Saturday, April 19, 2014

Zbigniew Brzezinki's long game.

According to the Sunday Times, Barack Obama has had it with trying to build a partnership with Vladimir Putin. Like George W. Bush before him, Barack Obama has finally written off Vladimir Putin. There will be no reset of relations. Instead, his administration's focus will be "cutting off [Russia's] economic and political ties to the outside world, limiting its expansionist ambitions in its own neighborhood and effectively making it a pariah state."   

In the same story, Senator Bob Corker of Tennessee, the ranking Republican on the Foreign Relations Committee, expresses his disgust. “They’re playing us. We continue to watch what they’re doing and try to respond to that. But it seems that in doing so, we create a policy that’s always a day late and a dollar short.”

To a degree unmatched since the early days of the Global War on Terror, American pundits and politicians have been marching in lockstep in response to Vladimir Putin's seizure of Crimea and continuing threats to Ukraine. On April 8th, as the Ukraine story continued to unfold, New York Times columnist and foreign affairs maven Tom Friedman summed up the commonly accepted narrative of Russian aggression and American passivity in his op-ed Playing Hockey with Putin:

"Putin doesn’t strike me as a chess player, in geopolitical terms. He prefers hockey, without a referee, so elbowing, tripping and cross-checking are all permitted. Never go to a hockey game with Putin and expect to play by the rules of touch football. The struggle over Ukraine is a hockey game, with no referee. If we’re going to play — we, the Europeans and the pro-Western Ukrainians need to be serious. If we’re not, we need to tell the Ukrainians now: Cut the best deal with Putin that you can." 

Friedman's colleague at the Times, David Herszenhorn, mirrored the President's frustration as he punctuated an article this week about a posting by Russian Prime Minister Dmitri Medvedev on Facebook with an acrid derision that has become commonplace:

"And so began another day of bluster and hyperbole, of the misinformation, exaggerations, conspiracy theories, overheated rhetoric and, occasionally, outright lies about the political crisis in Ukraine that have emanated from the highest echelons of the Kremlin and reverberated on state-controlled Russian television, hour after hour, day after day, week after week."

Fifty years ago, at the height of the Cold War, American foreign policy icon George Kennan described circumstances like these. He suggested how a democracy "becomes victim of its own propaganda. It then tends to attach to its own cause an absolute value which distorts its own vision … Its enemy becomes the embodiment of all evil. Its own side is the center of all virtue."

Kennan describes our susceptibility succinctly. Americans cling tightly to our image of ourselves as a beneficent, if flawed, people in a Manichean world of good guys and bad guys. We prefer not to know too much about the complexities and morally ambiguities of the world as it really is.

Lost in the 24-hour coverage of the Ukrainian crisis has been any attention to the historical context of these events. This should be the job of our leading newspapers, but even the headlines of these stories in the newspaper of record, Playing Hockey with Putin and Herzenhorn's Russia Is Quick to Bend Truth About Ukraine illustrate how shallow our reporting has become.

There is a backstory that suggests an alternative narrative. Indeed, it would be interesting to know what President Obama and his staff are really thinking as they assail Vladimir Putin for his barbaric behavior. Are they really appalled by Putin's conduct, as the reporting suggests, or do they understand it to be a predictable--and predicted--response to America's continuing strategy to undermine Russian power in the region? And is Bob Corker similarly flummoxed by Putin's strategic superiority, or does he share the sense of satisfaction that Zbigniew Brzezinski must feel as Putin flails away in frustration, as America's decades-long campaign to contain and undermine the Russian state continues to play out?

Zbigniew Brzezinski--who first appeared in the public eye as President Jimmy Carter's National Security Advisor--has in many respects been the inheritor of Henry Kissinger's mantle as the most influential member of the American foreign policy establishment. His life's work has been animated by his enduring hostility to the Russian state, and even as the pundits and politicians frame Ukraine as a failure of western diplomacy and strategy, one can see in it instead the success of the Brzezinski doctrine.

Brzezinski was one of the architects of the expansion of NATO in the wake of the end of the Cold War to include all of the former members of the Warsaw Pact. The expansion of NATO, with the ultimate goal of including Ukraine, was part of a strategy of exerting steadily increasing economic and political pressure on the Russian state. Brzezinski laid out his strategic perspective his 1998 book The Grand Chessboard: American Primacy and Its Geostrategic Imperatives, and his ambitions to contain and ultimately break up the Russian state are summed up in his article A Geostrategy for Eurasia.

At the time that the NATO was expanded to bring in the former Warsaw Pact states, George Kennan expressed his belief that the aggressive expansion of NATO and a hostile policy of encirclement would backfire, and ultimately lead us to the point at which we have now arrived.

''I think it is the beginning of a new cold war... I think the Russians will gradually react quite adversely and it will affect their policies. I think it is a tragic mistake. There was no reason for this whatsoever. No one was threatening anybody else. This expansion would make the Founding Fathers of this country turn over in their graves. We have signed up to protect a whole series of countries, even though we have neither the resources nor the intention to do so in any serious way. [NATO expansion] was simply a light-hearted action by a Senate that has no real interest in foreign affairs.''

But where Kennan saw increasing risks of confrontation, Brzezinski saw opportunity. Brzezinski's policy objective was the neutering of Russian ambitions and assuring American dominion in Eurasia. He did not give deference to Russia's historic paranoia as Kennan counseled, instead his strategy of continued pressure was designed to force Russian leaders to make choices between alternative courses of action, any of which would work to America's advantage.

The Soviet invasion of Afghanistan in 1979 provides an example of Brzezinski's strategic approach. Back in 1980, we all knew that the U.S. boycotted the 1980 Olympics to protest the Soviet invasion of Afghanistan. We knew this because Jimmy Carter told us so on national television, and his explanation went largely unchallenged in the media. And we all came to know that we began our support for the Islamist mujahedeen--who would ultimately defeat the Red Army--in response to the Soviet invasion. We know this because we saw Charlie Wilson’s War. And that rendering of history has largely gone unchallenged in the media.

Only years later did we learn that Jimmy Carter signed the covert action directive initiating support for the Afghan mujahedeen on July 3, 1979, six months before the Soviet invasion. When the Red Army invaded, the Soviet leadership claimed that they were entering Afghanistan to defend the existing Afghan government against a covert war initiated by the United States. The Carter administration adamantly denied the Soviet claims, and the Soviet complaints were ridiculed in the national media--like Medvedev's words this week--as nothing more than self-serving propaganda. Of course we had to respond to Soviet aggression, suggested Tim Russert on NBC's Meet the Press, "We had no choice."

Except, as it turns out, it would appear that the Soviet claims were true.

On the day that Carter approved the CIA intervention, National Security Advisor Brzezinski wrote to the President“This is our chance to give Russia its Vietnam.” Or, as he explained in a 1998 interview, U.S. action in Afghanistan was designed to lure the Red Army into a war that would bleed the Soviet Union. At worst, if the Soviets didn't take the bait, the strategy still offered the prospect of overthrowing the Afghan Communist regime:

"According to the official version of the story, the CIA began to assist mujahedeen in the year 1980, that is, after the invasion of the Soviet army against Afghanistan on December 24, 1979. But the truth that remained secret until today is quite different: it was on July 3, 1979 that President Carter signed his first order on the secret assistance to Kabul’s pro-Soviet regime opponents. That day I wrote a memorandum to the President in which I told him that that assistance would cause the Soviet intervention (...) [W]e did not force the Russian intervention, we just, conscientiously, increase the intervention possibilities."

In subsequent years, Jimmy Carter asserted that it was definitely "not his intention" to provoke the Soviet invasion, and perhaps one can take Jimmy Carter's impassioned outrage at the Soviet invasion at face value. But it is now a matter of historical record that his covert action directive in mid-1979 was undertaken--at least in the view of his National Security Advisor--with an eye toward provoking the Soviets to respond as they did.

The fingerprints of the Brzezinski approach are evident in Ukraine today. Since the fall of the Soviet Union--after that brief moment of white shoe naiveté when George H.W. Bush and James Baker gave Mikhail Gorbachev their word that America would not push NATO "one inch" closer to the Russian border--our policy of encirclement was ratcheted up. Over the course of the decade following the Bush/Baker "commitment" to Gorbachev, all of the Warsaw Pact countries were brought into NATO, and American military facilities were developed in Azerbaijan, Kyrgyzstan, Uzbekistan, and Kazakstan. By the time the dust settled, America had formed a ring of military facilities around the western and southern perimeter of the Russian landmass--from the Baltic Sea to the Chinese border, with the exception of Iran--abrogated the Anti-Ballistic Missile Treaty, and installed a forward deployed "missile defense" system.

The post-Cold War strategy of encirclement was more aggressive in design than simple containment. America's goal, in Brzezinski's words, was to "shape a political context that is congenial to Russia's assimilation into a larger framework of European cooperation." That is to say, Russia would be pushed toward the right choice--democratization and decentralization--and pay a price if it chose poorly. It mirrored Jimmy Carter's covert action in Afghanistan, in that it anticipated the different ways the Russians might respond. On the one hand, steadily tightening a military noose around Russia--ultimately to include Ukraine and Georgia--would constrain its imperial ambitions, the integration of democracies along the Russian periphery into the European community would push Russia toward political and economic reform. On the other hand, should Russia ultimately push back against the West's broken commitments and military encirclement--as George Kennan predicted--it would demonstrate to the world that Russia continued to harbor imperial ambitions and remained a threat to the rest of the world, justifying punitive measures to further isolate Russia economically and politically. It was a win-win strategy: Either outcome would serve America's interests in the region.

In 2008, Vladimir Putin finally pushed back. The Russia-Georgia War was the precursor to Putin’s actions in Ukraine, as it demonstrated that he was serious about opposing continued encroachment on Russia's "near-abroad." At that moment, even as Georgia's ambitions for closer ties with the West were thwarted, international opinion turned against Russia, just as Brzezinski envisioned. Whatever one might have thought of Putin before the Georgia war, through his actions, in the eyes of the West, he revealed his true colors. He was an unrepentant KGB-bred spook, an emerging despot, a Russian nationalist, and a threat.

Writing in support of Putin's actions in the Russia-Georgia War in 2008, Mikhail Gorbachev expressed his frustration with the manipulation of Russia by the United States and in his anger at American duplicity:

"Russia has long been told to simply accept the facts. Here’s the independence of Kosovo for you. Here’s the abrogation of the Antiballistic Missile Treaty, and the American decision to place missile defenses in neighboring countries. Here’s the unending expansion of NATO. All of these moves have been set against the backdrop of sweet talk about partnership. Why would anyone put up with such a charade?"

Russian President Dmitri Medvedev mirrored Gorbachev frustration in an interview in Der Spiegel the following year.

"After the disappearance of the Warsaw Pact, we were hoping for a higher degree of integration. But what have we received? None of the things that we were assured, namely that NATO would not expand endlessly eastwards and our interests would be continuously taken into consideration. NATO remains a military bloc whose missiles are pointed towards Russian territory."

This was the backstory to Ukraine today, but little of that history has been explored in the media as events in Ukraine have unfolded. In advancing the commonly accepted narrative, Tom Friedman, David Herzenhorn and their compatriots have ignored not only that history, but more specifically the long term American strategy, that has been at work. Putin might be playing hockey, as Friedman suggests, but Brzezinski owns the team.

To those who embrace Brzezinski's strategic perspective, Putin's aggressive actions will only undermine his and Russia's credibility in the world. The impact on the lives of Ukrainians in Kiev and Kharkov and Odessa is not the point, Brzezinski's strategic formulation is designed to enhance American power in the region in the long term, and whether Putin finds a way to pull back or chooses to invade is immaterial. Either choice Putin makes, in Brzezinski's long view, will ultimately serve America's interests, even if a Ukrainian civil war and an energy crisis in Europe have to be part of the price along the way.

My point here is not to assess America’s foreign policies in the world or to embrace Brzezinski's approach. One can believe Jimmy Carter’s intervention in Afghanistan was good or bad, that it was effective realism or unwarranted intervention. One can believe promoting Ukrainian democracy and undermining Russia’s security is a good policy or an unwarranted and dangerous one. But one cannot as Friedman suggests, and the media has trumpeted from the outset, simply raise one’s voice in outrage, and express shock at Russia’s "incredible acts of aggression."

Despite the talk of partnership, the fact is that the United States has consistently pursued aggressive and hostile policies designed to contain Russia, and--if Brzezinski has his way--ultimately see Russia broken up into a confederation of smaller states. Yet, by and large, the American media has bought into the dominant narrative, and ignored the deeper strategy at play. America's core strategy remains intact, and from the Brzezinski perspective everything is on track. Vladimir Putin has not been the master strategist of the media's imagination, the puppetmaster who has outfoxed American at every turn. Instead, he has long been caught in a trap, his actions manipulated in a game of power and strategy that goes back decades and in which he is playing a role, not writing the script.

Sunday, April 13, 2014

The courage of Charles Koch.

Two weeks ago, Charles Koch returned to the pages of the Wall Street Journal to defend himself. One has to wonder if the Journal was the best choice. After all, readers of the Wall Street Journal are probably not the one's attacking him. They are the choir, so to speak.

"I have devoted most of my life to understanding the principles that enable people to improve their lives." He began. "Unfortunately, the fundamental concepts of dignity, respect, equality before the law and personal freedom are under attack by the nation's own government. That's why, if we want to restore a free society and create greater well-being and opportunity for all Americans, we have no choice but to fight for those principles. I have been doing so for more than 50 years, primarily through educational efforts. It was only in the past decade that I realized the need to also engage in the political process."

Then, not to waste much time, he launched into his own ad hominem assault on those who disrespect him and attack is character on an (almost) daily basis. "A truly free society is based on a vision of respect for people and what they value.... The central belief and fatal conceit of the current administration is that you are incapable of running your own life, but those in power are capable of running it for you. This is the essence of big government and collectivism."

For my own part, I did not know I was a collectivist until Wayne Berman told me I was. After all, as a Wharton grad and somewhat of a free market economist. But as is so often the case these days, you are either with us, or you're against us. So I was just a bit taken aback as I was walked into Wayne's office--truly an inner sanctum of Republican power--and he introduced me to one of his business associates. "You should know David, he is a collectivist, like you."

A half century ago, every day on my way to school, we drove past the small, red brick building in Belmont, Massachusetts, that was the home of the John Birch Society. That was in the 1960s, and the John Birch Society did not have a big following in the area, but that was not necessarily the case in my own family. My maternal grandfather, Bob Byfield, was an acolyte of William F. Buckley, and as such was a fellow traveler of sorts with the Birchers.

Wayne's comment took me back. Collectivism, totalitarianism, and communism. These were the central enemies of America that my Grandfather wrote about. Now the enemy was inside the tent, and it was me. Collectivist is no insignificant label, it is a moral slur. You are morally bankrupt, and you are my sworn enemy. You are not just un-American, you are anti-American.

Thus, the irony of Koch's response. "Instead of encouraging free and open debate," he bemoans, "collectivists strive to discredit and intimidate opponents. They engage in character assassination." Take that, you totalitarian commie Nazi.

The fatal conceit of Charles Koch's defense of himself is that he uses the term fatal conceit at all. It is a phrase that reeks of philosophical, intellectual arrogance, that shuts off the free and open debate that Koch suggests he so admires. There has been no free and open debate in our politics since the advent of the Tea Party. I am not suggesting that Koch or the Tea Party ended free and open debate, but they most certainly have not espoused it as a value, as Koch suggests.

"Rather than try to understand my vision for a free society..." Koch goes on, "Our critics would have you believe we're "un-American" and trying to "rig the system." Rig the system, sure. Un-American? Not so much. Rigging the system is why we have lobbyists, it is why we have K Street. Our First Amendment right to petition Congress to redress grievances has morphed into the right to petition Congress to grant us special favors and smite down our enemies.

Koch's vision of a free society is clear. It is not that complicated. And I understand the perspective that the rules and practices of more regulated society undermine the values and freedom that he asserts as higher order values. In that world view, unemployment insurance, minimum wages and other income support programs undermine the survivalist imperative that keeps poor inner city families in Los Angeles from moving to the central valley to do the agricultural labor work now done by migrant laborers. I understand that he believes that the children of those families would have a stronger desire to get an education to improve their lot in life, restoring the work ethic that Koch sees having been lost.

I understand Friedman's principles of how market forces can winnow out failing banks, companies that make bad cars. All of that. And as Bob Byfield's grandson, I have read The Road to Serfdom. Really, back in the old country, my other grandfather's forebears were probably serfs.

Koch suggests at the outset he has devoted his life to understanding the principles that enable people to improve their lives, but along the way he has forgotten that these are just theories. I understand the philosophical roots and economic theories that underpin his world view, but I do not agree with them. That does not make me a collectivist, a totalitarian or a communist, just one citizen in a free democracy who disagrees with his perspective, and opposes his conclusions.

As much as Koch imagines himself a herald of liberty and a "free society," his politics have been just one more uninspiring assault on the poor and the middle class. And that is Koch's Achilles heal. Robert Welch, a founder of the John Birch Society along with Charles Koch's father Fred, is widely quoted as having said that "both the U.S. and Soviet governments are controlled by the same furtive conspiratorial cabal of internationalists, greedy bankers, and corrupt politicians." When Charles Koch describes his 50 years of advocacy work, his words suggest that he has continued down this path.

A furtive conspiratorial cabal of internationalists, greedy bankers, and corrupt politicians. Who better to have brought us NAFTA, bank bailouts and the massive corruption of political campaign finance?

Writing in the Wall Street Journal in early 2011, Charles Koch emphasized this theme.

"Government spending on business only aggravates the problem. Too many businesses have successfully lobbied for special favors and treatment by seeking mandates for their products, subsidies (in the form of cash payments from the government), and regulations or tariffs to keep more efficient competitors at bay. Crony capitalism is much easier than competing in an open market. But it erodes our overall standard of living and stifles entrepreneurs by rewarding the politically favored rather than those who provide what consumers want."

He reiterated this view in his recent piece.

"Far from trying to rig the system, I have spent decades opposing cronyism and all political favors, including mandates, subsidies and protective tariffs—even when we benefit from them. I believe that cronyism is nothing more than welfare for the rich and powerful, and should be abolished... If more businesses (and elected officials) were to embrace a vision of creating real value for people in a principled way, our nation would be far better off—not just today, but for generations to come. I'm dedicated to fighting for that vision. I'm convinced most Americans believe it's worth fighting for, too."

But Americans for Prosperity--the main Koch-funded political organization--has completely disdained these broader, unifying themes, and instead rushed to the vanguard to defend traditional Republican power in the Blue vs. Red political wars. The Kochs appear to be captive of their family history as titans of the far right wing, and seemed incapable of any effort to bring Americans together around real, common interests or values in post-economic collapse America. Early on, the Tea Party and Occupy movements shared common rhetoric around the conspiratorial cabal of internationalists, greedy bankers, and corrupt politicians, but principled hatred of the left made it impossible to seize the moment to create a movement that might bring the left and right together around real, common interests, to take on the entrenched power of the center.

And that is the shame of Charles Koch. He may believe his own words, but he has not acted on them. He claims in his writing to see two broad areas of abuses of government. One area includes those programs such as Medicare, Social Security, healthcare and public pensions that by and large support Americans who are far less well of than he and his family. The other area includes the corporate welfare and crony capitalism that he alludes to above. But his political agenda has been completely one sided. The full brunt of the Koch political enterprise has been focused on those things that benefit retirees, school teachers and the poor. There may be an occasional nod to too big to fail, but that side of the Koch agenda has been rhetoric alone, and barely that.

That is the true indictment of Charles Koch. Un-American is a slur slung from right at the left. If he feels stung by that label, he should take comfort that it is just someone trying to steal the rhetoric that Birchers and others have used to such effect, for so long. Charles Koch is most definitely American, but unfortunately he has not been as special an American as he imagines. He describes himself as a man standing on and fighting for principles, to be engaged in a great battle for the future of freedom, but in the end his has been a one-sided pursuit of a narrow, partisan agenda.

Charles Koch made a choice to focus his energy on the destruction of income support programs for the poor, the safety net for older Americans and the retirement security of school teachers. Somehow he wants to be applauded for that, even as he has left alone the entrenched infrastructure of crony capitalism and corporate welfare. How does that comport with his claim to stand up for moral principles? Where do the words of Isaiah, St. Augustine and Pope Francis stand relative to Hayak and Schopenhauer the pantheon of philosophers he likes to cite?

If Charles Koch does not like being called names, he should stop calling other people names. If he wants to be respected, he should try respecting others. And if he wants to be admired for seeking to lead America to a higher ground, to a better place, he should try to act on his own words, and not just focus his vaunted war chest on those Americans who are most vulnerable. If he doesn't wanted to be treated like a caricature of himself, he might start by not acting like one.

Alternatively, as a Republican insider who was bemused by Charles Koch's fit of pique reflected, "Anyone who really cares or worries about what others say about them should shut up and sit down. Otherwise fight the fight and deal with it." 

Saturday, April 12, 2014

Crimes and misdemeanors.

When a person or firm makes too much money for too long, it turns heads. And so it was with Steven A. Cohen. Year after year, Cohen's firm, SAC Capital, beat the Street. Big bets, the theory went. Others were not so sure. Big bets generally cut both ways, as many hedge fund managers learned over the years, and even the best in the world, such as John Paulson and Paul Tutor Jones, had their hard times. But such was not the case with Cohen. SAC Capital was the envy of the industry, posting 30% annual returns over an 18-year period.

A pattern has emerged. In the world of finance, there are two observable theories that relate to investment performance. The first is reversion to the mean, which simply suggests that market returns tend normalize over time. The second is that the half-life of proprietary trading strategies is short, which simply suggests that however smart a trader is, others will soon pick up on what they are doing and climb on board, suppressing returns over time. If a firm or individual posts market-beating returns year after year, there are generally three possibilities. One, they really are smarter. Two, they are cheating. Or three, they are lying. John Paulson or George Soros are examples of the first category. The Enron group was the second. Bernie Madoff was the third.

We have seen versions of each of these over the years, but in the moment it can be hard to tell which it is. And those involved may not either. Early on in Michael Milken's career, he was clearly one of the smartest guys in the room. He single handedly created the junk bond industry, and brought new sources of funding to industries that for years had been starved of capital. And he was paid well for his innovation. Only over time did his drive for money and power lead him to cross the line and run afoul of SEC rules.

Steve Cohen was different, apparently. According to a lawsuit filed by his first wife, Cohen funded the creation of SAC Capital from the profits of his first big insider trade, on RCA stock in 1985. When the suit was dismissed, a SAC spokesman suggested that the outcome vindicated Cohen. But a layman's read of the ruling suggests that his wife's claims were denied because the statute of limitations for litigating the purported activities had expired, and the judge never considered the merits of the insider trading claim.

This week, a "remorseful" SAC Capital urged a federal judge to approve a $1.8 billion settlement on charges of insider trading dating back to 1999. To date, Cohen himself has not been convicted of a crime, but he has agreed to close SAC Capital and limit its activities to managing his family's $10 billion investment portfolio.

If one were to believe his scorned first wife, her ex-husband's insider trading activities date back much longer than the period investigated by the SEC, and her claims lead one to wonder if paying a $1.8 billion fine while keeping $10 billion suggests that crime does seem to pay. Cohen, the former Mrs. Cohen would have us believe, might be a really smart guy, but his stellar performance was grounded in illegal activity from the get-go.

A friend in the industry pointed out the problem with the notion that insider trading was only part of Cohen's repertoire. "Once you make that first trade, and realize the outsized returns, it is hard to go back to day trading."

That is the problem as well with high frequency trading (HFT). Michael Lewis has once again explained the arcane to the rest of us in his new book, The Flash Boys, that illuminates the HFT phenomenon. HFT has grown as an industry--a strategy really--since its inception less than a decade ago to now account for more than half of the stock trades in the market. HFT is what it sounds like--lots of very fast trades, where stocks may be bought and then sold in a matter of milliseconds.

HFT has from its inception been the domain of mathematicians and physicists, which led observers to presume that they were in the first category: they were making money because they are that much smarter than the rest of us. But Lewis paints a very different picture: one of an industry corrupted by a pervasive greed that astonishes even the most cynical observer. As detailed by Lewis, the stock exchanges themselves sold--and continue to sell--access to information that allows HFT groups tiny timing advantages that essentially allow them to "front-run," or buy stocks in front of investors and sell them to those investors at a slight markup. In essence, it is a modern day version of the old horse racing wire con. They are invisible intermediaries skimming a tiny bit of money off of every trade. Therefore, Lewis' story leads one to conclude that the gross revenues of the HFT industry literally constitute little more than a tax on the portfolios of the rest of the investor universe.

Lewis points out that even the most sophisticated traders--the SAC Capitals of the world--had no idea that they were being skimmed. When Lewis' book first came out, a hew and cry welled up in the financial media in defense of HFT, the normal instinct of industry participants to protect their industry from the attacks of the liberal media and others. But after a week or so, those protests gave way to industry participants who realized the enormous damage that HFT has done to the integrity of the industry.

The profit opportunity in what has come to be viewed as computerized front-running essentially undermined any broader market benefits that HFT might theoretically have provided. Defenders of HFT argued it brought "liquidity" to the markets. Liquidity--assuring that there will be buyers ready to make a bid whenever a seller wants to get out--is a critical element of effective securities markets. But as quickly became apparent, HFT traders are not providers of liquidity. Rather, their core strategy is built upon getting in the middle of trades that are fairly sure to happen and taking a tiny piece for themselves. If they are providing liquidity, it is only inadvertently, such as when another trader successfully games their system. The other trader might convince the HFT computer that a trade is coming, inducing it to accumulate shares, and then leave the HFT group holding the stock rather than able to turn around and sell it a millisecond later at a profit as intended.

Market observer Jeff Macke emphasized the market manipulation inherent in high frequency trading. "The trading desks of four different major financial institutions posted gains every single day during the first quarter of 2010. The trading desks of JP Morgan, Bank of America, Citigroup and Goldman Sachs combined posted 244 winning trading days against zero losses. Were the playing field truly level, the odds of a firm making profits or losses on any given day would be roughly 50%. The chances of going 61-0 on such a trading field of dreams would be 2.31 quintillion to 1."

The incomparable Tyler Durden of Zerohedge.com provided this chart encapsulating the problem with HFT. This chart may be Greek to some, but it simply suggests that HFT trading firms are incentivized to migrate from less profitable trading activities that offer some social utility toward more profitable activities that offer little or no social utility. We have seen others go down that road before--Milken, Enron and mortgage derivatives are prime examples--and we know exactly where it ends.  But as we have seen time and time again, in the moment it is difficult, if not impossible, for market participants to heed those lessons, to voluntarily pull back before things come to a bad end.

As Steve Cohen retires from public view and leaves open questions once again about whether justice has been served, the long-term implications of the emerging story of high frequency trading are yet to be seen. While this may not seem to many to be as significant a moment as the meltdown of complex derivatives five years ago, it certain respects it is a more troubling scandal. By all appearances, actors across the industry--major banks, the stock exchanges and regulators--willfully conspired to skim money from individual and institutional investors alike, and few, apparently, were able to step back and see the larger picture of corruption suggested by their collective actions, and the manifest disregard for the public whose interests each are there to serve. 

Monday, April 07, 2014

The dreams of Hyman Roth.

As Francis Ford Coppola told the story, casino investor Hyman Roth was celebrating his birthday in Havana with his partners in crime when he regaled a skeptical Michael Corleone with his vision of the future that was at hand. "Here we are, protected, free to make our profits without Kefauver, the goddamn Justice Department and the F.B.I. ninety miles away, in partnership with a friendly government. Ninety miles! It's nothing! Just one small step, looking for a man who wants to be President of the United States, and having the cash to make it possible. Michael, we're bigger than U.S. Steel."

How times change.

This week, billionaire casino investor Sheldon Adelson is living the dream. Gone is the era when a Senator Estes Kefauver investigated the corrupting commingling of casino money and politics. Gone is the era when one had to, as in Coppola's story, blackmail a member of Congress to secure their support. Instead, politicians eagerly solicit Adelson's patronage and he can openly use the political clout he has acquired in Congress to advance his global gambling interests.

Adelson emerged in the public eye as a force in Republican politics when he contributed over $20 million to Newt Gingrich's campaign for President early in the 2012 campaign season. By the end of that year, Adelson's contributions in the Presidential election cycle race reached $100 million. As he looks forward to 2016, Adelson's unabashed ambition is--in Roth's words--to find a man who wants to be President and use his cash to make it possible. In Presidential politics today, Adelson is bigger than U.S. Steel. Or Goldman Sachs. Or Koch Industries.

Adelson's clout was on display last weekend at the Republican Jewish Coalition gathering just as the Supreme Court issued its ruling in McCutcheon v. FEC. In its 5-4 ruling, the Court took one more step to strip away limitations on political campaign contributions, as it removed limits on aggregate individual contributions to federal campaigns. The ruling in McCutcheon will not likely change much in terms of the flow of money into political races. According to the Center for Responsive Politics, whose database tracks political contributions, in the 2012 campaign cycle, only 646 people actually hit the aggregate contribution limits that were struck down by McCutcheon. Sheldon Adelson's tens of millions certainly were not affected by the federal limits. Nor were the super PACS or the "dark money" 501(c)4 non-profit groups that can now accept unlimited contributions without disclosing their source.

But in his majority opinion, Chief Justice John Roberts once again derided the legal or public policy basis for campaign spending limits, as he not only affirmed the overriding importance of the First Amendment guarantee of freedom of speech, but was dismissive of the corrupting influence of political money. "Government regulation may not target the general gratitude a candidate may feel toward those who support him or his allies, or the political access such support may afford...Any regulation must instead target what we have called 'quid pro quo' corruption or its appearance." 

Roberts would appear to be either gallingly dishonest or shockingly disingenuous--your choice probably betrays your political leanings--given the juxtaposition of the Court ruling with the sight of Republican Presidential candidates falling all over themselves to garner Mr. Adelman's support and catering their every word to align with his views, and the descriptions of Senator Lindsay Graham and others introducing legislation drafted by Adelman's lobbyists to support Adelman's business interests.

Roberts may be right, and the Adelman situation may not reflect quid pro quo political corruption as the Chief Justice defines it. It may well be that those fawning Presidential aspirants are largely aligned with Adelman's interests, and that as a general matter large contributions to Democrats and Republicans alike follow the commitments of those politicians rather than drive them. I may not see the world that way, but the case can be made--and surely Roberts insists on making it. From Roberts vantage point, Lindsay Graham is more than happy to lead the charge to illegalize online gambling as his expression of gratitude for the support that Adelson has shown him.

Roberts' standard that only a quid pro quo provides evidence of corruption essentially obviates the potential or need for campaign finance reform. After all, a quid pro quo is just another term for a bribe, and, as Roberts has observed, bribery is already illegal. Absent a provable quid pro quo, all of those industry lobbyists with wads of bundled political contributions do not drive public policy, they are simply evidence of a cycle of gratitude that--in Roberts vision of the world--is the mother's milk of politic.

The passing of Charles Keating this week is a reminder of another vision of our world. Keating was a leading man in the savings and loan crisis a quarter of a century ago, when he was the CEO of Lincoln Savings & Loan. Keating's famously contributed $1.3 million to the political campaigns of five members of Congress who in a show of gratitude sought to intervene on his behalf with federal bank regulators. In subsequent testimony before the House Banking Committee, Keating was asked by then Banking Committee Chairman Henry Gonzalez if he had expected something from those members of Congress in return for his $1.3 million. Only in our nation's capital would Keating's response "I would hope so, Congressman" have stunned the audience.

If the average American watching the Keating Five hearings on CNN was stunned, it was only by the honesty and forthrightness of Keating's statement. Of course Charles Keating wanted something for his $1.3 million. Of course the actions by the five members of Congress to support Keating's business were in exchange for his financial support. In what rational universe would it be otherwise, and would Keating be a competent CEO if he did not expect a return on his investment?  This is not a complicated notion. It is the denial of the obvious that strains the imagination.

Gratitude is not the mother's milk of politics. It is money. For Hyman Roth, for Sheldon Adelson, and for the pantheon of players that circulate in our nation's capital, large political contributions are an essential part of transactional relationships that are expected to serve the interests of each party. If that cycle of interests does not constitute corruption in Roberts eyes, if the cycle of contributions and favors is too complex to meet his quid pro quo test, then perhaps there is a need to redefine the term. Any given check written to a political campaign account may not be able to be linked to a specific political action, but that does not mean that the relationship is not corrupt, or more specifically that then entire system has not been corrupted. The public understands this, and the 5-4 ruling in each of these Court decisions only further undermines faith in the integrity of the institution.

Chief Justice John Roberts persists in denying what to the broad swath of the American public is self-evident: Money is corrupting our politics and undermining public confidence in our political institutions. If it is a problem of the definition of corruption, then perhaps he should consider the assessment of Supreme Court Justice Potter Steward when the Court struggled with the definition of pornography. You may not be able to define it, but you know it when you see it.

Friday, April 04, 2014

Confessions on a three dollar donor.

While waiting to get my mind around Vladimir Putin, Bitcoin and High Frequency Trading, I thought I should pass along this contribution from my friend Jay Duret.

Among the categories of wasted cyber ink that I am getting too frequently – really, one would be one too many – are the posts I get from the political people looking for money. I made the mistake – I made the same mistake many times – of donating money to one candidate or another. I am a lawyer; I worked in Government; some friends have run for office; there really was no avoiding it, but in this world no mitzvah goes unpunished.

In fact this punishment is endless, a daily dose of emails that implore and entreat me to fight back and join in and stand firm and show what I stand for (presumably as I am standing firm). I am urged to help take back the House or hold on to the Senate. I am begged to have the back of the President. Barack needs me. And while I might find that hard to accept – I am a helpful person, yes, but he has done pretty well on his own steam - it is harder to discount completely when the message is reinforced by an email from Barack himself! And not one! Many! He sends them all the time. Barack loves to email me, it seems.

There is something frankly weird about getting emails from Barack. I like the man. I voted for him two times. Enthusiastically. I have defended his administration endless times at cocktail parties and dinner table talk-a-thons. But I don’t actually know him. And he couldn’t pick me out from a carload of circus clowns. He certainly has not sought my advice in some of the areas where he could have profited from it. I don’t even have one of those grip and grin photos with him that you can get for the maximum individual donation.

I am not angry about any of that; I don’t see any reason why Barack should be reading my blog (though really, it would be good for him). But then why is he emailing me all the time? It is unsettling. Disconcerting. To see that an email from Barack has arrived. I have no friends named Barack and so I don’t dismiss it on the thought that it is about carpool logistics or a squash match; no, when I get a message from Barack I feel as if I should drop everything: the President is reaching out to me! I am being called on.

But it’s a let down. Every time. He is only asking me to stand firm or take a stand or double down. He asks me to give whatever I can. He asks me to chip in $3, $2 whatever.

I mean, really? The President is asking me to give him three bucks?

I am from the generation, and I have the mindset, that if the President were to ask me to quit my job, move to DC and sleep on a bare mattress for a year to work on a matter of import and do it all for no pay, do it as a volunteer! do it pro bono! – I would be on a flight the next day. What choice would I have? My President has asked me to serve! But an email asking me to “chip in” three bucks? Hmmn, I don’t think so.

Thinking about Barack, I decide to look back and see how frequently he has actually reached out to me. Google of course makes these types of explorations easy and in no time at all I have discovered that Barack has emailed me 22 times since June of 2012. (That isn’t the day that he started to correspond with me; it is roughly when I last had the hard drive on my laptop wiped by some genius at the Apple Store.) If I were to go back further, I am sure that I would have a lot more email from the most powerful man in the world. I can remember specifically that I got an email from Barack the night before his speech in Chicago after he was elected. That was electric. Such a shame that electricity has come to begging for bucks at $3 a pop.

As I look at my Obama emails I discover that Barack appears to have shared my email address with a few of his friends and colleagues. I have emails from Abby Witt, Greg Berlin, Grant Campbell, Brandon English, Devin Driscoll, Michael Bennet, Erin Hannigan, Emmy Ruiz. Jeremy Bird, Ivan Frishberg (really? there is a guy actually called Ivan Frishberg?), Kathy Gasperine, Kaili Lambe, Julianna Smoot, Jordan Kaplan, Jon Carson, Jim Messing, Nico Probst, Neeti Kaur, Mu’Min Najah, Liz Lowery, Lindsay Siler, Sara El-Amine, Sami Rahanim, Rufus Gifford, and Robby Mook. All 25 of those folks sending me the same type of message that Barack has been sending me; all of them asking me to “stand firm” and “chip in” and “do my part”.

I suspect that these are fictitious names, but when I start Googling, they are all out there – all linked in to Linked In, all wikipedia’d up, all on Facebook and Twitter, all apparently actual people, and indeed all pretty damn impressively resumed. Ivan Frishberg is a climate change guy, Sara El-Amine is the National Organizing Director for Organizing for America. The list goes on and on.

I go back to my treasure trove of Obama emails and find it isn’t just Barack and his entourage, There are even more from Barack’s organizations. Organizing for America. Obama for America. Something called the Obama Store. I also find, somewhat to my surprise – that Joe Biden, Michelle Obama and Nancy Pelosi are also counting on me. I know them even less than I know Barack, but like Barack, they are also on a first name basis with me, though each of them refer to me by my formal first name rather than the name (Jay) that people who actually know me tend to use.

If you count all the emails – from Barack, the entourage, the OFA, the other organizations, and the political celebrities – I have gotten an awful lot of emails in the last two years asking me to chip in.  Rather overwhelming that my small dollar contributions to the President have generated this much attention.  Maybe I ought to feel guilty. Maybe I should be chipping in more. But the truth is I don’t feel guilty at all. I feel annoyed. I feel as if there is some fundamental lack of grace in these solicitations. A donation, modest as it may be, ought to buy one some zone of immunity. Maybe not forever. But at least for a while.

I wonder if it is possible to unsubscribe from these emails. At first I didn’t think it was but then I learned the trick. You have to scroll WAY DOWN to the bottom of the email – the key lines are spaced below the bottom of the screen on an iPhone. But if you persist and then look down to the smallest possible typeface, you indeed will find a button that says “click here to unsubscribe”. But this is not like Amazon one-click. Rather clicking unsubscribe takes you to a new page where a video of Michelle Obama starts playing right away, reminding you of the great work done last year, a narrative that doesn’t exactly try to talk you out of unsubscribing, but certainly makes you feel that unsubscribing would be churlish.

The text on the side of the unsubscribe page is more direct. The words read:

"I support the President — I just get too many emails."
That’s what a lot of folks who end up on this page say. 

Having acknowledged your pain, the page goes on and urges you to suck it up – there is an agenda to pursue and if you want the good folks on the Obama team to keep fighting you should stay looped in, but failing that, you should select an option to receive fewer emails, about one a week.  Wow, that puts it into perspective. I think I would be fine with one email a year; limiting it to one a week doesn’t seem like much of a limitation.

I go back to my email history and find that yesterday, March 31, 2014, I received four emails – two from OFA and one each from Obama entourage members Kathy Gasperine and Jon Carson. The day before I had three and the day before two. Wow. That’s a lot of love for three days. I read the eight love letters and found that seven of them asked me to “chip in”. God, they love that line. The only thing new in this batch was that the emails were now asking me for $5, a $2 dollar upsell from the $3 I remembered.

I hovered there on the unsubscribe button. Should I do it? I love Barack. He is my guy. I feel as if my whole identity as a good government, reform, citizen-activist will be somehow destroyed if I click the button. But I did. I unsubscribed. Sorry Barack. I am happy to help, but I just can’t stand this begging.

As soon as I click the button, a new page comes up that confirms that I have been unsubscribed and will be removed from all future mailings. I am about to move on to other business when I notice that there is a big bright red box on the Unsubscribe Confirmation page. And within that box there is a word in all caps:

DONATE. 

I puzzle over it for a minute.

I should have been puzzling over the question of why the web designers thought that one who has been driven to such distraction by the emails that they would navigate themselves to the unsubscribe button would at the same time care to make a parting donation. I mean, seriously, what are they thinking?

But frankly, that thought hardly crossed my mind. What really baffled me was why it said DONATE. Didn’t the designers realize what they wanted to say:

CHIP IN 

How could they be so tone deaf?

                                                    -- Jay Duret

Sunday, March 02, 2014

What would Dick Cheney do?

Why, exactly, are we surprised? Up until Russian President Vladimir Putin seized the Crimean peninsula, a large swath of the commentariat seemed to think that such an action in this day and age was unthinkable. Then, when President Obama warned Putin against military intervention, it seemed all but inevitable.

This was not cynicism or defeatism or a reflection on other red lines. Rather, it was the simple realization that there was little to be done to deter a Russian invasion of Ukraine, should Putin choose to do so. Russia has air and ground forces arrayed along the 1,500 mile northern and eastern borders of Ukraine--to say nothing of its Black Sea Fleet birthed at the Ukrainian port of Sebastopol. The question was only whether he would choose to do so.

As Americans, we tend to view world events through rose colored glasses, and so we did as the Ukraine crisis escalated. We cheer on the toppling of autocrats and the birth of nascent democracies, and we frame events through a Manichaean lens of good and evil, of 'good guys' and 'bad guys.'

Our good guy/bad guy rubric is not consistent, however. We support young democracies, until election results don't fit our preferred narrative. We decry brutal, autocratic regimes, but make exceptions for countries with important economic or historical ties. And former enemies can become friends--black hats exchanged for white--when the confluence of democratic change, political alignment and economic interests align.

But if there is has been one immutable adversary over the past century, it is Russia. The Berlin Wall may be no longer, the Soviet Union a relic of the past, but it has been a quarter century since the end of the Cold War and Russia has lost little of its 'evil empire' sheen. We still see ourselves as we did a half a century ago, Rocky and Bullwinkle, fighting for Truth, Justice and the American Way against Boris Badenov, Natasha and the one-eyed Fearless Leader. We are the good guys. They are not.

As the Soviet Union was collapsing, it seemed for a brief moment that a change in that paradigm might be possible. To assuage historical Russian fears of encirclement by the west, President George H. W. Bush promised Soviet leader Mikhail Gorbachev that the United States would not take advantage of the dismemberment of the Soviet Union to draw former Warsaw Pact nations into the NATO alliance.

Yet, within just a few short years every former Warsaw Pact nations joined NATO. And while that fact was not proof of American perfidy--after all, those countries had ample reason to seek refuge in the west and in NATO--the elder President Bush's assurances were never integrated into American policy. Before long, the policy of containment that George Kennan prescribed to control Soviet expansionism in the 1940s found new life. The encirclement of Russia--in particular the expansion of NATO membership to Ukraine and Georgia--became central tenets of post-Soviet American policy, and for the ascendent Neoconservatives the break-up of the Russian federation was the ultimate stated goal.

Even as American political groups backed reformist parties in Russian elections, Putin emerged as a powerful and popular President of Russia in large measure due to his steadfast opposition to the continuing humiliation of Russia at the hands of American and NATO policies. He worked steadfastly to solidify Russia's security perimeter and to return prestige to the Russian state. Putin's ambitions were not secret, and his hostility to U.S. and European designs on Ukraine was well established.

Events in Georgia in 2008 presaged what was to come in Ukraine. After Georgia elected a pro-western government, Russia intervened militarily--ostensibly to protect the ethnic Russian populations within the Georgian provinces of South Ossetia and Abkhazia. Vice President Dick Cheney decried Putin's action, declaring that "Russian aggression must not go unanswered, and that its continuation would have serious consequences for its relations with the United States, as well as the broader international community."

But Putin's actions in Georgia did go unanswered. Russian intervention in Georgia was quick, decisive and brief--and he got away with it. For all the bellicose inclinations of the second Bush administration and the Neocon embrace of Georgia President Mikheil Saakashvili, there was no U.S. or European response of any substance. The international community quickly turned its attention to other matters, and Russia continues to occupy Georgian sovereign soil to this day.

Writing in the Washington Post, Bush administration State Department official Elliot Cohen sums up the widespread critique--from the Republican right to the Washington Post editorial page--of President Obama's performance, "President Obama’s history of issuing warnings and, when they are ignored, moving on smartly to the next topic gave a kind of permission... Absent a severe penalty — one that inflicts pain where Putin can feel it, to include Russia’s economy and his personal wealth and control of that country — the lesson learned will be, “You can get away with it.

Cohen concludes by demanding tough American, "The world is a darkening place, and the precedents being set are ones that will haunt us for decades to come unless the U.S. administration can act decisively and persistently against Russia." Cohen dismisses the importance of Putin's invasion of Georgia that occurred on his watch, labeling Georgia a country of no consequence that provoked--and therefore implicitly deserved--Russia's ire. The truth is just the opposite, however. Ukraine is of far greater import to Russia strategically, historically and politically. Georgia proved out for Putin the central premise that while U.S. and NATO policy has been and remains to tighten its strategic noose around the Russian heartland, limited actions to control its perimeter would not be met with a significant response.

No one has any illusions that Putin's actions to date in the Crimea can be rolled back by force, or expects to hear a version of President George H. W. Bush's words of warning to Saddam Hussain--"this will not stand, this aggression against Kuwait..."  When Florida Senator and Presidential Aspirant Marco Rubio weighed in the "8 Steps Obama Must Take to Punish Russia," the gap between rhetoric and the facts on the ground only widened. "This is a critical moment in world history," Rubio declared, mirroring Dick Cheney's tone years before. "The credibility of the alliances and security assurances that have preserved the international order is at stake. If Putin’s illegal actions are allowed to stand unpunished, it will usher in a dark and dangerous era in world affairs."

Yet, when faced with an issue of historic consequence, Rubio's eight steps lacked the urgency of his rhetoric: Stronger denunciations. Barring Russia from international organizations. Limiting Russian visas to the U.S. There is no call for the U.S. to match Russia's proposed $15 billion aid package to address Ukraine's massive economic problems--the best we have seen is John McCain's proposal to provide $1 billion in loan guarantees. There is no call to arms, no commitment to building a Ukrainian resistance. No threat of retaliation against the Russian homeland. The closest Rubio comes to urging a show of force was his call to admit Georgia into NATO. But Rubio knows well that admitting Georgia into NATO is infeasible because Russian troops already occupy Georgian soil, a fact that could immediately compel NATO action against Russia in Georgia's defense.

It is all just words. Only the inaction of the Bush administration in 2008 keeps one from wondering wistfully what would Dick Cheney do...

To date, the presumption has been that Putin's objectives will be satisfied with the annexation of the Crimea, and the swiftness of the Russian-Georgia war supports this thesis. But this is a unique moment for Russia to--in its mind--restore the integrity of its borders. One can imagine that Putin must have considered at least four different intervention possibilities. First, seizing Crimea and securing the Black Sea Fleet, as has been accomplished to date, followed by the restoration of the Crimea to Russian sovereignty. Second, moving beyond the Crimea to occupy a swath of eastern and southern Ukraine with majority ethnic Russian populations, under the pretext of providing a land corridor to the Crimean peninsula that the first scenario would lack. Third, seizing all of the majority Russian territory across eastern and southern Ukraine to the Moldovan boarder. And fourth, taking all of Ukraine, and thus fully securing the Russia-Ukraine border, as well as the Russian gas pipelines that traverse central Ukraine, passing through Kiev, to Europe.

Each of these possibilities would entail increasing levels of difficulty, occupying lands with increasingly hostile local populations, and incurring increasing levels of opprobrium from the west. With the first two or three scenarios, Putin can move forward with his proposed referendum to establish de jure support for the de facto partition of the country.

It may seem like we are embarking on a new dark and dangerous era, as Cohen and Rubio suggest. But apparently Dick Cheney saw the onset of that era years ago, under his watch. Perhaps George H. W. Bush had a more subtle grasp of the exigencies of dealing with Russia than Rubio or Dick Cheney. The elder Bush recognized the importance of acknowledging that Russia has its own strategic interests within its region, and that even with the collapse of the Communist regime, it would have the power to assert itself. Unlike Rubio and Cheney, Bush eschewed a Manichean world view, and could accept that other nations have interests and perspectives that are different than ours. Russia, Bush and the Paleoconservatives around him understood, would be less dangerous if it were not backed into a corner.

But that was not the path we chose. Instead, we chose to push Russia to the wall at every opportunity possible, and now we are surprised that it is pushing back. Putin is playing with a strong hand on his home turf. His ultimate intentions in the Ukraine in the current crisis are opaque. But his goals have been know for years.

Sunday, February 23, 2014

Putin at the crossroads.

Vladimir Putin and I share a special bond. We both grew up believing that the Ukraine was part of Russia. My father's family was Russian, or so the story went. One parent was from the city of Uman, south of Kiev, and the other from the long-disappeared town of Ivangorod.

When I went to Kiev in 1989 as part of an international finance commission, there was no mention of the Ukraine as the nation-state it would become just two years later. It was still the Ukrainian Soviet Socialist Republic, just one of many teetering Soviet Republics being held together by Mikhail Gorbachev's vision of restructuring and openness that might forestall the urge to independence and democracy. But even then it was the Ukraine. Dating back a more than a thousand years to its inception as the Kievan Rus, it remained the integral southern realm of the Russian state.

When we met with an emissary of the Metropolitan (head prelate in charge) of the Ukrainian Orthodox Church--a man with the long black beard and colorful vestments of one's imagination--he said nothing of independence or statehood. Rather, he worked himself up into a full rage as he described the seizure of the land and murder of the clerics of his church by the Uniate Catholics in the western Ukraine. For centuries, the Ukraine was riven by the sectarian tensions between the Orthodox and Catholic branches of Christian faith, and the bordering nations--primarily Catholic Poland and Orthodox Russia--played a tug-of-war for control, as the borders shifted from one century to the next. Now, our host assured us, as Communist control was weakening, the war of ages was ramping back up, and the Orthodox Church was preparing for battle with its Roman antagonists.

Faced with this raging scarlet-faced prelate, I betrayed nothing of my own Russian roots. Even in the wake of the Orange Revolution that came a little more than a decade after our lunch with the Ukrainian Church emissary, both Putin and I remained unconvinced of the independent status of the Ukraine. For me, it remained a question of identity. Russia is a nation with a long history and deep cultural roots. The literature. The poetry.The massive scale of Siberia. The massive suffering of the Gulag. To acknowledge Ukraine as a nation meant that I must recast my own roots from Russian to Ukrainian. 

The challenge for Putin is tougher. He has made clear that his identity is not simply Russian, but Soviet. The collapse of the Soviet Union was, in his terms, the greatest catastrophe of the 20th century. And the center of the Soviet Union was Russia and the Ukraine. Subduing Ukraine's schismatic wars and crushing the aspirations of the Ukrainian peasant farmers (kulaks) was central to the formation of the Soviet empire under Joseph Stalin.

Not to belabor the details, but Simon Sebag Montefiore's biography of Stalin In the Court of the Red Tsar, describes Nikita Krushchev's rise from Ukrainian Communist Party leader to inside member of Stalin's court largely on the basis of his ability to outperform his quotas of Ukrainians killed month after month until the numbers totaled in the hundreds of thousands. This is the history whose loss Putin laments.

The Sochi Olympics that close this week were supposed to mark the culmination of Putin's career. Over the past few months alone, Putin was named the most powerful man in the world by Forbes magazine, he strategically out-maneuvered the Americans in Syria, exposed and thus undermined Saudi threats to fund attacks against the Olympics, and offered refuge to American public enemy number one, Edward Snowden. Last week, Putin stood at the opening ceremony in Sochi in his great coat like a commissar of old on the Kremlin wall. At the apex of his power, he broadcast images of himself as the post-modern Soviet man riding horseback bare chested across the Siberian taiga, dressed in camouflage after slaying a tiger in the wild, and in his martial arts attire after hand to hand combat.

Then it all fell apart. First, the Russian team was humiliated in Olympic Hockey. Then, just as Putin thought things could not get worse, the Ukrainian protests exploded into public view. With Putin's support, Ukrainian President Viktor Yanukovych plied the Syrian gambit. The regime labeled the protesters terrorists and unleashed the anti-terrorist units of the Ukrainian armed forces. But it was to no avail. The Syrian gambit, it now appears, demands a ruthless absolutism at the top and loyalty across the officer corps that Yanukovych did not possess. Within days, the protesters and the Parliament assumed control, the Orange Revolution constitution was reinstated, and Russia's southern flank lay exposed.

Control over Ukraine has been the cornerstone of Putin's goal of reestablishing the Soviet empire in fact if not in name. Ukraine's departure from the Russian orbit--if not undone by some act of force or diplomatic miracle--looms to undo all that he has accomplished in his decade and a half in power. The looming presence of the Russian military that keeps authoritarian regimes across Russia's near abroad in line will have been shown to be a chimera. Putin's arguments that the opposition in the Ukraine was primarily instigated by the Roman Catholic Church and the American CIA have been rendered quaint. Ukraine, even Putin must be coming to realize, is a real place.

What happens next is unclear. It is easier for me that for Putin. It seems my family was Ukrainian after all, and I will just have to deal with that. I will have to unfriend my former compatriots Anna Ahkmatova and Aleksandr Pushkin. I can continue to embrace Nikolai Gogol. I will remain skeptical of my Grandmother's claim that we were related to Leon Trotsky.

But for Putin, this is a tougher moment, and his options would appear to be limited. Unlike the Russia-Georgia war, there is no standing army against which to fight. Unlike his Chechen wars, Ukraine cannot be brutally subdued outside of public view. Certainly putsch's can still work--the Egyptian military has proven that recently--and a terror campaign against domestic opponents is not out of the question--as Putin has himself supported in Syria. But each of those both demand a ruthless Ukrainian leadership and a supportive Ukrainian military, they cannot simply be imposed from the outside. And then there is Khrushchev's approach, but for all of Putin's posturing, he does not have the will to power of a Stalin or a Khrushchev. 

Putin has the resources in place for a military response. His armies lie across Ukraine's northern border, and his Black Sea Fleet remains berthed in its Ukrainian home port of Sebastopol, on the southern tip of the Crimean peninsula. The annexation of all or part of the Crimea to preserve Russia's naval access to the Bosphorus is not out of the question. Unlike Kaliningrad Oblast, the Russian outpost on the Baltic Sea, separated from the Motherland by Lithuania and Belarus, the Crimea is adjacent to Russia across the Strait of Kerch. But a military assault from the north against the entire Ukraine in the absence of a complicit host government and military is inconceivable.

Putin could choose to adapt to a the reality. He could offer the new Ukrainian government the $15 billion aid offer that he put on the table early on in the crisis to forestall Ukraine's acceptance of the Association Agreement with Europe. This would demonstrate goodwill and further bind Ukraine's economic future to Russia's. 

But that would be a weak response. Losing Ukraine means losing his position as an historical Russian figure. Instead of comparisons to Peter the Great, who expanded the Russian empire into the Ukraine, Putin's place would be alongside Mikhail Gorbachev, an earlier handmaiden of Russian decline and humiliation. To Russian nationalists, it would bring cries of 'who lost Ukraine', and it would send the message across Russia's near abroad that Putin's plans for the reassertion of the Soviet sphere of influence have come crashing back to earth. It would compromise the leadership of authoritarian regimes in each of the lesser states that Putin has wrapped so tightly around Russia's perimeter. Even Russian democrats would be given succor. 

The Sochi Olympic Games were supposed to mark the pinnacle of Putin power and prestige, but instead it may mark the moment of his undoing. Ukraine's success would show Putin's to be a Potemkin regime, with little behind the facade of strategy and power but the machinations and ego of one man.

Putin must have another plan. He must have something more. He must have one more move to change the trajectory of the Ukrainian drama. Because if he doesn't, all that he tried to build will come crashing down, and that will be his legacy. Just one man riding across the taiga, a bare chested leader with no one following behind.

Saturday, February 08, 2014

Rage of a privileged class.

Tom Perkins, co-founder of the iconic venture capital firm Kleiner Perkins Caufield & Byers, caused a stir recently with his Wall Street Journal letter "Progressive Kristallnacht Coming?" Perkins fears that recent protests over Google buses in San Francisco and growing resentments around income inequality could ultimately turn to violence against the wealthy.

As protests have grown against the white Google buses plying the streets of the Mission to bring young techies down to the Silicon Valley, it was the Counterforce anarchists breaking Google bus windows that for Perkins evoked images of Kristallnacht. One might have thought that as a long time resident of the area, Perkins would have a greater sense of perspective. Protest--whether about income inequality, bank lending practices, gentrification, LGBT rights, Black Power, immigrant rights, the wearing of animal fur, the list goes on--is deeply rooted in Bay area culture and history. And the periodic involvement of self-styled anarchist groups--be it the Counterforce, Anonymous or the Black Bloc--have periodically elevated the tenor of otherwise peaceful protests, increasing the potential for property damage along the way. Protest happens, and in the worst cases the police show up. Sometimes it leads to greater public attention on important issues. Sometimes it contributes to constructive civic debate.

Perkins was roundly vilified for his use of a Nazi metaphor. We have seen this story before, as when billionaire Steven Schwarzman compared an Obama administration proposal to require financiers like he and Perkins--along with Warren Buffett and Mitt Romney--to pay the same income tax rates as the rest of us to Hitler's invasion of Poland.

The thing about Nazi metaphors is that they end conversations rather than encourage them. Perkins actually had a real point to make. There is real and growing animosity in the Mission, and it should be a cause for concern. Not very long ago, the Google buses were a source of bemusement rather than resentment. They began as a symbol of hip, socially responsible capitalism--a sort of corporate carpooling that takes cars off the road and mitigates the adverse environmental impacts of rapid economic growth in the tech sector. Similarly, the burgeoning techie population in the Mission began as a benign phenomenon, just one more population migration into a city that has long attracted post-college kids, bringing new energy to the city, along with a plethora of new restaurants and cafes.

There is no small irony in the demographics of the street protests. The community of artists, progressives and bohemians who now find themselves being squeezed out by a new, wealthy hipster population themselves arrived in the Mission and the adjacent Noe Valley neighborhood a few decades ago, when they in turn displaced the working class, largely Latino, residents at that time. The gentrifiers are being gentrified.

But it was Perkins words as he walked back from his Nazi allusions that were most illuminating. He is, after all, not Steven Schwarzman. He is not a big Republican contributor. He is not even a billionaire. He is friends with and voted for Jerry Brown, and intends to again "even though he raised my taxes 30%." And he agrees that income inequality is "probably and possibly" the number one challenge facing the nation.

Yet even as he sought to put the controversy behind him, he remained--like Schwarzman--trapped within his own sense of entitlement, of being unfairly victimized by an unappreciative world. He was unable to look at the circumstances and seek to understand how others might experience it. "It’s absurd to demonize the rich for being rich and for doing what the rich do, which is get richer by creating opportunity for others.... Let the rich do what the rich do, which is get richer. But along the way, they bring everybody else with them when the system is working."

Is it really absurd? For many in the American middle class, letting the rich do what the rich do has not been an effective formulation for increasing either economic opportunity or outcomes. The three greatest forces that have undermined middle class incomes over the past several decades have been the advent of free trade, technological change, and financial deregulation. Each of these have created cohorts of winners and losers. Free trade was heavily supported by and benefitted corporate America, which saw increased profitability and capital mobility through outsourcing, and along the way it benefitted the American consumer and lifted millions around the world out of abject poverty. These are good things, but they did not come without a price, and that price was paid by the domestic manufacturing sector and the industrial middle class.

Similarly, technological change has dramatically increased domestic productivity--defined as economic output per hour of labor worked--which has driven corporate profitability to new heights. It has transformed society and created a new class of young, uber-wealthy entrepreneurs. But this increased profitably and labor productivity again did not translate into higher domestic wages, and along the way new technologies destroyed myriad occupations upon which millions derived their living, as technologist Jeron Lanier has observed.

And little needs to be said about the impacts of financial deregulation.

These changes have been largely enabled by federal legislation, supported, if not instigated, by the lobbying and political contributions of those who would benefit. The rich, to use Perkins' formulation. However, it should be noted, particularly in light of the current protests, that the wealth in the tech sector in particular has been the least directly enabled by federal legislation, though the entire online world comprises companies that are effectively free riders on years of federal investment. The core value of Google, Facebook and others lies in their use of user data and user generated content, control over which has been effectively ceded to them voluntarily by users. Thus, the artist in the Mission has been an unwitting co-conspirator in the accumulation of wealth in the tech sector. As Jaron Lanier has observed, this ceding of value is exchange for "free" services has neither a necessary nor preferable outcome for the mass of users of the Web, and it has been a further contributor to the issues of economic stratification underlying the protests in San Francisco.

In that light, is it not reasonable that artists or others living in the Mission might feel some resentment toward the rich? Could they not interpret the past several decades--years of flat real incomes for many cohorts of society--as ones in which the rich continually adjusted the rules to their own benefit, but largely failed, as Perkins suggested, to bring everybody else with them. For those who saw their livelihoods directly undermined by these changes, is resentment not a natural response? Is it reasonable, as Perkins would have it, that instead they reflect equanimously on the larger benefits to the world--and to the rich--of free trade and new technologies, and say to themselves, well, if my livelihood is the price of progress, that is fair enough... I will just have to start over.

Class resentments--I use the term class deliberately as it is the term that Perkins chose to describe the rich--are a problems common to many societies, exacerbated by images of elites using their political and economic power to solidify their advantages. The challenge for democratic societies has always been to build both economic structures that enable people to believe that they or their children will not be shut out of the opportunities that the future may bring, and political institutions that enable conflicts and differences to be addressed, if not resolved.

Increasingly, we are failing on both accounts. Perkins' plea to the artists and anarchists in the Mission that the rich be appreciated, respected and left alone to do their thing stands in stark contrast to a national political climate in which the defaming and demonizing of groups across society has been elevated to an art form. In recent years, teachers, public employees, retirees, union members, immigrants and others have been the target of withering political assault for partisan political purposes. The demonization of bankers and the rich is really just the most recent evolution in a toxic political climate where the notion of respecting and appreciating the diverse roles that different groups play in our national economy and civic life has been ground into the dust. If appreciation and respect is what Perkins wants, he should engage directly with the communities involved rather than complain about the lot of the rich on the pages of the Wall Street Journal. And perhaps he should consider that respect and appreciation are rarely given to those who do not show it to others.

Against that backdrop, the current protests have really been unremarkable. Hopefully, they will lead to real engagement and understanding across groups within the community. Reaching out, rather than lashing out. And Perkins should take comfort from the comment on one anarchist website. Things could be worse: "So, what, the Irish starved because Oliver Cromwell took their land, the Ethiopians are having their land taken away from them now, and all the bloody far left can do is to protest Google Buses."

Friday, November 15, 2013

90% of life is showing up.

As trumpeted across the media, the four day meeting of the Third Plenum of the 18th Central Committee of the Communist Party has ended, and China's leaders announced that among the decisions were an "easing of" its one-child family policy and the abolition of its "re-education through labor" camps. As much as these policy changes are being trumpeted as evidence of how far China has come, they really are a reminder of how far China and its leaders have to go.

In the wake of the shutdown of the federal government last month, Chinese President and Communist Party General Secretary Xi Jinping took the opportunity to remind the world of the failings of the American political system. Year after year, as China's foreign exchange reserves have piled up, the leaders of the regime have gone to great pains to critique America for its profligacy and political instability, among myriad other failings. China's much heralded rise, and its ambitions to supplant American leadership, reflect not just its growing economic and military power, but the values of frugality, stability and conservatism Chinese leaders eagerly contrast with the chaos and moral decay of the west.

Little is ever said amidst these frequent rebukes of the role that America has played in enabling the resuscitation of the Chinese people, to say nothing of the Chinese Communist Party itself, from the depths of economic calcification reached in the 1970s. Much is made of the success of the market reforms instituted under the leadership of Deng Xiaoping beginning in 1978, and indeed the growth trajectory of China's GDP has been extraordinary. But the success of China's economic transformation could not have happened absent the free trade policies of the United States, and to a lesser extent western Europe, that enabled that growth.

Under American global leadership since the end of World War II, international trade policies have uplifted the Asian continent out of severe poverty. Japan led the way, in the wake of the devastation of WWII, building a manufacturing juggernaut enabled by American business insight and market access. The Japanese model of export driven economic growth and development then became the model for the Asian tiger nations of Singapore, Taiwan, Hong Kong and South Korea, which like Japan have risen from abject poverty a half-century ago to among the highest levels of per capita income in the world.

That was the American half-century. As we opened our markets, our share of global GDP steadily declined. Our trade policies actively supported the rise of Asia out of poverty and the globalization of our leading corporations. That real middle class incomes stagnated at home should have come as no surprise. It was simple economics.

But the Asian Tigers, and even Japan, were relatively small countries, who as trading partners were able to build their domestic economies around export trade with America without destroying the host upon which they fed. Through that economic period, there were unintended consequences that exacerbated the challenges we now face. The combined reinvestment of Asian nation trade surpluses in US dollars--and the similar practice embraced by OPEC nations selling us oil--led to relative stability in the US dollar and enabled steady increases in US borrowing without the increases in US interest rates or declines the value of dollar assets that would otherwise have undermined Asian growth.

But it was trade in goods and services with China and India, respectively, that ultimately showed the limit of the export driven model, as the damage to the US economy and middle class has now become too extreme to ignore. The challenges we now face--underinvestment in infrastructure, chronic deficit spending, and socially debilitating inequality--have conspired to contribute to the fraught domestic politics that President Xi now trumpets as the rationale for the world to turn to China for future leadership. China's gleaming new cityscapes--and the Chinese dream of Xi's rhetoric--are being built not upon the ingenuity of the Chinese system, but instead upon the hollowing out of the American economy.

The policy changes Xi and his colleagues announced this week only draw attention to the depravity that remains central to the Chinese system. Even as there is a rising wealthy population within the Chinese elite and urban cores, economic growth within China remains dependent upon the Foxconn-style factory model that is one step short of a slave economy. The Communist Party social and economic policies continue to drive Chinese peasants from their land while securing billions of dollars in stolen wealth for Party members. Dissent and banned religious practice remains punishable by prison and the Orwellian "re-education" that is to be moderated, but not eliminated, under recently announced Party reforms.

The Party plans to modify the decades old one-child policy is perhaps the most shocking reminder of the starkly immoral nature of Communist Party control over the most intimate aspects of Chinese personal life. Unauthorized pregnancies continue to be aborted by force up until birth, and children found to have been born in violation of the law remain at risk of being "confiscated" by police. The proposed may relax the rules surrounding who is to be allowed more than one child, but does nothing to curtail this most fundamental power of State control over the population.

This week, the US aircraft carrier George Washington arrived in the Philippines from Hawaii. The stories were so familiar from other disasters in recent years. The helicopters arriving over the horizon, coming to the aid of the population devastated by Typhoon Haiyan needing not just food and water, but the most basic help from building and securing aid distribution capacity, to recovering, identifying and burying the dead. The carrier and accompanying ships brought aid, logistics and people trained and capable of responding to the need on the ground.

Nine years ago, in the days following the 2004 tsunami, it was the US carrier Abraham Lincoln and the Navy hospital ship Mercy that steamed from the Persian Gulf to Banda Aceh, that city on the northern tip of Sumatra that had born the brunt of the tsunami and seen tens of thousands of its residents die. Like Banda Aceh, the Philippines are located close to the Chinese mainland--just 700 miles from Hong Kong--yet once again it was an American flotilla that steamed over 5,000 miles to bring critical aid, while the Chinese sat on their hands.

Last month, President Xi trumpeted China's rising essential role in the region at the Asia-Pacific meetings that President Obama chose not to attend due to turmoil in Washington. Yet just a few weeks later, he was nowhere to be seen as the people of the Philippines faced their crisis. The Chinese government committed just $100,000 to the Philippines relief effort after the typhoon struck.

President Xi has a long way to go to build the credibility of China as a modern state to be looked to by the world for leadership. Just the name of its recent meeting, the Third Plenum of the 18th Central Committee of the Communist Party, is a reminder that while much in the world has changed over the past quarter century--from the fall of the Berlin wall to the Arab spring--China remains a throwback the Cold War era. As much as Xi would like to show the world the face of a man whose time in Iowa left him an admirer of American freedoms, the pronouncements from his first plenum are a stark reminder of the deep corruption and cruelty that lie at the heart of the Chinese system, and of the ghosts of Tiananmen that still haunt the Chinese leadership.

But it is the response to Typhoon Haiyan that has demonstrated how far China has to go before it will be embraced as a global leader. Leadership is not just about words at meetings of world leaders, or reserves held bank vaults, but about conduct in the world. It is not about what you do to build up your own country, but what you do to uplift others. President Xi and his colleagues disappeared this week when their neighbors across the water were crying in pain, and their inaction spoke volumes. Because, at the end of the day, leadership is not about ideology or rhetoric, it is about showing up.

Thursday, November 07, 2013

Secrecy and intelligence in a free society.

Twenty years ago, an article entitled Secrecy and Intelligence in a Free Society was written by the Center for the Study of Intelligence that explored the challenges of intelligence and secrecy within a free society. The summation of the CIA document could have been penned this week:

"Free society needs intelligence. It needs secrecy. But there has been a loss of proportion, a loss of confidence and trust, and a lack of understanding on all sides. These must be overcome because the free society needs to make wise use of the capabilities at its command — and I include covert capabilities in this. It is high time that a mending took place." 

The article was part of a self-study within the CIA which came twenty years after the Church Commission review of intelligence oversight which was formed in the wake of Watergate-era abuses, and twenty years before our current crisis of intelligence. The The recurring need to review the conduct of intelligence activities speaks to the continuing tension surrounding the role of intelligence and secrecy within our government and society.

Yet the fundamental expectations of Americans are that the nation's intelligence apparatus will continue to be employed effectively to keep Americans safe, whatever scorn and derision may be cast upon those agencies from time to time for whatever abuses of power may occur. This was demonstrated dramatically with the criticism directed toward intelligence services for failing to disrupt the plans of the Tsarnaev brothers whose bombs in Boston were constructed from cookware that can be purchased at Amazon.com and explosive material readily obtainable from fireworks stores and gun shops in many states. 

It has been remarkable to me in recent days to encounter three vastly different reactions to the events and testimony surrounding the National Security Agency disclosures of the range of its electronic eavesdropping activities.

For his part, NSA Director James Clapper has seen little if anything to apologize for in the conduct of the NSA surveillance programs. He has not been insensitive to criticism, but rather confronted clearly the notion that gathering intelligence is the central charge of the NSA and serves an essential purpose: "Leadership intentions is kind of a basic tenet of what we collect and analyze."

The dilemma of intelligence and the perspective of the intelligence operative was dramatically presented in the movie Three Days of the Condor, which presents the dilemma of intelligence gathering impinging on liberty in a free society. At the end of the movie, Robert Redford's character has taken the stance of Edward Snowden, and delivered information on CIA intelligence gathering methods to the New York Times, convinced of the outrage that will ensue. Redford's CIA counterpart challenges his idealistic belief that Americans would readily sacrifice their comfort for their idealism and principles.

"Ask them [the American People] when they're running out [of oil]. When it's cold at home and the engines stop and people who aren't used to hunger ... go hungry! They won't want us to ask [for their permission] ... They'll want us to get it for them."

In contrast to James Clapper's sanguine stance, the NSA's tapping of Angela Merkel's phone sparked the demand by Senate Intelligence Committee Chairwoman Diane Feinstein that the NSA cease the "collection of intelligence on leaders of US allies – including France, Spain, Mexico and Germany." Yet, rhetoric aside, Feinstein's stance, particularly as Senate Intelligence Committee Chair, is untenable. For example, Mexico is certainly an ally, but it is also a country rife with the corruption of public officials. It would be irresponsible for our intelligence services not to assess the extent to which the President of Mexico is being influenced by--to say nothing of personally corrupted by--the leaders of the drug cartels.

It is unarguable, along the same vein, that Saudi Arabia--widely proclaimed to be one of our strongest allies--is responsible for the funding of radical Islamic groups, including many no doubt who are at war with us. Certainly Senator Feinstein is not suggesting that the US intelligence services--particularly the least invasive electronic intelligence programs of the NSA--cease the use of all means available to us to understand the lay of the land in the volatile and evolving Middle East. Or perhaps her stance is that it is OK to surveil the leaders of Arab or Muslim states with whom we are allied, but not European states. And what about Israel, who has famously spied on us? Does our president not want the best possible intelligence to divine which of Benjamin Netanyahu's words are--like Feinstein's--rhetoric to appease a domestic audience and which mark true lines in the sand?

In contrast to Senator Feinstein, whose public comments certainly cannot reflect her stance in the closed confines of the Senate Intelligence Committee, I was surprised this week by the comments of a friend at Google. He suggested that people within Google are just beginning to recover from the realization that the federal government has been using its resources to monitor private Internet communications.

My friend explained the shock on the part of the tech community by suggesting that it would have taken a massive amount of computing power to hack into the encrypted communications backbone, unless it had a backdoor. He readily accepted the notion that the NSA had the computing muscle to do it, and reluctantly acknowledged that as an infrastructure funded early on with military research money, it was not inconceivable that there were backdoors into the system. Backdoors, as one hacker scolded another in the movie WarGames thirty years ago, are not secret.

My friend commented that the disdain within the tech community for government was validated by the HealthCare.gov fiasco, and no doubt that disdain contributed to the shock of learning that the same government that could not launch an effective e-commerce website after three years of planning had nonetheless successfully hacked into areas of the Internet infrastructure presumed to be unassailable. For my friend and his colleagues at Google, it has been a rude awakening. Like the early stages of grief, it is not apparent that people in the tech world have get fathomed the implications of their new understanding of the world around them.

The NSA issue revolves around the nature of secrets, and the security infrastructure that undergirds a free society. The NSA is charged with giving the President of the United States the best possible intelligence, and given that charge it is unlikely to foreswear an effective means of gathering intelligence, absent a clear and compelling--to say nothing of urgent--rationale.

The NSA surveillance activities constitute violations of privacy, not the murder or suborning of foreign leaders, after all. If it meant that the NSA was able to advice President Obama that it believed that Angela Merkel would ultimately support keeping Greece in the Euro, that was worthwhile intelligence that contributed to global economic stability at a fragile time. If it meant that the NSA has been able to suggest that Vladimir Putin would support a middle ground on Syria, or to suggest how far Ayatollah Ali Khamenei is inclined to support Iranian President Hassan Rouhani, so much the better. Perhaps it is even useful if those adversaries are not sure how much we know.

At the end of the day, NSA Director James Clapper's testimony rang true. He appeared to be neither lying nor disingenuous. And for my friend at Google, this has been an awakening. Alone among the three, Senator Feinstein's remarks evinced dissembling and calculating disingenuousness. The film analogy for her, of course, is Claude Raines, in Casablanca. Senator Feinstein, Chair of the United States Senate Intelligence Committee was shocked, shocked to hear what the National Security Agency was doing on behalf of the American people.

The Senator cannot have it both ways. If it is true that she is shocked, and that she believes that the NSA should not be gathering the best intelligence it can about the President of Mexico, then she should resign her position, because it suggests that she is not serious about defending the interests of the nation she is sworn to serve. If, on the other hand, she is not really shocked, but understands that there is a delicate balance--as the CIA study above noted--in managing the role of intelligence services in a free society, then she owes us not her feigned outrage, but her leadership in helping Americans understand that balance.

Through his revelations, Edward Snowden is forcing us to recognize what our intelligence services do on our behalf. This is not a movie with clearly defined good and evil characters, it is the real world and the answers are not simple. Perhaps it is time that we confront it honestly rather than just recoil in horror or feigned outrage. It is our government: We, the people. It is time we owned it and learned how to have a real discussion about the very real issues and choices surrounding secrecy and intelligence in a free society.