China banks may lose 5 times US banks’ subprime losses

Posted on February 12, 2016February 12, 2016 by Denise Simon

Yellin’s testimony includes China as the big worry.

China is big concern

Yellen didn’t mince words about China: its economy is slowing down and uncertainty is rising about how much China will devalue its currency, the yuan.

A weak yuan has major implications for global trade. Yellen firmly blames the uncertainty of China’s currency for the rise in global growth fears.

“This uncertainty led to increased volatility in global financial markets and, against the background of persistent weakness abroad, exacerbated concerns about the outlook for global growth,” Yellen said.

Add in spooky dude, George Soros:

Bass: China banks may lose 5 times US banks’ subprime losses in credit crisis

CNBC: A Chinese credit crisis would see the country’s banks rack up losses 400 percent larger than the hit U.S. banks took during the subprime mortgage crisis, storied hedge fund manager Kyle Bass has warned in a letter to investors.

“Similar to the U.S. banking system in its approach to the Global Financial Crisis (GFC), China’s banking system has increasingly pursued excessive leverage, regulatory arbitrage, and irresponsible risk taking,” Bass, the founder of Dallas-based Hayman Capital, wrote in the letter dated Wednesday.

“Banking system losses – which could exceed 400 percent of the U.S. banking losses incurred during the subprime crisis – are starting to accelerate.”

China’s banking system has grown to $34.5 trillion in assets over the past 10 years, from a base of $3 trillion, wrote Bass, who is famed as one of the few major investors to correctly call the U.S. subprime housing collapse that kicked off the 2008 global financial crisis. That prescience earned him a mention in Michael Lewis’ book “Boomerang,” which was about the European credit crisis.

This expansion in the banking system’s asset base was fueled largely by rapid credit expansion, Bass wrote, that helped fund the huge, and often inefficient, infrastructure spending program that has propped up China’s growth.

“China’s [banking] system is even more precarious when we realize that, even at the biggest banks, loans are not made to borrowers based on their ability to repay,” he wrote. “Instead, load decisions are political decisions made by the state.”

Add to this the danger posed by China’s shadow banking system – made up of instruments Bass claimed the country’s banks used to subvert restrictions on lending – and the upshot was there were “ticking time bombs” in China’s banking system, the hedge fund manager explained.

“Chinese banks will lose approximately $3.5 trillion of equity if China’s banking system loses 10 percent of assets,” Bass wrote. “Historically, China has lost far in excess of 10 percent of assets during a non-performing loan cycle.”

He noted that U.S. banks lost about $650 billion of their equity throughout the global financial crisis.

The letter said that the Bank for International Settlements (BIS) estimated that Chinese banking system losses from the 1998-2001 non-performing loan cycle exceeded 30 percent of gross domestic product (GDP).

“We expect losses in this cycle to exceed prior cycles. Remember, 30 percent of Chinese GDP approaches $3.6 trillion today,” he warned.

Bass wrote that he expected the massive losses to force Beijing to recapitalize Chinese banks and sharply devalue the yuan.

“China will likely have to print in excess of $10 trillion worth of yuan to recapitalize its banking system,” he said. “By the time the loss cycle has peaked, we believe the renminbi will have depreciated in excess of 30 percent versus the U.S. dollar.”

The hedge fund manager didn’t return an email sent outside office hours requesting comment on the investor letter, which the Wall Street Journal reported was the first he had sent in two years.

Bass’ sentiments on the yuan aren’t new, with the Wall Street Journal reporting earlier this month that he was among the money managers making bearish bets on the currency.

The dollar has already fallen about 5.9 percent against the yuan since August, when a sharp devaluation by the People’s Bank of China (PBOC) roiled markets; the greenback was fetching around 6.5710 yuan on February 5, the last day of trade before China’s markets closed for a week-long Lunar New Year holiday.

The PBOC has introduced a slew of measures to arrest, or at least slow, declines in the currency in the hope of achieving an orderly depreciation.

The central bank has asked banks making yuan loans abroad to set aside more in reserves and has also hoovered up yuan in Hong Kong, a key market where the bearish bets have been made, effectively making it more expensive for traders to borrow the yuan to make these trades.

China’s state-owned publications have also chipped in with stinging editorials admonishing greedy speculators for betting against the currency. Prominent investor George Soros was recently likened to a “crocodile” that had declared “war” on China for suggesting while at the World Economic Forum in Davos, Switzerland, that China’s economy was headed for a hard landing.

In his letter, Bass casts the attacks on Soros as confirmation of his views.

“China’s public reaction in its state media to George Soros’ comments in Davos was in character for a country that is on the precipice of a large devaluation,” Bass said.

While many have pointed to China’s large – albeit shrinking – pile of $3.23 trillion in foreign-exchange reserves as a defensive wall against a crisis, Bass says that’s simply not enough.

He estimates China really only has around $2.1-2.2 trillion in reserves after adjusting for several factors including about $700 billion that could be tied up in China’s sovereign wealth fund CIC. That’s below his estimate of the $2.7 trillion minimum China would need to effect a banking sector bailout.

“China’s liquid reserve position is already below a critical level of minimum reserve adequacy,” he said.

Predictions of a Chinese economic disaster have been circulating for a long time; Gordon Chang’s book “The Coming Collapse of China” was published in 2001.

However, the mainland saw economic growth slow to a 25-year low of 6.9 percent in 2015 amid its transition toward a consumption-driven economy and away from its manufacturing roots.

When it comes to positioning for his expectations of a Chinese bank implosion, Bass wrote that he was thinking broad.

“What happens in China will not stay in China,” he said. “We decided to liquidate the majority of our risk assets.”

He did not appear likely to buy back in to the market any time soon.

“The next 18 months will be fraught with false-starts, risk rallies, and second-guessing,” he wrote.

To be sure, some of Bass’ other doomsday bets haven’t yet come to fruition.

For more than five years, he has called for a collapse in Japan government bonds (JGB) as part of a yet-to-materialize full-blown financial crisis there. That trade, dubbed a widow-maker, has so far backfired spectacularly.

Instead of a collapse in JGB prices, they’ve surged, with the benchmark 10-year seeing negative yields for the first time this week. Bond yields move inversely to prices.

Hayman Capital had returns of about 1.7 percent last year, according to a Bloomberg report.

***

TOKYO (AP) — Japan’s main stock index dived Friday, leading other Asian markets lower, after a sell-off in banking shares roiled investors in the U.S. and Europe.

Tokyo’s Nikkei 225 was down 4.8 percent to 14,952.61 after earlier sinking as much as 5.3 percent. Hong Kong’s Hang Seng fell 1.0 percent to 18,364.14. South Korea’s Kospi gave up 1.4 percent to 1,835.01 and Australia’s S&P/ASX 200 fell 1.2 percent to 4,765.30. Shares in New Zealand and Southeast Asia also fell. Markets in China and Taiwan are closed until Monday for Lunar New Year holidays.

Global stocks have been in a slump since the beginning of the year when China’s market, which had been propped up by government buying, plunged dramatically. Concerns about China, however, are now just one of several factors behind the bloodletting.

NYPD Covertly Tracked Cell Phones

Posted on February 11, 2016February 11, 2016 by Denise Simon

New York police have covertly tracked cell phones, group says

Reuters: New York City’s police have made extensive use of covert devices to track cell phones without obtaining warrants since 2008, a civil liberties group said on Thursday, revealing how frequently law enforcement in the largest U.S. city has employed the technology.

The New York Civil Liberties Union released files that showed the New York Police Department used “cell site simulators” to track nearby cell phones more than a 1,000 times over the past eight years.

The American Civil Liberties Union has identified 60 local, state and federal agencies that have adopted the devices in recent years, but the group has said there are likely far more. The extent of the devices has largely been shrouded in secrecy, as departments and private manufacturers such as Harris Corp have refused to disclose information about their use.

U.S. Representative Jason Chaffetz of Utah, a Republican, has introduced a bill to require warrants for the use of cell site simulators.

The documents released on Thursday were obtained by the NYCLU through a Freedom of Information Law request.

The NYPD does not have a written policy on using the surveillance devices and does not obtain warrants when doing so, according to the NYCLU.

Instead, the department seeks “pen register” orders, which have been used for decades to gather information on specific phone numbers. The orders are issued by judges but require a lower standard than the probable cause needed for warrants.

The NYPD’s practice is less stringent than the one adopted last year by the U.S. Department of Justice, which calls for warrants except in emergency situations.

“We still have concerns that this military equipment is being used in a civilian context,” said Mariko Hirose, an NYCLU attorney. “At the very least, they should be using warrants and with a strict privacy policy that is written.”

The NYPD did not immediately respond to a request for comment.

The devices mimic cell towers and intercept signals from nearby phones to gather information. That data can include locations of calls, numbers that are called or texted and even the content of communications, the NYCLU said.

The simulators can also sweep up information from nearby “bystander” phones.

The documents do not indicate what data police collected. The simulators were used to investigate a wide range of crimes, including murder, rape and drug trafficking.

No New York court has yet tackled the question of whether the warrantless use of such devices is constitutional, Hirose said.

She said the NYCLU could have difficulty establishing the legal standing to bring such a challenge, which would probably have to come from a criminal defendant specifically targeted by a simulator.

Yikes, there is more:

Intercept: The NYPD has used cell-site simulators, commonly known as Stingrays, more than 1,000 times since 2008, according to documents turned over to the New York Civil Liberties Union. The documents represent the first time the department has acknowledged using the devices.

The NYPD also disclosed that it does not get a warrant before using a Stingray, which sweeps up massive amounts of data. Instead, the police obtain a “pen register order” from a court, more typically used to collect call data for a specific phone. Those orders do not require the police to establish probable cause. Additionally, the NYPD has no written policy guidelines on the use of Stingrays.

Stingrays work by imitating cellphone towers. They force all nearby phones to connect to them, revealing the owners’ locations. That means they collect data on potentially hundreds of people. They are small enough to fit in a suitcase, or be mounted on a plane.

When they were originally developed in 2003, Stingrays were designed for military use. But in the past decade, they have increasingly been purchased by law enforcement agencies. According to the ACLU, Stingrays are used by at least 59 police departments in 23 states, and at least 13 federal agencies, including the DEA, FBI, and the IRS. Because most departments withhold information about Stingrays, these numbers likely underrepresent the total.

In December, The Intercept published a secret U.S. government catalogue of cellphone surveillance technology, including Stingrays and “dirt-boxes.” The advertisements boast that many of the items can spy on “up to 10,000 targets.”

Stingrays have long been a topic of concern for privacy activists. “Cell-site simulators are powerful surveillance devices that can track people, including in their homes, and collect information on innocent bystanders,” said Mariko Hirose, a senior staff attorney at the NYCLU. “If they are going to be used in communities the police should at minimum obtain a warrant and follow written policies.”

Instead, law enforcement agencies have fought to keep Stingrays secret, even dropping criminal cases to avoid disclosing anything about them. The FBI has forced local police agencies to sign Stingray-related non-disclosure agreements, claiming that criminals and terrorists who know about Stingrays could take countermeasures against them.

The increasing use of Stingrays, coupled with the lack of transparency, has alarmed civil liberties groups. “I think it’s critical to have transparency about the use of technology like Stingrays,” said Faiza Patel, an attorney with the Brennan Center for Justice. “That’s what allows courts, the public, and our elected officials to weigh in on the proper rules.”

In September, the Department of Justice issued guidelines requiring its officers to seek probable cause warrants before using a Stingray. But the guidelines only applied to federal law enforcement agencies, not to state and local police, who have fought such a change. In one ongoing court case, the state of Maryland has argued that anyone who turns on their phone consents to having his or her location tracked.

In November, Senator Ron Wyden, D-Ore., and Rep. Jason Chaffetz, R-Utah, introduced the GPS Act, a bill that would extend the Department of Justice’s guidelines to all law enforcement agencies. “Buying a smartphone shouldn’t be interpreted as giving the government a free pass to track your movements,” Wyden said.

See the government catalogue here:

Top photo: “nypd” by Nick Allen, used under CC BY 2.0/ cropped and color corrected from original.

Contact the author:

Syria: Cessation of Hostilities? Huh?

Posted on February 11, 2016February 11, 2016 by Denise Simon

Russian Foreign Minister Lavrov and U.S. State Department Secretary John Kerry announce an accelerated and expanded delivery of humanitarian relief in Syria and also a nationwide cessation of hostilities within a week.

U.S. Secretary of State John Kerry, right, and Russian Foreign Minister Sergey Lavrov attend a news conference after the International Syria Support Group (ISSG) meeting in Munich, Germany, Feb. 12, 2016.

It is complicated…..

The working group of 17 countries meeting in Munich agreed “to implement a nationwide cessation of hostilities to begin in a target of one week’s time,” he said.

They also agreed to immediately “accelerate and expand” humanitarian aid to the war-torn country.

“Sustained delivery will begin this week, first to the areas where it is most urgently needed… and then to all the people in need throughout the country, particularly in the besieged and hard to reach areas,” Kerry said.

He also said peace talks between rebels and the Syrian government would resume in Geneva “as soon as possible”.

VOA: Kerry told reporters early Friday in Munich that the cessation of hostilities will not apply to terrorist groups, including Islamic State, al-Nusra and others. He said the 17-nation International Syria Support Group has agreed that a task force co-chaired by the U.S. and Russia will work to “determine the modalities of a long-term reduction in violence.”

The top U.S. diplomat added on a cautionary note that the ISSG meeting has produced commitments on paper, but that the real test will be if all the parties honor their commitments.

The support group also agreed to “accelerate and expand” delivery of humanitarian assistance, starting with key troubled areas and then widening to provide increased humanitarian aid to the entire country. Read the full summary here.

Meanwhile, Assad has won and so has Islamic State….

If Assad Wins, Islamic State Wins

Bloomberg: The civilians fleeing Aleppo don’t prove definitively that, with Russian backing, President Bashar al-Assad will win the Syrian civil war. But it’s certainly time to game out that scenario and ask: What would victory look like to Assad? And what will happen to the other regional actors engaged in this fight?

The decisive element to consider is whether Assad needs to defeat Islamic State to be a winner. If the answer is yes — and if Assad could do it — the world would probably breathe a sigh of relief, and accept Assad’s victory, despite its extraordinary human costs and egregious violations of human rights.

But Assad will probably calculate that he doesn’t need to beat Islamic State, just contain it so that it doesn’t constitute an existential threat to his regime. That would put Islamic State well on its way to becoming a statelet, accepted by its neighbors for lack of will to defeat it. The long-term consequences for the world would be high, but Assad’s regime would be substantially better off.

For now, Assad appears to be moving toward at least a limited victory over the ill-organized Free Syrian Army forces around Aleppo. It isn’t rocket science. He’s combining intense air support from Russian planes with ground forces drawn from what remains of the Syrian army.

The Battle of Aleppo has been going on since 2012. What’s changed in this round is the intensity of Russian airstrikes. Republican presidential candidate Ted Cruz may have said that he wants to carpet bomb Islamic State to find out if sand can glow in the dark, but it’s Russian President Vladimir Putin who’s following a version of that strategy against the Syrian opposition.

It’s still conceivable that the Free Syrian Army could rally, but it doesn’t look likely. That would mean Assad could consolidate control over Aleppo and whatever number of people remains there. The population was some 2.5 million before the war, and it’s certainly much smaller now.

Over time, opposition fighters could in theory infiltrate back and attempt an insurgency. If Assad can’t spare sufficient troops to hold Aleppo, the Free Syrian Army might stage a comeback. But it would be doing so from a much reduced position, and the war-weary public might very well be unwilling to support it.

Once the formula of intense Russian bombing plus Syrian ground troops has been shown to be a success, Assad and Putin will repeat it over whatever Syrian territory remains in Free Syrian Army or Syrian Kurdish hands. It is entirely reasonable to think it would succeed again.

That will lead to a major strategic crossroads. Assad and Putin will at least be tempted to try their winning formula against Islamic State.

Putin would love to show the world that he can succeed where the West has failed. Beating the Sunni militant group would significantly improve Russia’s global military prestige. Added to his taking of Crimea, it would make Putin the first Russian leader in more than a generation to win wars, which will also burnish his domestic reputation. It might be possible to achieve all this without Russian ground troops. And if airstrikes aren’t enough, Putin can simply blame the Syrian ground forces for being inadequate.

The upside for Assad would be a return to something not unlike the status quo before the Sunni uprising against him — but with a smaller national population with fewer Sunni Arabs, because many will remain in Turkey and Europe as refugees.

At one time, it seemed unimaginable that the Assad regime could return to national control. But that doesn’t seem quite as unrealistic now. Iran would favor and support Assad, as it always has. Now that Iran’s regional position has improved as a result of the nuclear deal with the U.S. and the lifting of economic sanctions, Iran would be better placed than ever to support Assad.

The Israelis have looked Islamic State in the face and concluded they’d rather have Assad than total chaos. Turkey had warm relations with Assad and was establishing open borders with Syria until the uprising broke those ties. As a geostrategic matter, Turkey would eventually take Assad back into the fold, whatever its continuing anger about the massacres he’s perpetrated. Even Saudi Arabia, which sees the Assad regime as the cat’s-paw of its rival Iran, would be prepared to live with Assad if it meant a return to regional stability.

The great risk for Assad in taking on Islamic State is the possibility of overreach. Even if he has enough troops to beat the militants, he might not be able to hold down the rest of the country. And if Islamic State forces flee Syria into Iraq, which would be the rational thing for them to do, they could come back and harass whatever forces Assad left behind. Unlike the Free Syrian Army, Islamic State would have a base from which to pursue an insurgency. It also has ideologically motivated troops with some combat experience. What’s more, Assad simply may not want to govern Sunnis area in Syria that have either sided with Islamic State or accepted its rule as a practical matter.

Assad therefore might decide that he’d be better off with a de facto border that Islamic State respects out of self-interest. If he leaves the group alone and is left alone in exchange, he can re-establish some semblance of sovereignty in much of Syria, surely his No. 1 priority. Essentially, Islamic State becomes everyone else’s problem, not Assad’s.

This scenario seems to me more likely than a serious Syrian countermilitant push. It would leave Islamic State as a threat to Iraq, to regional security and the rest of the world. The possibility of Islamic State as a long-term, de facto state looms.

ISIS, Islamic State has a Help Desk

Posted on February 11, 2016February 11, 2016 by Denise Simon

The Islamic State in Iraq and Syria (ISIS) uses a 34-page manual to instruct its followers on how to stay invisible on the Internet.

The Arabic document was translated and released this week by analysts at the Combating Terrorism Center, an independent research group at the U.S. Military Academy at West Point. It includes warnings to avoid Instagram because it is owned by Facebook, and Dropbox because former secretary of State Condoleezza Rice sits on its board of investors. Famous government leaker Edward Snowden has also criticized Dropbox over its privacy, the document notes.

Users are also directed to use Apple’s encrypted FaceTime and iMessage features over regular unencrypted text and chat features. More here.

New ISIS ‘help desk’ to aid hiding from authorities

TheHill: The Islamic State in Iraq and Syria (ISIS) has opened up a new technical “help desk” that instructs terrorists on how to hide from Western authorities, according to researchers.

The Electronic Horizon Foundation (EHF) was launched on Jan. 30 as a joint effort of several of the top ISIS cybersecurity experts, the Middle East Media Research Institute (MEMRI) said in a new report.

While researchers have previously uncovered an ISIS “help desk” and 34-page manual that help extremists encrypt their communications, MEMRI said the EHF takes these services to an “alarming” new level.

“Jihadis have long sought technical information, which has been confined in the past to various password-protected jihadi forums,” said the MEMRI report, shared exclusively with The Hill. “However, the freedom and ease by which they can now obtain that information is alarming, especially when such information is shared over private and secure channels.”

The EHF operates on the encrypted messaging platform Telegram but also maintains a Twitter account that disseminates information and directs followers to its secure Telegram channel.

The group’s self-stated goal is clear: “Spreading security and technical awareness among the monotheists.”

According to an announcement celebrating the EHF launch, ISIS has spent a year establishing the group with the goal of “unifying the technical and security efforts, and uniting the ranks of the mujahideen’s supporters.”

It brings together several technical support entities, such as the Information Security channel on Telegram and the “Islamic State Technician,” an ISIS security specialist thought to be behind a leading password-protected technical forum.

The announcement, which the MEMRI translated, was also direct that the EHF had been formed “due to the electronic war and tight surveillance imposed by the Western intelligence apparatuses over Internet users, and their tracking and following of the mujahideen and their supporters, and targeting them based on their data and information, which they share over the Internet.”

EHF pledged to provide resources to help combat this surveillance.

“It is time to face the electronic surveillance, educate the mujahideen about the dangers of the Internet, and support them with the tools, directives and security explanations to protect their electronic security, so that they don’t commit security mistakes that can lead to their bombardment and killing,” the announcement said.

As of early this week, the EHF Telegram account had over 2,200 members.

MEMRI said EHF has not posted much yet, “but it is expected to take the lead nonetheless in content posted as time goes by.”

If the group follows in the footsteps of its creators, its content will be “defensively-oriented,” such as tutorials on mobile phone security, instead of “offensively-oriented,” such as instructions on launching cyberattacks, MEMRI said.

In the wake of the terror attacks in Paris and San Bernardino, Calif., law enforcement officials have cautioned that potential terrorists are increasingly using encryption to hide from investigators, a phenomenon they call “going dark.”

The warnings have led to some calling for legislation that would guarantee government access to encrypted data, although momentum on Capitol Hill for such a bill has cooled in recent months.

“I don’t think we’re any closer to a consensus on that than we were, I think, six months ago,” Rep. Adam Schiff (D-Calif.), the House Intelligence Committee’s top Democrat, said last week. “Or if there is a consensus, it is that a legislative solution, I think, is very unlikely.”

IS Encryption Guide by AlyssaBereznak

Putin Demands a Stand-down or Escalation of War

Posted on February 11, 2016February 11, 2016 by Denise Simon

As you read this, Obama is in California fundraising. Poor guy, he is sleeping at a Sheraton rather than his usual Fairmont….sigh.

Russia proposes Syria ceasefire but warns foreign troops risk ‘world war’

Munich (Germany) (AFP) – Moscow said Thursday it had made a “quite specific” ceasefire proposal for Syria as foreign ministers gathered in Munich, hoping to revive a floundering peace process amid warnings of a “new world war”.

With Syria peace talks derailed by the regime onslaught on Aleppo, the UN said 51,000 Syrians had fled the northern city this month as government forces backed by Russian bombers and Iranian fighters left the opposition there virtually surrounded.

“We made propositions for a ceasefire that are quite specific,” Russian Foreign Minister Sergei Lavrov said as he sat down for talks with US counterpart John Kerry.

Moscow has refused to confirm reports that its ceasefire would take effect only on March 1, giving another three weeks to an offensive which the UN says could place 300,000 people under siege.

Observers say the bombardments on Aleppo have killed 500 people since they began on February 1.

Russian Prime Minister Dmitry Medvedev, meanwhile, warned that any move by Gulf nations to send in troops to support the rebels would risk a “new world war”.

Russian Foreign Minister Sergei Lavrov (L) and US Secretary of States John Kerry shake hands as they …

“The Americans and our Arabic partners must think hard about this: do they want a permanent war?” he told Germany’s Handelsblatt newspaper.

US diplomats said that any ceasefire in the Syria conflict should be “immediate”.

“This is an issue of commitments we all took, and that we have to respect,” added EU foreign affairs chief Federica Mogherini.

But Russia and Iran have repeatedly labelled the rebels in Aleppo as “terrorists” and suggested there can be no settlement until they have been militarily defeated.

“Those who are outside Syria should help the peace process and not seek to impose conditions on the Syrian people,” Iranian Foreign Minister Javad Zarif told Iran’s state TV after arriving for the talks.

– US ‘Plan B’ –

A first round of talks between the Syrian government and the opposition in Geneva collapsed earlier this month over the attacks on Aleppo.

The rebels say they will not return to talks, pencilled in for February 25, unless government sieges and air strikes end.

Hosted by Kerry and Lavrov, foreign ministers from the 17-nation Syria contact group came together late Thursday for a meeting billed as a moment of truth for the floundering peace process.

Washington has threatened an unspecified “Plan B” if talks fail, as tension mounts with Moscow over its air campaign.

Syrians ride a motorbike past a collapsed building on which graffiti reads “Russia kills us&quo …

The two sides traded accusations on Thursday about bombing in Aleppo, with the Pentagon claiming two hospitals had been destroyed, and Moscow saying US planes had struck the city — which was flatly denied by Washington.

– Weakening the West –

Analysts see little hope of reconciling differences.

Syria is a crucial ally and military staging post for Russia and Iran, while a growing number of observers say Moscow has benefited from the chaos created by the war, particularly the refugee crisis in Europe.

“The goal of Russian President Vladimir Putin is to destabilise and weaken the West,” Koert Debeuf, a research fellow at the University of Oxford, told the Carnegie Europe think tank.

Syrian government forces raise their weapons as they patrol after taking control of the village of K …

But they also see little chance of a decisive victory for Syrian President Bashar al-Assad.

“The idea of a full reconquest… seems neither credible nor durable. It will simply turn into a terrorist or guerrilla situation,” said Camille Grand, of the Foundation for Strategic Research in Paris.

Many have criticised the United States for not doing more to support the rebels.

Even outgoing French Foreign Minister Laurent Fabius could not hide his frustration as he announced his resignation on Wednesday, saying: “You don’t get the feeling that there is a very strong commitment” by the US in Syria.

Washington has been reluctant to involve itself in another war after the quagmires of Afghanistan and Iraq, and has sought to focus more on combatting the Islamic State group than getting involved in the civil war between Syria’s regime and rebels.

“The US has given up the idea of toppling Assad,” said Grand. “Kerry seems willing to accept pretty much anything to resolve the crisis.”

The conflict has also strained relations between Turkey and its Western allies.

Turkish President Recep Tayyip Erdogan hit back at UN calls that his country, which is already hosting 2.5 million refugees, should do more for those fleeing Aleppo.

“We do not have the word ‘idiot’ written on our foreheads,” he said. “The United Nations should give advice to other countries. And then we can send the refugees to these countries.”

He has also slammed Washington’s increasingly close alliance with the Kurdish militias in the fight against IS, saying it was turning the region into “a pool of blood”.

*** A deeper dive on Putin

Mounting Evidence Putin Will Ignite WWIII

By letting Putin get away with whatever he likes in Syria, Obama has created a deeply dangerous situation

Schindler-Observer: Relations between Russia and Turkey have been dismal since late November, when a Turkish fighter jet shot down a Russian bomber on the border with Syria, killing its pilot. That began a war of words between Moscow and Ankara that ought to concern everyone, since the former has several thousand nuclear weapons and the latter is a member of NATO.

Kremlin propaganda against Ankara has increased of late, setting the stage for further confrontation. As I explained here last week, Russian media outlets initially blamed the Sinai crash of Metrojet 9268 last autumn on the Islamic State, an atrocity which killed 224 innocents, nearly all of them Russians—a quite plausible claim. However, the Kremlin has abruptly shifted course and now blames the mass murder on Turkish ultranationalist terrorists, without any evidence provided to support that explosive assertion.

Where things may be going between Russia and Turkey, ancient enemies who have warred many times over the centuries, was evidenced this week, when the Kremlin announced large-scale surprise military exercises in the regions of the country that are close to Turkey. Troops were moved to full combat readiness, the last stage before a shooting war, with Sergei Shoygu, the Russian defense minister, announcing on TV: “We began our surprise check of the military preparedness in the Southwest strategic direction.”

That would be the direction of Turkey. These snap exercises involve the Southern Military District and the navy’s Black Sea Fleet, which are deeply involved in Russia’s not-so-secret secret war in eastern Ukraine. However, they also involve the navy’s Caspian Sea flotilla, which is nowhere near Ukraine.

It’s difficult to see how Turkey could stand idly by as an ancient city of two million is crushed just fifty miles from its frontier.

This implies that the snap exercises, which have been prominently featured in Kremlin media, are about Turkey, not Russia. This goes back to recent events on the ground in Syria, where the Kremlin-backed regime of Bashar al-Assad is slowly crushing its opponents, thanks to prodigious military help from both Russia and Iran. Regime forces are closing in on Aleppo, Syria’s biggest city, and 50,000 civilians have already fled the city in panic.

The Russian military displays scant regard for civilian casualties. Mr. Putin’s air force killed almost 700 Syrian civilians last month (to compare, the Islamic State killed less than a hundred Syrian civilians in January), and if the crushing of the Chechen capital of Groznyy in 1994-95, when Russian forces killed roughly 35,000 Chechens, mostly civilians, in just six weeks, is any guide, residents of Aleppo are wise to get as far away as they can.

Needless to add, such a bloody siege of Aleppo would set off a humanitarian crisis that the world could not fail to notice. It’s difficult to see how Turkey could stand idly by as an ancient city of two million is crushed just fifty miles from its frontier.

That is precisely the scenario that has seasoned analysts worried. In Pentagon circles, among those who are watching the budding war between Moscow and Ankara, citations of this famous movie clip are now commonplace. Distressingly, smart Russian analysts are thinking along similar lines.

Today Pavel Felgenhauer published his analysis under the alarming title, “Russia has begun preparations for a major war,” and he marshals a convincing case that the snap exercises in the country’s southwest are really a cover for a shooting war with Turkey—and therefore with NATO too, if Ankara is perceived as defending itself and can assert its right to Article 5, collective self-defense, which obligates all members of the Atlantic Alliance to come to Turkey’s aid.

‘It’s clear that there has to be some actual ‘redline’ for Mr. Obama, something that the United States cannot tolerate Russia doing – but where is it? If I don’t know, I’m sure the Kremlin doesn’t either.’

As The New York Times dryly noted of the Kremlin, “The [Defense] Ministry has ordered surprise maneuvers over the last three years as tensions between the East and West have worsened. The maneuvers have at times come as combat escalated in Ukraine and Syria.” In fact, using large-scale military exercises as a cover for aggression is old hat in Moscow. It was used during the August 1968 Soviet invasion of Czechoslovakia, which explains why NATO always got jumpy when Moscow held military exercises anywhere NATO territory, while snap exercises like this week inevitably caused Cold War panic.

Mr. Felgenhauer paints an alarmingly plausible scenario. As rebel forces defend Aleppo in Stalingrad fashion, the Syrian military, with Russian help, commences a protracted siege of the city, employing massive firepower, which becomes a humanitarian nightmare of a kind not seen in decades, a tragedy that would dwarf the 1992-95 siege of Sarajevo. However, any Turkish move to lift that siege, even with international imprimatur, would quickly devolve into all-out war.

Mr. Felgenhauer minces no words about this: “Russia has begun the deployment of forces and resources for a major war with Turkey.” Mr. Putin has decided to let his client, the Assad regime, win its bloody civil war, first in the north around Aleppo, and any moves by Turkey or NATO to stop them will be met with force. So far, President Barack Obama has let Mr. Putin do whatever he likes in Syria, no matter the cost in innocent lives, so the Kremlin has no reason to think that will change.

The Yom Kippur War of October 1973, when the United States and the Soviet Union came alarmingly close to great power war, is cited as an ominous precedent by Mr. Felgenhauer—albeit one that ended happily when nuclear war was averted thanks to wise diplomacy. There is no reason to think the befuddled Obama administration is that diplomatically deft.

But who is Pavel Felgenhauer? Regrettably, he is not a guy in furry slippers in someone’s basement spouting weird conspiracy theories. Instead, he is one of Russia’s top defense analysts with solid connections in that country’s military. He is a frequent critic of the Russian military and the Putin regime; it’s noteworthy that he published his analysis in Novoe Vremya (New Times), a Ukrainian newsmagazine, not a Russian outlet, perhaps because this sort of truth-telling is unwelcome at home. His prognostications are often correct, for instance his prediction of the Russian invasion of Georgia in August 2008, which he called two months before it happened.

That is NATO’s top concern right now: that after years of weakness and vacillation, the Obama administration may find itself backed into a corner by aggressive Russian action.

Is Mr. Felgenhauer’s alarmism warranted? Many Western insiders think along similar lines. By letting Mr. Putin get away with whatever he likes in Syria, Mr. Obama has created a deeply dangerous situation in the region. By abandoning his infamous Syria “redline” in September 2013, the White House in effect outsourced American policy there to Mr. Putin, as I warned you at the time, and which the Obama administration, powerless to influence terrible events in Syria, is slowly realizing.

“Are we heading for our ‘Sarajevo moment’?” a senior NATO official bluntly asked: “It’s clear that there has to be some actual ‘redline’ for Mr. Obama, something that the United States cannot tolerate Russia doing – but where is it? If I don’t know, I’m sure the Kremlin doesn’t either.”

That is NATO’s top concern right now: that after years of weakness and vacillation, the Obama administration may find itself backed into a corner by aggressive Russian action. Particularly if coupled with intemperate Turkish reactions, that could create a nightmare of historic proportions around Aleppo. Although the White House has foresworn any military intervention in Syria’s fratricide, it’s worth noting that Mr. Obama led NATO to war in Libya exactly five years ago to prevent possible slaughter in Benghazi, a far smaller humanitarian threat than the terrifying sword of Russian artillery and airpower that’s hanging over Aleppo right now.

For their part, the Russians are upping the ante, with regime media publishing claims by the Defense Ministry that air attacks on Aleppo yesterday that killed civilians, including the bombing of a hospital, were actually perpetrated by U.S. Air Force A-10s, a war crime that they say the Pentagon has tried to pin on Moscow. In fact, American intelligence knows this was the work of the Russian Air Force: “We have intercepts of the Russian pilots talking during the attack,” explained a Pentagon official, “as usual, the Russians are lying.” Yet this sort of dishonest Kremlin propaganda, what spies term disinformation, is exactly what the Obama administration has refused to counter, as I’ve explained in this column, in a futile effort to keep the Kremlin happy.

Mr. Putin instead has taken his measure of Mr. Obama and has doubled down, saving his client regime in Syria. Russia has won in Syria and NATO and the West are stuck with that outcome, as are the unlucky residents of Aleppo. “I hope Obama doesn’t decide to get a backbone now,” suggested a retired American general who knows the Russians well, “since the Kremlin is in ‘drive’ in Syria and isn’t about to do ‘reverse’.”

There seems to be little chance of this White House taking on the Russians in Syria. However, there are no guarantees that Ankara is equally inclined to let the Kremlin do whatever it wants on its southern border, and that is how NATO could get embroiled in World War III over the Levant. Cooler heads may prevail, and all sensible people should hope they do here.