Posts Tagged ‘thermocline of truth’

Movie Review: Margin Call

Saturday, August 1st, 2026

Title: Margin Call
Director: J.C. Chandor
Writer: J.C. Chandor
Starring: Kevin Spacey, Jeremy Irons, Zachary Quinto, Paul Bettany, Penn Badgley, Simon Baker, Stanley Tucci, Demi Moore, Mary McDonnell

A movie scene that came up in my YouTube feed was a pivotal meeting from 2011’s Margin Call, embedded here in all it’s spoilerific goodness:

It’s a tremendous scene, and we’ll cover it in a bit. I saw it and was hooked. I’ve watched it several times since, and we finally watched the movie for our regular Saturday night movie selection.

Margin Call is set at a commercial investment bank at the very beginning of the 2008 Subprime Meltdown. Market turbulence has spurred a massive layoff, the kind where security guards stand there as you pack your stuff and march you to the elevator. (I’ve been though a few, though never at a bank.) Before leaving, Stanley Tucci’s character passes a thumbdrive to Zachary Quinto’s character. While his remaining co-workers are out getting sloshed to celebrate not getting laid off, Quinto digs into the data, provides missing variables Tucci’s couldn’t, and realizes that the bank is faced with a looming catastrophe.

He calls back in a co-worker (Penn Badgley) and his new boss (Paul Bettany), who was formerly his boss’s boss, and reveals that mortgage backed securities (MBS) products are now trading outside the historic parameters that govern their risk assessment software. “Once this thing gets going in the wrong direction, this thing is fucking huge.” “How huge?” “The losses are greater than the current value of the company.”

Bettany then calls in his boss (Kevin Spacey), who sees the scale of the problem and calls in two high level executives (Simon Baker and Demi Moore), who then call in the company’s CEO (Jeremy Irons), which sets up the meeting in the video clip.

This is a pretty extraordinary chain of events, in which a junior analyst’s work travels up the chain of command until he’s in a meeting with the CEO in the middle of the night less than eight hours after he discovered the problem. The math doesn’t lie, and the math has detected an existential threat to the company that has to be addressed as soon as possible. There’s no thermocline of truth, and attempts at ass-covering (especially by Moore and Baker’s characters) aren’t allowed to derail necessary actions.

Getting back to that meeting, it’s a masterclass not only in acting, but in writing a scene that conveys exposition without boring viewers. Irons’ CEO (named John Tuld, an echo of Lehman Brother’s chair Richard S. Fuld Jr.) is meant to be seen as a ruthless son of a bitch (and he is), but here he conducts the meeting like a maestro: Putting Quinto’s very junior character at ease, understanding and accepting his explanation and its implications for the company, gently asserting rank (“you’re talking to me”), and then making the very difficult decision to completely liquidate the holdings that had been the bank’s most profitable business (“Sell it all. Today.”) in order to secure the firm’s survival, the decision Lehman Brother’s CEO didn’t make.

Spacey is also excellent, questioning the decision because it will essentially end his trading floor. But Irons’ character is, in fact, right all the way down the line. The firm’s survival is his overriding objective. The securities they’re selling are not worthless, simply distressed and likely to become more so. They’re an existential threat to Irons’ bank because they’re over-leveraged and have too many of them on their books; another company might not have the same problems. The history of the Subprime Meltdown validates Irons’ choice, but there was no way to know with certainty it was the right call at the time. Other companies might be running other software models making other assumptions. Some market panics or crashes (such as 1987’s Black Monday) prove short-lived. Everyone buying those MBS-backed securities in the fire sale was betting that they would recover and make profitable investments.

If predicting the market was easy, everyone would do it.

This is a first rate film I was only barely aware of when it came out, and is an astonishing one for one made in 17 days with a reported budget of $3.5 million. It would be virtually impossible to assemble a cast that good for so little money these days. Plus the production company had to scramble because Irons’ visa expired over the Fourth of July weekend.

Margin Call is well worth watching on streaming, or even picking up on Blu Ray.

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Posted in Economics | 4 Comments »

Russia’s Military: Thermoclines of Truth (And Endemic Corruption) All The Way Down

Sunday, June 21st, 2026

Thermoclines of truth, where valid information can’t make it to the top of organizations because telling unpleasant truths is discouraged, has been an ongoing concern of the blog. Simon Whistler and his crew have taken a look at the Russian military, and it appears that it’s thermoclines of truth (and endemic corruption) all the way down.

He starts out with a discussion of the current state of the war:

  • “Once upon a time, the Russian military was supposed to be the second most powerful on Earth. Today, the Russian military isn’t even the most powerful military in Ukraine.”
  • “From the start of Russia’s full-scale invasion in 2022, the nation’s armed forces have been subjected to a strange humiliation ritual, partly because of the cunning and innovation of their Ukrainian rivals, but partly because of the sheer bumbling idiocy of their own commanding officers.”
  • “Russia’s consistent ability to find its way into new and catastrophic blunders also definitely doesn’t hurt. As painful as the last several years have been for the Russian military, the situation has deteriorated even further in 2026. Russia is losing troops at an unprecedented rate, expending more lives, more munitions, and more state wealth. Even as they capture less and less territory each month, his battlefield commanders are making increasingly poor decisions, and they’re openly lying to their higher-ups when their attacks inevitably fall apart.”
  • “In the Kremlin, Vladimir Putin and his inner circle are being fed a constant stream of false victories when on the front lines, Russia’s spring and summer offensive has fallen flat on its face.”
  • “But however incompetent the Russian military might seem, the reality is even worse. Because underneath Ukrainian victories and underneath obvious blunders by Moscow, the Russian military has built a hidden corrupt machine where every battlefield catastrophe puts rubles into Russian pockets.”
  • “As the time of writing, Russian forward progress on the battlefield has basically halted in an overall sense. But Russia is still pushing forward in some areas just as it is being pushed back in others.”
  • “The graft and exploitation we’re going to describe today isn’t an accident. It exists because of the war in Ukraine. It feeds off the war in Ukraine. And the people who benefit most from the exploitation are the same people with the greatest incentives to ensure that the war continues even after any honest outside appraisal would suggest that Russian gains aren’t even close to being worth the cost.”
  • “Just a few short months ago, Russia was moving assets into position for what was intended to be a major push centered on the city of Sloviansk in the partially occupied Donetsk oblast. Taking Sloviansk wasn’t going to be easy for the Russians.”
  • “But even before there was time for the spring offensive to get underway, Ukraine revealed what’s turned out to be a decisive advantage. a new arsenal of mid-range drones, including an American-made model called the Hornet, plus the tactical advances to use those drones effectively. Dubbed the Martian 2 by Russian soldiers, the Hornet is piloted partially by artificial intelligence, and it’s completely impervious to Russian jamming because it navigates by using that AI to read the terrain visually instead of relying on GPS or remote control. The onboard AI can identify targets and even handle the final kill process all by itself. Flying at a range of over a 100 km, they’re practically silent until just before impact.”
  • “They’re extremely cheap, and they’ve been used by Ukraine less to target Russian troops at the front, and more to target the staging operations that would have created the foundation of a successful offensive. Russian forces have been unable to protect their ammunition stockpiles, their fuel trucks, or their encampments and training grounds away from the front lines.” More on how Ukraine is hammering Russian logistics here.
  • “Nor is the Hornet the only drone in Ukraine’s arsenal. Recently, Ukraine’s 412th Nemesis Brigade unveiled the Morrigan, another mid-range strike drone that’s optimized to operate significantly behind enemy lines. Those drones have allowed Ukraine to completely diffuse the spring offensive before it ever really got going.”
  • “Even more important, Ukraine has achieved those results without putting its soldiers at greater risk. Ukraine’s forces are chronically undermanned and perpetually exhausted. And Kiev does not have the ability to go head-to-head with the full strength of a Russian offensive in any one area, but instead it’s completely destroyed the infrastructure Russia needed to create an offensive that wouldn’t collapse under its own weight.”
  • “As a result, Russian forces near the front are badly isolated, cut off from easy reinforcement and resupply, while the bulk of the killing takes place away from the front lines where Russian troops naturally have their guard down. Ukraine has even expanded its strikes to target the highway network leading across occupied territory and into Crimea where the impact of Ukraine’s bombardment has gotten so bad that the entire region is on the brink of economic collapse. Fuel trucks, trains, and even ferries are unable to reach Crimea. The existing fuel storage infrastructure there has been destroyed and the problem’s only getting worse with fuel shortages now starting to spread across the Donbas.”
  • “According to the latest frontline reports, mobile drone defense teams are now at risk of running out of fuel. A crisis that would clear the way for even deeper Ukrainian strikes.”
  • “Better yet for Ukraine, targeting efficiency is improving constantly, to the point that it now takes only a few minutes for Ukrainian forces to spot a new moving target, get a drone on site, and destroy it.”
  • “Over the last several years, Russia and Ukraine have been engaged in a cycle of mutual innovation, with one side working out new solutions to battlefield problems and gaining a temporary advantage until the other side counters with innovations of their own. This time, however, Russia hasn’t been able to innovate a solution to the new problems that Ukraine has posed.”
  • “Russian troops are overextended and they have no choice but to hold their positions on the front when really their manpower is needed to defend the territory that Russia has already captured.”
  • “In the air, Russia still hasn’t found a way to meaningfully engage its air force in the conflict. Besides the use of strategic bombers and MiG-31 fighters to launch long-range cruise missiles, Russia can’t risk using some of its most valuable reconnaissance and command aircraft after Ukraine proved able to use American-made Patriot missiles to bring them down. And the supposedly world-class Su-57 fighter jet is still almost completely absent from contested airspace.”
  • “Russia’s aerial problem is expected to get even worse by early 2027, when Ukraine will take possession of its first Swedish-made Gripen fighter jets along with a long-range missile, the Meteor, that will have the range to strike Russian strategic bombers as they conduct those missile launches over the water.”
  • Snipping discussion of the poor state of Russia’s Black Sea fleet and the most recent St. Petersburg strike that we’ve covered in various LinkSwarms.
  • “Russian air defenses on the home front appear to be on the verge of complete collapse. Ukrainian long-range drones now regularly impact targets that were once unthinkable. From the Baltic Sea oil terminals at Primorsk and Luga to sensitive or highly specialized defense industrial centers located deep in the Russian heartland. Even Moscow has been targeted successfully.
  • “According to the chief designer at Ukraine’s leading missile innovator Firepoint, a new line of ballistic missiles will soon be operational and capable of hitting Moscow directly.”
  • “Russia hasn’t been able to meaningfully address the [air defense] problem.”
  • “As for its attempts to prevent Ukrainian long-range strikes, Russia seems to be unable to hit the command and control centers or the drone stockpiles that enable the campaign. So instead, Russia tries to deter Ukraine by launching long-range strikes of its own, often targeting population centers, energy infrastructure, or dual use facilities instead of going after the Ukrainian military.”
  • “Just as important [as Ukraine’s strikes], if not even more so, is the incredible consistency with which Russia manages to shoot itself in the foot. Moscow’s original sin, so to speak, is one that the rest of the world has gotten very familiar with. A supreme overconfidence that’s been helping Russia defeat itself from the very beginning. Despite the alternative storylines pushed out by Russian bot farms and repeated, no doubt, in this very comment section [aside: “Hello there, robots”], the idea that Kiev would fall in three days was very much a Russian invention.”
  • “But much more important than Russia’s original mistake was the fact that Moscow still hasn’t learned its lesson. Military planners and strategists all up and down the Russian military, from the unit level on the battlefield to Vladimir Putin himself, still base their decisions and expectations on an aggrandized version of the Russian military that simply does not exist.”
  • “Over time that problem is fused with another one. The fact that Russian leaders, again from the unit level all the way to the top, simply refuse to give each other honest assessments of what’s happening. At a certain point, those leaders realized that they could get away with reporting advances, victories, and other good news that didn’t actually exist.”
  • “The problem often starts small on the front lines. A Russian army captain sends a small unit to plant a flag and takes a few selfies in a contested area before that unit is annihilated in drone strikes. And then the captain sends those selfies to his major, claiming that today his forces took the territory in the picture. That same day, the major gets several similar reports from other captains. So he reports to his colonel that the front line has moved up by a few hundred meters when in reality most of the forces under his command have not moved at all.”
  • “That’s a throwaway example, of course, but you get the idea. And that news then travels up the chain until it reaches somebody like chief of the general staff of the Russian armed forces, Valery Gerasimov. We put the spotlight on Gerasimov in particular, because this is how you get statements like the one he made this past April, when he claims that Russia had captured a total of 80 settlements and over 1700 square kilometers since the start of the year. According to independent war monitors, Gerasimov tripled the amount of territory that Russia had actually taken. And of course, he failed to measure the territory that Russia had lost.”
  • “Don’t just take it from us, though. Even Russia’s milblogger class was calling bullshit in the aftermath.”
  • “But those institutional miscommunications, combined with the Russian military’s inflated perception of itself, combine to form a third problem, a demand for forward progress at all costs.”
  • “At this point in the war, commanders and higher-ups have gotten very used to the idea that their troops are consistently moving forward, consistently taking territory, and consistently getting Russia closer to victory. But now that lie has become too big to fail. And if individual Russian commanders were to report results that don’t align with that lie in places Russia wasn’t expecting, then they are at risk of being demoted, relieved of duty, or even worse.”
  • “As a result, each level of Russian leadership places immense pressure on the next level below them, all the way down to the frontline soldiers. Because their commanders need to deliver forward progress. And because their commanders won’t get into any real trouble if they sacrifice more lives in exchange, those frontline troops are at immense risk of being ordered forward into incredibly risky assaults.”
  • “Of course, it’s not unusual that a soldier on the front line of a major war would face some risk. But there’s a difference between being asked to advance as part of a coordinated push on a well-defined, well-scouted target and being told to sneak into a zone where there’s been no prior scouting and where Ukrainian surveillance and kamikaze drone coverage is expected to be overwhelming. Those are the kinds of situations that Russian soldiers are being ordered into. Not because there’s any expectation that they would succeed, but because their attempt gives their commanders enough plausible deniability to report success.”
  • Sometimes it works. “But the costs of munitions, funds, supplies, and especially human life are so much greater than the value of what Russia’s actually capturing.”
  • “Nor does Russia particularly care which soldiers get sent to the meat grinder. More and more sources from within the Russian military report the troops are sent into assault units regardless of their other qualifications, including skilled recruits who could make meaningful contributions to enhance Russia’s overall situation. Soldiers with experience in electrical work, logistics management, and even the medical field, have been reassigned against their will to assault brigades, often without explanation. At times, those reassignments come after they were recruited into the military on the promise that they’d be working with their advanced skill set.”
  • “Sometimes the reassignments appear to be random, but at other times they’re used as punishment. Soldiers who disobey orders, try to desert, or otherwise anger their commanders are highly likely to be reassigned to units where they’ll be used as cannon-fodder.”
  • “But let’s circle back to Ukraine’s mid-range drone campaign, because that makes this problem even worse. At the best of times, Russian troops were being sent forward into these high-risk assaults with at least a few things going for them: A little bit of training and prep time, a decently well supplied sustainment infrastructure to keep them alive, a possibility of MedEvac if they’re wounded, and a possibility that reinforcements would soon join them if they survive.”
  • “Today, though, that entire support infrastructure has been torn to shreds. Yet, the expectation of forward progress still remains. So, these soldiers are still ordered forward, but they’re overexposed, under-supplied, and isolated compared to what was already a bad situation. When they’re wounded, they aren’t evacuated. They die slow, horrific, predictable deaths. To the point that instead of the usual ratio of killed to wounded in modern war, one killed for every three wounded, Ukrainian assessment suggests that Russia’s balance looks more like two soldiers killed for every one wounded.”
  • “Even worse, the soldiers who are wounded will often be sent back to combat. Every so often, video footage emerges from the front lines depicting soldiers on crutches or in wheelchairs bearing visible shrapnel wounds or dealing with limbs that won’t work like they’re supposed to, forced back into assault units where their death is all but certain.”
  • “And all of that would be bad enough if Russia wasn’t so insistent on hobbling its soldiers even further. Take the example of frontline drone equipment. According to Russian milblogger sources, the Kremlin recently ordered most combat units to start giving up drones of various models, sending them back to be reassigned to Russia’s dedicated drone forces. That’s despite the fact that the Russian drone forces are not properly dispersed along the front line, and they’re not part of any efficient decision-making infrastructure that would allow them to support Russian troops in real time. So where a Russian platoon might once have been able to use small FPV drones to scout their surroundings or strike Ukrainian targets, they now have nothing. They’re operationally blind and beholden to another branch of the military for support.”
  • “On paper, Russia has started to fix the issue. Officials in Moscow say that Russia is now producing record numbers of FPV drones. According to the milbloggers, however, these replacement drones are unreliable, ineffective, and of a dangerously low construction quality. Similarly, Russian troops are still reeling from the decision to cut off access to Telegram a couple of months ago, demanding that Telegram be replaced with the state-run Max app, despite the fact that it is insecure, incomplete, and extremely buggy. Maybe Vladimir Putin vibe coded it. The same could be said for the loss of Starlink, a western controlled connectivity service that Russia chose to remain dependent on instead of dedicating the appropriate resources to build its own alternative.”
  • “If we were to end this episode right now, the situation we’ve described would already be bad enough. A Russian military that’s completely failed to address Ukrainian combat innovations and one that’s consistently made decisions that puts its troops at extreme unnecessary risk. But all too often, when a country or a fighting force seems to suffer from issues so comprehensive and so obviously stupid, that they seem to resist understanding, it’s important to ask another question. Who’s getting paid?”
  • “If Russia’s obvious incentives are to increase the combat potency of its troops, make legitimate gains on the battlefield, and eventually win the war, then who benefits inside Russia from making sure that that doesn’t happen? To answer that question, we’re going to invite you to think about the war a bit differently for just a minute.”
  • “Take away the people, the guns, the tanks, the drones, and the territory, and think about Russia’s invasion as a flow of money. That money is being sent from within Russia and funneled into Ukraine. Sent in the form of military equipment, fuel supplies, and direct payments made to Russian soldiers. Then some of that money flows back into Russia as those soldiers paychecks travel to bank accounts or are sent to their families.”
  • “That flow of funds is partially regulated, but it’s happening in and around an active combat zone, which means monitoring is difficult, and financial transfers have to happen with limited internal oversight or anti-corruption protections. Not to mention that the Russian state isn’t exactly the best at internal oversight.”
  • “Transactions happen on the aggregate scale of tens of billions of rubles, meaning that even relatively large amounts of missing cash can easily be dismissed as just a rounding error.”
  • “If you were a person interested in taking money that you could reasonably obtain somewhere within the Russian economy, then the war is the perfect place to do it. You’ve just got to figure out where you can get in the way of the regular flow of funds, whether those funds are headed into the conflict zone or traveling out.”
  • “Take another look at the problems the Russian military is dealing with and the specter of internal corruption is everywhere.”
  • “We’ll start with a few examples at the top from people who exert immense power within the Russian armed forces. Take Roman Demurchiev, a major general who serves as deputy commander of Russia’s 20th Combined Arms Army. Over the span of several years, he engaged in regular shakedowns of his subordinates worth the equivalent of hundreds of thousands of US dollars, some of which he passed up to his superiors who expected additional payouts. As he once texted to one of his subordinates, quote, “War is war, but don’t forget about the cash. Get yours. Delete this message later.'”
  • “Or take the former deputy defense minister Ruslan Tsalikov, who was brought up on bribery, money laundering, and conspiracy charges that alleged he created a gang to steal from the Russian state budget. He was brought down during a wave of prosecutions that surrounded former defense minister Sergey Shoygu.”
  • “But even though Russia does occasionally prosecute corrupt officials, the Kremlin’s track record dovetails in a very troubling way with the problem we’ve already mentioned. Commanders only tend to come under real scrutiny when they’ve already failed in some way that requires their removal, usually due to battlefield setbacks. From Vladimir Putin’s perspective, the nice thing about everybody in the Russian leadership being so corrupt, is that when it’s time to remove them, it usually doesn’t take very long to dig into their finances and bring legitimate, damning charges against them.”
  • “But if these commanders understand that they’ll only be scrutinized after they’ve been found to have committed battlefield screw-ups, then they’re heavily incentivized to ensure that their screw-ups don’t become common knowledge. So they push their subordinates harder and they push their subordinates harder still until frontline soldiers are fighting and dying to create an illusion of frontline progress so their commanders can save their skins.”
  • “Or take another problem we’ve already mentioned, the cheapy and ineffective FPP drones that are being flooded toward the Russian front lines. That decision was the work of Yuri Vaganov, the commander of the Russian unmanned systems forces who was appointed in late 2025. But here’s the thing about Vaganov. He has got zero military experience, zero military education, despite now holding the rank of Lieutenant Colonel. Instead, he owns a very large drone company, the same drone company that’s now guzzling down rubles from state contracts and mass-producing the FPV drones that Russian soldiers are expected to use. Interesting, isn’t it? In essence, this single aspiring oligarch has worked out a way to position himself within both the Russian military itself and the Russian defense industrial complex so that he could give himself a monopoly over drone procurement in the biggest drone war that the world has ever seen.”
  • “For Russian soldiers, his appointment is a life-threatening catastrophe. But for Vaganov himself, the incentives will be to cut corners, inflate costs, and otherwise pillage as much of Russia’s drone budget as possible.”
  • “But let’s talk about the other way that money flows through the Russian side of this war, into soldiers pockets, and then ideally back to their bank accounts or to their families. That’s where lower level commanders get their opportunity, because they wield the power to decide who lives and who dies. Take an article published this April by The Economist, where a dozen Russian contract soldiers describe a system where low-level infantrymen will bribe their commanders for a position away from the front and then spend a high share of their remaining wages financing their commander’s lifestyle while carrying out unpaid labor on the side.”
  • “As one soldier in that article described, troops often start giving up a portion of their paychecks to buy decent drones or body armor or other assets that might, you know, keep them alive. But then also, quote, ‘You’ll pay forever so they don’t send you to the meat grinder.’ Other Russian commanders have purportedly forced troops to pay exorbitant sums to stay alive and sometimes just to avoid being shot on the spot.”
  • “According to recent reports by exiled Russian journalists, low-level commanders operate more like gang leaders than actual military personnel, in increasingly sophisticated structures that are informed by the high proportion of ex-convicts that now swell the Russian ranks. Often when new troops arrive, commanders confiscate their bank cards and ping codes and threaten violence against those who don’t comply. And when those soldiers are killed, they’re formally reported by their commanders as missing. A change that ensures that money will continue flowing to their accounts.”
  • “Think of frontline soldiers as a pure revenue stream, and even some of Russia’s most asinine decisions start to make sense. When a soldier is wounded in combat, that soldier still receives a paycheck. And if they can be kept on the front lines, then the process of extortion can continue.”
  • “When a higher skill Russian recruit shows up in one of those units, commanders know that they’re likely to have more money, partly because they’re going to be paid on a better contract, and partly because they probably have some form of savings squirreled away from their civilian life. Trap those soldiers in an assault unit, and there’s no limit to what they might be willing to pay in order to avoid the meat grinder. But if they seem as if they’ll cause trouble, then the meat grinder is right there for their commanders to use.”
  • “Those incentives also help explain increasing reports of physical torture of Russian soldiers by their own commanders on or near the front lines, including soldiers who’ve already been wounded. Our own Warfronts team has encountered footage of Russian troops who’ve had multiple limbs amputated due to combat wounds who were then cling-wrapped onto trees and extorted further. Videos like that can be sent to a soldier’s family who will then ends up paying even more to spare the life of a person who’s locked into conscription or contract by the Russian state.” The Western tradition of military service demands leaders who will do just about anything for the men serving under them, while Russian officers torture their subordinates for money.
  • “Quoting researcher Alexandra Arapova [Russian families] are saying that literally we paid everything to have our father, brother, husband not to be killed. In many cases, superiors, they use torture to take money from the soldiers.”
  • “As for the scale of the brutality, we can’t know for sure, but judging by the available information, this kind of treatment is everywhere. One Russian exile outlet, Radio Echo, obtained accounts from soldiers like these, and over a 6-month period in 2025, Radio Echo indicated that they had received almost 12,000 complaints of corruption and violence by Russian commanders against their own men.”
  • “It’s here that we find the real root of Russia’s ongoing military incompetence. Where Ukraine has spent the last four years learning, adapting, and innovating on the battlefield, Russian generals, defense industrial elites, and low-level battlefield commanders have been building a deeply corrupt machine at every level of the Russian armed forces. That machine exists to extract wealth for the direct and personal benefit of people lucky enough to wield power at the expense of frontline soldiers who aren’t so fortunate.”
  • “In a system like that, where officials aren’t just personally corrupt, but can safely assume that corruption is all around them, reform just isn’t a goal, even if it saves lives. Reform, there is a danger, even an enemy. Because if Russia were to ever fix the incompetence that runs through its armed forces, then it would destroy the machine that Russian incompetence is built to serve.”
  • “Right now, that status quo demands constant reports of forward progress, by any means necessary. And the Kremlin is willing to pay every ruble in Russia in order to make that happen.”
  • “But Vladimir Putin’s military is overrun with people who don’t particularly care about conquering Ukraine as long as they know they’ll be set for life in the post-war Russia that comes next. Russian incompetence is getting worse because it’s becoming streamlined and because the Russian leadership has proved that corruption will go unchecked as long as forward progress continues.”
  • “The incompetence is the point because the longer this situation lasts, the longer this vast corrupt machine can go on making a profit.”

    • Thermoclines of truth and endemic corruption are the horrifying reality for Russian soldiers, and also a big reason why Ukraine has a real chance to win.

    We previous touched on Putin’s thermocline of truth here.

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    Posted in Military, video | 35 Comments »

    Why Commies Couldn’t Do Semiconductors

    Sunday, January 15th, 2023

    Asianometry has an interesting video up about East Germany expensive, strenuous efforts to catch up to the west in semiconductor manufacturing technology.

    Spoiler: They didn’t.

    Some takeaways:

  • “In the late 1980s, the German Democratic Republic, or East Germany, went all in on the monumental task of domestic semiconductor production. This semiconductor obsession failed, and the billions of marks spent on it eventually bankrupted the country’s failing economy.” I think he oversells the role the semiconductor push had on bankrupting the economy; everything in late commie East Germany was failing (just like the rest of the Warsaw Pact), they suffered a credit crunch for investment due to tightened western restrictions, couldn’t export Soviet oil as profitably due to the Reagan/Saudi created oil glut, and also were running into hard currency shortages to but the components their manufacturing sector needed to keep exporting.

  • The East German Uprising of 1953 kicked off what would be a persistent, and ultimately existential problem, for the GDR: Emigration. Throughout its history, its best and smartest people consistently sought a way out to the West. To convince its people to stay, the SED [Sozialistische Einheitspartei Deutschlands, AKA Socialist Unity Party of Germany] promised a better future through the use of technology. More than the Soviets, East Germany leaned on information technology as a pathway towards economic vitality and a glorious socialist future. The Party’s elites saw themselves locked in a technology race with the capitalists to see who can build a better society. Leader Walter Ulbricht called for an “industrial transformation” with the ultimate aim of “catching up with and surpassing capitalism in terms of technology.” A thriving computer industry was crucial towards making this ideology work. And in order to produce these superior computers, East Germany needed to learn and master microelectronics technology.

  • “Less than four years after the Americans invented the germanium transistor, East Germany moved quickly to build their own line of first generation semiconductors. In 1952, development work began at the VEB Works for Electrical Components for Communications Technology, or WBN, in the town of Teltow near the city of Berlin. This put them about even with West Germany. The FRG’s first semiconductor factory came about in 1952, built by Siemens.” Indeed, this is very early to get into the semiconductor game. It wasn’t until 1957 that Fairchild Semiconductor, widely considered as Company Zero for America’s semiconductor industry, was founded.
  • “WBN suffered from a lack of cooperation between its industrial and academic sides. The production teams lacked discipline, hands-on experience, and did not appreciate the scale and difficulty of the task they were facing. In one incident, the team dumped hot ashes right outside a factory window where they were producing a pilot run of semiconductors.” Ouch! A very uncleanroom…
  • “The state failed to give their young semiconductor team the resources it should have gotten. Administration – their chief accountant, in particular – seemed to care very little for semiconductors. When the team asked for money to purchase felt slippers to prevent static charge buildup in the clean room, their chief accountant denied the request.”
  • The Soviets didn’t help. “Despite being the GDR’s primary political backer, the Soviets were strangely wary. In 1958, two WBN staff members traveled to the Soviet Union to do technical exchanges. A year later, they came back complaining of limited cooperation. Much of what the Soviets had developed was created for military use. Thusly, the Soviets were concerned that transferring that to the East Germans would leak via scientists defecting to the West.”
  • They tried to get information from the U.S., but Cold War tech transfer policies were already falling into place. They had better luck in the UK. “Through the contacts of Arthur Lewis, a British Labour Party politician, the delegation saw plants owned by British Philips, Siemens-Edison, and British-Thompson-Houston. The latter is a descendant of the Vickers Company that sold oil equipment to the Soviets in the early 1900s. Just thought that was a nice connection. This visit was very successful. The East Germans learned a whole lot about industrial level semiconductor manufacturing. They even managed to purchase equipment for low-frequency transistors, a trailing edge technology.”
  • Despite that, the gap grew wider: “In 1958, WBN produced 100,000 germanium diodes, transistors, and rectifiers. Worse yet, some 98% of what they produced eventually needed to be discarded throughout their entire working lives.” Classic commie quality. “That same year in 1958, the United States alone produced 27.8 million transistors. Two years later in 1960, the US grew that production capacity five times over to 131 million.”
  • “Erich Apel, head of the Economic Commission of the Central Committee Politburo and an economic reformer – wrote in late April 1959: ‘Compared to … the American, Japanese, and West German industry, we lie in a state of backwardness that can scarcely be estimated … this backwardness will not decrease through 1961 at least, but will instead grow. Another inspection in 1960 identified more items of backwardness in semiconductor production. Workers tended to use rules of thumb rather than their instruments to measure. The various factory lines did not cooperate with one another.”
  • “Interestingly, when reporting these results to the Economic Commission of the Central Committee Politburo, that inspector softened his results. In his notes to state authorities, he said the GDR was 5 to 6 years behind. But in his analysis to the more politically charged Economic Commission, he cut it in half, 3 to 4 years.” Commies always institute thermoclines of truth to avoid being purged.
  • The brain drain to the west continued. The solution: The Berlin Wall. “For semiconductors however, the Wall pinched off what little technology the GDR had imported from the West.” The solution was to suck up even more to the Soviets, and to spy harder.

  • In 1963, the aging Walter Ulbricht launched a new initiative – called the New Economy System of Planning – to bring more market elements to the GDR economy. Now industrial groups, not bureaucrats, can actually decide how money can be spent. The reform also elevated the status of technology sectors like semiconductor manufacturing in the economy. R&D spending increased by over a third from 1959 to 1963. In 1965, nearly 40% of the electronics that the GDR produced by value were semiconductors – 82 million marks out of 223 million marks in total. Four years later in 1969, that number grew four-fold. Many of these transistors went into new consumer technical goods like radios, TVs and fridges. In 1971, semiconductor production reached 535 million marks by value. That year, East Germany began producing their first integrated circuits, some 10 years after Texas Instruments did it.

  • “Strange inequalities in policy planning meant that color televisions were widely available, but consumer items like toothbrushes and toilet paper were in short supply.” Communist planning at its finest!

  • One day in 1967, the Minister of Electrical Engineering and Electronics showed up to an East German electronics firm with a suitcase full of integrated circuits from TI. He told them to copy them exactly. The Ministry for State Security – better known as the Stasi – had been engaged in scientific and technology espionage since the 1950s – mostly related to atomic engineering and other sciences. Then in 1969, the Stasi’s Scientific and Technical Sector was reorganized and expanded with the goal of acquiring military technologies. After Honecker came into power in 1971, the Stasi’s job shifted from acquiring scientific knowledge to specific technologies – mostly via informants in the West who found and handed the goods over to East Germany. One such informant was Hans Rehder, a physicist working for the West German firms Telefunken and AEG. He handed over technical secrets for over 28 years and was never caught.

  • “Western companies knew about this copying of course. In one famous example, a GDR chip analyst looking at a stolen chip from the US firm Digital Corporation saw a message n Russian, roughly translating to: ‘When do you want to stop to swipe. Own design is better.'”
  • Stasi intellectual theft kept them from falling further behind, but couldn’t close the gap. “Because the Stasi were spymasters not technical experts, they frequently asked for the wrong item. Their methods of laundering the technology before passing it on made it harder to understand how to use it. Tightening embargoes from the West also interfered with industrial development. Stolen Western products got progressively older and more expensive to acquire. The embargoes gave other countries the chance to scam the Stasi, adding mark-ups frequently in the range of 30% to 80% to even 100%. This drained the East Germans’ already limited R&D budgets.”
  • “The wholesale copying also undercut the country’s ability to export its goods abroad. The Stasi did not want other countries to see what they had managed to acquire. And had they tried anyway, sales would have been blocked on patent infringement grounds. And finally, semiconductors were getting to the point that East German technicians struggled to replicate them. As early as 1976, an IC’s physical form no longer yielded secrets on how to produce them.”
  • “In 1981, with the GDR still about 7-10 years behind the West in microelectronics development, Erich Honecker announced a ten-point program to produce the majority of its semiconductors domestically by 1985. The 1970s were rough years for the GDR. Tighter export bans. The Oil Crises of the 1970s. Heavy borrowing from the West. Declining productivity and worsening competitiveness. It was all weighing heavily – grinding the country’s economy to a halt. Gerhard Schürer, head of the State Planning Commission, convinced Honecker that investing in semiconductors would bring the country out of its economic morass.”
  • They even struck a deal with Toshiba.

    In exchange for 25 million marks, Toshiba – a long running technology  partner with the GDR – would furnish the GDR with designs for their 256 kilobyte memory chips along with instructions on how to produce them. At the time, 256-kilobyte was leading edge stuff. The GDR was still struggling to produce 64 kilobyte memory. This would have been a game-changer. But in 1987, Toshiba got caught selling submarine propeller equipment to the Soviet Union. Huge scandal back then. Afraid of getting caught again, Toshiba offered the Stasi a 95% refund to destroy the evidence. [Spy Gerhardt] Ronneberger agreed. So in July 1988, he got the money back and dissolved the chip designs in a vat of acid in front of Toshiba’s people. But never trust a spy! Those were just copies, produced for exactly that purpose.

  • Finally in September 1988, Zeiss General Director Wolfgang Biermann triumphantly presented Erich Honecker with the first samples of that 1 megabit chip – the U61000. Honecker said that the chips were “convincing proof that the GDR is maintaining its position as a developed industrial country.” This technical “triumph” was the bitterest of them all. In semiconductors, prototypes mean nothing. Production means everything. Dresden produced just 35,000 chips throughout the entirety of 1988 and 1989 with a yield of 20%.

    To say this was “piss poor” would be an understatement. Those are ruinous, “fire everyone” numbers for actual semiconductor manufacturers.

    They planned to scale up to 100,000 1 megabit chips each year. Toshiba alone produced that many in a single day. Two months later in November 1988, the leading edge moved once more. Toshiba began shipping its 4-megabit DRAM in high volume, seeking to produce a million chips a month by March 1989.

  • Then history happened. “By then, the East German economy was in shambles,  scheduled to default on its debts by early 1990. It never even got there. In May 1989, Hungary opened its borders with Austria and East Germans swarmed through there en route to West Germany. Later in November 1989, a year after its one megabit technical triumph, the Berlin Wall fell.”

    • East Germany stole as many designs as they possibly could, but they couldn’t steal the intellectual expertise behind the numerous process tweaks, nor the furious swarm of technological innovation drive by Silicon Valley’s capitalist high risk/high reword startup culture that drove Moore’s Law for decades.

    Top-down communist command economies never had a chance to keep up.

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    Posted in Communism, Economics, video | 4 Comments »

    Former CIA Officer Mike Baker On Bad Intelligence And Putin

    Saturday, March 26th, 2022

    Here’s a snippet on the Russo-Ukrainian War from an interview Joe Rogan did with former CIA officer Mike Baker last week.

    Some takeaways:

  • Putin has been “pretty damn consistent over the years.”

    If you look at what he did in Chechnya, if you look at what he did helping Assad in Syria, if you look at what he did annexing Crimea, if you look at Georgia, Abkhazia, South Ossetia. Every step of the way he’s been following in his mind this stated desire, that he’s made very public over the years, to rebuild his sphere of influence.

  • We were too optimistic, thinking that he was thinking like we do in a rational process.
  • Intelligence on what Putin actually wants is hard because his inner circle keeps getting smaller and smaller.
  • Human intelligence is hard, and despite movies, blackmail or a honeytrap are rarely the most effective methods.
  • Putin was a KGB officer for 15 years, and he served in East Germany rather than the west. “He doesn’t really understand how we think.”
  • The collapse of communism 1989-1991 was a great opportunity for recruiting spies behind the iron curtain.
  • Putin thinks “You guys have disrespected me, fuck you all. I told you I want my spirit a sphere of influence, and I don’t care whether I have to break it.”
  • “He called the collapse of the Soviet Union the greatest tragedy of the 20th century, and he’s he’s serious about that, he means that.”
  • He’s cut loose some of his own inner circle over the past couple of weeks.
  • “Was he given bad intel? Or was he given intel and choose to ignore it?” Like many dictators, Putin has a “thermocline of truth” (though Baker doesn’t use that phrase) between him and any possible bad news.
  • “They were gonna get in there, maybe within 48 hours, they were going to have control of Kiev, they would be welcomed by the population in Ukraine, and they would be able to establish a puppet regime.”

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    Posted in Communism, Foreign Policy, Military, video | 6 Comments »

    More on How Clinton Lost

    Thursday, December 15th, 2016

    Donald Trump won the 2016 Presidential race by rewriting the rule book. Conversely, Hillary Clinton seems to have lost the race by simply ignoring the same rule book.

    This Politico piece on how Hillary Clinton’s arrogant campaign lost Michigan is well worth it’s own link for the rich aroma of schadenfreude wafting off it:

    Politico spoke to a dozen officials working on or with Clinton’s Michigan campaign, and more than a dozen scattered among other battleground states, her Brooklyn headquarters and in Washington who describe an ongoing fight about campaign tactics, an inability to get top leadership to change course.

    Then again, according to senior people in Brooklyn, Clinton campaign manager Robby Mook never heard any of those complaints directly from anyone on his state teams before Election Day.

    In results that narrow, Clinton’s loss could be attributed to any number of factors — FBI Director Jim Comey’s letter shifting late deciders, the lack of a compelling economic message, the apparent Russian hacking. But heartbroken and frustrated in-state battleground operatives worry that a lesson being missed is a simple one: Get the basics of campaigning right.

    Clinton never even stopped by a United Auto Workers union hall in Michigan, though a person involved with the campaign noted bitterly that the UAW flaked on GOTV commitments in the final days, and that AFSCME never even made any, despite months of appeals.

    The anecdotes are different but the narrative is the same across battlegrounds, where Democratic operatives lament a one-size-fits-all approach drawn entirely from pre-selected data — operatives spit out “the model, the model,” as they complain about it — guiding Mook’s decisions on field, television, everything else. That’s the same data operation, of course, that predicted Clinton would win the Iowa caucuses by 6 percentage points (she scraped by with two-tenths of a point), and that predicted she’d beat Bernie Sanders in Michigan (he won by 1.5 points).

    “I’ve never seen a campaign like this,” said Virgie Rollins, a Democratic National Committee member and longtime political hand in Michigan who described months of failed attempts to get attention to the collapse she was watching unfold in slow-motion among women and African-American millennials.

    Rollins, the chair emeritus of the Michigan Democratic Women’s Caucus, said requests into Brooklyn for surrogates to come talk to her group were never answered. When they held their events anyway, she said, they also got no response to requests for a little money to help cover costs.

    Rollins doesn’t need a recount to understand why Clinton lost the state.

    “When you don’t reach out to community folk and reach out to precinct campaigns and district organizations that know where the votes are, then you’re going to have problems,” she said.

    From the day Clinton released her launch video, the campaign knew she’d struggle with enthusiasm. Yet they didn’t do many of the things voters are used to seeing to give a sense of momentum, insisting that votes didn’t come from campaign literature, door knocking, commitment to vote cards or the standard program of sending absentee ballot applications to likely voters rather than just appealing to the people once they’d already ordered the ballots.

    “It was very surgical and corporate. They had their model, this is how they’re going to do it. Their thing was, ‘We don’t have to leave [literature] at the doors, everyone knows who Hillary Clinton is,’” said one person involved in the Michigan campaign. “But in terms of activists, it seems different, it’s maybe they don’t care about us.”

    Michigan operatives relay stories like one about an older woman in Flint who showed up at a Clinton campaign office, asking for a lawn sign and offering to canvass, being told these were not “scientifically” significant ways of increasing the vote, and leaving, never to return. A crew of building trade workers showed up at another office looking to canvass, but, confused after being told there was no literature to hand out like in most campaigns, also left and never looked back.

    “There’s this illusion that the Clinton campaign had a ground game. The deal is that the Clinton campaign could have had a ground game,” said a former Obama operative in Michigan. “They had people in the states who were willing to do stuff. But they didn’t provide people anything to do until GOTV.”

    The only metric that people involved in the operations say they ever heard headquarters interested in was how many volunteer shifts had been signed up — though the volunteers were never given the now-standard handheld devices to input the responses they got in the field, and Brooklyn mandated that they not worry about data entry. Operatives watched packets of real-time voter information piled up in bins at the coordinated campaign headquarters. The sheets were updated only when they got ripped, or soaked with coffee. Existing packets with notes from the volunteers, including highlighting how much Trump inclination there was among some of the white male union members the Clinton campaign was sure would be with her, were tossed in the garbage.

    According to Hillary’s final FEC report, the Clinton campaign spent $576,402,561 on the race. Don’t think that printing campaign literature, sending volunteers door-to-door or mailing absentee ballots is cost-effective? Fine. But if you have half a billion dollars to spend you do it anyway. What else are you going to do with the money?

    Well, if you’re Clinton, you spend money running up the popular vote count in places where it doesn’t help get you electoral college votes:

    But there also were millions approved for transfer from Clinton’s campaign for use by the DNC — which, under a plan devised by Brazile to drum up urban turnout out of fear that Trump would win the popular vote while losing the electoral vote, got dumped into Chicago and New Orleans, far from anywhere that would have made a difference in the election.

    And when regional offices tried to go to the DNC for help, they were refused because the Clinton campaign didn’t want them talking to the DNC:

    With Clinton’s team ignoring or rejecting requests, Democratic operatives in Michigan and other battleground states might have turned to the DNC. But they couldn’t; they weren’t allowed to ask for help.

    State officials were banned from speaking directly to anyone at the DNC in Washington. (“Welcome to DNC HQ,” read a blue and white sign behind the reception desk in Brooklyn that appeared after the ouster of Debbie Wasserman Schultz just before the July convention).

    A presidential campaign taking over the party committee post-convention is standard, but what happened in 2016 was more intense than veterans remember. People at the DNC and in battleground states speak of angry, bitter calls that came in from Brooklyn whenever they caught wind of contact between them, adamant that only the campaign’s top brass could approve spending or tactical decisions.

    “Don’t touch them. Stay away,” one person on the other end of the call remembered Clinton campaign states director Marlon Marshall saying after hearing about a rogue conversation between a battleground operative and an official at the DNC. “You can’t be calling those people and making them think something is coming when nothing is.

    Mook himself made a number of those calls.

    To Brooklyn, this was the only way to shut down what they perceived early as an effort to undermine the campaign’s planning, DNC officials playing good cop as they made promises they couldn’t keep to friends in the states, took credit for moves Clinton’s staff already were making, or looked to dig up trouble to use against them later.

    So not only did the Clinton campaign have a thermocline of truth to keep unpleasant messages from reaching the top ranks, they created their own and then strengthened it out of turf defense, arrogance, paranoia, and ego.

    As in most of these Clinton 2016 autopsies, all the insider fingers seem to be pointing at campaign manager Robby Mook as the designated scapegoat for their collective failure. And I’m sure he had a hand. But the fact the Clinton campaign was an arrogant, out-of-touch operation reflected the presence of an arrogant, out-of-touch candidate at the very top of it.

    Read the whole thing.

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    Posted in Democrats, Elections | No Comments »