Peter L. Berger's Blog, page 643

Iran Extends $1B Credit to Assad

Perhaps in expectation of a windfall after the nuke deal is signed, Iran is spending some cash—to keep Bashar Assad on his blood-washed throne. Reuters reports:

Syrian President Bashar al-Assad signed a law ratifying a $1 billion credit line from top regional ally Iran, Syria’s state news agency SANA said on Wednesday, funds which will help ease economic strains from the costly war.

The agreement was between two state-owned banks, the Syrian Commercial Bank and Export Development Bank of Iran, it said. Syria signed a previous $3.6 billion credit line with Iran in July 2013 which has been used up mostly for oil imports, bankers have said.

Iran also helps the Assad regime, which had been its client well before the civil war broke out, through direct oil transfers (without expecting payment in return, thus technically evading sanctions).

We wrote last week that Tehran had begun “spending a bit against its expected future earnings”—that is, both the ‘windfall’ of released funds that will follow an agreement and the profits Iranian industries expect after sanctions are lifted—with a $600M line of credit to Venezuela. Like much of the regime’s “outreach” in Africa and elsewhere, that move was a bit of opportunistic trouble-making. Syria, however, is much closer to home, and much more central to the regime’s project. Imagine how much it will pour into the tottering Assad’s pockets when the cash really starts to roll in.

‘Yes Means Yes’ in the Empire State

When California passed a “yes means yes” law last fall requiring that all university students receive ongoing, affirmative consent throughout every stage of every sexual encounter, the measure was widely debated on editorial pages across the country. In a possible sign that such regulations are moving from cutting edge to standard practice, New York Governor Andrew Cuomo signed a virtually identical bill into law on Tuesday with very little fanfare, as Reuters reports.

Proponents of affirmative consent are surely well-intentioned, but the standard is unworkable. Taken literally, it would proscribe an absurd range of activities. Judith Shulevitz quoted an illustrative example from an American Law Institute memo in her latest New York Times op-ed: “Person A and Person B are on a date and walking down the street. Person A, feeling romantically and sexually attracted, timidly reaches out to hold B’s hand and feels a thrill as their hands touch.” Under a literal reading of the affirmative consent standard, “Person A” is guilty of sexual misconduct, because holding hands could be construed as a sexual act, and no explicit consent for the act was granted.As Megan McCardle has pointed out, the fact that it is hard to imagine anyone actually getting in trouble for the situation described above is no comfort at all. The regulation is so broad that it encompasses a wide range of ordinary activities, which gives the authorities tremendous power to pick and chose whom to punish among the many, many people who have technically run afoul of ‘yes means yes.’ The problem isn’t that holding hands without asking permission will be banned—it’s that students will continue to hold hands without asking permission, and university administrators will have the authority to punish whichever students they don’t like.When affirmative consent was merely being promulgated by campus administrators, it might have been reasonable to dismiss it as the typical politically correct silliness that we have come to expect from the academy. Now that the governments of two of America’s most populous states have thrown their weight behind these sex regulations (at least for college students) it is time to start taking them seriously. Administrators are getting more discretion to punish students for infractions just as those students are getting more libertine in their sex lives. This isn’t likely to end well.

Why You Shouldn’t Bet Against Shale

After mounting a recovery from its $45 per barrel low in January, the price of oil has been sliding again as both the Iran deal looms (the lifting of Western sanctions would allow Iran to considerably boost its exports) and the Chinese stock market reels. The U.S. benchmark West Texas Intermediate (WTI) price is hovering around $52 per barrel, a level that a year ago many would have said would be too low for U.S. shale producers to continue to profitably operate.

And yet, here we are. Reuters reports that, even at $50 per barrel prices, a number of shale firms are planning to boost production:

On Wednesday, Pioneer Natural Resources Co. became the first big company to publicly confirm it was drilling more wells, saying it had already added two rigs in the Permian Basin of Texas this month and would keep on adding two a month as long as the oil price “remains constructive.”

Smaller shale oil producer WPX Energy Inc, whose operations are focused on North Dakota’s Bakken shale, said this week that its decision to add two rigs later this year was unaffected by a nearly $8 drop in crude prices since June to toward $50 a barrel. […]Last week the U.S. oil drilling rig count rose for the first time since December, inching up by 12 to 640 across the country.

The American shale industry would still love to return to those heady days (that now seem so far-off) of $100+ per barrel oil, but it’s surprising analysts and competing suppliers with its resilience. Relative to most conventional oil plays, shale production is expensive; Saudi-led OPEC hasn’t cut production in today’s bear market in part because it hoped to squeeze out fracking firms, but has so far been disappointed.

There’s even more bad news on the horizon for that petrostate cabal: shale companies are refining a process—called refracking—to squeeze more hydrocarbons out of each well. Bloomberg reports:

The short life span of [fracked] wells, long thought to be perhaps the single biggest weakness of the shale industry, is being stretched out. Early evidence of the effects of restimulation suggests that the fields could actually contain enough reserves to last about 50 years, according to a calculation based on Wood Mackenzie Ltd and ITG Investment Research data. […]

Years of working on traditional wells have shown that they can be restimulated multiple times, [said Mike Vincent, a well-completion engineer who teaches the technique to industry workers]. In the industry’s lingo, a well that has been blasted five times is a “Cinco de Fraco.” Eight times gets you an “Octofrac.” When done right, the procedure not only boosts the flow of crude, but can also increase the estimate of reserves held in the well. Vincent said it’s common to see oil recovery climb 60 percent or more.

Presented with a profitability problem, the shale industry is hard at work to step up to the challenge. Experimenting with and improving techniques like refracking, or drilling multiple horizontal wells from a single pad, could be just the thing U.S. shale needs to compete in an increasingly crowded global market. That ought to terrify the world’s petrostates.

China Market Turmoil Spills Over Into Politics

Even as Chinese stock markets appeared to stabilize—temporarily, at least—after weeks of precipitous losses, President Xi Jinping has begun to face sustained criticism from investors, political insiders, and the general population. The Wall Street Journal reports:

Sun Liping, a sociologist at Tsinghua University, took to his social-media account to say the stock-market crash has exposed crucial flaws in Mr. Xi’s highly centralized approach to government, including a lack of financial expertise and a pervasive instinct among subordinates to obey superiors […]

“The market selloff is definitely the largest challenge that the new administration has faced,” said Victor Shih, a China expert at the University of California, San Diego. Chief among the weaknesses exposed, Mr. Shih said, was the ineffectiveness of Mr. Xi’s pledge to limit bureaucratic interference and give markets greater scope.

As we noted earlier this week, there is a very thin line between China’s economy and China’s political system, and a crisis in one is a crisis in the other. The government’s legitimacy relies on its ability to maintain economic growth and preserve economic stability. The ongoing market turmoil is therefore not only a threat to China’s economic future—it calls Xi’s entire vision into question. Indeed, one reason the Chinese government has taken such extraordinary measures to prop up share prices is because its legitimacy depends on it.

But, as economists agree, such emergency market manipulations can only be successful in the long term if the underlying economic problems are resolved. If they aren’t, the bubbles in China’s economy and political system could very well both burst.

Behold the RINsanity

To meet government ethanol blending quotas, American oil refiners can buy Renewable Identification Numbers (RINs). When in the past refiners grew worried that ethanol mandates would outstrip the amount they could physically blend into gasoline (fuel above 10 percent ethanol by volume can damage older car engines, so the industry refers to that threshold as the “blend wall”), the price for RINs spiked sharply. When that happened, the New York Times pointed out that Wall Street had taken a keen interest in the RIN market:

A few worried that Wall Street would set out to exploit this young market, fears the government dismissed. But many people believe that is what happened this year when the price of the ethanol credits skyrocketed 20-fold in just six months, according to an analysis of regulatory documents and interviews with more than 40 people involved in the market, including industry executives, brokers, traders and analysts.

Traders for big banks and other financial institutions, these people say, amassed millions of the credits just as refiners were looking to buy more of them to meet an expanding federal requirement. Industry executives familiar with JPMorgan Chase’s activities, for example, told The Times that the bank offered to sell them hundreds of millions of the credits earlier this summer. When asked how the bank had amassed such a stake, the executives said they were told by the bank that it had stockpiled the credits.

Washington downplayed these concerns, but new data published earlier this week paints a very different picture. Reuters reports:

Published on Tuesday after a near two-year legal battle launched by a U.S. company against the U.S. Environmental Protection Agency (EPA), the data showed the bulk of sales in the past four years was booked by producers, blenders, merchants or speculators, grouped as non-obligated parties in the release. […]

Of some 50.7 billion sales of the credits in 2014, fuel blenders and others in that group accounted for nearly 60 percent…It goes some way toward exposing the murky trade of RINs.

As so often happens, green meddling has produced a distorted market vulnerable to canny investors looking to take advantage of perverse incentives. The fact that “non-obligated parties”—in other words, those for whom these credits were not intended—were responsible for the majority of RIN sales last year suggests that something has gone wrong here, despite those government assurances.

This is, of course, but one facet of our country’s misguided biofuels SNAFU. Look here for a more complete review of the disastrous policy, or, if you’d like, consider the simple fact that corn-based ethanol, the biofuel that makes up the majority of our refiners’ quotas, isn’t even green.Soup to nuts, this is a mess. Congress is considering bills to reform the Renewable Fuel Standard, but it’s hard to imagine successfully salvaging a thoughtful, workable solution from this boondoggle.

Passing the Disappearing Buck

Welcome to the village of La Grange, IL., where local officials hope that more than just the good among their peers do indeed die young. At least, that’s what their pension plans indicate. From the NYT:

Assuming shorter life spans reduces annual contributions and frees up money for other things, like bigger current paychecks. And if the plan bases pensions on pay, as those in most American cities do, shortening the workers’ life spans on paper could lead to both fatter paychecks now and bigger pensions in the future. […]

The recommendations made by pension actuaries, like which mortality table to use, are largely hidden from public view, but each decision ripples across decades and can have an outsize effect. More and more actuaries are now worried that their profession will be blamed for its role in steering states and cities into what is looking like a trillion-dollar quagmire.

La Grange is a microcosm of countless U.S. towns where, by some spectral mix of cronyism and ignorance, benefits have been promised that are quite simply undeliverable.

As the article states, the problem comes down to bad math. Basically, the outdated tables don’t factor in the increases in life expectancy. In La Grange, the switch to the more recent mortality tables saw the village’s minimum required contribution increase by 20 percent. At the same time, in order to keep their funded statuses within reason (often while increasing future outlays), pension funds use estimates of expected investment returns that are at best Panglossian and at worst criminally deceptive. Consider this anecdote from the piece:

He recalled seeing an assumption for future investment returns jump to 7.75 percent from 4.5 percent, with no explanation. The change lowered the state’s pension obligations by more than a billion dollars, which in turn meant smaller contributions.

To put this in context, an average diversified portfolio yielded only “a 2.6% net annualized rate of return for the 10-year time period ending Dec. 31, 2013.” The disparity between projected and actual returns is dire, and means that any estimation of pension liabilities is understated.

In the private sector, such a shuffling of assets, or passing of a disappearing buck, is known as a Ponzi scheme. Meanwhile, union bosses—who purport to care deeply and singularly about the protection of their employees—continue siphoning assets from the drying well, hoping their day of retirement comes before the day of reckoning.At some point a massive restructuring of benefits or a similarly massive, taxpayer-funded bailout will be necessary. If the latter is the case, we may need to reflect on the palatability of who is paying whom, and why. For now, pension planners will do well to live by the maxim of Wilkins Micawber: “Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.”

Brussels Sets a Date For Fixing Its Broken Carbon Market

The European Parliament took an important step towards shoring up its beleaguered carbon market in Strasbourg this week. If member states sign off on the fix, the EU will institute a corrective mechanism in 2019 that would allow the bloc to fine-tune the number of carbon permits within its trading scheme a bit more carefully. Reuters reports:

Ivo Belet, from the centre-right European People’s Party, who has steered the debate in parliament said the vote was “an extremely important step” and had strengthened the credibility of the European Union ahead of climate talks in Paris at the end of the year. […]

It involves setting up a Market Stability Reserve to store surplus carbon allowances that have piled up due to oversupply and economic slowdown. The reserve also could release the pollution permits in the event of higher demand.

Europe’s carbon market—its Emissions Trading System (ETS)—has had a fatal flaw in its makeup from its inception. The key for any carbon trading scheme is to find a way to set a market price high enough to encourage firms to cut emissions, but not so high that firms look to outsource production to other regions that lack such restrictions. That outsourcing is called carbon leakage, and it’s a nightmare scenario as it causes economic harm without achieving any environmental good.

Europe, fearful of that too-high carbon price scenario, generously over-allocated carbon permits to firms from the outset, with the intention of slowly constricting the amount of permits in the system over time. But shortly after the creation of the EU ETS, the 2008 financial crisis decimated the region’s economy and, by extension, lowered its emissions. The ETS was left with a glut of permits and accordingly a bargain basement carbon price, too low to incentivize green behavior.This proposed Market Stability Reserve would give the EU ETS the ability to react to circumstances like the financial crisis and, in theory, make it easier to find the Goldilocks carbon price—not too low, not too high, but just right.

Kiev Pushing to Get US Training for its Soldiers

If Ukraine can’t get America to send troops to help it fight Russian-backed rebels, at least can it make its soldiers more like America’s. That, at least, is Kiev’s reasoning as it advocates expanding the U.S. training program for its national guardsmen currently in place outside of Lviv in western Ukraine. The Wall Street Journal has more:

Ukrainian military officials said Wednesday they want to bring their conventional army troops and special-operations forces to the training center to run through the course taught by U.S. soldiers from the 173rd Airborne Brigade, based in Italy.

The Ukrainians have selected mechanized and airborne units that would be part of an expanded training program.U.S. officials have also begun planning for a potential expansion of the training, lining up funding and beginning planning for the expansion. But officials said a final decision on increasing the training is up to the White House. White House officials didn’t immediately respond to a request for comment.

If it pans out, the training program would represent Washington’s biggest and most concrete act of support for Ukraine in the ongoing fighting against the separatist-Russian hybrid forces causing trouble in the east. As we’ve noted, while rhetorical support has been strong among the U.S. and its allies, Washington and the EU haven’t gone much further than mere gestures. For example, after an emotional appeal from President Petro Poroshenko to the U.S. Congress kicked off a debate over whether to send lethal aide to Ukraine, Congress voted in favor of allowing the President to arm Kiev. Yet as of now, the White House has chosen not to. And the current national guard training program, while a small help, is very close to the least we can do. Whether anything more comes of this most recent request remains to be seen.

German Renewables Causing Headaches Across Europe

Germany’s rapid renewable energy expansion is threatening the stability of the European power grid. The growth of wind and solar energy, backed by substantial government subsidies called feed-in tariffs, has surprised many; last year renewables supplied nearly 26 percent of Germany’s power, more than any other single power source. But while greens are lauding this growth as an environmental policy triumph (conveniently skipping over the costs those feed-in tariffs are imposing on German customers), the rest of Europe is struggling to beef up power grids to handle the increased intermittent load. Bloomberg reports:

Poland and the Czech Republic are spending $180 million on equipment to protect their systems from German power surges, while Austria is curbing some trading to prevent regional networks from collapsing. On a windy day, the overflow east can exceed the output from four atomic reactors.

Germany’s fivefold increase in green energy in the past decade has outpaced investment in power lines to move it across the country. Electricity is looping through Poland and the Czech Republic to reach southern Germany, where supply is constrained as Chancellor Angela Merkel shuts nuclear plants after the 2011 Fukushima disaster in Japan. The disruptions show the limits to the European Commission’s vision of a single power market.“A huge accumulation of overflow increases the threat of a blackout,” Zbynek Boldis, the head of trade and international relations at Czech grid CEPS AS, said in an interview in Budapest. “The root of the situation is allowing a huge amount of electricity to be generated regardless of the capacity of the grid.”

Germany’s own power network is woefully underprepared to deal with the cyclical surging of more distributed supplies, so Berlin is relying on its neighbors’ infrastructure to power parts of the country. Within Germany, NIMBY-ism is preventing the necessary build-out of power lines to help connect supply to demand as communities resist the incursion of high-tension wires.

Policymakers need to take the costs of upgrading grids into account when they start planning to expand renewables’ market share. The intermittency of wind and solar energy requires lines that can send power in two directions: from wind and solar producers when the wind is blowing and the sun is shining or to those same sources during those cloudy, windless days.Power sold internationally, but those porous boundaries mean nations like Poland and the Czech Republic are now having to share in some of the problems Germany’s energiewende has kicked off.

Charleston and the Confederate Flag: Part One

The news that the legislature in my native state has voted to haul down the Confederate flag from the grounds of the legislature caps one of the most consequential months in South Carolina’s history in a very long time. When I was born in Columbia back in 1952, every child in the state by law had to have his or her race identified on the birth certificate; that classification was intended to follow you for the rest of your life, determining where you went to school, what neighborhoods you could live in, what restaurants and hotels you could visit, what jobs you could have—even what bathrooms and water fountains you could use.

When you went to sporting events in those days, the bands were ecumenical. They played both the Star Spangled Banner and Dixie; people stood, hands on hearts, for both. This was progress. In my grandfather’s day only one of those anthems would have been played.This week, South Carolina takes another long step away from a shadowed past. The Confederate flag, which means many things to many people but has a long association with segregationist ideas and Jim Crow laws, will be coming down. Like most symbolic actions, this ratifies a change that has already taken place. South Carolina’s citizens had moved on from Jim Crow long ago. If Thaddeus Stevens and Charles Sumner had heard that a black Republican senator and a nonwhite female Republican governor played key roles in the movement to disestablish the Confederate emblem they would have sung hosannahs to the Lord.That today’s Republican Party in South Carolina mostly represents the white majority who once voted Dixiecrat and Democrat makes the change more consequential, not less. South Carolina Republicans may not be the NAACP’s favorite American political organization, and the legacies of slavery and Jim Crow still hang heavily over the state, but my native state has turned an important page.My father remembers a moment when he first believed that things could really change there. He was at a football game between the University of South Carolina and Clemson soon after African-Americans were first allowed to compete in varsity sports at these previously segregated schools. When two of the black Clemson players teamed up to deliver a particularly hard and effective hit to a black South Carolina linebacker, my father heard one of the white fans in the row in front of him say to his friends, “Damn! Look at what those (N-word)s did to our colored boy!”Maybe not the greatest moment in racial brotherhood in modern times, but in that time and in that place it was a sign that at least some South Carolinians were developing the ability to look past the color line to see individual differences, however faintly.Now things have come much, much farther. Those good old boys in the football stands probably voted both for Tim Scott and for Niki Hailey. It wouldn’t be surprising if one or both of them supports Ben Carson for the GOP nomination. The color line hasn’t faded away, but where I come from anyway, it ain’t what it used to be.The flag story, of course, started with a massacre. I was in Berlin last month to speak at a conference sponsored by the Heinrich Boell Foundation when the murders took place. They put us up at the Albrechtshof, a small Berlin hotel that served as a kind of Christian refuge during the GDR times. Martin Luther King stayed there on his visit to East Germany and the lobby has photographs of the civil rights leader taken during his stay. It was a good place to be as the news from Charleston gradually sank in; it was a reminder that the contributions of African American Christianity and the black church to this world are so much greater and more important than vicious eruptions of hate like the one that led poor Dylann Roof to his terrible crime.It was also a good time to be out of the United States for a few days, to watch the media frenzy from a distance and to reflect on the continuing American tragedy of racial hate and political violence. Race, violence, and religion don’t bring out the best in our national discourse. Facebook, Twitter, and much of the regular media seemed even more shrill and contentious than usual as Left and Right tried to turn the massacre to political account. I was glad to have some time to walk the streets of Berlin, past streets named for Dietrich Bonhoeffer and Hannah Arendt, around the rebuilt Reichstag building and the Brandenburg Gate, to retrace the route of the old Berlin Wall in the city core, and to watch crowds of tourists from all over the world explore the Holocaust memorial across the street from the American Embassy, just a short distance from the underground bunker where Adolf Hitler killed himself as his empire collapsed around him.But beyond all the yapping and the buzzing about gun control, the Confederate flag, and whether Dylann Roof was a terrorist or not, a very powerful truth emerged from the horror in Charleston: that the African-American church remains one of America’s great national blessings. Yet again the African American church in the United States bore steadfast witness to the boundless, the infinite, the compassionate love of God. When the families of the murdered, martyred saints told Dylann Roof that they forgave him, when they prayed that he in his darkness might somehow find the light and the love of God, they reminded us what heroism truly is, and they showed us all what it means to follow Jesus Christ.Too often the worst people in the religious world dominate the headlines: hucksters and hustlers, money grubbing televangelists, preacher-politicians, judgmental hypocrites, and sanctimonious snake oil peddlers. But every now and then something happens to show us what Christianity really is, and when it does the world stops in awe. President Obama was right to make grace the focus of his riveting eulogy; grace is always amazing, and without it no person, no family, and no nation can stand.Watching the news from Berlin, I was reminded yet again that if the United States can be said to be an exceptional nation, it is the black church that has helped to make us one. Beginning in the late eighteenth and early nineteenth century, blacks (often after suffering rejection by white churches) organized their own congregations and denominations. Black churches were the first serious social institutions that African Americans were free to shape and control in their own way, and the spiritual and cultural blessings that have come to Americans of all races and indeed to the whole world from the witness and work of the black church are greater than most of us have ever understood.I could see a little bit of this in my hotel in the former East Berlin last month. Martin Luther King’s life and career made it that much harder for the East German police state to drive Christianity from the public square, and helped keep this center of Christian witness open. The tradition of non-violent protest that he did so much to shape would be crucial as Communism fell; not only in Germany but across central and eastern Europe, non-violent, peaceful protest played the key role in the democratic transitions that have brought freedom, prosperity, and peace to so many people in our time.But it is America, more than any other country, that has been blessed by the African American church and the vibrant faith at its core. The black church gave generations of enslaved people spiritual comfort and a sense of self worth, comforting the afflicted and affirming the dignity of those the world held in contempt. Slavery was brutal and dehumanizing; the black church was a healing and civilizing presence. It was in the black church that African Americans developed political organizations, traditions of self government, experience managing their own affairs, and a sense of group solidarity and strength that helped these Americans rise and grow despite all the forces that sought to hold them down.All that is a spiritual legacy rich enough and deep enough to make any faith stand tall in world history, but the black church has done more. It is easy in America today to decry the state of racial feeling, and in no way do I want to minimize the pain and the trouble and the sorrow that our racial divisions and racist legacies bring to the country. But they are so much less than they could be and perhaps should be given our history. Look at the ethnic and nationalist hatreds overseas: at the hatreds between Shi’a and Sunni, Arab and Kurd, Hutu and Tutsi, Bosnian and Serb – and so many more around the world.Whatever we have in the United States, it is not that. And despite the nasty, evil actions of people like poor Dylann Roof and the crazy haters among us, we are as a people unlikely to go there. Our racial divisions are painful and they are bitter and they cause all kinds of injustice and hurt. But we have not gone the way of Old World, where tribal and racial divisions lead to all out wars, large scale ethnic cleansing, and ugly blood feuds that simmer for generations.There are several important factors that have helped keep us from experiencing the full ugly consequences of the hatred, prejudice, and bitterness with which so much of American history is so tragically marked. But the one that looms largest in my mind, and that gets the least respect and attention, is the constant Christian witness and gracious, forgiving love that has been the gift of the African American church and of its loving savior first to American blacks and then to the whole country.Americans of all races owe much more to the steadfast witness of the black church than most of us understand. We read in the Bible about God’s love for the poor and the oppressed, about his capacity to redeem and transform, and about the transfiguring power of forgiveness and grace. We hear these things and we nod our heads sagely, but we fail to grasp just how much our daily lives are blessed by this power. As a nation, we have seen and done many hateful and horrible things, but hate and horror have been met, as they were met last month in Charleston, by something greater, higher, better.If there is one thing that the history of South Carolina may have to teach the rest of the country it is this: that nothing is more exceptional about American history than the way that the African American church has helped make us a nation that is better, happier, and more united than we have any right to expect. The grace of God’s forgiving love, poured out over the black church for so long, is reshaping our country, softening our hearts, and making us better people than we deserve to be.That is what grace is, that is what grace does. It is amazing, as it is amazing that a song written by a repentant slave trader could become an anthem that unites the descendants of slaves and of slave owners, of the victims and the perpetrators of segregation.As the Confederate flag comes down for the last time from a government building in the city where I was born, I will be giving thanks to God for the miracles of grace that have brought us all so far.