the perfect storm. They point their fingers and rant and rave and say, basically, "Look what you made me do!" when in fact they are the guilty ones. And by controlling the process, they hope and pray to control the outcome.

Words fail me: this is the attempt to take control of finding out the facts so that the only facts found are the ones that do no harm to them and as much harm as possible, with spin, to their opponents.

My prediction: they'll put Jamie Gorelick on whatever committee is formed as their designated hatchetwoman.

Corrupt bastards, a trio infernale: Pelosi, Frank, Waxman. Let's just hope that the blogosphere nails them. Because the Press won't.

Dienstag, September 16, 2008

The Big Lie Redux...

This is rich.

According to Pelosi, the Dems have noooooothing to do with the banking crisis.

Other than having set it up, engineered it, fought reform every inch of the way, noooooooo, the Dems have nothing to do with it.


Sorry, let me be more exact.

Lying bitch.

Reality intrudes redux...

Been busy with the real world: reality intrudes. Hence the lack of posting. Sorry.

There's a lot to say.

I'll be brief: the banking meltdown that we saw on the weekend is not the result of deregulated markets, but much more the result of government interference in markets, specifically the government-regulated requirement that banks grant sub prime loans.

Search on this blog for "sub prime" to see what I mean.

What Obama and the Democrats are doing is desperately trying to paper this over: they have royally fucked up the US banking system by forcing banks to give loans that no bank would have done otherwise. The Democratic Party and its candidates understand little or nothing of real-world economics, and their failed policies will continue to make things worse.

The real bad guy in the closing of Lehman Brothers and the tragicomedy of Fannie Mae and Freddie Mac? Congress, specifically Barnie Frank, who has made a career of blocking any kind of reform of both Fannie Mae and Freddie Mac. Them chickens have come home to roost.

The economy is fundamentally sound. But the Democrats desperately want it to be bad, and they are doing their best to make it so. Watch them try and persuade people that it's all Bush's fault.

But they're not running against Bush. That is their first and fundamental error: they can't make this a referendum about Bush, because he's not running.

My call right now? McCain/Palin with 52% of the popular vote and more than 70% of the electoral college. That's right, a landslide. The Democrats will be able to take 3-4 seats in the House and 1-2 seats in the Senate, but not more than that. The American people have never liked giving one party control of the White House and the Congress. A Republican president and a Democratic congress will remain so for 8 years, with a Palin - Clinton contest in 2012 that Palin will win hands-down in the middle of a significant economic upswing. It's gonna be tough for the next couple of years with the upcoming severe credit crunch - the banks will have to batten down their hatches and be extremely conservative in lending, given the excesses of the last 20 years, and only when the stupidity of the sub primes is eliminated can it really recover - but the economy is and remains fundamentally sound.

My worry now is the rise of a new radicalism, financed this time not by the Chinese and the Soviets, but by NGOs out of control with rich non-government backers. The fact that their golden boy - who will remain Senator for Life from Chicago, the party machine will guarantee that - failed to win even a game of one-on-one with a white boy who can't even jump will drive many of the loopy left into further derangement, and we may well see the attempt at developing a revolutionary movement dedicated to the overthrow of capitalism and the establishment of a "just social order" or other similar drivel.

It remains, for me, incomprehensible that anyone can seriously espouse the tenets of socialism or capitalism today. The historical record shows so clearly the absolute failure of that political system, let alone the pseudo-economics behind it, that only a fool or a cynical power-hungry opportunist (sorry, I repeat myself) could espouse such a philosophy today.

Montag, September 08, 2008

History Repeating: Russian Paranoia...and Great Powers

Alexander Chramtschichin runs research for the Institute for Political and Military Analysis (IPMA) in Moscow. The IPMA was founded in 1996 and is basically a think-tank for the State Security Forces (aka KGB) and other government agencies.

In other words, it's basically the Russian equivalent of the Rand Corporation.

He's got an Op-Ed in today's Handelsblatt, the German equivalent of the Wall Street Journal (basically a purely financial newspaper). There's no easily found link, unfortunately.

Let me put what he says together and expand on it briefly with another quote from Medvedjev.

First Chramtschichin: the transliteration is mine, all errors mine as well...

After the end of the Cold War, the West presented Russia with a demonstrative rejection of international law and showed that it was intent on expansion of its are of influence at any cost: for the Kremlin the conclusion is that this is a very effective policy.

Russia is copying the West's behavior in Kosovo when we look at South Ossetia and Abchasia. For any objective commentator the West's arguments about the unique situation in Kosovo are absurd, since they were typical. And if you look at what NATO did in Yugoslavia in 1999, as well as what the US and its allies did in Iraq in 2003, you see classic examples of military aggression. Both Kosovo and the "colored revolutions" in the GIS countries is viewed by the Kremlin as simply the methods of the West in expanding its political sphere of influence at any cost.

We will admit that the revolutions in the Ukraine and Georgia has a serious inner social basis. That does not make them legitimate. They did not succeed without help from outside.

Russia's reaction to the eastwards extension of NATO and the stationing of elements of the American anti-ballistic missile system in eastern Europe are slightly paranoid. NATO's decline as a military power cannot be ignored, and not just because their military strength is weakening, but more importantly because virtually all Europeans simply don't want to go to war. Nonetheless, Russia sees the expansion of NATO into the East as a expansion of its sphere of influence.

The western story that the entry into NATO brings freedom and democracy is not taken seriously by Russia. The eastern Europe, for example, democracy came without NATO and the EU. Anyone considering Iraq and today's Kosovo to be democratic has lost their sense of reality. Even in the Ukraine, which is doubtless more democratized than Russia, many see democracy only as unlimited corruption and political chaos.

Convinced of its infallibility, the West is incapable of properly evaluating the situation in the post-soviet area. The western version of history, where in Russia and the former USSR the Russians were only viewed as dictators and occupiers, and eastern Europeans dreamed only of throwing off the heavy foot of Soviet domination, isn't always right. Abchasia and South Ossetia, for instance, sees Georgians as oppressors and Russians as liberators. The conflicts in the region weren't the result of Russian provocations, but rather came from Tiflis. Both Abchasia and South Ossetia categorically refuse to live under Georgian rule. If they were "truly" independent, Abchasia would chose independence, while South Ossetia would choose to join North Ossetia, a part of the Russian Federation.

Why does Georgia have the right to withdraw from the USSR, while Abchasia and South Ossetia do not have the right to withdraw from Georgia? What are the reasons to view the borders that the USSR drew - often arbitrarily - as sacred? Why must the Ossetians remain a divided people? The artificial borders of the Soviet period have created massive problems for the post-soviet period.

Moscow's policies today are not the result of some wide-reaching imperial plans. Russia, unfortunately, doesn't even have a strategy for its own development, neither domestic nor foreign. Today's policies are the result of reacting to events, doing what the West has done, recognizing that the West has no meaningful influence on Russia, and reflects the processes that are objectively developing in the post-soviet area. Russia is not driving the conflicts, since all of the post-soviet problems come from a time when Russia didn't exist in its current form.

The worst error of the West can make is to set Russia to be the same as the USSR and to see it as the country that lost the Cold War and hence has no right to pursue its legitimate interests. Modern Russia developed out of a rejection of the policies of the USSR: for that reason alone Russia is not the loser. Quite to the contrary: in the post-soviet area, it is the most important agent for stability. The West doesn't understand this: this is the reason for the strong reaction of Russia that contains significant soviet-era psychological and political elements. The West's policies will undoubtedly continue to be hypocritical, double-faced and incapable of understanding its opponents, but its political will to engage militarily is very weak, partially also due to a weak military. This is the reason that the political influence of the West is declining and why there is no reason to expect that the West will be able to influence Russian policies, let alone those of other stronger countries (China, India, Iran, etc).


Before analyzing what this means, the quote from Medwedjev:

I ask how the US would react if the Russian Navy were to provide help for the hurricane victims in the Caribbean?

To answer this: the US would be happy to see the Russian Navy providing humanitarian help. No problem whatsoever. That the Russian Navy is completely incapable of doing so, well that's another story (and a typical disinformation activity).

Let's go back to Chramtschichin.

What is this man telling us?

Well, first of all, that the pundits in the West are criminally stupid of they think that post-Soviet Russia has abandoned Great Power thinking. If anything they use Great Power thinking - of a world divided into power blocs and areas of influence, where the military power of the state determines the political power, where the world is indeed a zero-sum game.

Contrast that to the political theorists of today in the West who think that "soft power" is vastly better than traditional military power (and thence preferable, as if the two were interchangeable) and seem to believe that winning the Cold War meant that there was going to be a peace dividend and that there was no longer any need for large standing forces. That everyone would love democracy (the people do: it's the elites that hate it) and that a new, enlightened era would mean that the power would come from doing good things with the right intentions and didn't need a military at all; that persuasion and dialog were what ended the Cold War, not military service and capabilities and the steadfast commitment to countering subversion; that what the world needed was a single power that wouldn't actually do anything, since it would be restrained by peace-loving policies developed by people who fundamentally didn't have a fucking clue what Great Power politics is all about, who are constitutionally incapable of understanding why people can't just all get along if everyone's interests are included, as long as there is no violence.

Or at least none that anyone sees.

What we in the West have, to paraphrase a great movie line, is a fundamental inability to communicate. Thanks to this article by Chramtschichin, we know now what is driving Russian foreign policy: Great Power politics. Nothing else: the Russians have, after initial chaos and weakness, reverted to norm. They've been playing this game for centuries, literally, and are entirely predictable in this.

The Russians have seen that the West is all bluster without any commitment. Those in the West who believe that this is mistaken are wrong: it is what the Russians believe. Whether this is mistaken is irrelevant: it is what the Russians believe. It makes no difference that it is wrong: it is what the Russians believe.

Either the West disabuses Russia of this notion, or it will expand and continue to dominate Russian foreign policy, and the Russians - no strangers they to Great Power policies - will most certainly entertain teaching this to whoever the Russians want to influence: as the man says, China, India, Iran, anyone who wants to be a Great Power as well. That means Venezuela as well.

Why is this happening?

Plain and simple. The US has failed to be the Great Power that those who believe in Great Power politics believe it should be: the Penultimate Great Power. In their eyes the US should have used its military power to intimidate and force politics: Hussein in Iraq shouldn't have been toppled, but rather tamed; that Iran should be used as a regional power to intimidate the others while in turn being given clear borders and a defined role in international politics (of energy supplier); that China be given its spheres of influence and left alone; that the US act as the Greatest of the Great Powers, using its military abilities to enforce its policies, raining death and destruction when appropriate and yielding the weapons of diplomacy - sanctions, memberships, etc. - when appropriate.

But that's not the game the US is playing, insist the post-Cold War theorists.

They don't understand that for 90% of the world, that is the game. The ca 1bn people of the "enlightened West" - the US, Canada, western Europe, Japan and Australia - live in a world that the other 5 bn cannot comprehend: a life of wealth without power; a life of non-zero sum games in a world that understands only zero-sum games; of concern about others who deserve contempt, rather than pity; who continue to believe that human rights trumps hunger and poverty; who continue to believe that their actions are without consequences.

It's gonna be a hard time persuading the rest of the world that they are wrong. Winning the Cold War didn't mean that the thought patterns of the losers were gonna change (especially without a desovietization along the lines of denazification), and indeed they haven't. By not understanding what it meant to be the winners of the Cold War, the US and the West have let the fruits of victory ... disappear.

The next 20 years is going to be a long process where the US will have to lose its innocence, or, more exactly, the liberal theories of the West will have to be discarded and fundamentally rejected. There is nothing the liberals can do to change this: it is the moral dilemma of the pacifist when confronted by real, actual bad people and there is no Sheriff in town.

"Do not forsake me, Oh my Darling" indeed.

And understand Medwedjev's quote: he cannot understand that the US would welcome the Russian Navy out on a humanitarian mission. He cannot understand it.

But we must understand that they think so. And if the US wants peace, it must be willing to enforce it.

Otherwise history will repeat itself: the tragedy of the Great Powers was the slaughterhouse of The Great War, WW1. After that there weren't supposed to be any other wars.

History is repeating, and as we know, it is a tragedy once, but a farce the second time. This is all avoidable, but millions will now be sacrificed on the altar of mistaken policies and a refusal to understand that the world works differently than one thinks it does (or, more exactly, should).

History is repeating, and it's not going to be nice.

Donnerstag, September 04, 2008

If This Is What The Russians Really Think...

If this is what the Russians (at least the некультурный among them, incapable of nuance...) are really thinking, then things are going to get significantly worse before they get better, and it is not going to be fun. .

Why do I say that?

Let's take a look at the list that Andrei Baranov and Andrei Lavrov write in Komsomolskaja Pravda, scarcely a local rag.

Ten reasons why Russia doesn't feel like it even has to pay attention to the West:

1. Can the EU tighten the visa regime with Russia?

I doubt it. The EU won't profit from it. The streams of Russian tourists have been a growing source of income for a number of European countries. It'd be silly to deliberately "lose" them. Also, it'd be irrational to rebuild the Iron Curtain in front of the students and scientists.
One could of course prevent our civil servants from getting a visa. However, thousands of officials and businessmen have to go from Europe to Russia on urgent business trips. They definitely wouldn't want to encounter the unpleasant consequences of Moscow's inevitable counter measures.

In other words, the West will not have the courage of its convictions and will be more than happy to conduct business as usual: after all, that's what they did the in 1970s, 1980s and well into the 1990s, and there were more than a few Germans, especially amongst the socialists, who were definitely not happy to see the Soviets fade and East Germany to be disclosed as a rubbish heap of dreams.

2. Is there a threat of severing diplomatic relations with major countries?

There definitely isn't a threat. Nobody in the world would associate their long-term relations with nuclear Russia with a serious, but local conflict. Even Georgia didn't dare to close their embassy in Moscow. Yesterday Tbilisi declared that they recall the ambassador, but keep two or three diplomats.
Similarly, by the way, Russia did exactly the same in autumn 2006, as Georgia was actively sending out "Russian spies". In the end, it wasn't such a big deal: a bit later our ambassador returned. Besides, it'd be weird if Tbilisi were to sever relations with a country where millions of Georgian citizens live.

Again, here is where the Russians are completely convinced that the West has no real reason to do anything: there simply is too much, for the West, at stake...

This is virtually identical to the arguments of the 1980s for increasing trade with the West from the Soviet side: make the West, or at least Germany, dependent on Russian goods, or at least make it hard for them to impose sanctions without making business angry...

3. Is curtailing of cooperation with NATO a danger?

It's not curtailing: it's freezing, and not even completely. We put on hold the part of cooperation that concerns military programmes, not losing anything in terms of protocol matters. However, as to the issues that NATO will definitely have difficulties without our help (cooperation with Afghanistan, global anti-terrorism programs etc.), Moscow is willing to continue the cooperation with the alliance. In other words, not we, but the NATO members should fear the deterioration in relations with Russia.

Again, here there is no cost in the eyes of the Russians: as long as the Russians can keep the pretense up that there can be progress, they can use this as a negotiating tool, and will. Threaten sanctions? Then we'll cancel the NATO cooperation!

This is all part of the Russian "negotiation" tactic, which is nothing more than getting the maximum while giving away a minimum, instead of a real commitment from both sides. The Russians continue to live, eat, breath and think Zero-Sum games...

4. Is the formation of a global anti-Russian coalition that, for example the G8 calls for, realistic?

It's a lost cause. Even the West isn't that one-sided when judging the situation in Caucasus; especially since Saakashvili's reputation seems to be fading in many Western countries. Besides, it is totally ridiculous to talk about a "global coalition" against our country. Each country has its own interests, and very often it is Russia that helps ensure them. Finally, the power of veto at the UN Security Council gives us the possibility to prevent any attempts to give anybody the idea to isolate Russia.

Again, we see the attitude: whatever you want to do is unrealistic, while we are always perfectly realistic. This is the "We can do no wrong because of the historical inevitability of victory inherent in socialism" mentality of the Soviets: now there's just "we've got a veto, got fuck yourselves."

5. Would the West dare to to boycott Olympics in Sochi in 2014?

Well, they could. Everybody remembers the boycott of the Moscow Olympics in 1980. But we still have another six years. Besides, they should worry about the London Olympics in 2012 instead…

Interesting turn-around: will the Russians boycott the London Olympics? The only thing I can read into this is either a veiled threat to sabotage the London Olympics, or the conceit that an Olympics without the Russians don't really count...

6. Should we expect a new armaments race?

The process of developing new weapons (whether you call it armament race or advancement of military technology) never stopped for a moment, even after the collapse of the USSR. It's just that in the USA the process has been faster than in our country.
The richer we become the more means can we provide to reinforce our defense. In the end, the notorious "new thinking" in international affairs didn't start working. In this world we still respect the strongest one, especially because truth is always protected by power.

Ohhh, I like this one: truth is always protected by power, and the strongest deserves respect. This is the most revealing comment of the entire article.

I think that tells it all: the corollary of this, of course, is that whatever power says, must per definitio be the truth.

And what the Russians really, really don't understand is that they are a full generation behind the West in all categories, if not two in key categories such as sensor techbologies and UAVs. Further, the track record of Russian weapons has been abysmal when not in the hands of the Russians, and given the technological gap - made now worse by the fact that the Russians no longer field the mass needed to compensate for this - the Russians are, basically, clueless when it comes to what the US has done in Iraq in terms of forcing the integration of computers, sensors and war-fighting ability. They know what has been done, they know how it has been done, but they do not understand what it means: this is barely understood by partners of the US, let alone the Russians viewing from afar.

7. Will Russian bank accounts held abroad be frozen?

Just recently, the Washington Post has published an article calling for thorough inspection of bank accounts of the Russia's elite and asking to keep an eye on the businesses of those who have strong connections with Russia's leaders.
"Checking accounts is of course permitted and in fact necessary, especially on suspicion of financing of terrorism or drug mafia; especially if a certain account or a bank transfer seems suspicious, it is considered common practice" ― states the director of department of strategic analysis FBK Igor Nikolaev. However, in our case they have no such ground, so there is no reason to worry. Think of it as an emotional outburst from the USA.
The USA won't be able to freeze our Stabilization Fund either. After all, we've been investing in their state too. What will the USA do? Refuse to pay and break their own obligations? In this case, sorry, but America will go bankrupt. Why should Americans destroy their own lives just because of their anger towards Russia.

Again, the mythology of we're right, you're wrong, and there is no reason to suspect anything...and if you do, then we take our monies and Fuck You.

Again, a fatal conceit: if the FBI and Treasury were to start investigating for fraud, for illegal payments, for whatever, then the fallout in the markets would do the work. No one will want to do business internationally with someone under such investigation, especially if it is accompanied with disclosure of some of the less palatable Russian business practices. The reason this hasn't been done already? Because you keep your powder dry for when you need it, and there is no reason to give away what one knows...

8. So what should we expect from the US Dollar?

The USA could put Russia under macroeconomic pressure. Taking down their shares from our stock market would be enough. Actually, that is exactly what the foreign investors are doing after reading the threatening articles in the Western papers.
"It could happen, that the exchange rate RUB 27 = US$ 1 will remain only in our memory" � suggests Igor Nikolav. There is a number of essential factors that could weaken our national currency; for example inflation or slow investment activities. Of course, certain developments and the threat of isolation worsen the situation.
However, there won't be any sudden collapses. After all we've put aside about US$ 600 billion. But no matter how great our financial backup is, if in just a week of War in South Ossetia Russia spends US$ 16 billion (the central bank has spent this amount to prevent the rouble from falling), we won't hold out for too long. However, as long as the Dollar is growing, Igor Nikolav believes that in about a month a US$ 1 will cost RUB 26.
As to the stock market, it will continue to fall as long as Russia and the USA continue to argue, but sooner or later it will recover. After all our companies are quite expensive.

If Igor Nikolav believes that the conversion rate will invert, then I'd like to know what he is smoking (or drinking). This is so silly that it isn't even funny. The Russian economy is critically dependent on goods from the West, as well as being part of the international financial community. Since the attack on Georgia, over $26bn was taken out of Russia, reducing the available credit significantly. The Russians have $600bn in currency reserves? Even with spending "only" $16bn/week to prop up the ruble, all reserves would be exhausted in less than 40 weeks, ca. 10 months: before then, the reserves would be too low to provide liquidity for trade, and expenditures of this would bring all Russian trade to a standstill in around 10 weeks. If currency specualtors get involved, then about 10 days. Max.

Russia is extremely vulnerable to economic warfare, especially if it is properly coordinated and targetted...

9. Won't the import goods disappear from our stalls?

"It is very unlikely that anybody would stop exporting or importing, at the moment. After all, it's hard cash. The worst that could happen would be freezing important co-projects" � explains the director of the Russian economic school, Sergei Guriev.

The West won't stop importing to Russia either. Look, their food isn't that cheap, and where would they get new market outlets? It wasn't a coincidence that the WTO made us accept the import of ''Bush's Legs'' and the meat from abroad. As a result, the pressure from these import products has disturbed our cattle breeding business.

Anyway, why would the USA subsidize their manufacturers, but forbid us to do the same. Then again, it's not like we have to fulfill any obligation to WTO that in the end, we didn't even agree to.

"To put it mildly, we were tricked", explains the minister of agriculture Alex Gordeev. "Now we will slowly reduce the amount of imported chicken, and pork, replacing it with our own product. We are talking about hundreds of thousands tons, here".

To stimulate our manufactures, the government's agriculture commission decided to pay our farmers an additional RUB 102 billion: 39.5 will be paid out this year and in the next year, farmers will receive 21 billion. The main thing is that we don't overestimate our abilities and that the money does actually reach its intended recipients.

In other words: "we don't need no stinkin' imports, we eat wonderful and great Soviet chickens." Sorry, Russian. The reason that Russia imports chickens is that it is cheaper for the Russian consumer to do so: that's how the market works. Import substitution for political reasons is a great way to waste money...

10. Could the West say "no" to our resources?

The major components of Russian export are oil, gas, coal and wood. What's more, these are our main sources of export earnings. Russia is a raw material-producing country � you can't help it. We sell the whole world our natural resources.

Obviously, nobody will be able to do without our exports. Remember the panic that broke out in Finland and Sweden after Russia imposed heavy export taxes on wood. The Europeans wouldn't like to freeze in the winter, and for now there's no alternative to Russian oil and gas. The thought of serious sanctions against Russia is therefore ridiculous � it's Europe, with their double talk and all, that should worry that Russia could turn their back on them and impose an embargo. Asian countries like China, Japan and South Korea will gladly buy Russian oil.

It's not a question of doing without Russian exports: it's more a question of what price one is willing to pay. Remember, the question was not "can" the West say no, but "could" the West say no: oil, gas, coal and wood are fungible products, pure commodity products, products that can be bought anywhere.

If Russia were to be boycotted, prices would go up, but this becomes part of the political calculus.

So what is to be learned by these 10 points?

First of all, the Russians - or at least these two guys - appear to be completely untroubld with the invasion of Georgia. Their view of the West is that they won't do anything if it affects commerce, that there is nothing that they can do anyway against Glorious Russia, and that they need us more than we need them.

Fatal errors, all of them. This does not bode well for the next several years...

Dienstag, September 02, 2008


There's a great essay in this week's Spiegel magazine. It's not online (yet) and there's no english translation...

But that's not gonna stop me. :-)

I'm not going to translate it: that's not what I do.

But let me give you the gist of what Broder says. What follows is my take on what he writes, and any errors and omissions are mine.

The title of the essay is "Games Without Frontiers".

To tolerate something or someone says something about the one tolerating: he doesn't, and indeed the implication is that the one tolerant could do something - destroy - that which is tolerated, but has chosen not to. The word has a positive valence, but the meaning of the word is difficult. There's no guarantee from the tolerant, no rights for the tolerated, it is nothing more than a declaration of interest, a gesture of the vastly more powerful against someone whom the tolerant can't be bothered to actually deal with. It's a private protectorate for marginal existences that depend on society's willingness to give them space.

Tolerance as such has no value, no intrinsic worth, but is contextually determined. It depends on what is and who are tolerated: can an observant Jew and a party-book carrying Nazi tolerate each other? Gays and gay-haters? Children and child molesters? Smokers and non-smokers? Vegetarians and those who view such as a main dish?

There are no limits to tolerance, especially not in a society (like Germany) who can't even agree to rules of grammar, let alone being able to define what right and wrong are; what good and evil are; who can't decide between health and sickness, since even this is an evaluation and hence discrimination; a society where everyone is supposed to do whatever it is that makes him happy, regardless of what that might be.

This also means that there is no common understanding what tolerance really means: Michael Friedman demands education for more tolerance, but really means the opposite, that the democratic society must be intolerant of those who would destroy it; the Augsburg bishop Walter Mixa recommends that Muslims living in Germany be more tolerant of the "Christian majority culture", but at the same time calls for more tolerance with Muslims, i.e. he wants both sides to be tolerant (which, as we've seen above, is a contradiction); The TV chef Ralf Zacherl prepares an international meal in the spirit of tolerance, but within an "Action-Week against Racism"; and while the head of the CSU basic ethics commission, Alois Glück, calls for his party to open up to Muslims (the CSU is specifically a Christian party...), but at the same time the Hamburg Diakonie (a church-related social services group) refuses to even interview a German-Turkish girl because she isn't Christian, and is sentenced to a fine of €3900 for having done so.

Tolerance is redefined every day, and can take on very, very strange forms: the German employment office has confirmed that it is ready, within the programs to support free-lance workers, to pay women who decide to become prostitutes subsidies to cover the transition from unemployed to self-employed, while at the same time the same agency pays subsidies for women who are trying to stop being prostitutes.

The question arises: how much tolerance can a society afford without going bankrupt or becoming ludicruous. This is even more critical when the society in question - in this case Germany - places more value on "equality" then it does on "freedom." Freedom includes risks, equality removes them: in this case, no one is to be discriminated against. Hence you've got the singer Nena, who was rather successful herself, who belongs to the founders of a school in Hamburg where there are no classes, unless the students decide to have one, where everyone sits down once a week together to discuss what is to be done, and everyone - students and teachers - have one vote each.

Wow, that will really prepare the kids for a life in the competitive society of today, where each and every welfare recipient can do whatever they damn well feel like, as long as the rest of society - viewed by those welfare recipients as idiots - stand on the assemby line every day at Opel and pay their taxes. The Games Without Frontiers depends on tolerance: if you are trickier and shameless, you get ahead. And you can never be ashamed for that.

Of course, there are situations where tolerance doesn't work. That is where civil courage is needed: but the German police recommend, when an argument in the subway starts to escalate, that you don't get involved, and you should help the victim get off the train at the next station, rather than try to stop the attackers.

If you are confronted with the choice between being "tolerant" and having to show civil courage, well, tolerance appears, in the short term at least, to be the better choice. That's what the Berlin police say and that is why they emphasize de-escalation. When they are on the streets, they wear green-yellow bibs marked "Anti-Conflict-Team".  This is the same police who, during the annual May Day demonstrations with the usual burned out cars and looted supermarkets, hope that things are better than they were last year, but acknowledges at the same time that they can't force the rioters to be non-violent. If that sounds like resignation and the tacit admittance that it's a struggle to even show the colors on such a day, that is exactly the case.

Tolerance is pretending to show civil courage: it gives you the feeling that you have stood up, but without the risk of actually doing so. This is especially true for intensive and repeat offenders: two brothers, for example, 16 and 23 years old, who beat a passenger on a Berlin streetcar, while the other passengers looked away and only one showed true civil courage, telling the thugs to stop beating  the victim and start on the rest of the passengers. One of the thugs turned around, spun on a pole and kicked the guy in the face with both feet, knocking him unconscious. Despite the fact that he was unconscious, they continued to kick him while he lay on the ground.

Both brothers were arrested, but then released: there was no "real" reason for arresting them, since they had a permanent address: according to the newspaper "Tagesspiegel", there was another reason not to arrest them: the adult of the two had only had problems with simple assault, rather than assault and battery. This fine example had been up on charges four times, sentenced three times to fines and only on the fourth occassion of assault, destruction of property and insults, was he sentenced to probation, as well as a fine. He's apparently not worred about the fifth court case now - charges were pressed - while his victim remains in intensive care and has recieved a letter from Berlin's mayor commending him for civil courage, that his actions were an example for everyone.

The mayor of Berlin got that one wrong: the only ones who were really an example for everyone were the two thugs. Such are becoming younger and more violent, and their chance of being punished are increasingly small. An example: a 16-year old was arrested first after he beat up 5 teachers in his school, despite the fact that the police knew he was a serial beater with no less than 30 cases pending, mostly for theft and assault, but always with no consequences. His parents are more than thappy, who always ran to help their poor child. "He was just defending himself" said the father, a computer specialist, "the teachers were threatening him and wouldn't let him go. I'm proud that he defended himself".

How can a 16 year old beat up 5 teachers? Does it have something to do with trying to solve conflicts without violence, just by arguements and compromises? That's an honorable position that guarantees that despots will have long and comfortable lives, and thugs can "develop their personalities".

Two young men, 23 and 25, immigrants, were on a bus after a family celebration and decided to beat the bus driver. They were sentenced to 3 years and 3 years, 6 months, respectively, for assault and battery, rather than attempted murder: they stabbed the bus driver from behind, but didn't stab twice. While the judge declared their behavior inacceptable, there were extenuating circumstances: neither were thugs, but rather "overgrown kids who under the influence of alcohol resolved a conflict with the wrong methods." The threat "We stab you!" was the result of their just trying to impress everyone, rather than a statement of intent. And besides, the stab would wasn't that dangerous and wasn't life-threatening. Not so bad, given the circumstances, you just have to see everything in right ligth and proper relation to reality, don't lose your cool.

After the Spiegel magazine reported on mishandling of muslim women by their fathers, brothers and other men, a sociologist in Berlin complained that there were plenty of examples in Germany of kidnapped kids in divorces, family tragedies, death threats from ex-partners and the like: however, when was the last time anyone heard of a nice family from the Allgäu who decided to kill one of their daughters because she shamed the family and sent the youngest son to kill her, since he couldn't be tried as an adult? That is exactly what a Turkish immigrant family in Berlin did, who understood German law very clearly and knew their Family Rights under German law. The sister of the murdered daughter requested that the son of the murdered daughter be given to her, so that he wouldn't grow up in the same "perverted" environment that led to the shame for the family. Only the joke about the murderer who wants leniency because he is an orphan after he killed his parents is more macabre.

Emotional and empathic intellectuals, those who speak of "structural violence" when minorities are under-represented, are particularly vulnerable to a rather morbid form of understatement when real violence appears: that sociologist from Berlin speaks of over-dramatized problems, that also appear elsewhere, and that the problems usually clear up by the 2nd generation or so after immigration. But he misses the fact that it is the 3rd generation which has major problems with assimilation and integration, and it doesn't really help a 15-year old who is forced into a marriage with someone she doesn't even know when you tell her that her grandchildren will have it better.

There are not a few intellectuals that happily play the lawyer for murderous tolerance. Jean-Paul Sartre was convinved to visit the RAF prisoners in 1974 to talk with them about "the concept of revolutionary action." Claus Peymann, the director of the Berliner Ensembles (theatre), gave an interview where he spent a lot of time explaining why he wants to hire the murderer (9 victims and 11 attempted murders) Christian Klar in order to train him for the theatre. Klar just recently sent a message to the Rosa-Luxemburg-Conference where he called for the final destruction of capitalism and to open the door for a new future.

That's where the Broder essay basically ends: it is from his new book, "Critique of Pure Tolerance", which I will be buying.

What Broder writes here points to the absurdity of tolerance tolerating intolerance and being intolerant of those who refuse to tolerate the intolerant: this has nothing to do with tolerance...

I'll expound more on this later...

An Effective Strategy...

Intelligence work isn't limited to simply finding out what the other guy is doing.

It can be significantly more subtle than that, but also much harder to actually do.

While most intelligence work is based on finding out, indeed, what the other guy is doing (and counterintelligence work is not letting him do so easily...), there are other areas of work: influencing foreign governments and public opinion by, for instance, spreading stories that try to bend public opinion in one or another direction to gain influence on public policies, as well as what are called "agents of influence" that actively work to help make those opinions.

The key is to do this behind the scenes, using pre-existing loyalties, prejudices and antipathies to generate enthusiasm for your country's positions, ideally without the people being influenced being even able to determine that indeed they are being manipulated.

This article brought this back to mind, and back to one aspect of the Cold War that really has continued largely without pause.

Now, when looking at intelligence work and this kind of "dark" operations, the role of strategic operations comes into play. This isn't about, say, identifying a specific target, but rather a very generalized one of creating and/or reinforcing opinions and antipathies, invariably based on the ignorance of the person or group being targeted. This can work very well for the relatively incurious or those whose native intelligence is not equaled by the quality of their critical facilities (which is a nice way of saying that someone may be smart, but can't effectively judge whether the information they are working on is actually "true" or has been manipulated in such a way to lead one to a conclusion).

This is highly political work, and you need a cadre of people who are dedicated and committed to manipulating public opinion and who see absolutely nothing wrong in doing so, since it is indeed, after all, the Party who determines what is "true" and what is not.

The problem is when democracy is based on the expectation that while everyone tries to put the best light on their position, no one actually uses outright lies deliberately.

I think it is safe to say that socialism of all kinds is, in this day and age, effectively dead. The "true" proponents of this failed system of economics and politics - of the state ownership of the means of production and the absolute irreversibility of the historical process, coupled with the need for the masses to be led by an elite - led to the mass deaths in Russia and China, as well as the ruin of their respective economies. And let's not even get started on the ecological catastrophes of Eastern Europe and Russia, as well as the ongoing catastrophe of the Chinese ecology: socialism simply doesn't function, because it can't. That should have been the lesson of the Cold War, at the very least. It has always led to a worsening of economic development, always. It does not, cannot develop otherwise. There is no socialism with a human face, just socialism that isn't as immediately destructive.

But the lesson hasn't been learned: too many people made it too much a part of their lives and are simply incapable of changing. This is the true legacy of the Cold War, the Socialist Residue. It's a poisonous residue for society and the economy as a whole, but there are those who thrive by propagating the old lies and by reviving and stoking the old hopes of something for nothing and that everyone deserves some sort of government largesse.

But let's get back to agents of influence and strategic intelligence work.

To paraphrase Lenin: Who benefits?

Indeed, looking at that article, who benefits from a Germany that does not pull its own weight, but rather is increasingly the weak link in NATO and that loose group of political alliances and expediencies called "The West"?

Who benefits from a severely pacifistic Germany that is incapable not only of fielding meaningful troops but also incapable of partaking on the international political arena in a way anywhere near the role it should play based on the size of its economy?

The Russians. Neutralizing Germany as a part of the West was a long-term goal for the KGB.

Well, it seems that their work is slowly, every so slowly, coming to fruition.

This has been an effective strategy, but one that has literally taken decades to work. This is what stymied the Soviets: they tried to force the transition of Germany to a pacifistic country, one that could be persuaded to become dependent on Soviet supplies of energy - and if you do not think that this whole aspect was not deliberately planned, then you know nothing of the history of the 1970s and 1980s and the Cold War - and one where public opinion could be relatively easily manipulated and turned against the US.

It's been an effective strategy, it just took longer than anyone thought. The apologists for Russia's march into Georgia are very much part of the German Social Democrats, who were carefully and deliberately targeted by the KGB during the Cold War. The influence is obvious, as is also shown in the article I link to above:

Former Social Democratic Chancellor Gerhard Schröder successfully tapped into anti-American feelings when he disagreed with Washington's Iraq policy and tried to sabotage it. Mr. Schröder also pushed for closer ties with Russia while insisting on toothless diplomacy to stop Iran's nuclear program.

His successor, Angela Merkel, has had only limited success in reversing those polices. After all, Mr. Schröder's former chief of staff, Frank-Walter Steinmeier, is her foreign minister.

It's not so much that the KGB has been so successful, but rather that the memes of anti-American KGB propaganda have flourished among the disaffected, amongst the losers of the death of socialism: I put forth the proposal that anyone supporting socialism cannot do so honestly and intelligently without recognizing the abysmal failure of the same, and that to continue to support such a failed policy is a combination of cynical opportunism with a fundamental dishonesty, of deliberately leading a new generation onto a path of failure and poverty in the plain and simple name of power.

There are no real upsides to any sort of rebirth of socialism in Germany or anywhere else for that matter: there are only downsides.

But as we increasingly see, the core of Russian foreign policy is a zero-sum game. Black and white, without nuances, a pure power struggle in a day and age that should have put such naked aggressions and blatant dishonesties on the garbage pile of history. Where they belong.

It is an effective strategy for Russia to actively and deliberately interfere with its neighbors and competitors in order to weaken them and prevent them from being strong: it is, of course, for those involved, the worst possible outcome. Recognizing this is critical in order to be able to work against such agents of influence.

And Russian apologists for Georgia are clearly such. The problem is: they have become part and parcel of the German political scene, and it is fundamentally up to the conservative parties in Germany to fight them. But that is a fight that they wish to avoid, as it is one that, in the short term, is damaging in a way that makes it hard work. The German national passion for consensus is a hindrance here.

Like I said, it is an effective strategy...