The horizon is not so far as we can see, but as far as we can imagine

Month: February 2014 Page 1 of 3

So Much for the Crimea

They’ve scheduled a referendum on Crimea’s future, though the exact question isn’t clear.  Given the demographics in the Crimea, that it will leave the Ukraine, and very possibly join Russia seems quite likely.  This doesn’t require any dishonesty, a straight up, fair referendum will likely lead to that result.  In the meantime, militia have been formed, and have not just taken control of arms depots (as did the protestors in Western Ukraine), but have started controlling the borders, checking who is coming and out of the Crimea.

As for the gunmen who took control of the Crimea’s parliament; the full story is interesting and most Western news articles didn’t include it.  Parliament had wanted to meet and pass legislation for the referendum, but couldn’t, because Crimean Tartars blocked access to the building.  So the gunmen came in and took control, and the Tartars decided not to block access any more.

A slightly different story, isn’t it?

Update: it seems the parliament in Kiev is debating ending the agreement which lets Russia use Crimean bases.  Wow.  Just—wow.  They want a war?  They’ll lose it.

Update 2:

In further worrying signs for Kiev, Russia’s parliament began considering two new laws on Friday. One of them offers eased citizenship requirements for Russian-speaking Ukrainians, removing the requirement that they should have lived in Russia for an extended period, while the other makes it easier for Russia to add new territories to its existing boundaries.

The latter law, which appears to be aimed pointedly at the Crimea situation, says territories can be added by a local referendum “in the case that a foreign country does not have effective sovereign state authority”.

Corruption, Don’t Talk To Me About Corruption

I have a hard time these days getting worked up over corruption charges. It’s clear Yanukovych stole billions, along with giving billions to his his friends and family.

George W. Bush, Barack Obama, Paulson, Geithner and Bernanke, bailed out their friends for trillions.  Bill Clinton repealed Glass-Steagall (leading directly to the financial crisis) and was worth a hundred million only a few years out of office (one might remark that politicians are still very cheap for what they give the people who buy them.)  In England, RBS just got half a billion dollars in taxpayer financed “bonuses” for driving the bank into bankruptcy and requiring the government to bail it out.  LIBOR was fixed, and the fine for that was a small fraction of the profits made.

The bailout and the financial crisis have led to an actual decrease in earnings and wealth for average people.  They have thrown the south of Europe into semi-permanent financial crisis; they are complicit in the turmoil in the Middle East.

Corruption?  Don’t talk to me about corruption. That the West’s corruption is winked at by legal authorities, does not make it any the less corruption.  And because the West is vastly richer, our corruption is vastly larger.  You may (or may not) have potholes on your roads, but you paid the bill for bailing out the rich: that money, and your futures, were stolen from you as surely as Yanukovych stole from the Ukrainians.

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This Ukraine Stuff Writes Itself

Gunmen seize parliament and the main administrative building in the Crimea and NATO’s Secretary General says:

Rasmussen, NATO’s secretary general, described the seizure of the regional government administration building and parliament as “dangerous and irresponsible.”

Wait?  Weren’t other government buildings seized by gunman in Kiev, just recently?


International Monetary Fund chief Christine Lagarde said Thursday that her organization was ready to respond to a request for assistance from Ukrainian authorities and would send a fact-finding team to Ukraine to assess the situation and begin discussion of reforms the country needs. “We are also discussing with all our international partners — bilateral and multilateral — how best to help Ukraine at this critical moment in its history,” she said.

Reforms, eh?  Remind me of the occasions on which IMF reforms have been beneficial to the average citizen of any country?

Then there is this:

A senior U.S. official familiar with the most recent administration assessment told CNN that now that the Russians “have brought troops out of garrison,” they could potentially move “quite quickly” once an order comes.

At that point, the official says, the U.S. assessment is that its “warning time” that Russian forces were on the move might be so short, it would be difficult for the United States to move diplomatically to try to stop it.

I—I, what?  If you don’t want them to, the diplomacy is done now, and it involves threats and carrots.  But the problem is that Ukraine is in Russia’s sphere of influence.  Do you think that the new, IMF funded, Western supported government will be asking for NATO membership?  I would be if I were them.  Do you think Russia finds that, in any way, acceptable?  Have you looked at a map?

The Ukraine in NATO is a strategic threat to Russia. It is of no value to NATO except as a threat to Russia.  Russia knows that.

The strategic situation is such that Putin has many reasons to find an excuse and annex both the Crimea and Eastern Ukraine (which contains most of Ukraine’s industry, by the way.)  The rest can do whatever they want.  And if Europe doesn’t like it, well Gazprom can sell its natural gas to the Chinese and Europe can go dark.  As for the US, bluster all they want, they aren’t going to fight a war against Russia for the Ukraine.  Russia’s still a real country; it has nukes.

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Ethical Priorities: frack, kill, keep people homeless

In the US there are five times more houses sitting empty than there are homeless peopleIn the EU there are twice as many empty houses as homeless.  In the US, the EPA’s budget has been cut 25% since 2010.

To say that having houses sitting empty while people have no shelter is an ethical abomination is an understatement.

To cut the EPA while the Oceans are acidifying, fish stocks are collapsing, climate change is continuing and will wipe hundreds of millions of poeople minimum, and while the world is in the middle of a human caused great die-off of species is an ethical abomination.

Meanwhile there is plenty of money for drones and for spying.  And even more money for the bankers who are sitting on empty homes.

This is deliberate government policy.  Be clear, the government effectively owns those homes, since it underwrites almost the entire mortgage market.  It could do something other than just leave them empty, but its first priority is to artificially keep housing prices high by keeping supply off the market, and to slowly transfer those houses to private investors so they can use them as rental property.

Likewise, Obama talks a good game on the environment,  but actual government policy under his administration has been to increase domestic hydrocarbon production as fast as possible: which means fracking and unconventional oil, both of which are vastly harmful to the climate and the environment, and which poison water supplies.  Destroying your own country’s water supply in exchange for a short term boost in oil production is the very definition of short sighted, crazy and evil: the number of people who will die because of poisoned water supplies, and because that water can’t (or shouldn’t) be used to grow crops is immense.

Watch the hand: actual government policy is to impoverish you, destroy the land, air and sea, and to make you sick.

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The Golden Rule: Why Bankers Are In Charge

In our society, we determine much behaviour, and most economic behaviour, through the medium of money. This is not universal: many societies have not used money as their main means of determining who received goods, but we do.

If someone receives money for doing something, it is also a message which says “do more of this.” The more money, the stronger the message.

The most potent message, and the strongest effect on behaviour, is when someone has the right to create money. Money, in our society, is created by borrowing. Banks and other financial institutions which have the right to lend thus have the right to create money. They have to have some form of collateral, even if that collateral is just an expectation of future earnings “great business idea, we’ll lend you money, and use your expected profits as our collateral.”

This money can be loaned out at multiples of the underlying asset. During the 2000s some brokerages were allowed multipliers (leverage) of over 40X. Even better, often whatever you buy with a leveraged loan can then be used as an asset for another round of leverage, leading to extremely high levels of effective leverage.

Some organizations also have access to very low interest rates: they can borrow at close to “prime” the rate the central bank offers to the very best credit risks. Major banks are amongst those who can borrow at this rate. They can then lend out to other people, again, at a higher interest rate, and with leverage.

If you, personally, could borrow money at 1% annual interest rate, and lend out ten times that, do you think you could make a profit? What is your mortgage rate? What is your credit card’s interest rate?

This is as close as it comes to free money, and it takes a special genius to lose money when given these advantages.

The first rule of money is the rule of profits: if a group of people are making more profits than everyone else, they will come to control more and more of the society. Not only can they buy up other companies, but they can afford to donate to politicians, give politicians and regulators cushy jobs between government gigs, and they can afford to set up think tanks and endow university chairs and buy newspapers and television stations and so on in order to control the dissemination of ideas.

In theory profits are supposed to be self-limiting. If an industry makes more money than other industries, outsiders should see an opportunity, start up businesses, compete and drive down prices.

In the real world, that doesn’t happen as often as it does in theory, because you can’t just start up a bank with access to the Central Bank’s window. You can’t easily start up new pharmaceutical businesses, because it’s vastly expensive and there are huge regulatory hurdles. And when it does happen, why would you compete? Why not take the outsize profits? Why would you drive down profits? How does that benefit you?

The other check is supposed to be diminishing returns. The more money you have, the harder it is to find something to invest in: you run out of mortgages, or you run out of businesses to invest in which can make those returns. This does work, somewhat. It is at the heart of why the financial collapse happened: there weren’t enough assets for all the money chasing them, so widespread fraud occurred (liars loans, for example) and many people were given loans who couldn’t pay them back, while artificial assets were created which were not worth what they were sold for. Eventually this collapsed, but because the financial industry had already bought the political world, they were bailed out at a cost of trillions.

Behaviour you reward, is repeated. Bankers made millions of dollars, personally, in bonuses. This told them that what they did was valued, and they should do more of it. They did.

The fact that Wall Street and Fleet Street salaries and bonuses were so large also made financial executives not care about the future. When you make millions in a few years: enough to live on for the rest of your life, in high style, it isn’t important if you’re driving the firm to bankruptcy. You don’t need the bank or the firm to be there, you’ve already made your mint.

Now, as a politician, if you do what the financial industry (or any other wealth industry) wants, they donate to your reelection campaign. They make sure your friends and family have jobs. They invite you to the best parties. And if you’re defeated, and have voted the right way, well, they’ll take care of you afterwards as well, with a cushy job. Bill Clinton, who deregulated Wall Street, is worth 100 million dollars.

Because bankers control a lot of money, they control what other people do.

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Scenarios for Ukraine’s Future

With the new Ukrainian government taking charge, the Crimea warning that it may leave the Ukraine and that it does not recognize the legitimacy of the new Ukrainian government, and the new government asking the West and the IMF for aid in paying 17 billion dollars of debts it’s worth considering what the future may hold.

Largely Peaceful Partition

The Crimea was given to Ukraine by Khrushchev in 1954.  The majority of the population is Russian, and it is already an autonomous region.  The Speaker of Parliament has spoken of the possibility of leaving Ukraine.  One suspects that if it does, it will quickly be reabsorbed back into Russia.  There are many in Crimea who don’t want this, including the Crimean Tatars and a Ukranian speaking minority, but they are the minority.

Civil War

On the other hand, Kiev may not be willing to let Crimea go.  The armed forces have pledged their loyalty to the new order.

Russian Intervention

Russia has been very generous with passports to people of Russian extraction.  They could easily use the same justification they did for their war with Georgia (protecting our citizens) and intervene to enable the partition.  Ukraine’s army may be less of a joke than Georgia’s, but if NATO doesn’t intervene, the outcome isn’t really in doubt.  This intervention could just be for the Crimea, or Russia might want to peel off the parts of eastern Ukraine in which the population still mostly speaks Russian and supports Russia.  From a strategic point of view, Russia needs room on its western border in case of any war.  Ukraine holding all its current territory and essentially or actually part of NATO is simply not acceptable.

The Long Game

Why bother intervening?  Let the rebels have their day, and their government. Let them get their money from the EU and from the IMF.  That money will come with conditions, those conditions will be “reform”, and reform, these days, never means good things for ordinary people.  The economy may improve briefly, but it will not improve in the long run.

Ukrainians admire and envy Poland’s success and believe that if only they were facing West rather than East, that would  be them, but they are two very different countries.  Poland has very low levels of inequality, Ukraine has some of the highest inequality in the world and an economy controlled by rich and powerful oligarchs.  Europe loves oligarchs, so does the US and the IMF, and the oligarchs removed their support from the old government.  The West isn’t going to allow the new government to take away the oligarchs money, power and control over the Ukrainian economy.

Ukraine can try to run a housing bubble for as long as the West is willing to give them free money, but they will not gain long-term prosperity from integration with the EU.  Their fate is more likely to be Greece, or Spain, or Portugal, than it is to be Poland.

Russia won’t give up Sevastapol.  But if an agreement is reached letting them keep using it, well, let the Ukrainians have their Europe centered government, for however long it lats. It  didn’t last long before, it probably won’t this time.

Most of this is a guessing game about what Putin is thinking, because the decision is his.  The Crimea won’t declare independence if they don’t know for sure that Russia has their back, and obviously the decision to intervene militarily is Putin’s.  The West may be willing to help the Ukrainians with money, with weapons, and so on, but they aren’t going to get into a direct war with Russia over it.

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A Few Words on the Ukraine

As you’ve probably heard, the protestors have taken control of Kiev, the police have been defeated (literally), parliament has impeached President Yanukovych.  This followed the seize of arms depots and weapons, by the way, this was not won peacefully.  The former President, Tymoshenko, has been released from prison.

Meanwhile in the city of Kharkhov in the East, what looks like the beginning of a second capital of the Ukraine is being created. They are taking control of local arms depots, and refusing the recognize the legitimacy of the government in Kiev (the one now controlled by the opposition).  Russian “observers” were on hand.

What seems most likely to me, now, is that we’re going to get partition of the Ukraine, with Crimea and Sevastopol at least, and possibly other parts, forming a pro-Russian state.

There is zero chance that Putin is going to allow a hostile Ukraine, oriented to the West and Europe, to keep the port of Sevastopol and Crimea. For that, he will send in the army, if he needs to.

As for the deal brokered by the Europeans on Sunday, it’s pretty much dead.  The rebels want more, Yanukovych is refusing, the lines are forming.  Remember, while the West of Ukraine is very pro-Europe, the East, generally speaking, is not.  And many Russians consider the Ukraine part of Russia. and that Gorbachev letting it go was virtually treason.  Putin certainly does.

Finally, Putin and his foreign minister believe that the rebellion was backed by Western money and agents.  They see this as an attempt to deny Russia it’s sphere of influence and the physical space necessary to defend itself in a war.

This could get rather ugly if anyone miscalculates.

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Rational People Sell Out: WhatsApp Edition

A while back I wrote something which made a number of people angry:

Any new social structure must throw off surplus that people can live on, and that surplus must not be able to be bought up by the old system, which will seek to do so.  The ban against selling out/being bought out must be irrational and ideological.  Rational people sell out.

As you’ve probably heard, WhatsApp (the largest messaging system outside North America) was just bought out by Facebook, for 19 billion.  A normal enough story, but Robert Myers pointed me to this article on WhatsApp’s ethics:

He had just three rules as he experimented with the early iterations: his service would defiantly not carry advertising, an experience satisfyingly absent from his Soviet upbringing; it would not store messages and thus imperil individual citizens’ privacy; and it would maintain a relentless focus on delivering a gimmickless, reliable, friction-free user experience.

Now that Facebook owns it, how long will it be before all information is stored, the NSA has a backdoor and there are ads?

Rational people sell out.  When there are bad actors (and Facebook is a bad actor), who have so much money that they can make you filthy rich overnight, it is rational to sell out.  (Assuming they don’t have you already because they funded you with a very nasty contract).

This is a supremely important point.  People are very confused about rationality.  Rational is not a synonym for “good”. It is often rational to be a complete scumbag and to act in ways which will hurt other people (or at least not help them.)  This is true even in the long run, because you don’t have to deal with most people.  Betray millions of people, who cares?  There are millions more who will be happy to give you whatever you want when you are a billionaire.

The response to that, of course, would be “it’s only an app company.”  True, but it’s also a way of communicating without it being so easy to be spied on, and soon that will be gone.   You can’t create anything good in tech, without it being bought out. It cannot be done. People will always sell. Only open source offers the possibility of it, but open source projects, once they get big, almost always take money from dubious sources, because only dubious sources have a lot of money right now, and even a small team of developers still costs hundreds of thousands or millions a year to support.

Ethics which are negotiable for cash, aren’t ethics you can build a society on.  Rational people betray.  Systems that work take betrayal off the table by simply forbidding it, and backing it up with an irrational attachment to norms.  “We don’t spy on people, period.  We don’t torture.  We don’t allow pharma companies to price their drugs so high that people can’t afford them.  We don’t allow vote suppression.”

As I wrote on rationality and ideology in the past:

Note, finally, the use of the word irrational.  We think of irrationality as bad, but rational decision making leads to betrayal.  If someone’s going to offer me more than I can otherwise earn to betray the rest of my people, a lot of folks are going to take that deal unless they have the irrational belief that it’s wrong, and a rational belief that if they do it, those who have an irrational belief in the system will hurt them, or even kill them.

Irrational people don’t sell out. Rational people do: unless they know that irrational people will find them, and hurt them, if they do.

You cannot have a prosperous, free society without irrational attachment to social norms which are not always in the interest of individuals. You must take various forms of betrayal and race to the bottom off the table. It will always be in someone’s interest to exploit people, to pollute, to spy, to torture. Rationality does not stop such behavior in individuals.

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