Conclusion of a Discussion of a Supreme Court Term

Kennedy's opinion makes the following points:

• He rejects the notion that mere dry "data" is not speech, that it is merely a commodity. "Facts, after all, are the beginning point for much of the speech that is most essential to advance human knowledge and to conduct human affairs."
• Vermont apparently had said at argument that even if data in general is speech, there should be an exception in the case of prescriptions, where the raw data should be regarded as non-speech for policy reasons. Kennedy doesn't actually reject that argument but he renders it irrelevant, because
• The speech of the detailers in their contacts with doctors is indisputably speech, and Vermont's restrictions on data are designed to burden that speech, imposing a speaker and content-based burden on protected expression "and that circumstance is sufficient to justify application of heightened scrutiny." So even if the prescriber-identifying information itself is a "mere commodity," this law fails on first amendment grounds.
• One of Vermont's offered justifications for the law is that it protects doctors from "harassing sales behaviors." Kennedy isn't buying into that one. A physician has the same right to refuse to communicate with a detailer that a homeowner has to refuse to discuss faith with a Jehovah's Witness. This law is not necessary to make that so.

Justice Breyer writes in dissent for himself, Justice Ginsburg, and Justice Kagan. He claims that the statute "meets the First Amendment standard this Court has applied when the government seeks to regulate commercial speech," i.e. the government's interest in restricting the speech is substantial (the protection of public health), the regulation in question directly serves that interest (in the explicit judgment of the legislature), and the regulation is narrowly tailored to that end, in that it "permits doctors who wish to permit use of their prescribing practices to do so.")

I'm not a big fan of "intermediate tiers," and thus not a fan at all of the Central Hudson language on which Breyer is drawing here.

The dissent doesn't make any case that the detailers were misusing their speech by, say, lying to the doctors about what their companies' drug can do.  Further, if the detailers are lying, a response should be tailored to that.  How would it be a "narrowly" tailored when the idea is to make it more difficult for the detailers to get accurate information useful in such a pitch? 

What the government fears here, and what the dissenters join them in fearing, is not falsehood-spouting detailerts, but persuasive ones.  And I join Justice Kennedy in seeing that as pernicious.

Meanwhile, I've looked at it from a portfolio-management point of view here.

(I'm not crazy about the headline, which sounds unnecessarily censorious -- but you learn when you do these things that you aren't in charge of the headline.)

Plot Summary

I discussed the book, Ugly Americans, in Monday's entry. Today I thought I'd offer a plot summary. In coming days I hope to make inquiries into the history behind it, how true a story it is/isn't.

We're told that in 1992, twenty Ivy League football players visited Japan, to play an exhibition game against Japanese college kids. Of course, American football isn't big in Japan, and the Ivy team (which would have been mincemeat before, say, the Boilermakers or the Sooners on even a bad year for either of the latter) handily defeated the Japanese who lent themselves to the show.

On this trip, Princeton's contribution to that all-star-Ivy team, John Malcolm, encountered a Princeton alum, Dean Carney. (I'll use their names as given in the book here. For their likely real names, see Monday's post.) Carney was a big-wheel at Kidder Peabody's Tokyo office, and he suggested Malcolm contact him about a job if no pro football career panned out.

None did, so Malcolm did, in 1993. Malcolm became one of KP's two Osaka-based traders. This lasted until April 1994, when KP discovered a $350 million "accounting glitch," and assigned responsibility for the glitch to one of its managing directors, Joseph Jett. KP (and its corporate parent, General Electric) made sweeping cutbacks in their trading operations as a result. Both Carney and Malcolm -- neither of whom had anything to do with Jett's accounting trickery -- were out of jobs, and they went their separate ways.

Malcolm took a position with a venerable English bank, Barings. He was again to work out of Osaka, but this time his orders were coming from Singapore, where Barings' star trader, Nick Leeson, held court.

Leeson, though, was making huge unauthorized trades during this period, and he was losing ... big. In January 1995 he made an enormous bet on a rise in the key Japanese stock exchange index, known as the Nikkei ... large enough so that if he won, he would recover all his losses. But of course he didn't win. That huge bet went against him, due to the Kobe earthquake January 17, and its devastating effects on Japan's economy.

After a brief period as a fugitive, Leeson was captured and did prison time. That didn't save Barings, which went into receivership. For the second time in eight months, a superiors malfeasance had cost Malcolm a job.

He called Carney for help. Carney, meanwhile, had founded a hedge fund, and Malcolm was soon trading for it. Mostly index arbitrage. What does that mean? In brief, there were by the 1990s funds in existence tracking most of the world's major stock market indexes. The idea is that someone might want to bet on the direction of, say, the Dow Jones, without having to invest in each of its component stocks. The managers of the index fund, by pooling a lot of investors' money, can of course more easily invest (according to their weight) in each of the components, and all the investors have to watch is the average itself. An "arb play" in this context means that a trader buys the components while selling the index-tracker fund, or vice versa, in order to take advantage of inefficiencies in the tracking process.

Anyway, Carney hired Malcolm again to come to Tokyo and arb the Nikkei and its components.

In 1994, the Hong Kong government created a tracker fund for the Hang Seng -- its equivalent of the Dow Jones or the Nikkei. [BLOGGER CORRECTION. The Mezrich account makes these dates seem plausible by a gross foreshortening of the events. The tracker fund actually came about as a result of actions taken by the government during the currency crisis of 1998.] In 1995, after Malcolm was settled into his Tokyo job, a company named Pacific Century Cyberworks (PCC) merged with Hong Kong Telecom, and under the terms of the tracker funds' charter, its managers had to buy $225 million worth of PCC stock. [AGAIN. MY MISTAKE, though with authorial encouragement. Mezrich is referring here to events of the year 2000].

Everybody knew it was going to have to do this, so a lot of traders tried to get a risk-free profit by front-running this deal, i.e. buying PCC stock ahead of the fund's expected purchases.

Malcolm, though, discovered that the tracker fund wasn't going to buy the PCC stock through the exchanges at all. It made a private off-exchange deal with PCC's founder Richard Li. This meant that, when the day of the expected fund purchases arrived and no purchases took place, there'd be a strong downward pressure on the stock price.

Accordingly, on Malcolm's suggestion, Carney's hedge fund took a "short" position on $100 million of PCC stock. When the big day arrived, and the tracking fund didn't make the expected purchases, the price dropped dramatically, and Malcolm covered the short position, winning his firm more than twenty million dollars.

This one deal made Malcolm a star, known to expat western traders throughout east Asia as their "hot young gunslinger."

The ending of the book turns on another, quite similar, but even larger deal involving the addition of several high-tech firms to the Nikkei index. This is the deal that justifies the book -- Malcolm made Carney's firm five hundred million dollars in cash out of the restructuring of the Nikkei.

Then Malcolm leaves Carney's employ and heads for semi-retirement in Bermuda, although we're told he still does some light trading.

That's not the whole of the story, of course. There are some characters -- including Ivy Leaguers, other than just Carney and Malcolm. In the days leading up to the Hang Seng trade, for example, we're introduced to "Vince Meyer" (another pseudonym, surely), described as "the top trader of one of the biggest American banks in Hong Kong" who gives Malcolm a crucial datum. Meyer is a Harvard grad.

There's also some raw sex, some hinted-at violence, one vividly described auto accident, and some romance to liven up the prose, for those who don't think that index arb traders sitting in front of computer screens throughout the working day is by itself a very exciting spectacle even if it is profitable.

"all antiliberal forces"

That's a neat phrase, which I take from a story in today's Wall Street Journal.

The story concerns the French presidential campaign. The second round of voting is set for this Sunday, May 6, and pits the top two vote getters from the first round against one another. The top first-round vote getter was Gaullist Nicolas Sarkozy (31.18%).

The runner up was Socialist candidate Ségolène Royal, with 25.87% of the vote.

Though I usually distrust left/right spectral analyses in politics, I haven't studied the French situation with sufficient care to critique the Wall Street Journal's spectrum-driven analysis, so I'll merely summarize it here. There were six first-round candidates to Royal's left, who collectively received 10.57% of the vote. There was a centrist candidate (between Royal and Sarkozy) who received 18.57%. And there were three candidates to the right of Sarkozy, who received 13.82%.

The article's emphasis was on the difficulties that Royal is facing consolidating her base. She's presumably want to be able to take for granted not only her own 26% first-round votes, but the first-round votes to the left of her, who presumably see her as preferable to Sarkozy. If she could take them for grahted, she could then compete with Sarkozy for the centrist votes, those who went for Francois Bayrou in the first round.

Here is where the neat phrase that I've used above as a title comes in. This weekend, a Socialist named Henri Emmanuelli held a press conference stating his unhappiness with Royal. He apparently thinks of her as the French Tony Blair, co-opting a socialist party for the bourgeois. He advocated the creating of a new leftist party ... which would presumably mean sitting out the second round. The new leftist party will encompass "all antiliberal" forces.

Liberal in the context of French politics means, roughly, market-driven. I find it refreshing to be reminded of that usage of the term so vigorously, because in the US of late the term has been used as a sort of cussword by the right, as a way of lumping together our Royals with our Emmanuellis, so to speak. The Clintons with the Kucinichs. Actually, it's hard to identify a politician in the US who has views at all like Emmanuelli who is taken at all seriously, so one is driven to invoke the amusing figure of Dennis Kucinich here.

At any rate, the polls are so far favoring Sarkozy. Time will tell.