A scandal is growing around what is claimed by some as a government's bailout of the US ethanol industry. Fueled by state subsidies and protected by punitive tax against the more cheap sugarcane ethanol from Brazil, the industry was rapidly expanding until it suddenly found itself facing a very different market saturated with cheap gasoline. The next one to go down may be the entire US car manufacturing industry that in recent years was busy dismantling its SUV and similar lines while investing billions in developing solar and hybrid cars. With the price of oil halved in a matter of weeks, the industry's bet on fuel efficient cars may soon reveal itself as a fatal mistake. The US car manufacturers had been struggling long before the current crisis struck, but the failure of the regulators to move in and counter the decline in the price of oil with some kind of a gas tax will plunge the whole industry into an even deeper crisis.
November 1, 2008
The VeraSun Energy Corporation, which accounts for roughly 7 percent of ethanol production capacity in the United States, announced that it had filed for Chapter 11 bankruptcy protection late Friday.
Obama to Back Ailing Ethanol Makers, Follow Failed Bush Policy
By Mario Parker and Kim Chipman More Photos/Details
Nov. 6 (Bloomberg) -- President-elect Barack Obama plans to support unprofitable U.S. ethanol producers and pursue the same policies that failed George W. Bush.
Obama, the Democratic senator from Illinois, the second- biggest corn-growing state, will maintain Bush's goal requiring fuel producers use at least 36 billion gallons of biofuels in 2022, said Heather Zichal, the campaign's senior energy adviser. The ethanol industry, which loses about 66 cents a gallon at current prices, will receive at least as much support as from the current administration, including tax credits to spur consumption, she said.
``Obama recognizes how important the renewable and biofuels industry is to creating jobs and meeting our goal of reducing dependence on foreign oil,'' Zichal said in a Nov. 3 interview. ``He's fully committed to it and sees tremendous value in the renewable fuels standard and continuing down this path.''
Ethanol makers are collapsing after wrong-way bets on corn prices overwhelmed $20 billion in federal aid and government- guaranteed demand for the fuel additive. VeraSun Energy Corp., the second-largest producer, filed for Chapter 11 bankruptcy protection on Oct. 31.
These are parts of my email correspondence with a friend on my post about the crisis, only lightly edited...
That's not exactly true. Neither mortgages nor MBS have been the real problem of the current situation. Google CDO and CDS, especially the last one. In fact, that could happen with any other risky oversecuritized asset such as credit cards, auto loans, etc. This time it just happen to be mortgages. Next time it could me something else. As far back as 2003, Buffett had warned that the complex securities at the center of today's troubles — once so profitable, but now toxic — were "financial weapons of mass destruction." I'd say greed and shortsightedness are the main reason. Can't blame them though...
This is what Buffet is actually saying:
Charlie Rose: I'm interested in this because people are asking, did people get away with murder here? Were there people who simply gained the system and took advantage and made huge amounts of profit, and we had accesses that inevitably led to where we are today?
Warren Buffett: Well, we had all of that. But I would say the biggest single cause was we had an incredible residential real estate bubble. I mean you can go back to tulip bulbs in Holland 400 years ago. The human beings going through combinations of fear and greed and all of that sort of thing, their behavior can lead to bubbles. And it may have had and Internet bubble at one time, you've had a farm bubble, farmland bubble in the Midwest which resulted in all kinds of tragedy in the early '80s. But 300 million Americans, their lending institutions, their government, their media, all believed that house prices were going to go up consistently. And that got billed into a $20 trillion residential home market. Lending was done based on it, and everybody did a lot of foolish things. And people really behaved in a fraudulent way or something, we'll go back and find the culprits later on. But that really isn't the problem we have. I mean that's where it came from, though. We leveraged up and if you have a 20 percent fall in value of a $20 trillion asset, that's $4 trillion. And when $4 trillion lands -- losses land in the wrong part of this economy, it can gum up the whole place.
Exactly. Note the last two lines.
Well. He is saying that the biggest single cause of the current mess is the housing bubble created by expectations that the prices would continue go up. And these expectations got billed into a 20 trillion worth residential estate market. When such a market goes down by 20%, the damage spreads to other parts of the economy and can send the whole economy into coma.
Banks and others should have known better of course. Nobody absolves them from responsibility. But how it excuses the regulation or makes the trillions accumulated by Fannie and Freddie in outstanding bonds irrelevant to the current crisis? I don't understand this.
The regulators inflated the market through Freddie and Fannie, then interest rates were lowered and kept negative in real terms for years. There was a lot of cheap money that had to find use for itself. This is how the situation was created with all this money chasing mortgages on the most inflated market that was already spiraling out of control. It's a simple supply and demand thing aggravated by the fact that Freddie and Fannie had already sucked trillions worth mortgages off the market.
In this situation the pressure on loan originators was growing to generate new loans and this is what they were doing. The quality of loans was deteriorating since all normal loans that could be issued had been issued already while the market had been already massively overpriced.
No argument that the Wall Street managed to spread this mess to all corners of the US and the whole world actually. But the thing remains that the negative interest rates, regulation and Freddie and Fannie were responsibility of the government.
You should also not overlook the fact that government sponsored ventures enjoy an implicit government subsidy. The same two Fs were reselling mortgages with profit as the buyers of their bonds considered their stuff safe and were ready to pay more for it. But even more important, the presence and trillions worth activities of these two constituted an implicit subsidy to the whole market and helped unleash the speculation. The expectation that the prices would go up could only be boosted by the fact that the government was intervening in the market with the most ambitious program of expanding home ownership in the American history.
Maybe with the passage of time the initial impetus given to the market by the regulators was dwarfed by the scale of speculation. But the fact remains that it was the regulation that led to overblown expectations and breakdown of self discipline among private players on the market.
Dude, a drunk on his way home slips into a ditch and breaks his head. What is the real cause for the broken head: the ditch or the drunkenness?
Using your drunk man's parable, the drunk is responsible for his drunkenness of course but this does not excuse the drunkenness of those who dug the ditch. In particular, given that in their drunkenness they dug the ditch wide enough and all the way to the doorsteps of the drunk man's house hoping that this is how they are helping him to get home without getting lost on the way.
Now the drunk has to be bailed out of the ditch and the ditch is wrecked and the man is still way far from his home. Other drunks curse the drunk and decide that they need to continue digging ditches, but they should better surround them with fences to prevent the drunk from slipping into one of them again.
But the drunk is no longer drunk, he woke up and is cursing his drunkenness and promising never drink again, neither CDS nor CDO, never walk into the night and keep a mile long distance from any ditch and trench. In fact, so vigorously the drunk has set out about de-leveraging himself out of the ditch that the whole credit system seized up as the drunk suspended lending while he is selling off his financial and other assets.
But the other drunks don't let up. So they are planning even more ditches to steer the drunk safely to his home, while fortifying their trenches with massive fences.
The lesson of the story is that one should sober oneself first and second stop digging trenches. Then there would be no need to cover them with fences, and even worry if the drunk is drunk again in the first place.
The story has a bizarre ending. On waking up the other drinks will soon discover that they were digging the trench in the wrong direction. That person has never lived in that home at all. It was another man's house !!! With 70% or 75% home ownership the US is way ahead of the rest of the world on this. How much is enough? 80%? 90%? Does everybody need to be a home owner? In the midst of their drunkenness the other drunks have forgot to ask themselves these questions.
Anyway, my post was in no way intended as apologetics of the Wall Street. What I was saying is that there is a society wide breakdown of common sense and attitudes affecting all, including the electorate, the regulators and the Wall Street. Unless you are going to say that the regulators were ok, we are in agreement.
Dude, you are obviously pushing the metaphor too far. All I wanted to say is not that ditches in your backyard are not important, but rather that given the severe alcoholism of the current financial system we have far bigger problems to be concerned about.
And I wouldn't call it breakdown. To me it all actually makes perfect sense. People had an opportunity to make a lot of money. And they did. Seems pretty sound thing to do. I would actually be very surprised if they do otherwise. It's like you blame a 5-year old for swallowing a bottle of pills. Blame those who didn't put a prevention mechanism into the bottle cap in the first place. And by the bottle I mean the financial markets with such artificial instruments as CDO and CDS and not the infamous subprime mortgage practice which is just a mere by-product of the above.
As to the regulation ( or lack of thereof ), the prevailing theory across the economists has been the idea of market self-regulation ( "the invisible hand" ) which postulates that the less the government intervenes in the markets ( including the financial one ), the better those markets work. Now, unless you have the competence ( and balls ) to challenge Melton Friedman yourself, let's leave it to the professionals to argue whether this theory stands in the long run.
Two comments I posted on the Economist's forums. I am copy pasting them here out of laziness and lack of time. Here is the first one:
SongTao wrote: October 19, 2008 15:22
The fundamental issue with capitalism, besides its eye-popping "freedom of choice" that so many Americans treated as holy bible god given right that they will fight to the death for (not sure how many of them are having the 2nd thought now when reality kicks in), is its born nature ( or DNA as some one put it) of greedy when it comes to making profit... sometimes at all cost. That is why we need regulation, or state intervention, typical of socialism phrase, when things are really turning for the worse as we are now.
You miss the point. The epicenter of the current crisis happened to be located squarely in one of the few remaining heavily regulated sectors of the American economy - housing market. And the fact of the matter is that what so called regulators were doing there can be hardly defined as an attempt to restrain the markets or regulate something. In fact the sector and economic stability have been all sacrificed by the would be regulators in the name of social humanism.
What was going on in the housing sector since Clinton's days was all about inflating the market and working private banks into lending frenzy. And to achieve this the government used a wide array of tools from legal ones that obliged banks to lend under looser or no criteria at all to financial means such as securitization of the market. In fact the US government itself was pushing towards greater securitization of the market by instructing Freddie and Fannie to buy mortgages and then resell them in the form of MBS. Private banks were mostly following the government's lead when they started issuing their own versions of MBS. The Wall Street has got its share of sins to atone for, but in many cases the initiative was coming from the government itself as it was busy buying risky assets from the banks and fanning them out across the economy and actually the whole world and with hardly any other purpose in mind but to encourage more reckless lending. So much about the Wall Street and its fancy financial tools.
The crux of the matter is that what the current crisis has exposed is the total inability of the regulators to regulate themselves. In the case of the US politicians it was a classical example of how ideology and lofty social concerns had trumped all practical considerations and economic common sense. In fact, as evident from this link published five years ago, it was free marketeers who were suggesting privatization and other measures, in a vain attempt to save the market from the regulators who went out of control.
And another one:
val19 wrote: October 19, 2008 10:01
I'm no fan of the Chinese system. But still, it's a bit rich to blame the Chinese for this crisis, don't you think? It is like blaming the seller for selling you too cheap (nooo, you are unreasonable, please charge me more!).
The crisis was 100% made by reckless borrowing and by the fat cats in Wall Street, who discovered a system where they pocket the profits, but socialize loss. Now, thinking rationally, if you discovered such a system, you would you it, wouldn't you?
Not necessarily. The fact remains that America's richest man and most successful profit seeker, Warren Buffet, had pulled out of the system, coining on the way that now famous notion of financial weapons of mass destruction. There is no reason why other fat cats could not do the same thing.
Your way of thinking also ignores the role the American society as a whole played in creating the bubble and encouraging risky lending by financial institutions. The US government had spent decades and trillions of dollars to encourage markets to do just this. What for example Fannie and Freddie were instructed to do by the government? To recycle mortgages so that banks could shed their risks and engage in even more risky lending.
These policies suited liberal politicians because expanding home ownership was deemed socially good. These policies appealed to voters who got access to cheap credit and many were themselves purchasing homes for no other reason but to resell them later with profit. At the same time nobody worried for deficits, debts and trade imbalances. The crisis in the US is much less about capitalism and regulation than it's about culture. It's a systematic failure of the culture and the system as a whole. In this culture technical solutions and pragmatism gave way to all sorts of lunacies that travel under the cover of political correctness and social humanism, proper investment was replaced by speculation and profit chasing on dubious markets, long term policies were forsaken for the sake of short term election promises given to voters that care for nothing beyond the next day.
If the Wall Street is responsible for this mess, then the American society has become one big Wall Street long time ago.
October 20, 2008
SongTao wrote: October 19, 2008 19:30
TO blame the current crisis sorely on mortgage or housing sector as you would put it. Yes, the housing sector is heavily regulated, but not to the point to stop greedy people from Wall street to bundle these high risk sub-prime into investing securities and sold to other greedy folks who want to make big bulks out of nothing, nor did it prevent people with low income to be lured into buying houses that they could not offer. Actually the Congress did pass the bill requiring the separation of commercial and investment banks in the after mass of the recession in 1930s, but only to be reversed by the same Congress in the 80s~90s during the boom of the US economy. Again, the greedy nature of the capitalism was at work that makes all these flip-flap. And sinks into the core of the capitalism that can not be cured by the self-regulation.
Somebody on this thread was talking about the need for the government to move in and to regulate markets for the benefit of all society and not just profit seekers. In the case of the housing bubble this was exactly what was going on. The regulators were regulating the market in the interest of all sectors of the society and this interest was defined as expanding home ownership to all down to the last homeless sleeping under a bridge. And indeed the profit seekers were refusing to work for the benefit of all and provide cheap loans to people who failed the banks criteria.
So the CRA was imposed on the banks making this mandatory. But this was not enough because profit seekers have their ways to sabotage such a noble undertaking. No greedy person wants to go bust. So Fannie and Freddie were directed into this market to buy mortgages and then resell them. Given that these are state sponsored ventures, the idea was that the market won't shun their financial goods as they are virtually guaranteed by the US government. When the regulators removed the ban on Freddie and Fannie to buy sub prime and ALT-A, it all became what you call "greedy people from Wall street to bundle these high risk sub-prime into investing securities and sold to other greedy folks who want to make big bulks out of nothing, ...", only this was not the Wall Street but the government working through Freddie and Fannie.
The Wall Street of course has its own share of sins to atone for, but you are massively missing the point if you think that the regulators were trying to stop it. The regulators themselves were seeking means to increase liquidity in the market and provide banks with easy ways to rid themselves of risky loans they were making so as to allow them to make even more such loans. So any outside help was welcomed. The regulators were not interested to stop the Wall Street, since they were trying to regulate the market into doing the very same thing. In fact the regulators did not wait for the market to join their noble project, so the government had involved Freddie and Fannie and was doing it through these two itself !!!
SongTao wrote: October 19, 2008 23:13
NB12: Point taken, then what? over thrown the goverment, who makes sure that the new goverment will not repeat the same mistakes... Like I said, it is easy to blame the goverment for this, but then what, any better suggestion? I thougt this is what this forum is all about...
There may be a whole host of suggestions to offer but my first suggestion would be to prevent the politicians-regulators from getting away from taking responsibility. It's obvious that right now the easiest way for them to do this should be by shifting all the blame to the Wall Street. Given how hated the Wall Street is and how addicted to cheap populist rhetoric the US has become, it's almost sure that the politicians will get away. But it's important to ensure that before these people try to regulate something else, they will take full responsibility for everything their "regulation" has already achieved.
October 23, 2008
and another one...
Regarding the point made by some people about capitalism, its greed and the need for more regulation.... Capitalist ethics were traditionally based on saving, frugality and hard work, go read Weber. The current mess has nothing to do with capitalism and its ethics, but rather with a steady erosion of basic capitalist values in a society that in the last years was behaving more and more as if the end of history has arrived and money would be soon grown on trees. In fact what was going on in the US and some other countries rather looks like an ultimate demise of the last vestiges of the Protestant ethics that created capitalism in the first place. To single out the reckless adventurism of the Wall Street is to ignore its being a manifestation of society wide trends.
For starters, the project of universal home ownership and rehabilitation of distressed neighborhoods has had to be financed with public money, means raising taxes, the biggest no-go of all election campaigns. Neither the electorate, nor by extension the politicians, were ready to consider such an option. It thus led to increasing intervention by the government in the housing market and the regulation that basically destroyed the last traces of discipline in the matters of lending. There were reasons why private institutions were abstaining from lending to those distressed sectors, but the regulators were sure that by arm twisting or cajoling the private sector into doing it, they can actually manufacture something out of nothing.
In this sense there is absolutely no difference between the so called greed of the Wall Street, the socially oriented regulation of liberals and numerous renegades from the Republican camp, and the voting patterns of the mainstream American electorate. All three think that one can spend as if there is no tomorrow, that deficits and debts take care of themselves, and that another Great Depression can never happen again.
Mortgage Crisis and Politics wrote: October 20, 2008 15:20
You may call the US housing market "one of the most regulated ones in the world", but than it was one where "Ninja" (No income, no job or assets) mortgages passed the regulatory screen of approval. Regulation should not be measured by the number of pages of law they take up, but rather by the degree in which they truely control target parameters like front and back end loan to value ratios and long-term versus current asset value.
Unfortunately, in the US, laws are nowadays written by special interest group, stuffed with unrelated tax breaks and payouts, approved by house and senate without reading their contents in a process with very little association to that of a democracy, since most politicians spend 80% or more of their time seeking re-election funding from these same special interest groups.
In the US, it is not so much a question of moving from a liberal to a command economy or back, but rather one of moving from a democratic to a non-democratic system and (hopefully) back.
It all depends on the objectives the regulators set for themselves. And if these are socially aware regulators, who want to help socially weak classes to join the ranks of the middle class, then such regulators can approve Ninja loans, ShaoLin loans and whatever loans.
And special interest groups not necessarily include only those funding re-election campaigns. They also include people who actually re-elect politicians by casting ballots for them. And these include people who were taking these Ninja loans. So the process may have actually been about moving from what you call a non-democratic system to a democratic one. Let alone that these policies found some of their staunchest supporters in the Democrat camp (pun intended).
If a few years ago the regulators were to try to stop Ninja loans and other excesses of the financial system (never mind that on many occasions the regulators were deliberately encouraging them) you would have been posting here about special interest groups manipulating the regulators and depriving poor working classes of access to credit. And you would have been decrying the non democratic nature of the credit system and demanding a genuinely democratic regulation with cheap Ninja loans for all.
In the US there exists one special interest group that excels in being irrational to the extreme while constantly suspecting and accusing other special interest groups of harming the society. This particularly nasty special interest group is actually quite huge. It's the American electorate.
Roughly translated from Russian, it should be something like - Dear blogger, your blogging style makes some black people very unhappy.
January 3, 2009
The French Commission for racial equality accuses the local film industry of racism.
The French film industry has been found guilty of racism for preventing black actors from dubbing white stars in Gallic versions of English-language movies.
An inquiry ruled that casting directors regularly excluded black applicants in the belief that they had a distinctive tone of voice unsuitable for dubbing white parts. The findings come amid claims that the failure to promote black stars in films and other media is contributing to a wider segregation in French society.
The commission established that while white actors are regularly dubbing black parts, this does not go the other way. The commission ordered the French Federation of Cinema, Audiovisual and Multimedia Industries and the Union of Dubbing Companies to engage in a vigorous anti-Racism self-re-education campaign. The white racism widely practiced in high quarters of the French society contrasts sharply with a touching devotion many black nations in Africa feel towards their white people, occasionally even treating them as an endangered species.
There is very little I can do about this article except to copy paste it just as it is. Be prepared - yet another revolution is coming our way.
Switzerland's Green Power Revolution
ZURICH -- For years, Swiss scientists have blithely created genetically modified rice, corn and apples. But did they ever stop to consider just how humiliating such experiments may be to plants?
That's a question they must now ask. Last spring, this small Alpine nation began mandating that geneticists conduct their research without trampling on a plant's dignity.
"Unfortunately, we have to take it seriously," Beat Keller, a molecular biologist at the University of Zurich. "It's one more constraint on doing genetic research."
Dr. Keller recently sought government permission to do a field trial of genetically modified wheat that has been bred to resist a fungus. He first had to debate the finer points of plant dignity with university ethicists. Then, in a written application to the government, he tried to explain why the planned trial wouldn't "disturb the vital functions or lifestyle" of the plants. He eventually got the green light.
The rule, based on a constitutional amendment, came into being after the Swiss Parliament asked a panel of philosophers, lawyers, geneticists and theologians to establish the meaning of flora's dignity.
"We couldn't start laughing and tell the government we're not going to do anything about it," says Markus Schefer, a member of the ethics panel and a professor of law at the University of Basel. "The constitution requires it." (!!!)
In April, the team published a 22-page treatise on "the moral consideration of plants for their own sake." It stated that vegetation has an inherent value and that it is immoral to arbitrarily harm plants by, say, "decapitation of wildflowers at the roadside without rational reason."
On the question of genetic modification, most of the panel argued that the dignity of plants could be safeguarded "as long as their independence, i.e., reproductive ability and adaptive ability, are ensured." In other words: It's wrong to genetically alter a plant and render it sterile.
Many scientists interpret the dignity rule as applying mainly to field trials like Dr. Keller's, but some worry it may one day apply to lab studies as well. Another gripe: While Switzerland's stern laws defend lab animals and now plants from genetic tweaking, similar protections haven't been granted to snails and drosophila flies, which are commonly used in genetic experiments.
It also begs an obvious, if unrelated question: For a carrot, is there a more mortifying fate than being peeled, chopped and dropped into boiling water?
"Where does it stop?" asks Yves Poirier, a molecular biologist at the laboratory of plant biotechnology at the University of Lausanne. "Should we now defend the dignity of microbes and viruses?"
Seeking clarity, Dr. Poirier recently invited the head of the Swiss ethics panel to his university. In their public discussion, Dr. Poirier said the new rules are flawed because decades of traditional plant breeding had led to widely available sterile fruit, such as seedless grapes. Things took a surreal turn when it was disclosed that some panel members believe plants have feelings (!!!), Dr. Poirier says.
Back in the 1990s, the Swiss constitution was amended in order to defend the dignity of all creatures -- including the leafy kind -- against unwanted consequences of genetic manipulation. When the amendment was turned into a law -- known as the Gene Technology Act -- it didn't say anything specific about plants. But earlier this year, the government asked the ethics panel to come up rules for plants as well.
The Swiss debate isn't just academic twittering. Like other countries in Europe, Switzerland has long kept a tight rein on crop genetics, fearing that a mutant strain might run amok and harm the environment. Swiss geneticists say the dignity rule makes their job even harder.
Several years ago, when Christof Sautter, a botanist at Switzerland's Federal Institute of Technology, failed to get permission to do a local field trial on transgenic wheat, he moved the experiment to the U.S. He's too embarrassed to mention the new dignity rule to his American colleagues. "They'll think Swiss people are crazy," he says.
Defenders of the law argue that it reflects a broader, progressive effort to protect the sanctity of living things. Last month, Switzerland granted new rights to all "social animals." Prospective dog owners must take a four-hour course on pet care before they can buy a canine companion, while anglers must learn to catch fish humanely. (!!!) Fish can't be kept in aquariums that are transparent on all sides. The fish need some shelter. Nor can goldfish be flushed down a toilet to an inglorious end; they must first be anesthetized with special chemicals, and then killed. (!!!)
Rhinoceroses can't be kept in an enclosure smaller than 600 square yards. Failure to comply can lead to a fine of 200 Swiss francs, or about $175. "The rules apply for zoos and private owners," says Marcel Falk, spokesman for the Federal Veterinary Office in Bern.
Are there pet rhinos in Switzerland? "I hope not," he says.
In another unusual move, the people of Ecuador last month voted for a new constitution that is the first to recognize ecosystem rights enforceable in a court of law. Thus, the nation's rivers, forests and air are no longer mere property, but right-bearing entities with "the right to exist, persist and...regenerate."
Dr. Keller in Zurich has more mundane concerns. He wants to breed wheat that can resist powdery mildew. In lab experiments, Dr. Keller found that by transferring certain genes from barley to wheat, he could make the wheat resistant to disease.
When applying for a larger field trial, he ran into the thorny question of plant dignity. Plants don't have a nervous system and probably can't feel pain, but no one knows for sure. So Dr. Keller argued that by protecting wheat from fungus he was actually helping the plant, not violating its dignity -- and helping society in the process. (!!!)
One morning recently, he stood by a field near Zurich where the three-year trial with transgenic wheat is under way. His observations suggest that the transgenic wheat does well in the wild. Yet Dr. Keller's troubles aren't over.
In June, about 35 members of a group opposed to the genetic modification of crops, invaded the test field. Clad in white overalls and masks, they scythed and trampled the plants, causing plenty of damage.
"They just cut them," says Dr. Keller, gesturing to wheat stumps left in the field. "Where's the dignity in that?"
No account of the mess Russia is currently creating in the Caucasus can be complete without Ingushetia where an opposition leader died in circumstances that are anything but clear. The death of Magomed Yevloyev has triggered a chain of events that culminated in an attack on the motorcade of Minister of Internal Affairs Musa Medov. It all started when Yevloyev, who was running Ingushetia's main opposition site registered in the US, had decided to pay a visit to the homeland. What made him take such a reckless step is not clear, but it's claimed that he came packed with hundreds of thousands of dollars and with a draft of declaration of Ingushetia's independence. In a bizarre twist of fate, he found himself traveling in the same plane with Ingushetia's president, Murat Zyazikov, appointed by Putin a few years ago instead of the locally elected Ruslan Alushev, who was deemed too soft and compromising in his dealing with opposition and Islamic radicals who based themselves in the republic. A former KGB general, Zyazikov has succeeded in a very short time to radicalize the republic so much that attacks on police outposts and military convoys have turned into almost daily routine.
It's not known whether any interaction between the two men, whose relationships are characterized by implacable hostility, happened on the plane, but Yevloyev was certainly aware that he was sharing the plane with his arch rival, given that he reportedly sent an SMS to his family about this. However, upon the arrival Yevloyev had barely made a few steps inside the airport, when he was arrested, pushed into a police car and driven away. When Yevloyev's family members, who came to the airport to meet him, have realized what happened they opened in pursuit.
They got the police convoy somewhere on the road to Nazran, Ingushetia's capital, and having dragged the officers out of their cars, they then proceeded to beat their very lives out of them. However, either this was another police convoy or for some other reason, Yevloyev was not there. It's at this point, according to clan members, that some police officers were begging for their lives saying that their hands are clean from Yamadayev's blood, hours before the man was officially reported dead. Yamadayev's body later found shot in the head, the official version is that Yevloyev was shot by mistake and unintentionally while Yevloyev's clan claimed that he was shot immediately after he had been dragged into the police car.
The events then followed the regular Caucasian script with Yevloyev's father declaring blood feud on both president Zyazikov and interior minister Medov. Zyazikov's home was attacked with grenade launchers, though Yevloyev's widow denied clan's responsibility for the death of Zyazikov's cousin who was shot dead a few days later. However, what was not the regular Caucasian routine of blood feuding is a suicide bomber who tried to ram a car packed with explosives into the motorcade of Medov a few days ago. The car went off prematurely and Medov had survived the attack intact, however suicide attacks are still not a regular part of the simmering insurgency unfolding in this tiny Caucasian republic which is Russia's poorest region and has the highest birth rate in the Russian federation.
This escalation have left some analysts wondering if another Chechnya, though on a smaller scale, is about to erupt in the Caucasus and what effect this may have on other parts of the Caucasus, in particular North Ossetia, with which Ingushetia has what can be defined as a mega blood feud. A Reuters correspondent was pondering this scenario recently.
NAZRAN, Russia, Sept 26 (Reuters) - Russia thought it had tamed the Muslim regions on its southern flank when it quelled a rebellion in Chechnya, but trouble is brewing again.
Barely noticed by the outside world, increasing violence and clashes between federal forces and rebels in Ingushetia, just west of Chechnya, threaten to destabilise the north Caucasus."
Ninety-three people were killed in clashes in the year to the end of August, the local branch of human rights group Memorial says -- a big death toll for a region with a population of only 470,000.
. . .
It is more than a local problem. As with two rounds of conflict in Chechnya, which killed tens of thousands of people from 1994 and spilled over to neighbouring regions, the clashes in Ingushetia could spread to other parts of the North Caucasus.
They could also re-ignite an ethnic conflict with the neighbouring Christian region of North Ossetia in which more than 500 people were killed in 1992.
Ingushetia, that until very recently has been quietly seating out the wars in Chechnia and elsewhere in the Caucasus in a remarkable demonstration of loyalty to Russia, has been steadily sliding into insurgency ever since Zyazikov's appointment, but the situation took a marked turn for the worse in the wake of the war in Georgia. Russia's support for independence of South Ossetia, Ingushetia's enemy, seems to have finally tipped the balance in a decisive way. The core of the dispute between the Ingush and Ossetians is about territories taken over by the Ossetians during the Ingush absence from the region following their mass deportation by Stalin during the second world war. When finally allowed to come back, the Ingush, who returned in hugely reduced numbers (some claim that two thirds of them died during the deportation and later in exile), found their homes and much of their territory resettled by their Christian neighbors. Attempts at resolving the dispute by peaceful means failed and an armed conflict erupted in 1992 during which the Ingush had to undergo another ethnic cleansing with thousands of them having been expelled from the disputed region.
The relative docility of the Ingush under their previous president may have to do a lot with a certain expectation of a reward for their good behavior in the form of the Russians moving in to redress historical injustices at the expense of the Ossetians. However no reward has ever come and docility does not appear to be a natural part of the Ingush national character. In fact, during the Russian conquest of the Caucasus the Russians have singled out them together with the Chechens as standing out by the virtue of their warlike nature even in this region teeming with martial races. That the Ingush patience was running thin for quite a while is indirectly confirmed by the fact that most members of the group sent by Basayev to storm the school in Beslan (the school itself is in North Ossetia) were Ingush and by the steadily increasing rate of attacks on Russian servicemen and just ethnic Russians inside Ingushetia itself. Russian recognition of South Ossetia's independence may well be the last straw that breaks the camel's back. Unsurprisingly, the Ingush are not exactly alone in their reviling of the Ossetians, as the recent wars of Russia in the Caucasus have been steadily giving shape to a new alliance in the region.
This one should be counted together with a massive rapprochement between the Georgians and Chechens that started shortly after the first Chechen war when Chechen president came to Georgia and apologized for the Chechen part in the Abkhazian war that ended in dozens of thousands of ethnic Georgians having been driven out of Abkhazia. Incensed by the Abkhazians failure to reciprocate by showing up during the first Russian Chechen war, a serious rethink happened in Chechnya about its alliances. Famous for their militancy, the Chechens have never been equally famous for being idiots and the fact that in Abkhazia they have been skillfully exploited by the locals to serve the imperialist agenda of the hated Russian enemy haven't escaped their attention. In 2001 Hamzat Gelayev, one of the best known Chechen warlords who together with Basayev fought on the Abkhazian side in 1992, led a force of hundreds of Chechens and Georgians across the border to storm the Kodori gorge, though they were beaten back by the Russians and Abkhazians.
The incoming uprising in Ingushetia will probably be crashed and quickly because there is simply not enough Ingush to keep this uprising going on for long. The Chechens seem to be (temporarily) exhausted and with no energy left to send enough volunteers to sustain the uprising. The same goes about Georgia that's still in the state of shock and despair after the last war. Nevertheless, in any case this uprising will serve one more valuable lesson to the next generation of separatists. It's basically the same old lesson about the impossibility of winning independence from Russia in one single country and the need for a coordinated action across several republics at once. Apart from learning this lesson, the future generations of Caucasian separatists will have much less difficulty in determining who should fight who, as the Ossetians and the badly depopulated Abkhazia are set to be swallowed by Russia in the near future or at least to become Russia's satellites totally dependent on Moscow to survive economically and defend their territory against the Georgians and Ingush. The front lines of the future conflicts are already well established.
In many ways the Caucasus is the Russian version of Lebanon and the legacy Putin leaves to the next generations of Russians in the region may soon reveal itself as toxic to the extreme. The strong side of Putin's policies is based on the determination with with Russia is rebuilding its military muscle and using it inside its borders. Their weakness is that any achievements created by such policies may quickly unravel the very moment Russia finds itself either lacking in military power or determination to put it to good use. In this sense the Russians should better bear in mind that Russia may not get another Putin to replace the current one when he dies or becomes disabled by the old age and by that time Russia may find itself vastly debilitated by the seemingly unstoppable process of the rapid shrinking and aging of its population. But the Caucasus, with its centuries old traditions of banditry, mafias and kidnappings, now supplemented by regular Islamic radicalism and terrorism, is not a region that allows easy disengagements, once one gets in.
The Russians should do something really smart and fast before the situation in Ingushetia too gets out of control. Removing Zyazikov or letting the Ingush get him may go some way in reducing the tension. The Russians may also try to build something in Ingushetia just as they did in Chechnya where large scale reconstruction projects are credited by some with the relative calm of the last few years (this is a somewhat doubtful claim to say the least). The failure to salvage Ingushetia would mean that Russia is left with Dagestan as the only critical region in the Caucasus still not messed completely, never mind that Dagestan has a low scale insurgency going on in its mountains too. But if the Russians want to try reconstruction in Ingushetia then they will find this task much easier if they start with it right now, before they find themselves left with no other option but to flatten the whole place just as they had to do in Chechnya.