Kevin Drum

The Market Tank: Take 2.5

| Tue May 11, 2010 2:12 AM EDT

The Wall Street Journal has a long story today about Thursday's big stock market tank that roughly confirms the one I wrote about last Friday. In their version, the market was already skittish over Greece and the euro when Universa, a hedge fund advised by Black Swan author Nassim Nicholas Taleb, placed a biggish bet that stock prices would fall. The guys on the other side of the bet sold stocks to hedge their position, and before long things had started to spin out of control:

By 2:37 p.m., the overload seemed to have taken its toll on the NYSE's Arca electronic-trading system. At that point, its rival, the Nasdaq, owned by NASDAQ OMX Group Inc., detected what it felt was questionable information in the data. It sent out a message saying it would no longer route quotes to Arca.

This step — known as declaring "self-help" — doesn't happen often among the major exchanges. But in the coming minutes, the BATS exchange also stopped automatically routing orders to Arca.

For a crucial set of players — high-frequency-trading hedge funds — all this turmoil was becoming too risky to handle. One fear that would prove all too real was that in the extreme swings, some — but not all — trades would later be canceled, leaving them on the hook for unwanted positions.

....With the high-frequency funds either selling or pulling out of the market, Wall Street brokerage firms pulling back and the NYSE stock exchange temporarily halting trading on some stocks, offers to buy stocks vanished from underneath the market. Normally there can be hundreds of offers to buy the iShares Russell 1000 Growth Index exchange-traded fund, but at 2:46 p.m., there were just four bids north of $14 for a fund that had been trading at $51 minutes earlier, according to data reviewed by The Wall Street Journal.

Even if this turns out to be the right story, it still doesn't explain everything. Universa's trade only totalled $7.5 million, not really that big even against the background of an already agitated market. So how could a trade that size cause a trillion dollar meltdown? "It did point out that there is a structural flaw," said Gus Sauter, chief investment officer at Vanguard Group, and that seems like an understatement. The Journal authors point out that high frequency trading has become so ubiquitous (accounting for two-thirds of all stock market volume) that in practical terms HFTs are now responsible for maintaining an orderly market. Unfortunately, they don't have any regulatory responsibility for this, and when markets become disorderly they simply flee, causing the problems to become even worse. The solution isn't yet clear, but we'd better figure out something before HFTs become 99% of the market.

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Elena Kagan's Scholarship: Take Two

| Mon May 10, 2010 10:45 PM EDT

This weekend I linked to Paul Campos's criticism of Elena Kagan's scholarly output, so it seems only fair to link to a quite credible opposing view as well. Eugene Volokh, a First Amendment expert at UCLA, after noting that Kagan was a working scholar for only eight years between 1991 and now, has this to say:

In those eight years, she wrote or cowrote four major articles....She also wrote three shorter but still substantial pieces....Quantitatively, this is quite good output for eight years as a working scholar.

....Moreover, two of her articles have been judged to be quite important by her colleagues. Presidential Administration has been cited 305 times in law journal articles (according to a search of Westlaw’s JLR database) — an extraordinarily high number of citations for any article, especially one that is less than 10 years old....Chevron’s Nondelegation Doctrine has been cited 75 times, a very high number for an article’s first 10 years; I suspect that only a tiny fraction of one percent of all law review articles are cited at such a pace. Private Speech, Public Purpose has been cited 129 times, likewise a very high number.

....On then to my own evaluation of the First Amendment articles: I think they’re excellent. I disagree with them in significant ways [...] But I like them a lot.

This answers the tenure question, I think. In 1995, when Kagan was granted tenure at the University of Chicago, she had two major articles and three shorter ones that were either published or in press. If the quality was good, I imagine that's normally plenty. And contra Campos's view that "Kagan's scholarly writings are lifeless, dull, and eminently forgettable," Volokh suggests they're actually quite good, based both on his own opinion as well as how often they've been cited.

Obviously I can't referee this. But I thought I should at least point it out. On a related Kagan note, Jonathan Chait suggests today that whether she's a mainstream moderate liberal or not, conservatives will gin up plenty of reasons to dislike her:

Now, maybe these concerns will remain marginal in the face of a selection that enjoys the support of Republican elites. But the last 15 months have shown that, in the face of conservative outrage or organized Republican opposition, the support of a smattering of Republican elites tends to melt away very quickly. What Republicans are going to want to invite a Tea Party-backed primary challenge by voting to confirm Kagan? In the end, I think no more than a couple GOP Senators will be left standing. If the White House predicts a 70+ vote cakewalk, I suspect it's mistaken.

I have a feeling Jon is right, but I hope he isn't. Partisan opposition to Supreme Court nominees has been increasing for more than two decades, and we really can't afford to get to the point where these things become literally party line votes. Unfortunately, although I think Republicans have offered greater provocation in their choice of nominees, the evolution of increasingly partisan votes is something where Democrats have probably been the guiltier party. So the moral high ground is a little ambiguous here. Still, the fact remains that Kagan is a moderate appointee, and at the very least she deserves to get confirmed by the same kind of margin that John Roberts did.

The Problem With Superheroes

| Mon May 10, 2010 6:50 PM EDT

After musing on the question of what Iron Man 2 would be like if it were just the story of an ordinary person without any kind of superpowers, Ross Douthat muses on the question of what superhero movies have done to the cinema recently:

Sometimes I try to imagine what the 1970s would have been like if comic-book movies had dominated the cinematic landscape the way they do today. Francis Ford Coppola would have presumably gravitated toward the operatic darkness of the Batman franchise, casting first Al Pacino and then Robert De Niro as Italian-American Bruce Waynes. Martin Scorsese would have become famous for his gritty, angry take on the Incredible Hulk, with Harvey Keitel stepping into Bruce Banner’s shoes and Diane Keaton as his love interest....[Etc.]....If this revision of the ’70s sounds like a cinematic paradise, you probably liked “The Dark Knight” a whole lot more than I did.

This strikes me as backwards. After all, Godfather the book was just a garden variety genre bestseller — basically the beach reading equivalent of a good quality comic book. It wouldn't show up on any literary critic's list of the best 20th century novels. But Godfather the picture shows up on practically every film critic's list of the best 20th century movies, so genre obviously wasn't a problem here. Likewise, the problem with superhero movies probably isn't the genre, it's what today's directors do with them. In the same way that Coppola transcended the usual boundaries of mob flicks and John Ford did the same for westerns, maybe they would have made great comic book adaptations too if they'd given it a whirl. And if they hadn't? Well, it's not as if both of them didn't make plenty of clunkers too. Maybe Coppola's Batman would have replaced Coppola's Tucker, not his Godfather.

Or not. Who knows? But instead of wondering what Iron Man would be like without the superpowers, wouldn't a better question be: if the story was any good to start with, why should superpowers ruin it? Maybe it's inherent in the genre, but I sort of doubt it.

How to Tame a Deficit

| Mon May 10, 2010 6:20 PM EDT

The Economist's Allison Schrager writes about America's future:

Willem Buiter reckons the American debt situation has gotten so bad that future policy makers will face two options: default or inflate. That’s certainly a possibility, but not yet inevitable. If the American economy experiences reasonably high growth in the future (at least on par with the last few decades) AND the government miraculously summons the political will to cut entitlements, America can spare itself a sovereign debt crisis.

Hmmm. I could swear there's an alternative that's missing here. Maybe something you could do in addition to cuts. But what? The opposite of cutting something, I suppose. Damn. It's on the tip of my tongue. I'm sure it will come to me in a few more minutes.

HuffPo Turns Five

| Mon May 10, 2010 2:02 PM EDT

CJR asked a few writers to give their short takes on the Huffington Post on the occasion of its fifth birthday, and I think Ryan Chittum captured its zeitgeist the best:

Let’s get it out of the way up top that I think The Huffington Post is a mess — a schizophrenic, mostly unreadable hunk of tabloid journalism leavened with serious stuff.

I mean, where else can you read a droning missive on the BP oil spill by the Ecumenical Patriarch Bartholomew, helpfully identified as “Spiritual leader of 300 million Orthodox Christians worldwide,” on the same screen as “Lawrence Taylor RAPE Arrest: NFL Legend ARRESTED For Attacking Teenager” and “Elisabeth Hasselbeck SLAMS Erin Andrews’ Clothing, Excuses Stalker”?

Eyeballs JARRED. Reader GOOGLY-EYED After Reading HuffPo.

At the same time, he's also right about this: "But that’s a superficial (if understandable) read these days. In the space I cover, the business press, the site has been doing some serious reporting lately." HuffPo does do a fair amount of very good reporting on business and financial reform issues. It requires a seemingly endless stream of flotsam and jetsam to subsidize all this, but hey — you've got to subsidize it somehow. If you're not the Wall Street Journal, covering this stuff just doesn't pay.

I suppose this kind of tabloidy mashup of salacious trivia with serious reporting might be a model for the future. Not the one we all had in mind when news first started going online, but it wouldn't be the first time the human race was surprised by what ended up working and what didn't.

Quote of the Day: Men on the Court

| Mon May 10, 2010 12:50 PM EDT

From Kathryn Jean Lopez, tweeting about Elena Kagan's nomination to the Supreme Court:

just wondering: are men allowed to be nominated to the supreme court anymore?

It's pretty remarkable just how little it takes to bring out the pity party in conservatives. Two women in a row and suddenly men are an endangered class in the American legal profession. Conservatives may not care much about discrimination against minorities, but they sure do snap to attention quickly whenever they spy any potential slight against the majority, don't they?

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Gordon Brown Quits

| Mon May 10, 2010 12:28 PM EDT

Well, over in Britain Gordon Brown is out. He now admits that the election was a judgment by the voters and plans to ask the Labour Party to organize an election for a new party leader. From the Guardian's blog:

Here are the main points.

  • Gordon Brown is going to resign. He wants to stand down as Labour leader before the next Labour conference in the autumn. But he intends to remain as prime minister until then (if he can).
  • Nick Clegg has formally opened talks with Labour. Brown said that Clegg rang him recently (presumably after the Lib Dem meeting) to say he would like to have formal talks with a Labour team.
  • Brown is proposing a "progressive" government, comprising Labour, the Lib Dems, and presumably the SNP, Plaid Cymru, the SDLP and the Alliance. Electoral reform would be a priority.

Alex Massie comments:

And so, playing Salome, Clegg has got Gordon's head on a platter and we now have the extraordinary sight of the Lib Dems negotiating with both parties at the same time. This is madness and invites the public to view the Lib Dems as a party of political hoors prepared to sell their services to the highest-bidder for nothing more than self-evidently narrow, selfish interests.

That's their choice but it reduces their seriousness and seems likely to leave Clegg open to the notion that he's no better, and perhaps worse, than any other politician. This invites all kinds of trouble for the Lib Dems at the next election.

Constitutionally there's no problem with having another "unelected" Prime Minister but having two in a row brought to power in such a fashion seems, politically at least, a rather different matter. And how on earth can Clegg agree to a coalition deal without knowing who the Prime Minister is going to be?

So what the hell is going on? Perhaps as Philip Stevens suggests this is simply a wrecking maneovre by Brown. Whatever else it is, however, it's not necessarily the kind of arrangment that is likely to leave voters more enthused about the idea of electoral reform.

Stay tuned! It's certainly more interesting than American politics at the moment.

Easy Confirmation for Kagan?

| Mon May 10, 2010 12:17 PM EDT

Over at the Corner, Ed Whelan runs down a list of reasons to oppose Elena Kagan's nomination to the Supreme Court. In a nutshell, they are (1) she has no judicial experience, (2) she's an Obama crony, (3) Goldman Sachs, (4) she opposed military recruiting at Harvard because of DADT, (5) she has a thin written record, (6) aside from national security issues she's probably a garden variety liberal, and (7) we need to see her records from the Clinton White House.1

I consider this basically good news for Kagan. I assume this is a decent summary of all the available conservative oppo research on Kagan, and there's nothing new here. Hell, most of it has already been hashed out by the left, let alone the right. So this suggests that conservatives don't have anything more than this, and all they can hope for is that they get their hands on something juicy when Obama turns over Kagan's Clinton-era records. Which, frankly, seems unlikely given Kagan's obviously cautious nature even in private. The odds are pretty long that anything seriously embarrassing is lurking there.

If it turns out that Whelan's list is all they have, I doubt that conservative objections will gain even a little bit of traction. It's a nothingburger. She'll be donning her robe and hiring clerks by summer.

1Plus she's a bad driver. If Whelan is that desperate, there really must not be anything better he can come up with.

Will Payday Lending Be Regulated?

| Mon May 10, 2010 11:40 AM EDT

Felix Salmon comments on the latest bit of financial reform insanity:

It's completely insane that a system which protects the relatively well-off customers of banks might include a carve-out specifically excluding the unbanked from any federal consumer protection.

What's he talking about? Payday lenders, of course, who are in an uproar over the idea that their business ought to be subject to any serious federal regulation at all. Keep your eyes open to see if this piece of the Senate reform package slowly gets whittled away until it's meaningless.

Kagan to be Nominated to Supreme Court

| Mon May 10, 2010 1:39 AM EDT

Well, Elena Kagan it is. No surprise there. But I sure hope this bit of analysis from the New York Times is wrong:

In his selection of finalists, Mr. Obama effectively framed the choice so that he could seemingly take the middle road by picking Ms. Kagan, who correctly or not was viewed as ideologically between Judge Wood on the left and Judge Garland in the center.

Judge Garland was widely seen as the most likely alternative to Ms. Kagan and the one most likely to win easy confirmation. Well respected on both sides of the aisle....But Mr. Obama ultimately opted to save Judge Garland for when he faces a more hostile Senate and needs a nominee with more Republican support. Democrats expect to lose seats in this fall’s election, so if another Supreme Court seat comes open next year and Mr. Obama has a substantially thinner margin in the Senate than he has today, Judge Garland would be an obvious choice.

Fine. But right now Obama has the biggest Democratic majority in the Senate he's ever going to have. So why not use it to ensure a solidly progressive nominee like Diane Wood instead of an ideological cipher like Kagan?

This isn't the worst thing in the world. It's not as if I think Kagan is a reactionary in sheep's clothing or anything like that. But I still don't get it. When Obama compromises on something like healthcare reform, that's one thing. Politics sometimes forces tough choices on a president. But why compromise on presidential nominees? Why Ben Bernanke? Why Elena Kagan? He doesn't have to do this. Unfortunately, the most likely answer is: he does it because he wants to. Some socialist, eh?