Pirates shed some light on energy geopolitics

The ongoing stand-off between Somali pirates who hijacked a Ukrainian freighter loaded with weaponry and US warships likely isn't going to end in a $20 million ransom like the pirates want. However, what's more interesting is what's on the ship, where it's going, and who it came from. What's on the ship, we know: "tanks, artillery, grenade launchers and ammunition." Where it's going, though, gets a bit more interesting:

Kenyan officials continued to maintain that the weapons aboard were part of a legitimate arms deal for the Kenyan military, even though several Western diplomats, Somali officials and the pirates themselves said the arms were part of a secret deal to funnel the weapons to southern Sudan.

The Kenyan government's insistence that the weapons are for its own use doesn't hold water: the Kenyan military is trained by Western forces, and has not received the training necessary to use Russian tanks (which the equipment onboard was), according to Voice of America. The southern region of Sudan, however, holds two distinctions that make it likely that that's where the weapons were heading: it was the site of the most deadly war since World War II, and has vast oil resources. The Second Sudanese Civil War raged for over twenty years, and though it officially ended in 2005, the fighting persists and the conflict could reignite at any time. The uneasy treaty stipulated that the South is to be autonomous until 2011, when a referendum on independence will take place.

Which brings us to last question: where did the weapons come from? According to the VOA article, southern Sudan receives weapons from both the US and Russia, though given that the US isn't going along with the Kenyan story about the destination of the weapons, it seems likely that the Russian weapons aboard the Ukrainian ship came instead from Russia. Given that they were destined for an oil-filled region brimming with instability, it seems likely that this is part of the Kremlin's broader plan to destabilize oil- and gas-producing regions in order to raise the price of energy and feed the Russian petrostate's need for high oil prices.

Cheap buses emphasize how much rail sucks

From Wired, an article about the increased popularity of bus travel, especially along the Northeast corridor. Bus companies like DC2NY run exclusive routes, offer perks like free wifi and beverages, all for fares much lower than either Amtrak or flying. DC2NY runs its eponymous service for $25 each way, and other services run much farther routes for even less money. The Northeast corridor is very well-traveled, and the fact that bus service – which can take up to twice as long as a train – can be so popular means that there's no reason that privatized rail shouldn't be able to compete at the same level. But a nationalized rail service? That's another story, apparently:

It's amazing how much money you can save, too. I'm headed to Washington DC soon, so I'm looking for some cheap transport. It's a quick flight from Boston, and while I knew that airfares were up, I had no idea how high they'd gone. A round trip flight is $397. The train isn't much better — a ride on Amtrak's Acela at $410, and even the slower, less sexy Northeast Regional is $211. Compare that to $163 on Greyhound, or better yet $50 on low-fare line GotoBus, and it's a no-brainer.

Ethnic cleansing in South Ossetia

Now that the war's over, you'd think that South Ossetia would calm down. Right? Wrong. According to reports by Human Rights Watch, relayed by Radio Free Europe, the South Ossetian government and Russian troops have been engaged in a systematic campaign to burn the houses of South Ossetia's sizable Georgia minority (which, before the war, made up one-third of South Ossetia's population).

"For a month we have observed the systematic destruction of houses in Georgian enclaves and villages in South Ossetia," says Tatyana Lokshina, a Russia researcher with Human Rights Watch (HRW).

HRW has also released satellite images that show "widespread torching of ethnic Georgian villages" in the breakaway region.

The South Ossetian authorities don't deny what's going on, and de facto President Eduard Kokoity has implied that the ban on Georgians returning to their homes in South Ossetia is revenge for when Georgians supposedly did the same thing to South Ossetians after the wars in the early '90s.

In addition to expelling Georgians from their homes and then torching them, Georgian civilians have also faced torture, abuse, and "extrajudicial executions" in camps where they're being held.

"We have learned that hundreds of civilians from Georgia were detained in holding cells in South Ossetia. These included women and the elderly," HRW's Lokshina says. "We know that these people were held in inhuman conditions, crammed together in one space. They were practically not fed. They were forced to work. They cleaned streets. The men were forced to bury the corpses of Georgian soldiers."

According to a September 21 report posted on HRW's website, detained Georgian soldiers were punched, kicked, beaten with hammers, machine-gun butts, and metal rods, and were burned with cigarette lighters, starved, and threatened with execution. At least one soldier was executed with a shot in the back of the head and other detainees were forced to carry and bury his body.

"After fleeing our village, we spent a week hiding in the forest," Jemal Khetagashvili, a former civilian detainee, tells RFE/RL's Georgian Service. "But then the Ossetians found us and arrested us. We spent 10-12 days imprisoned in Tskhinvali. They forced us to work, to clean the streets and sidewalks."

The effects of a war in Iran

From Radio Free Europe, Robert Coalson writes about the incentives for Russia regarding sanctions on Iran for its nuclear program. He concludes that the threat of Iran to Russia is minimal, but notices a whole lot of incentives for Russia in a nuclear armed Iran, especially if it leads to war:

And that remote danger is made even more unlikely by repeated U.S. and Israeli declarations that a nuclear-armed Iran is "unacceptable." The refusal of the United States to pull the military option off the table means the worst-case scenario for Moscow, in the event talks fail, is not a mushroom cloud over Kuban but seeing Washington become bogged down in yet another military involvement with the inevitable further sapping of its strength and prestige. The facts that oil prices would also likely skyrocket under such a scenario and that Moscow would emerge as a "reliable energy partner" are probably also not causing Kremlin strategists to lose any sleep.

Unless Russia attempts to heat up the situation before the election, I think that the chances for war probably depend on who wins. If McCain wins, the Russians will believe (probably correctly) that McCain will rush into a war in Iran, and they will try to provoke him. If Obama wins, there's probably less of a chance that they'll try something like that, though I'm not sure that I think the chance is that much lower.

Nabucco: more off than on

In continuing with the Nabucco natural gas pipeline saga – from bad, to worse, to maybe a bit better) – the project is dealt another blow: this time by the Bulgarians, who have defected to the South Stream project, Russia's rival proposal for a gas pipeline. The point of Nabucco was for the EU to receive energy from the BTE pipeline which originated in the Caspian without going through Russia. The already existing length of pipeline, which originates in Baku, continues through Georgia, and terminates in Turkey, is what is throwing the Nabucco project into trouble. The conflict in Georgia raised the risk premium on the pipeline, which explains why countries in the Caspian are wavering on their promises to supply the various non-Russian pipelines and why the Nabucco extension is in jeopardy. This likely was an intended consequence of Russia's invasion of Georgia.

Let me tempt you away from Allah with...a free lunch!

China has often been accused of discrimination and persecution of its Muslim Uyghur minority (including once by me), and during the current holy month of Ramadan, come a slew of accusations, including this bizarre one from Radio Free Europe:

Chinese authorities in the northwestern region of Xinjiang, home to the Muslim Uyghur ethnic group, are implementing a campaign to offer free lunches during the holy Muslim fasting month of Ramadan, when eating is proscribed until sundown.

The lunches are being offered in government departments to ethnic Uyghur and Han Chinese officials alike, employees said.

Uyghur exiles say that Chinese authorities have previously offered free lunches during Ramadan as a means of determining who is fasting.

And this isn't the only example of Ramadan-related mischief on behalf of the CCP:

Exiled Uyghur groups said Uyghur government cadres throughout Xinjiang had been forced to sign “letters of responsibility” promising to avoid fasting, evening prayers, or other religious activities.

Special groups have been set up in schools to educate Uyghur teachers and students not to fast, and to monitor their activities on pain of expulsion from school, the Germany-based World Uyghur Congress said in a statement signed by spokesman Dilxat Raxit.

Confusing Eurasian toponyms

Do you ever look at a map from a couple hundred years ago and think, "I thought that country was on the other side of Europe...?"

• Iberian Peninsula vs. Caucasian Iberia (modern day Georgia)
• Albania vs. Caucasian Albania (in present day Azerbaijan and southern Dagestan)
• Bulgaria vs. Volga Bulgaria (around present day Kazan) vs. Old Great Bulgaria (northeast of the Black Sea)
• Armenia vs. Kingdom of Armenia (from the South Caucasus to the Black Sea to Damascus) vs. Armenian Kingdom of Cilicia (what is now southern Turkey)

Russia and the Middle East

I found this article on Stratfor about the geopolitics of the Middle East, and they have intelligence that Russia is beefing up its presence in the Middle East and likely looking to return to its prominent Cold War role in the Middle East. There's so much information in the article that I'll just quote a huge chunk of it:

With Israel sorting itself out internally and the neighboring Arabs lying in wait for the final outcome, this brief respite presents an opportunity for the Russians in the Middle East theater. Russia brought the world back into a Cold War paradigm with its August invasion of Georgia. The idea of a revived Cold War gained further traction in recent weeks when key Russian leaders emerged from the shadows and started popping up in places such as Venezuela, Cuba and Nicaragua to sit down with their old Latin American drinking buddies and discuss a slew of arms deals.

While the Russians appear to be paying a lot of attention to Latin America, the Middle East remains a viable playing ground for Russia to turn the screws on the West. In fact, Stratfor already has been getting indications that Russian intelligence officers are pouring into Beirut — a traditional Cold War battleground.

Of course, much has changed since the days of Soviet-sponsored chaos in the Middle East. Many of the Palestinian leftist leaders with whom the Soviets worked are either dead or retired. Groups have gone extinct. Alliances have shifted.

Nonetheless, the Russians still have a menu of options in getting back into the Middle East game. They will find no shortage of disaffected Palestinians who are sick of the current state of affairs and would be more than happy to have a foreign state sponsor. Former Marxist groups such as the Kurdistan Workers’ Party (PKK) in Turkey, after being beaten heavily in the past year by the Turks in northern Iraq, would likely jump at the opportunity to link up with their old Russian backers. Lebanon, which is now experiencing a higher-than-usual degree of communal volatility, has a range of factions for the Russians to choose from. And the list goes on.

Should the Russians decide that it is worth their while to incur the risk of provoking both Israel and Turkey, the Middle East is the next logical place for Moscow to ramp up covert activity. And the time to do so is now, while the Israelis are still distracted.

Turkey already sees the Russians coming. The Turks were extremely displeased to see Russia at war in the Caucasus, and they now are doing everything they can to keep the Russians as far away from the Middle East as possible. For this reason, Stratfor is hearing that the Turks are growing more and more insistent that the peace talks between Israel and Syria move forward — and quickly.

Syria, meanwhile, is in an interesting position. On the one hand, they can listen to their Turkish mediators and pursue an opening with the United States through a peace deal with Israel. On the other hand, they can choose to jump back into the Cold War game with the Russians and work against Western interests, taking all the risks that come with such a plan. In any case, the Syrians will have a lot of hard thinking to do over the next several weeks.

What the article didn't mention (though Stratfor has mentioned it before, as have Turkish journalists) is the suggestion that Russia might already have contracted out at least one operation with the PKK: the bombing of the BTC pipeline right before the South Ossetia war.

There's also no mention of Iran, though Russia's policy vis-à-vis Iran has been quite successful. It has enabled Iran to remain a minor pariah, just isolated enough to prevent the West from being willing to depend on Iran as a transit point of energy from the east, but not crazy enough to start any wars (though this would drive up energy prices and further bog down the US/Israel, which could be useful to Russia). This is significant because besides through Iran, the only other two ways to get energy from the east into Europe are through Russia and through the Caucasus. Russia obviously controls its own territory, and with the South Ossetia war, has successfully closed the Caucasus to Western energy pipelines (all three of them).

Russia, the Mexican drug wars, and 9/11

Stratfor has a great article (you need to search for the title in Google and access it through there to see the whole article) on Russia's propensity to reestablish contact with the Soviet Union's old proxy groups, and begin to assert itself abroad more. The article discusses here ways that Russia might try to meddle with the US in the Western hemisphere:

There is also a distinct possibility that through their relationship with the FARC, the Russians could gain entree to open a dialogue with some of the more radical elements of the Latin American drug trafficking organizations, including the hyperviolent Mexican cartels. Even Central American drug trafficking groups like Los Kaibiles, who began life strongly anti-communist, might be willing to accept weapons and funding from “democratic” Russians. Considering that Los Kaibiles are now quite mercenary, they also just might be willing to undertake specific attacks if their price point is met. Many Russian organized criminal groups are closely linked to the Kremlin and are a tool Putin and company are already using. These groups could be used to act as an interface with organized criminal groups elsewhere.

The most interesting possibility to me is Russia fanning the flames of Mexico's drug wars. If the killings started bleeding over more into the US, and the political pressure to seal up the border or even send troops into Mexico got too hot, I can see the US doing something that would isolate it internationally, and generally harm its ability to deal with Russia. A little odd that Stratfor never mentions that the problem could be dealt with in one fell swoop by legalizing the drugs that generate the black market profits that allow the violence to continue.

Though I was disappointed that the article failed to mention what could be Russia's biggest foray back into the Soviet-sponsored terrorism that marked the Cold War: Ayman al-Zawahiri and al-Qaeda.

I think it's becoming more and more obvious that all of these people at Georgetown getting Security Studies degrees and studying al-Qaeda are on the absolute wrong track. The Cold War never ended for Russia – if al-Zawahiri is indeed under Soviet influence, it means that their contact with him after the collapse Soviet Union dates back as early as 1996. Though if al-Zawahiri is an FSB agent, he was probably a KGB agent too – it would explain perfectly why al-Zawahiri tried to get bin Laden and his number two at the time, Sheikh Azzam, to turn away from the Russians and focus on fighting the Americans. When he didn't get his way, he assassinated Azzam and became bin Laden's new second-in-command at the tail end of the '80s. This, unfortunately for the KGB, coincided with the turmoil of the collapse of the USSR, which explains the gap between when al-Zawahiri gained influence over bin Laden (right after the assassination) and when al-Zawahiri started really collaborating with bin Laden to commit attacks against the West rather than the Soviet Union and apostate Muslim countries (right after his release from "prison" in Russia in 1997).

T. Boone Pickens, pickin' your pocket

T. Boone Pickens is up to his rent-seeking mischief again. He's managed to capitalize on the green trend by advocating subsidies for his "green" projects. This includes a vast wind farm in Texas, which he's gone ahead with and now is lobbying to get the subsidies he needs for it to be profitable. Now he's up to it again in California, lobbying for the passage of Proposition 10 on the November ballot, which would grant $5 billion in subsidies for natural gas and alternative energy. Over half of the total would go to cars and trucks, and most of that would go to trucks and SUVs. Pickens is heavily invested in natural gas, and has a company that provides natural gas to government fleets. The subsidies go overwhelmingly to natural gas over other more efficient vehicles, like the Prius:

Consumer Federation of California executive director Richard Holober said most hybrid vehicles, which run on either electricity or gasoline, would not qualify for rebates under Proposition 10 except for the Toyota Prius, which gets the unusually high 45 miles per gallon.

"That will get you a $2,000 rebate," Holober said at a recent legislative hearing on the ballot measure. "A natural gas Honda Civic which is purely natural gas-fueled gets you at least a $10,000 rebate, even though the state of California's website rates them as identical in clean air standards and the Prius is much more energy-efficient."

"Clearly this is an attempt to distort the market for one particular product," he said

So, despite the fact that there are few natural gas filling stations in California, backers (i.e., Pickens and two other natural gas business) defend the emphasis on non-gasoline vehicles by saying that cars that don't run on any gas deserve a special place, ostensibly so as to "foster independence from foreign oil." This might be a valid suggestion if America were narrowing in on energy independence and we needed to just close that 2% gap that all of our cars were still using, but that's not where America is: we can't even stop growing our oil needs. Considering the far superior mileage that more efficient traditional and hybrid cars get, it seems ridiculous to say that they aren't more deserving than natural gas vehicles. (Obviously, I don't think any of them are deserving of subsidies, though I'd say that there are much bigger and badder subsidies and regulations relating to transportation, land use, and energy in place that need to be tackled first.)

Impairing creative destruction

Last week we heard that Detroit was getting a bailout to the tune of $25 billion, and today we heard that it's a done deal that'll be signed as early as this weekend. US News & World Report gives the details:

• Adjusted for inflation, the Chrystler bailout of 1980 cost $4 billion, while today each big three US carmarkers is getting $5 billion, with $10 billion left over for suppliers.
• The law actually requires nothing of the automarkers. It mandates uses for the money (fuel-efficient technology and some other things), but money is fungible if they were already planning on spending that much money on whatever it was that it was earmarked for.
• Chrystler is owned by a private equity firm, and is not a publicly-traded company. I.e., unless you happen to have a couple billion dollars, you don't have a stake in it.
• Without the money, at least some of the automakers would probably go bankrupt. There is a very real chance that this is preventing or delaying the creative destruction that is necessary in a capitalist system.
  
• "There's more aid coming." According to the article, Detroit is going to try again next year for another $25 billion.

What I implied last week – that Detroit got the bailout as a sort of consolation prize – turns out to be only 76% true:

It might seem like a stealth rescue, but the plan has been in the works for at least 18 months. Approval for the loans was first included in last year's Energy Independence Act. Earlier this year, the automakers sought a first installment of loans totaling about $6 billion. But the nationwide credit crunch severely crimped their ability to borrow, and besides, next to bailouts like $200 billion for Fannie Mae and Freddie Mac, a mere $6 billion started to seem unduly modest. So Detroit raised the ante to $25 billion, the most allowed under current law.

World Day Against Software Patents

Feeling a little down now that International Talk Like a Pirate Day is over? Never fear – you can get your arbitrarily-chosen not-really-a-holiday kick with the World Day Against Software Patents!

Here is a list of software patent myths from the site, and here is my archive of posts about intellectual property (not just software patents, but also copyrights and other kinds of patents).

Tax policy and the subprime crisis

Here's a cause for the real estate bubble that I'd never heard before, via Russ Roberts at Cafe Hayek: bad tax policy. In 1997, Clinton signed into law a tax act which gave taxpayers a substantial exemption from the capital gains tax when they sell their home. Married homeowners filing jointly could pay 0% capital gains tax on up to $500,000 of the difference between the selling price and the buying price. This gave real estate investment an edge over salaried/wage labor – you could never get away with earning half a million dollars through a job and not paying any tax on it. It diverted resources in the economy towards real estate and away from other sorts of work and entrepreneurship. Chris Farrell at Business Week summed it up well in 2005:

The issue goes way beyond tax fairness. A growing number of economists are deeply concerned that residential real estate is absorbing far too many economic resources. Money is pouring into concrete foundations rather than high-tech innovation. "Residential investment accounted for 35% of private investment in the past year, a level not seen since the early 1970s," notes Martin Barnes, the perceptive financial-market observer at Bank Credit Analyst.

Upon reading this, my first inclination is to say that this might have been a more important impetus for the bubble than state intervention in housing through government-backed mortgage agencies.

This reminds me of an article that I read yesterday by Kevin Carson, founder of the vulgar libertarian watch. In it he argues that you cannot evaluate a policy in an "atomistic" way, but rather how it relates to other laws in a "dialectical" way. As it applies to this tax policy change, though the action – lowering real estate capital gains taxes – was a very libertarian thing to do if you look at it in isolation, the fact that the law left all other tax levels unchanged makes it an illiberal policy. When people decide how they're going to earn money, real estate speculation will receive more consideration in relation to working than it otherwise would it a totally free market.

Cause of the mortgage crisis

So, the bubble has burst, the banks have been bailed out, but there still remains the question: what caused the subprime mortgage collapse? There are, generally, three competing hypotheses: the stereotypical left-wing explanation that it was underregulation; the wishy-washy sudden-outbreak-of-greed theory; and the stereotypical right-right explanation that it was government meddling. In this post, I want to try to list all the pros and cons of each theory, and hopefully elucidate the causes of the collapse.

Left-wing explanation: not enough regulation!

This hypothesis most often blames the Gramm-Leach-Bliley Act of 1999, which repealed parts of the Glass-Steagall Act of 1933. Passed in the wake of the Great Depression, the Glass-Steagall Act – among other things – drew a thick line between "investment" and "commercial" banks. Investment banks made wild bets, and commercial lending banks kept your money safe. This distinction formally melted away in 1999 with the Gramm-Leach-Bliley Act, when banks were able to be both commercial lending banks and investment banks. The argument goes that this encouraged what were otherwise commercial banks to get into the risky subprime business – to play roulette with your bank deposits. Though figures as public as Paul Krugman have all-but-endorsed the theory, Alex Tabarrok at Marginal Revolution demolishes this myth. In studies done with the benefit of hindsight, "unified" banks (i.e., those that took advantage of the diversification that the repeal of Glass-Steagall allowed) actually did better through the subprime crash than solely investment banks.

Wishy-washy explanation: too much greed!

Unfortunately, this is probably the most popular explanation. It's popular among politicians, because it allows for a lot of grand-standing without any real solutions. Like I wrote yesterday, you cannot use basic human proclivities to explain one-off crises.

Right-wing explanation: too much regulation/intervention!

Readers of this blog will know that this is where I stand: the government, from back to the Clinton years, has been using homeownership rates as a proxy for general welfare, and both Clinton and Bush II have tried their damnedest to ride roughshod over free market financing and cram as many mortgages down as many throats as they could. Russ Roberts at Cafe Hayek has done an excellent job in documenting all of the ways in which government has intervened in the housing market, by way of the GSEs, the FHA, HUD, and the CRA. There are various retorts to this, depending on which government agency you think caused the crisis. When presented with evidence that Fannie and Freddie were big players in the subprime game, opponents of this theory will point out that they were forced to get out of the subprime business before the bubble burst. When questioned about the Community Reinvestment Act, opponents will point out that though the reinterpretation of the CRA did lead to a "flurry of CRA activity," it was over by 2001. Still, though, given that Fannie/Freddie/FHA/HUD/CRA combined for sure accounted for the majority of the mortgage market, it's not difficult to imagine a situation in which government mortgage agencies kicked off the bubble, and then the increasing housing prices gave the situation a momentum of its own (subprimes aren't risky when home prices are constantly climbing), so that even if by the end there were no government players, they were still ultimately responsible.

Edit: Another explanation is a change of tax policy in 2007, which I discuss in a post on September 23.

The greed levels here are through the roof!

This quote about the current financial crisis has been flying around the econblogosphere, but it's so good that I feel the need to repeat it:

On greed, let me repeat: If unusually many airplanes crash during a given week, do you blame gravity? No. Greed, like gravity, is a constant. It can’t explain why the number of crashes is higher than usual. And let me add: This isn’t a morality play. What we’re seeing are the consequences of monetary-policy distortions of interest rates and regulatory distortions of incentives, amplified in some degree by private imprudence, not the consequences of blackheartedness.

Something very good to keep in mind when you hear John McCain blather about how greedy suits made bad investment decisions. Funny how that happens – everyone all of the sudden just gets greedier than they were before! Maybe if those whippersnappers had gone through McCain's national service plan they wouldn't be so goldern greedy!

(Lest you think McCain is the only mindless jabberer, keep in mind that Obama is also a proponent of the sudden-outbreak-of-greed theory of finance, and maybe he thinks his national service program would keep the third deadly sin in check.)

Fishermen discover the tragedy of the commons

Researchers publishing in the journal Science did a study on the sustainability of fisheries, and found that privatization of fisheries goes a long way towards declining fish stocks. Of the 11,000 fisheries worldwide that they studied, 121 of them used a system of "ownership shares," whereby groups are given the right to fish a certain fish in a certain region. Those that used ownership share systems had "much lower" collapse rights – so low that they saw in the system "the potential for greatly altering the future of global fisheries." This is important, as there have been dire predictions about the collapse of entire species – one scientist concluded that if current fishing practices continue, "all the world’s major commercial stocks" will be at 10% of less of their historical maximums.

Though this study is the first comparing privatized fisheries with their more prevalent non-privatized counterparts, this phenomenon is so prevalent that economists have a name for it: the tragedy of the commons. If everyone has access to a piece of property but no ability to exclude others from using it, everybody is going to exploit the land for all its worth, with no thought to the future vitality of the land (or, in this case, the fishing stock). Even though each individual fisherman might desire that the fish be in the ocean forever, if he doesn't have the power to stop people from fishing, he's just going to assume that if he doesn't get to it, someone will get to it before him, and he's going to continue fishing as if there's no tomorrow (because in essence, there isn't). Privatizing a piece of property gives the owners an incentive to ensure that the land (or sea) is productive into the future. I personally don't like seafood, so I don't give a shit whether or not our seafood stock survives into the 22nd century, but I have a feeling that a lot of other people do.

A Russian hand in the Niger Delta?

Robet Coalson at Radio Free Europe has an interesting commentary on Russia's unique position as a petrostate. Unlike most petrostates (and this includes states whose money comes also from natural gas and energy transit), whose fortunes rise and fall with energy prices, Russia has perhaps the unique position among all of them to actively influence the price of energy. Along with a vast amount of territory rich in oil and natural gas, the Russian state also seeks to shore up reserves outside of Russia and retain a monopoly on energy transshipments to western markets. In addition to enticing and cowering Central Asia and its vast gas resources, Russia has also managed to shore up the Caucasian route out of Europe. Also, conveniently, its foreign policy towards Iran seems to encourage the Iranian leadership to remain isolated, cutting off that route for energy pipelines. It's clear that Russia still uses the espionage and foreign policy tools (like al-Qaeda, the FARC, and possibly the PKK) that the Cold War leaders supposedly left behind, but before reading this article, I'd never heard anyone suggest that the recent flare-up in tensions in the Niger Delta in Nigeria might have been orchestrated by Russia:

In Nigeria, once the fifth-largest supplier of oil to the United States, well-armed and organized rebels have cut production by 20 percent by targeting pipelines and other infrastructure. No one knows where their weapons – including powerful speedboats – come from, but they have "more serious weaponry than any other Nigerian militia to date," according to the Christian Science Monitor in 2006. On September 14, the rebels declared an "oil war" and have launched numerous attacks this week, including destroying a flow station on September 16 and disabling a pipeline the following day. Although there is no evidence linking Moscow to these activities, it is an example of how oil prices could be manipulated to the Kremlin's benefit.

Andrew Cuomo and the subprime meltdown

I just read an article by the Village Voice in which I learned about a central character in the subprime meltdown that I didn't even realize was relevant: Andrew Cuomo. The author Wayne Barrett sure has a negative opinion of Cuomo, Clinton's Secretary of Housing and Urban Development from 1997 till 2001 (he's also been New York State Attorney General since 2007). He blames him for the mortgage meltdown, both for fundamental failures in policy and unethical ties to housing industry interests.

As for his fundamental failings, the author believes that Cuomo's "quantum leap" in mandates for affordable housing drove the subprime and de facto subprime markets upwards, and put pressure on lenders to find ever more subprime mortgages to bundle and sell to Fannie Mae and Freddie Mac.

Cuomo's predecessor, Henry Cisneros, did that for the first time in December 1995, taking a cautious approach and moving the GSEs toward a requirement that 42 percent of their mortgages serve low- and moderate-income families. Cuomo raised that number to 50 percent and dramatically hiked GSE mandates to buy mortgages in underserved neighborhoods and for the "very-low-income." Part of the pitch was racial, with Cuomo contending that Fannie and Freddie weren't granting mortgages to minorities at the same rate as the private market. William Apgar, Cuomo's top aide, told The Washington Post: "We believe that there are a lot of loans to black Americans that could be safely purchased by Fannie Mae and Freddie Mac if these companies were more flexible."

Though this section raises the issue of racial justice in upping the number of low-income loans, and later in the article the author talks about pressure from interest groups like ACORN, ultimately it seems that Cuomo's ties with the mortgage banking industry is what really sealed the deal. The mortgage industry wanted Fannie and Freddie to stop encroaching on their higher-end mortgage territory, so they thought that pushing it further into the toxic nether regions of the mortgage industry would achieve that goal. That's why Cuomo had "closer" ties with private real estate groups like the Mortgage Banker Association and even an anti-GSE group called FM Watch. The author says that these interests were "actually driving [Cuomo's] agenda" as opposed to the affordable housing interests.

Later, however, during Bush's terms, the pressure seems to have shifted from private real estate interests to pressure from the presidency. Bush continued Clinton's legacy of supporting high homeownership rates, and his "ownership society" also put an emphasis on high rates of homeownership. During Bush's 2004 reelection campaign, he pushed the GSEs' affordable housing quota up to 56% from the 50% that Cuomo had managed during the Clinton years.

The article includes a lot more about what appear to be serious ethical failings on Cuomo's part with regards to his relations with private sector executives, and it's an interesting personal take on the subprime meltdown. I don't doubt that Cuomo orchestrated HUD's manipulation of the GSEs and the FHA to effectuate social policy, which then led to the crisis, but I do think the author is a little tough on Cuomo. The incentives were built into the institutional fabric of our government, and conflicts of interest and less than logical government are inevitable. But nevertheless an excellent account.

Finance across the pond(s)

The British government "shocked" the finance industry over there tonight when they announced a three month moratorium on short selling. Short sells are financial instruments that allow someone to bet against a stock by borrowing the stock (for a fee) for a price ostensibly based on its current price, selling the stock, and buying it back after it falls (hopefully), returning the stock to the lender and pocketing the difference. It's risky, but it allows stock prices to fall faster, and for a correction to happen, the market has to bottom out. It's just speeding up the inevitable, minimizing the amount of time that the markets fall before they start to rise again. Temporarily banning short selling has been discussed in America, too, though it hasn't happened yet.

The Guardian article also includes these disturbing bits, about the British government's plans to lean on lenders to give more mortgages to first-time buyers (i.e., less credit-worthy people):

Short-selling has inspired government action because ministers are relying on Lloyds TSB's purchase of HBOS to revive the housing market and has agreed to override competition laws in return for a pledge by the newly created megabank to offer more home loans to first-time buyers. [...]

When asked how the bank would counter abuse of its market dominance, particularly in mortgages, he said "new lending" by the combined bank for households and small businesses would "continue at least at current levels" and the bank would increase the range of products aimed at first-time buyers.

So basically, the government is going to ensure that risky loans continue to be made by state-controlled lenders (the same thing exacerbated/caused the subprime collapse over here, meanwhile ensuring that banks cannot contract their lending practices as is normal during a recession. Do they never learn?

Edit: On the other side of the Anglosphere, Australian politicians are also looking to further control their mortgage market, with the creation of an "Aussie Mac." Stephen Kirchner has an analysis of the plan, and finds that it has many of the problems that American mortgage GSEs have had. He admits it's an appealing idea, since the corporation (whether public or private) requires no federal expenditure, as it derives its superior market position from the government's credit rating, which allows it to borrow at lower rates than private banks could. But the savings are not reliably passed on to consumers – the corporation already has an inherently superior market position, so there's a lot of room to make profit without any competition). And even when the savings are passed on to consumers in the form of lower interest rates on home loans, the American real estate bubble that preceded and enabled the subprime meltdown shows that easier lending – and thereby higher housing prices – is not always such a good thing. And then there's the fact that in the end, if the government has to bail out the corporation (as the Feds just did), the costless way to raise homeownership rates ends up not being so costless.

Ron Paul on Fannie and Freddie, circa 2002

Ron Paul, the perennial pain-in-the-ass that he is, gave a speech in 2002 on an act he was proposing, the Free Housing Market Enhancement Act. Essentially, it would remove government subsidies from Fannie Mae, Freddie Mac, and the National Home Loan Bank Board. He predicted the burst, and predicted the bailout. So it's interesting that in looking at the options going forward, weening of Fannie and Freddie off the government trough looks pretty remote.

Oh Detroit, don't think we forgot about you!

I have to admit, I didn't see this one coming: virtually every major political and American auto industry players has all but confirmed that Detroit will also get a bailout, to the tune of a $25 mbillion loan guarantee. Political considerations (Michigan and Ohio are big industrial states) meant that Obama, McCain, Pelosi, Reid have already voiced their support for the plan. After negotiations, the chairman of Chrystler said the negotiations were "successful," and the head of Ford said that "It was a great day."

Hobbled with the detritus of a failed healthcare system, a trade policy inclined towards anti-competitive protectionism, and the perverse incentives of government handouts, no loan guarantee is even going to begin to fix Detroit's, and the nation's problems. The auto industry in America is inextricably linked to the nation's nationalized road system and individual state and municipal land use regulations, and it will rise and fall based on the degree to which our laws favor automobiles and roads.

Ethanol redux: Wind!

It seems that we have not learned the lessons of ethanol, and that wind power might be another example of a technology subsidized based on its ecological value that turns out to be more environmentally degrading than the alternative. The Atlantic has an article questioning the policy and comparing it to the ethanol debacle. The article cites two issues which make wind both highly uneconomical and not nearly as efficient as "less sexy" measures:

Powering plants up and down is inefficient, and when backup power is included, wind energy costs 10 to 30 percent more than fossil-fuel energy, even without factoring in the cost of new power lines. (Wind-energy costs have risen, not fallen, in recent years.) And once you include backup power, the cost of averting carbon-dioxide emissions by building a wind plant rises to $67 a ton, according to Cambridge Energy Research Associates. Less sexy emissions-reduction strategies, such as increasing efficiency at current electrical plants, cost between $10 and $30 a ton.

The author, Matthew Quirk, correctly sees the folly in the government choosing technologies and elevating them in the market. His suggestion is ultimately that this means that as a solution to the climate change problem, we ought to instead levy a neutral carbon tax. It's a logic idea, but only if you consider current legislation inviolable. The truth is that so many of our carbon emissions are exacerbated by other government policies – land use and transportation laws, from the municipal government to the feds, mostly.

There's a far more direct way to get at pollution rather than another tax (albeit a fairly "fair" sounding one, whatever that means), and it's repealing the suburban-auto lobby's influence in our legal code. Restoring property rights (i.e., doing away with zoning rules and minimum parking requirements) would go a long way to moving to a more free market allocation of property and people – that is, more dense and dynamic clusters surrounded by inevitably less people in suburban and rural areas. Privatizing roads would be the ultimate step to restoring land use to the market, but that seems like just a little too much to wish for within the 21st century.

Edit: The NYT Magazine this weekend also had a piece on the politics and economics of wind. Ultimately, everyone concedes that wind is economically viable thanks to subsidies, but at the end the author focuses on the broader picture: the entire energy industry is subsidized, and the idea that it runs based on a free market is a myth. However, the subject of the article – Peter Mandalstam, a wind entrepreneuer, a sort of not-rich version of T. Boone Pickens – draws different conclusions from this fact than I do. He touches on an important point at the end of the article – "Let’s line up all the subsidies of coal and nuclear power and oil and natural gas and wind — and let’s have a debate," but rather than concluding that we ought to dismantle the original subsidies, his argument is that we ought to tack on additional subsidies, in this case for wind power.

The politics of unflattering photos

Apparently a small scandal is brewing over at the Atlantic over a photoshoot of John McCain, which some say was deliberately unflattering. The picture itself isn't that bad, but it's a little unflattering – the really bad pictures weren't printed on the cover, but you can see them on the link. But my question is: Doesn't this happen all the time? I've noticed quite a few times pictures in the NYT that were obviously chosen for their negative portrayal of somebody in the case of an article that has bad things to say about the person. It wasn't as deliberate as this – strobe lights from the bottom making him look like a Grey alien – but it seemed obvious that the photo editor chose an unflattering picture on purpose. I'll try to remember in the future to post a few of them as they come up.

Don't shoot the messenger

Whenever times get rough, the populists come out. These populists, with their Wall Street suits, look a little odd, though. In this case, I'm talking about those calling for a moratorium on short-selling – a risky way to essentially bet against a stock, profiting from the drop as well as contributing to the drop. Short-sellers argue that they're only profiting from what's inevitable, and that they are in fact an early warning system, signaling that a stock is in trouble and overvalued. Interventionists, however, think that you can keep up a bubble from popping by propping it up, but that will only lead to misery and despair farther on down the road. A classic example of shooting the messenger – while Congress should be investigating the cause of the bubble itself, they're instead going around looking to rail against the aftereffects.

"If you don't pay up, I'll take away your busline!"

The NYT has an article about the state of public transportation in Rochester, NY, and it turns out they're doing pretty well for themselves. The article cites two reasons: increased private sector support, and increased state government support. The latter isn't very revolutionary, but the private sector money is – at least, for a public transportation company. The transit agency convinced private businesses and quasi-private institutions (University of Rochester and RIT) to pay more for guaranteed service. One apartment complex owner paid $1200 per year to ensure continued bus service.

This is something that a private sector entrepreneur would have figured out long ago, but to transit bureaucrats obsessed with fairness and equal service mandates clearly haven't. Residential and commercial property developers benefit from access to mass transit lines, and asking for money from property owners along service routes (or outright owning the property) was and is a viable way of financing transportation projects.

The article also compares Rochester's public transit agency to the New York area's MTA, and asks MTA spokesman Jeremy Soffin about the success of the Rochester network. He replies that he is "not familiar with the arrangements in Rochester," and that "the authority in New York had not pursued similar arrangements with private companies." It sure is pathetic that a city like Rochester, where very few people are probably dependent on public transportation, would think of externalizing costs to adjacent property owners, while a transit-dependent city like New York wouldn't.

Blast from the past: subprime nostalgia number two

I found another great pre-mortgage crisis article about the heady times leading up to the crash, with the added bonus of a Countrywide quote. BusinessWeek had the following to say about Fannie and Freddie back in 2002:

And mortgage lenders are willing to oblige, even in the case of buyers who might not have qualified before. The average downpayment has dropped to only 5% to 10% over the past decade rather than the 10% to 20% it was in the past, according to Doug Perry, a first vice-president at mortgage lender Countrywide Home Loans Inc. Under the right conditions, Countrywide is even willing to lend homebuyers 103% of the value of their new home to cover their closing costs, too.

In part, the aggressive tactics of mortgage lenders have been made possible by the automated underwriting systems developed in recent years by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). These two government-created companies buy 70% of new mortgages in the U.S. and repackage them as mortgage-backed securities, which they then sell to investors.

The new underwriting systems being used by Fannie Mae and Freddie Mac, which are analogous to the credit-scoring systems used by banks, allow for higher loan-to-income ratios than in the past to encourage home buying. That's good for borrowers, but the relaxed ratios could pose serious problems in the future.

There's something satisfying about seeing someone pin down so accurately the cause of great turmoil before the fact.

Sweden: a great place to be a pirate

Today I learned something refreshing: there are countries where the party of the free market doesn't support intellectual property laws. I was reading today about the Pirate Bay – the infamous giant Swedish aggregator of pirated music, movies, software, and more – and it led me to read this very interesting and copiously cited Wikipedia article on the Swedish Pirate party. It was founded in 2006 on a single issue: pro-piracy, anti-intellectual property. The party didn't do as well as expected, with under 1% of the parliamentary vote in 2006, but it brought the issue to the foreground of Swedish politics for a little bit a few years ago. After heavy reporting on the issue, one Swedish paper found that 61% of Swedes had a positive image of the pro-piracy movement. Earlier this year, six MPs from the Moderate Party – a free market party that has been included in governing coalitions – wrote a letter calling on the government to "decriminalize all non-commercial file sharing and force the market to adapt." Can you imagine the same in America – the Republicans, the supposed party of markets, telling the RIAA and MPAA to fuck off, because pirates are just part of the free market? Maybe if Naomi Klein had heard of the pro-piracy movement, she wouldn't idiotically mistake intellectual property with free market ideology.

The chicken tariff spat that killed Detroit

The NYT has an editorial online about the unintended consequences of government interference in the market. The editorial traces the roots of American auto makers' disproportionate share of the light truck market (a declining one in the face of $100+ barrels of oil) to a retaliatory trade war started in the 1960s. Germany, in an attempt to protect its own domestic poultry market, convinced the European Common Market (the second incarnation of what has become the EU) to triple the tariff on frozen chicken imported from the United States. The US retaliated, imposing a 25% tariff on light truck imports, a move directly targeted at Germany's Volkswagen automaker. However, the tariff was also imposed on Japanese imports, giving Detroit an advantage when it came to competing with the Japanese over the American auto market. The chicken tariffs ended long ago, but American carmakers got too cozy with the benefits from the light truck tariff, and now it's coming back to bite them in the ass with that market in free-fall and consumers going for smaller cars. A nice example of the unintended consequences of government action.

And the most expensive city in the world is...in Angola?!

This is perhaps one of the most surprising facts I've learned in a good long time: the most expensive city in the world is Luanda, capital of Angola. Angola's recently been awash with petrodollars, and probably a combination of a piss-poor building stock, disincentives for construction (read: bureaucracy, corruption, and lack of property rights), an influx of refugees, and a sudden boom have propelled it past Moscow, Tokyo, and London to be the world's most expensive city (presumably for the rich/expats? I can't imagine the slum-dwellers are paying $10 for a salad). The story's also got some interesting information on the slums in Luanda, and a proposal to legitimize them that would make Hernando de Soto proud.

Why are cell phones so ugly?

I've been saying this since before the iPhone came out: cell phone software is ugly! And I can't help but think that plenty of other people had that same thought. So the question is, why did the market develop better interfaces sooner? My instinct is to look for market perversions, and sure enough, in the cell phone business, you find the mother lode: regulated spectrum. The FCC doles out pieces of the spectrum, artificially limiting something that – with technology – can be infinitely divisible. This limits competition in cellular service, and the hardly-competing oligopolies can get consumers to buy phones bundled with service plans (long service plans at that). In a competitive market, retailers don't bundle, because customers are extremely discerning with regards to price. So, it's probably just a spillover effect from the cartelized broadcast spectrum. The alternative would be an open spectrum, usable for all (or almost all, depending on who you talk to).

Nabucco: on, or off?

Right after the South Ossetian conflict I wrote about articles foretelling the Nabucco gas pipeline's demise, and now I have some follow-up information. Radio Free Europe reports that there was a conference held in Baku where a few potential gas-producing/gas-transiting counties came together and pledged their support, but it included firm promises from only Azerbaijan and Turkey. And even then, Azerbaijan – the only committed country with natural gas supplies – admits that without others, it can't produce enough gas to fill the pipeline. And even Azerbaijan's commitment is not firm. The Moscow Times reports:

U.S. Vice President Dick Cheney has failed to win Azerbaijan's support for the construction of a new gas pipeline from the Caspian that would bypass Russia.

Azeri President Ilham Aliyev indicated to Cheney during talks in Baku on Wednesday that he did not want to anger Russia in the wake of its invasion of neighboring Georgia, Kommersant reported, citing an official in Aliyev's administration. Cheney was so disappointed that he did not attend an official dinner in his honor, the report said.

Azerbaijan has also increased flows of oil through a pipeline to the Black Sea port of Novorossiisk, the newspaper reported, citing a Russian energy official.

Other than Azerbaijan, the only gas-producing countries that would possibly be in on the deal are Kazakhstan and Turkmenistan. Turkmenistan isn't certain, according to RFE:

Turkmen officials at the Baku conference have not yet said what level of participation, if any, Turkmenistan would have in Nabucco. Furthermore, Turkmenistan has committed itself to pumping more gas to Russia and China in recent weeks.

...and the RFE article doesn't mention anything about Kazakhstan's involvement in the conference, nor does it cite any Kazakh or other sources as to the possibility of Kazakh contributions to the pipeline. Kazakhstan's participation in another pipeline – the Baku-Tbilisi-Ceyhan oil pipeline – has been uncertain, with officials supporting the project in public but ruling it out in private conversations. It's shown the same tendency with the Nabucco gas pipeline, supporting it in public but throwing its weight behind Russia when it comes to actually building pipelines.

Bolivia nears civil war

The conflict in Bolivia has boiled over, with violence across the eastern provinces. The eastern region, which has traditionally been more wealthy than the western region (populated mainly by indigenous people), has chafed under Morales, who is the nation's first indigenous president, and has been socializing the economy and aggregating more power towards the state. The conflict is tinged with racial undertones, and the Washington Times article says that "[m]ilitancy in the east is increasingly laced with racist rhetoric against Andean Indians." The eastern region – wealthier and whiter – has never supported Morales' socialist designs for Bolivia, and the particular bone of contention at the moment are the riches of Bolivian natural gas, which Morales wants to funnel into social programs for indigenous Bolivians in the west. Militants from the east have blocked crucial energy pipelines out of the country, and Stratfor reports that there are rumors that the government has been using live ammunition against the protestors. Stratfor says there is a distinct possibility that a civil war will ensue. As is expected, Morales' buddy Chávez has supported the Bolivian government with military aid, but if the conflict gets much worse, it could be the first popular affront to Chávez's coterie of Latin American socialist elected authoritarians.

Self-steering bus for fun and profit

Wired has an article about a self-steering bus system, whereby magnets are embedded in the road and used to guide the bus along its route and into bus stops. Drivers still retain control of accelerations and the brakes, but the author says that they've tested it with automated speed controls and it worked well. The cost savings of guiding the bus along a track is that it allows for buses to pull into and leave stations more quickly (it shaves "seconds" off), and the system is so accurate that the bus ends up only a centimeter from the curb. Apparently these "seconds" and the ability for a bus lane to be ten feet wide instead of the usual twelve make the system "as efficient as light rail lines." This would be in ideal settings – that is, in a dedicated bus lane. I assume the system would work even better if the acceleration and braking were automated, as those are areas where a large vehicle can can fuel efficiency if stopping and starting is more precise strategic than a human can manage (and buses use a lot of gas). While public pressure wouldn't allow vehicles to be driven automatically, eventually costs could also be cut by eliminating the driver (cue labor protests).

The American Prospect's pathetically limited imagination

The American Prospect, a typical liberal rag, has an article online entitled "The Conservative Case for Urbanism," but it's entirely unpersuasive and doesn't touch on some of the urbanism issues that would really appeal to conservatives. The article has essentially two (very poorly fleshed out) arguments: roads can be wasteful, and the federal government sometimes gets in the way of state/local mass transit initiatives.

But what it doesn't mention is that the sort of sprawl that dots America's (mostly suburban) landscape is enabled by zoning and minimum parking regulations, and that the suburbs might be a lot denser if people were allowed more complete property rights. I don't know if it's because the Republican party has strayed so far away from its limited government roots that this no longer qualifies as a "conservative" issue, or if the author mistakenly equates municipal government with individual choice, or if the author is just plain ignorant as to the root causes of sprawl. But in any case, she took what could have been an insightful topic, stripped away any persuasive arguments, and left readers with the impression that urbanism simply isn't compatible with American conservatism. And that's a shame.

From back when subprimes looked good...

I found a bone-chilling article written in 2002, discussing the recent change in policy of Fannie Mae and Freddie Mac (otherwise known as GSEs – government sponsored enterprises), and their foray into the subprime mortgage market. The article starts off strong, with this laughably discredited statement explaining the GSEs' rationale for getting into the subprime market:

Subprime borrowers frequently pay higher points and fees and are saddled with more unfavorable terms and conditions, such as balloon payments, high prepayment penalties, and negative amortization. Lenders say the higher rates and charges reflect the additional costs and risks of lending to borrowers with less than perfect or nonconventional credit. However, research conducted by Freddie Mac suggests that the higher interest rates charged by subprime lenders are in excess of the additional risks these borrowers bear. Thus, increased competition would tend to reduce borrowing costs in the subprime market.

History proved them wrong: subprime loans became dramatically overvalued rather than undervalued. But the GSEs and their congressional overlords didn't have to be seers to realize that the market can always judge risk better than a government agency. And the consequences of the miscalculation weren't limited to just Fannie and Freddie: as the GSEs make up the majority of the American mortgage market, their downward estimation of the risk in subprimes forced other companies who wanted to compete with them to lower their subprime rates and make loans that they before considered risky. Blame who you will, but just consider that were it not for the GSEs sticking their fingers in the subprime pot, the bubble probably never would have formed, nor the painful bust.

The growth of subprimes started before GSEs got into the game, but as you may recall, there was no subprime mortgage bust in the late '90s, a few years after private banks started really investing in subprimes. The bust only seemed to come after Fannie and Freddie took the subprime industry by storm:

Interestingly, subprime market growth in the 1990s occurred largely without the participation of Fannie Mae and Freddie Mac. The GSEs started showing interest in this market toward the end of the decade and now purchase A-minus mortgages as a regular part of their business. National Mortgage News, a trade publication, estimates their combined market share in 2001 grew by 74 percent, representing about 11.5 percent of all subprime loan originations in that year. Some market analysts estimate that GSEs will soon be purchasing as much as one-half of all subprime originations.

In 2002, they didn't know that it was going to end with Fannie and Freddie taking huge losses amidst a recession-provoking subprime collapse. (Though they really should have seen it coming.) Today's politicians, however, have the benefit of hindsight, and yet it seems that there's no serious movement to abolish the quasi-governmental organizations. The NYT has an article reviewing the options for Fannie and Freddie in the future. It lays out a few positions that involve keeping the GSEs, but relegates "the free-market theorists" to Bushite neocon radicals who have no chance. The article doesn't however mention that Bush hasn't always been hostile to social engineering through government-run mortgage companies. Also, the article fails to mention any possibility that Freddie and Fannie caused their own meltdowns, and of course doesn't mention anyone with anything to say about their future that involves taking into account their failings during the mortgage crisis. The economic ignorance of the mainstream media and Congress is truly astounding.

Dagestani terrorists blow up mosque in Baku?

In August, a mosque in Baku was bombed, ostensibly by Dagestani militants. However, as Radio Free Europe explains, the Dagestani theory doesn't hold up:

That National Security Ministry statement contains two major flaws, however. First, the North Caucasus Islamic resistance in general, and the resistance in Daghestan in particular, adheres to the Salafi strain of Sunni Islam. The congregation of the Abu Bekr Mosque is also predominantly Salafi. What conceivable motive could the resistance have to target co-religionists?

And second, a spokesman for Daghestan's Shariat jamaat, one of the subdivisions of the North Caucasus resistance, told RFE/RL's North Caucasus Service last month that the group's primary objective is to "expel the aggressor" – meaning Russia – from the territory over which the resistance claims hegemony. He made no mention of exporting jihad to Azerbaijan.

And where there's intrigue in Russia's "near abroad," there's Russia:

A second possibility is that Russia's Federal Security Service (FSB) may have organized the grenade attack on Abu-Bekr in order to destabilize the political situation in Azerbaijan in the run-up to the October 15 presidential election.

In a September 3 interview with day.az, Humanitarian Party leader Oktay Atahan gave partial credence to the National Security Ministry explanation, saying at the same time he has no doubts that the FSB recruited Daghestani militants under a "false flag" to perpetrate the Abu-Bekr attack. Atahan suggested that attack was part of a broader operation by the FSB to mobilize Azerbaijan's alienated ethnic minorities, especially the Lezgins of northern Azerbaijan, under the banner of Islam.

This wouldn't be the first time that the Kremlin ordered false flag attacks dressed in Muslim clothing. The FSB has been directly accused by Alexander Litvinenko (among others) of orchestrating both the 1999 apartment bombings and the 2002 Moscow theater siege, both of which were blamed on Muslim terrorists from the Caucasus (the Chechens, in those cases).

Federal government to nationalize mortgage industry

Well, just about. Apparently Washington is about to take over Fannie Mae and Freddie Mac. Together, the two semi-governmental mortgage giants have "backed 70 percent of new mortgages in recent months," and they were huge players in the nonsense that collapsed during the sub-prime mortgage crisis. I wrote about this irony a few months ago: though the crisis is usually blamed on overzealous investors wanting ever-more risky assets in search of the almight dollar, the truth is that Fannie Mae and Freddie Mac – "corporations" that have to face pressure from Washington, and are used as much to socially engineer and legislate as they are to seek profits and make market-worthy loans – had a large part in the explosion of subprime lending prior to the crash. And now, in the wake of it all, rather than cutting the cord, realizing that it was the government's fault, and leaving the mortgage giants to make loans they see as most profitable, the government is just formally doing what it had promised to do all along: nationalize Freddie and Fannie. And through that, it seems, most of the mortgage industry.

The problem with subsidies

From the NYT, an article that is recommended reading in light of recent campaign promises to shore up the environment with subsidies. Apparently a practice that was hip among the green scene – putting small turbines in urban areas – is highly inefficient. In fact, it's so inefficient that "making and transporting turbines for cities may lead to more carbon dioxide emissions than the turbines save," according to some nameless "British studies." Though most people who put up small turbines on their property did it out of curiosity and not financial incentive, there are some who were likely swayed by the kinds of tax benefits and subsidies that people often receive from governments for installing supposedly energy efficient technology. The same sort of benefits that would surely be part of Obama's promise to involve the federal government heavily in technology and science, "investing $150 billion over the next ten years to catalyze private efforts to build a clean energy future." At one point, this would have included Obama's support for ethanol, which similarly turned out to be a net environmental negative.

Remember, kids: if the government is "catalyzing private efforts," they ain't private efforts no more. The free market isn't just being free to innovate: it's also being free of unfairly subsidized competition.

Russia eats a little bit of BP's soul

Over in the northeastern quarter of the globe, the post-South Ossetian war cowerfest continues. The latest to step up and cower in Russia's presence is BP, who broke down and ceded more control to the Russian government over its huge investment in Siberia. The news is relatively good to BP shareholders: the project could have been completely nationalized, like Yukos' and Royal Dutch Shell's investments. With a quarter of BP's energy reserves in jeopardy, the threat was considerable. But despite Russia's apparent leniency, the message to the West is clear: we're tolerating existing investments, but don't think about making anymore.

The EU is acutely aware of this, but they're impotent (considering that domestic liberalization of land use, transportation, and energy is absolutely not an option). The EU energy chief said that the EU must pursue the Nabucco link to the BTE pipeline from the Caspian, and continues to heroically insist that the pipeline will be built, when all signs point to it not:

The EU has signed agreements with Turkmenistan, Azerbaijan, Kazakhstan, and Ukraine to help develop their energy supplies with a view to future imports. It is also eyeing Egypt and Iraq as possible future suppliers.

But Azerbaijan is now in talks with Russian energy giant Gazprom OAO to sell gas to Russia, throwing Azeri supplies to Nabucco into doubt.

Russia's invasion of Georgia highlighted the vulnerability of Azerbaijan's gas link to Nabucco, the Baku-Tbilisi-Erzurum (BTE) pipeline across Georgia to Turkey.

But Piebalgs stressed the EU's continued support.

"This does not change our minds, or I think the EIB's [European Investment Bank,] that this project should be supported," he said.

Underappreciated quote

Perhaps the most underappreciated quote of our era. This is from an interview that Alexander Litvinenko (assassinated FSB turncoat) gave to Poland's Fakt newspaper, in which he discusses Russia's role in terrorism, past and present:

Fakt: Every terrorist you have named is from 'the old staff' of the KGB. Could you name someone from recent history?
A. Litvinenko: Certainly, here it is. The number two person in the terrorist organization al Qaeda, who they are crediting with the series of explosions in London, Ayman al-Zawahiri, is an old agent of the FSB. Being sentenced to death in Egypt for terrorism and hunted by Interpol, Ayman al-Zawahiri, in 1998, was in the territory of Dagestan, where for half a year he received special training at one of the educational bases of the FSB. After this training he was transferred to Afghanistan, where he had never been before and where, following the recommendation of his Lubyanka chiefs, he at once ... penetrated the milieu of bin Laden and soon became his assistant in al Qaeda.

Fakt: Could you hint at least, where this data comes from?
A. Litvinenko: I can. During my service in one of the most secret departments of the FSB, top officials from the UFSB of Dagestan, who had directly worked with Ayman al-Zawahiri ... were called to Moscow and received high posts.

That quote goes nicely with this quote about Ayman al-Zawahiri, from bin Laden's chosen biographer Hamid Mir:

He is the person who can do the things that happened on Sept. 11.

Litvinenkapalooza here. All you can eat al-Zawahiri trough here. For more information on al-Zawahiri's time in Russia, check out the Wikipedia page.

Mayor Palin vs. Gov. Palin

Though Gov. Palin and Sen. McCain claim to be tough opponents of pork, it seems that Mayor Palin had a much different take on the issue. During her six years as mayor of that town of 6,700 souls, Palin raked in $27 million in federal (and federal alone!) earmarks. That includes $15 million for a rail project, which would seem to go against McCain's anti-Amtrak subsidy ethos.

According to her spokeswoman, Palin's turn from bacon-lover to a pork-buster came in 2003:

Maria Comella, Palin's campaign spokeswoman, said Palin sought the Wasilla earmarks because she was "working in the best interests of Alaska, working within the confines of the current system."

Palin became a staunch reform advocate after her 2003 appointment to the state's Oil and Gas Commission. She accused another commissioner – Alaska Republican Party Chairman Randy Ruedrich – of raising campaign contributions from industries he was regulating. "She realized that the environment around her was no longer what it once was, and elected officials were abusing their power," Comella said.

Ah, yes! Ms. Comella must have been recalling those good ol' days back between 1996 and 2003, back when politicians were honest and righteous, and nary a piece of legislative pork did pass.

A note about pork: it's basically nothing. One percent of the federal budget. So when McCain says he's gonna balance the budget by trimming the fat from it, he's lying.

Fantasy football for women

Finally, the female version of fantasy football: Microsoft's Celebrity5. From the description on the site:

Make a game out of Hollywood!

Think you can predict the next rising and falling stars better than most? Take Celebrity 5 for a splin and test your knowledge! Points are based on moving up in search popularity, so choose celebs you expect to rise the most over the next day.

(I can't even figure out what label to put this under...media?)

Alcohol laws as zoning laws

From the Hyde Park Urbanist, a story that made me think: residents of an area voting themselves "dry" to prevent a hotel from being built, effectively a form of zoning. Since hotels, restaurants, and music venues live or die based on their alcohol sales, depriving them of permissions to sell alcohol can stop them in their tracks. I know that around where I used to live in the suburbs the alcohol rules were stricter than in the city when it came to restaurants, and there was plenty of intrigue and failure related to the limited amount of liquor licenses. I also have only ever heard of "dry" counties in exurban/rural areas, which makes me think that alcohol policy probably tracks with population density, reinforcing the land use tendency of segregating residential and commercial uses. In any case, the forcing of people to travel farther for their alcohol has proven to be deadly, with drinkers in dry counties having to drive farther to get drunk (and then drive home...).

And Russia bags two more

As a prize for successfully baiting the Georgians into war, Russia has scared Western investors out of Georgia, cementing control over oil and natural gas shipment through the Caucasus. This is quite a prize: since Iran is not a viable option, and Russia has proved to be a fickle supplier of energy, the only remaining route to the riches of the Caspian Sea is through the Caucasus. Russia effectively bought Armenia's favor earlier, and with the Georgian invasion, now has a bloc powerful enough to cower the only remaining Caucasian state still standing (albeit impotently, given it doesn't share a border with the Caspian): Azerbaijan.*

On the other side of the Caspian, an anonymous source inside energy giant Kazakhstan said that they were reconsidering the BTC pipeline, instead opting for transit through Russia. Kazakhstan's ambassador to the US wrote in to the WSJ later to deny the rumor, which would probably be the response no matter what they were really up to.

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