CNN and Sen. Bob Casey’s Economic Illiteracy

The network spins short-selling into a hit piece on Republican challenger Dave McCormick’s business record

WSJ editorial. 

"You can tell the Pennsylvania Senate race is tightening because CNN on Wednesday rolled out a hit piece on GOP Senate candidate Dave McCormick’s record as former CEO of Bridgewater Associates. The story happens to fit perfectly with Democratic Sen. Bob Casey’s campaign strategy vilifying private business. 

“Senate candidate Dave McCormick led hedge fund that bet against some of Pennsylvania’s most iconic companies,” reads the headline, which Mr. Casey tweeted. The Democratic incumbent and his allies in the press can’t find any wrongdoing during Mr. McCormick’s five years (2017-2022) running Bridgewater, so they’re peddling economic illiteracy disguised as investigative reporting.

The piece claims that Bridgewater under Mr. McCormick shorted the stocks of roughly four dozen companies headquartered in Pennsylvania, including Hershey Co., U.S. Steel, Comcast and Penn National Gaming. Short-selling is when an investor borrows a security and then sells it with the intent of buying it back at a lower price.

Well-diversified investors take short positions to hedge risks in their portfolio. As the Biden Securities and Exchange Commission explained last year, “short selling provides the market with important benefits, such as providing market liquidity and pricing efficiency.”

Yet the CNN story makes short-selling sound nefarious. “Short positions, which are essentially bets that the companies’ stocks will drop, can hurt corporations by depressing their stock prices, making it harder to gain new financing, invest or hire more workers, according to experts,” CNN says. “For financial institutions, short positions can be lucrative.”

Yes, and so can long positions. The goal of investing is to make money, but short sellers can also lose money if the price of stocks they short rise before their short bets come due.

In any case, there’s no indication that Bridgewater was betting against Pennsylvania companies. Its investment managers don’t take short positions in particular stocks. Rather they short industries. Pennsylvania companies happened to be in baskets of stocks its investment fund managers shorted.

Mr. McCormick’s campaign says long positions accounted for 61% to 98% of Bridgewater’s investments in nine of the largest publicly traded firms headquartered in Pennsylvania between 2017 and 2021. They are AmerisourceBergen/Cencora, Hershey, U.S. Steel, Comcast, Penn National, PNC, Lincoln National, PPG and Aramark.

CNN acknowledges 18 paragraphs into the story that Bridgewater “did invest in stocks of some of the same Pennsylvania companies it shorted in other years, and overall, it reported spending more money buying stocks of Pennsylvania companies than shorting them in four of the five annual reports reviewed by CNN.” That’s a long way of saying its short-selling story is political spin.

If Mr. Casey disapproved of Bridgewater’s investment strategy, why did he tap the hedge fund to manage government worker pension investments when he was state treasurer some two decades ago? CNN tries to dress up its non-scoop by opining that Mr. McCormick’s investment strategy was “politically risky” even if it was “financially smart.”

The implication seems to be that Mr. McCormick shouldn’t have managed his investment funds in the best interest of investors, including pensioners, because risk-mitigation strategies could later be twisted by his opponents if he made a future bid for political office. But if Bridgewater had lost money under Mr. McCormick’s leadership, you’d be hearing about that from Mr. Casey and CNN too.

This episode goes far to explain why Congress is filled with lawyers and political lifers who’ve never met a payroll. Any business person who runs for office these days can expect his record to be distorted as somehow scandalous. It’s far easier to run as a cipher with no record of accomplishment like Mr. Casey. No wonder Washington is a mess."

Collecting Jurisdiction: The SEC’s Wrongheaded Expansionary Approach to NFTs

By Jennifer J. Schulp and Jack Solowey of Cato.

"What do Yankees tickets and Pokémon cards have in common? If you guessed wish list items for elementary school kids, you wouldn’t be wrong. But another thing they share is that Securities and Exchange Commission (SEC) Chairman Gary Gensler has been asked to opine on whether they are securities during congressional testimony.

To most people, the answer to that question seems easy: Pokémon cards aren’t traded on the New York Stock Exchange—and neither are Yankees tickets—so they must be different from securities like Walmart or Tesla stock, right? That’s hardly a technical analysis (and decidedly not legal advice), but it reveals a piece of common sense underlying our intuitions about securities laws: If we buy something that has some use—even if we hope that it may become more valuable—it is usually not treated as a security subject to all of the rules and regulations that go along with offering and trading investment assets.

But, in yet another example of Gensler’s expansive view of SEC jurisdiction, his answers to Rep. Ritchie Torres (D‑NY) on whether items like Pokémon cards and baseball tickets are securities were not definitive and seemed to rest on an incoherent theory that takes into account whether the assets are in some way stored on a blockchain. That doesn’t sound like the “technology neutral” regulator the SEC claims to be.

Unfortunately, this isn’t just the idle musing of an agency head dreaming of enlarging its fiefdom. The SEC has settled several actions asserting that NFTs (i.e., non-fungible tokens) granting holders certain rights to digital art and exclusive restaurant access were unregistered securities. (The SEC has also issued a Wells Notice, indicating that it intends to file an enforcement action, against a platform that facilitates NFT trading.)

The stated rationale for these actions is that purchasers of the NFTs were led to expect profits when the token appreciated in value based on the efforts of the NFT issuer. In the Commission’s view, this ostensibly meets the criteria set out by the Supreme Court for when something qualifies as an investment contract subject to SEC jurisdiction. But as SEC Commissioner Mary Uyeda has noted, considering “any item sold whose value is based on the efforts of others” to be a security “would appear to scope in many common transactions in the non-digital world, including pre-purchase commitments, collectibles, art, and land.” That’s exactly what the SEC appears to be doing.

NFTs are unique digital tokens that typically are employed to represent (though not necessarily legally confer) ownership of a physical or digital asset. NFTs and cryptocurrencies use the same underlying blockchain technology, but they differ in important respects, most notably in that cryptocurrencies are fungible—meaning that two units of the same cryptocurrency are interchangeable—whereas NFTs are not.

While in one sense NFTs can be thought of as assets themselves, they also can be thought of as something like “certificates of authenticity” that provide a way of verifying that the NFT holder has an ownership claim, access right, or connection to another asset or file that the NFT is linked to (such as a piece of art, digital content, or membership pass). However, the legal rights of a token holder, such as intellectual property and other ownership rights, cannot be assumed based on possession of the token alone and may require reference to additional off-chain legal frameworks.

NFTs can serve a variety of functions, such as representing ownership of real-world or digital assets like art, facilitating benefits like access to a real-world or digital social club or automated royalty payments, or eligibility for discounts associated with customer loyalty rewards, to name a few. Buyers of NFTs may want to collect them, receive the benefits associated with them, or speculate that their future value may rise.

But the fact that someone buys something in hopes that it will appreciate—like a Pokémon card collector or reseller of Yankee playoff tickets—does not turn the item into a security. Where an item has a use unconnected to its appreciation in value, as many NFTs do, it’s even easier to see this because a purchaser may not intend to use the item as an investment. 

The securities laws evolved in no small part to address the risks posed to investors by a managerial body’s ability to possess information that investors do not and that body’s capacity to act at odds with investors’ best interests. Yet, as SEC Commissioners Hester Peirce and Mark Uyeda recognized when dissenting from the Commission’s settlement with Flyfish Club, LLC—which offered NFTs that granted holders access to its restaurant—this type of securities analysis is “inapt because holders of Flyfish NFTs had a reasonable expectation of obtaining wonderful culinary experience and other exclusive member experiences based on the managerial and entrepreneurial efforts of Flyfish and its principals. Whether their expectations will be met should not be judged by a securities regulator” (emphasis added).

The SEC claims to be looking at the “economic reality” of the NFT offering to determine that it falls within the securities laws. But as Commissioners Peirce and Uyeda remarked when dissenting from the settlement with Stoner Cats 2, LLC, which sold NFTs connected to digital art (of stoned cats): “The Stoner Cats NFT purchasers received what they paid for—a still image of a character from the series, access to all six episodes of the Stoner Cat series, and the excitement of being part of a popular phenomenon.” This economic reality isn’t enough to bring a project within the SEC’s jurisdiction because, if it was, every sale of fine art would fall within the SEC’s purview—something that the SEC has acknowledged is not the case. 

That’s not to say that NFTs can never fall within the ambit of the securities laws but rather that it is far from a given that any particular NFT does. The SEC’s jurisdictional grabs—from collectibles to digital art markets to social club memberships—deter artists and other creatives from experimenting with methods to monetize their work. Uncertainty about whether they will face an SEC investigation may chill experimentation, in part by prohibitively raising costs related to legal counsel (or more proactively, for taking legal action against the SEC for clarity). 

Recently, Rep. William Timmons (R‑SC) floated legislation, the “New Frontiers in Technology Act,” seeking to exclude NFTs that relate to works of art, collectibles, loyalty points, and tickets (among other things) from coverage under the securities laws. Whether as a result of legislation or otherwise, though, the SEC needs to walk back from its untenable position that anything purchased that may rise in value is a security—a position that needs to be revised not only for NFTs but for technological innovation more broadly."

The Exxon Directors and the Proxy Abusers

Progressives retaliate after the company fights back against a shareholder resolution that would harm other investors

WSJ editorial. 

"Progressives are abusing the shareholder proxy process to drive their climate and social agenda, and now they want to punish Exxon Mobil for daring to fight back.

California Public Employees’ Retirement System (Calpers) on Monday said it would vote against all of Exxon’s directors at its shareholder meeting next week. Proxy adviser Glass Lewis last week recommended that shareholders reject Exxon’s lead independent director Joseph Hooley’s re-election, citing “unusual and aggressive tactics” against activist investors.

Majority Action, a leftist outfit, is also prodding institutional investors to oust CEO Darren Woods and Mr. Hooley for “attacking shareholder democracy and failing to address climate risk.” Far from protecting shareholder rights, these agitators want to punish Exxon and its investors for refusing to surrender.

Exxon filed a federal lawsuit in January to block a shareholder resolution by Follow This and Arjuna Capital that sought to force steep cuts to the company’s CO2 emissions, including any from the combustion of its products. As Exxon explained in its suit, the resolution would force it to “change the nature of its ordinary business or to go out of business entirely.”

Follow This and Arjuna invest in companies to drive their anti-fossil-fuel agenda. As Follow This says, “we buy shares in order to work on our mission to stop climate change, not to make a financial profit,” and to make producers “stop exploring for more oil and gas and start exploring for new business models.”

The Securities and Exchange Commission’s longstanding rules let public companies block shareholder resolutions that affect a company’s “ordinary business operations.” But current SEC Chair Gary Gensler has declined to let companies nix resolutions if they have a “broad societal impact.” Read: political impact.

As a result, annual proxy voting has increasingly become a shareholder plebiscite on environmental, social and governance (ESG) matters. All shareholders pay for the costs that companies incur responding to such resolutions, which the SEC estimates at $150,000 per proposal. They also distract boards from more important business.

Arjuna and Follow This in February dropped their resolution, perhaps worried that they might be required to pay legal damages if they lost. Yet Exxon has continued its lawsuit because it says “the underlying issue remains and must be resolved.” That is, can progressive activists harass companies with ESG resolutions that seek to harm other shareholders?

“Until the courts weigh in, activist investors will continue, with the SEC’s approbation, to inundate public corporations with proposals designed to push an ideological agenda divorced from the success of the corporation,” the U.S. Chamber of Commerce and Business Roundtable wrote in a friend-of-court brief for Exxon.

Courts have ruled that cases aren’t moot unless it’s clear that defendants won’t resume their allegedly wrongful behavior. Arjuna and Follow have twice pursued unsuccessful resolutions to force Exxon to reduce its emissions. Who doubts that they will introduce similar proposals in the future?

This explains the retaliation against Exxon because progressives fear a judge could stop their corporate harassment. “Decades of shareholder rights are under threat from a lawsuit filed by the leaders of a powerful U.S. corporation, designed to punish two small groups that dared to speak truth to power,” Calpers leaders said Monday.

The real threat to shareholders is progressive investors with minor stock holdings who want to commandeer and destroy companies for their own political ends."

The SEC’s Latest Insider-Trading Theory

The agency rewrites the law to invent a new offense: ‘shadow trading.’

WSJ editorial.

"Congress has never clearly defined insider trading in stocks, but that hasn’t stopped the Securities and Exchange Commission and prosecutors from finding the meaning in statutory penumbras. Chairman Gary Gensler’s SEC is at it again in a civil trial next month that will try to extend its reach to punish trading in the shares of another company about which the defendant had no insider information.

Federal law doesn’t explicitly ban trading on confidential information. But courts have said that insiders defraud companies by “misappropriating” private information for personal gain. In a classic case, an insider trades in his company’s stock based on proprietary information or tips off someone else who then trades and cashes in. While courts have circumscribed insider-trading liability, regulators keep inventing new theories.

In 2021 the SEC charged Matthew Panuwat, an employee at the biopharmaceutical firm Medivation, with insider trading for a timely and lucrative options trade on another pharmaceutical company’s stock. Having developed a highly effective prostate-cancer drug, Medivation was shopping itself to large drug companies in 2016.

The SEC alleges that Mr. Panuwat started purchasing call options for a different company, Incyte, soon after Medivation’s CEO sent an internal email announcing an imminent deal to be acquired byPfizer. While Incyte and Medivation didn’t directly compete, the SEC alleges that their stock prices were correlated, and that Mr. Panuwat knew this.

After news of Medivation’s acquisition broke, the share prices of Incyte and several mid-sized pharmaceutical companies popped. Mr. Panuwat sold his Incyte options for a roughly $107,000 profit. The SEC says Mr. Panuwat committed insider trading by allegedly using confidential Medivation information to bet on Incyte’s stock. Medivation had a company policy that forbade such trades, but violating a company policy isn’t the same as violating a federal statute.

In his defense, Mr. Panuwat says it was publicly known that Medivation was on the sale block, so information about its potential acquisition wasn’t private. He also claims he bet on Incyte because he believed the company was undervalued by the market.

Disagreement over facts aside, the major problem with the SEC case is that it writes new insider-trading law by enforcement with no limiting principle. An executive could be charged with investing in the shares of any stock in his industry group. Yet everyone knows stocks in the same industry often move up or down based on the news of a single firm.

A

Nvidia

employee who knew his company had a strong earnings quarter and bought stock in tech companies, or even a tech-focused ETF, could be charged under this SEC theory. A 2021 academic study dubbed this practice “shadow trading” and “an undocumented and widespread mechanism that insiders use to avoid regulatory scrutiny.”

***

The SEC seems determined to prosecute Mr. Panuwat as a way to send a message across the market that such shadow trading is banned. But it’s an abuse of the law to punish someone after the fact for acts that he didn’t know at the time to be illegal.

In 2014 Justice Antonin Scalia, joined by Justice Clarence Thomas, lambasted the SEC’s penchant for defining insider trading however it wants (in denying a cert petition in Whitman v. U.S.). “Only the legislature may define crimes and fix punishments. Congress cannot, through ambiguity, effectively leave that function to the courts—much less to the administrative bureaucracy,” Justice Scalia wrote.

“When King James I tried to create new crimes by royal command, the judges responded that ‘the King cannot create any offence by his prohibition or proclamation, which was not an offence before,’” Justice Scalia wrote. “James I, however, did not have the benefit of

Chevron

deference.” Mr. Gensler may not have Chevron for long either. The High Court in January heard a challenge to the court-made Chevron doctrine, which requires judges to defer to regulators’ statutory interpretation when the law itself is ambiguous.

The SEC’s shadow insider-trading theory looks like another example of how regulators exploit vague laws to expand their power and undermine legal due process. If Congress wants to ban the practice, it can. But Mr. Gensler isn’t King James I, even if he sometimes acts as if he is."

The SEC’s Market Surveillance System Implicates the Fourth and Fifth Amendment Rights of Investors

By Brent Skorup, Anastasia P. Boden, and Jennifer J. Schulp of Cato.

"In this “smart” and digitized world, nearly everything we do could be captured, stored, and made accessible to the government. The time we wake up (using our phone’s alarm), the places we go (using our car’s built‐​in GPS), the news stories we read, the snacks we purchase for our kids, the route of our daily run, and even the temperature at which we prefer to keep our homes is routinely collected and stored by commercial companies.

Normally, the government cannot access that information, absent a manual process such as issuing a subpoena, obtaining a search warrant, or making a formal, emailed request to a company for customer information. The Securities and Exchange Commission’s (SEC) consolidated audit trail (CAT) system threatens to change all of that by both collecting data on every stock and options trade made in the United States and personally identifying information of the individual who made the trade. The CAT system gives government agencies a blueprint for pervasive and constant government surveillance:

1) it requires regulated parties to collect data daily and retain immense amounts of sensitive information about their customers; 

2) it offers no chance to opt out; and 

3) it demands unfettered access to customers’ data on the theory that the government might need the information for future law enforcement. 

Cato and the Investor Choice Advocates Network have filed, in an 11th Circuit Court of Appeals case called American Securities Association v. SEC, an amicus brief urging the court to set aside the 2023 SEC order funding the CAT system, which implicates the Fourth and Fifth Amendment rights of American investors.

The Supreme Court reiterated in Utility Air Regulatory Group v. Environmental Protection Agency that in evaluating the authority of agencies, courts must “expect Congress to speak clearly if it wishes to assign to an agency decisions of vast ‘economic and political significance.’” Congress has not clearly given the SEC authority for an invasive surveillance system like the CAT system, which raises questions of “vast political significance.”

First, the CAT system may violate investors’ and brokers’ Fifth Amendment right against compelled self‐​incrimination. As Justice Samuel Alito wrote when he was Deputy Assistant Attorney General, “the compulsory organization, filing, and creation of documents are acts that clearly are testimonial and may be self‐​incriminating.” While the government can sometimes compel the production of documents that are “customarily kept,” much of the information the SEC demands for its CAT system is entirely new and, therefore, potentially testimonial. Government agencies cannot be allowed to mandate new “customs” of records collection and then use those “required customs” to violate Americans’ Fifth Amendment rights.

Second, the CAT system may violate Americans’ Fourth Amendment rights against unreasonable searches and seizures of their “papers” and “effects.” Investors and brokers may have a possessory and privacy interest in the digital financial records they produce for collection in the CAT repositories. One’s “effects” almost certainly include financial records, as founding‐​era legal dictionaries, for example, specifically contemplate and define one’s financial records as one’s “effects.”

Further, the SEC, without a warrant, absent a showing of even reasonable suspicion, is acquiring and (in the SEC’s own words) searching massive amounts of investors’ and brokers’ personal information and transactions stretching back years. This information is mandated by, not voluntarily conveyed to, the SEC for future warrantless searches and therefore appears to violate investors’ and brokers’ Fourth Amendment rights.

Because Congress has not spoken clearly about the agency’s authority to create this type of surveillance system, the order funding the CAT system should be set aside."

Cleveland-Cliffs, Tariffs and Stock Buybacks

The steel maker plows tariff-padded profits into buying its own shares. Paging Sherrod Brown

WSJ editorial. 

"Ohio Sen. Sherrod Brown supported the Inflation Reduction Act’s new excise tax on corporate stock buybacks. He’s also lobbied for tariffs to protect domestic steel makers from foreign competition. So we wonder what he thinks of the decision by Ohio-based steel makes Cleveland-Cliffs to plow its tariff-padded profits into share buybacks.

Cleveland-Cliffs’s stock jumped 7% Tuesday after CEO Lourenco Goncalves announced plans to “put a stronger focus on aggressive share buybacks.” He says it’s a good time to buy the company’s shares, which he thinks are undervalued despite a rich price-earnings ratio of 26.

Perhaps the CEO doesn’t believe investors are properly valuing tariffs and the subsidies for domestic steel in the 2021 infrastructure bill and Inflation Reduction Act. Federally funded public works must be built with U.S. steel, and green energy developers get a 10% bonus tax credit if they use domestic steel.

President Biden has kept the 25% Trump tariff on foreign steel. And Cleveland-Cliffs, the United Steelworkers union and Mr. Brown last year lobbied for more tariffs on tin-mill steel. In September the Commerce Department slapped duties of 122.5% on Chinese tin and lower margins on imports from Germany (6.9%), Canada (5.3%) and South Korea (2.7%).

Cleveland-Cliffs and

U.S. Steel

are the only two major U.S. producers of tin-mill and specialized steel used in electric-vehicle motors, so the tariffs give them an effective duopoly. This is why auto makers opposed Cleveland-Cliffs’s bid last year to buy U.S. Steel, which would have given the Ohio company tremendous pricing power.

Mr. Goncalves is unhappy that U.S. Steel accepted a better offer from Japanese steel maker Nippon. During a call with investment analysts on Tuesday, the CEO claimed U.S. Steel’s board “was hell bent to sell to a foreign entity” and “their goal was to break the back of the United Steelworkers,” which supported Cleveland-Cliffs’ bid.

He also suggested that Nippon’s acquisition could be torpedoed by the Committee on Foreign Investment in the United States over national security. Is Mr. Goncalves trying to goad the Administration into blocking the deal? He wouldn’t be the only one. Mr. Brown has also lobbied against it.

Share buybacks are fine with us, and they help with the efficient allocation of capital. But the Cleveland-Cliffs buybacks betray the conceit by protectionists in both parties that tariffs are all about U.S. manufacturing and jobs. They’re about lifting profits for some firms and shareholders over others."

The GameStop Meme Stock Craze Hits the Cinema

The lesson of ‘Dumb Money’ is that a wise crowd can easily turn into a stupid, dangerous mob

By Clifford S. Asness. Excerpts:

"The film is being hailed as a David-vs.-Goliath story, the little guy’s triumph over the Wall Street elite. That’s true only if you define triumph as a mob gleefully taking down one hedge-fund manager—Melvin Capital’s Gabe Plotkin—for short-selling the videogame company’s stock. Never mind that his demise came as thousands of people who gullibly bought during the “moonshot” phase of GameStop’s dramatic rise almost certainly lost money in the aggregate."

"the crowd of “little guys” was misled by deceptive or incompetent social-media hucksters into buying something that was very obviously overvalued"

"Third, too often we discard or warp time-honored principles to bad ends. Here I’m thinking of “HODL”—or “hold on for dear life”—the online crowd’s exhortation during the GameStop fiasco. I am a lifelong advocate of sticking with a good long-term strategy even through rare but excruciatingly tough times, so this one strikes me as nearly correct but wrong for a key reason. You see, I sneaked a word in there—“good.” Sticking with something through thick and thin works only if that thing is worth sticking to. You can’t apply it to anything, including the most obviously overvalued junk in the world, and win simply because you’ll never sell. That’s a recipe for asymptotically approaching a zero-brokerage balance.

Fourth, if you’re trading your 401(k) based on your hatred of and desire to harm a certain class of people, you’re probably letting your bias hurt your bottom line. The same dynamic applies outside the investing world.

Fifth, we often correctly marvel at the “wisdom of crowds,” but this phenomenon is based on the crowd’s members being reasonably independent of one another. Think about how effective polling the audience is on “Who Wants to Be a Millionaire?” It works only because members of the crowd don’t talk among themselves. If they were to launch into fiery speeches weighing the multiple-choice answers, you’d likely get a much different and worse result.

Crowds of independent thinkers are often very wise, even if each individual isn’t. Crowds that share information and come to a shared conclusion are often—though not always—dangerous mobs. In the meme-stock craze, as in our politics and elsewhere, the internet seems to be a perfectly designed vehicle for turning a crowd of independent thinkers into an angry mob.

GameStop’s ugly episode showed that aggrieved and ill-informed—or even sadder, desperate—“investors” can take down a single smart one. Fascinating. But we knew this before. A long-term market maxim is that “the market can stay irrational longer than you can stay solvent.” Perhaps a necessary rejoinder is that even so, the rational usually win and the irrational usually lose. Moreover, when the rational lose, the irrational often end up losing too.

We also saw that Hollywood will happily take a situation it doesn’t understand and make a movie about it, replete with cartoon heroes and villains, which only lowers our discourse and intentionally makes us hate and distrust each other even more. Oh, and the same industry will do so for money while excoriating greed. But then again, we already knew that too.

Mr. Asness is managing and founding principal of AQR Capital Management."

Warren Buffett’s Slap at Buyback Illiterates Rings True

Berkshire Hathaway CEO is talking his own book, but his criticism is fair

By Spencer Jakab of The WSJ. Excerpts:

"Warren Buffett rarely uses his annual letter to shareholders to lobby for policies that would enrich Berkshire Hathaway BRK.B 0.16%increase; green up pointing triangle or himself personally. He also generally strikes a grandfatherly tone, avoiding name-calling, though his acerbic 99-year-old business partner, Charlie Munger, is less restrained. Berkshire’s 2022 letter, released Saturday, was an exception. The topic was stock buybacks, newly subject to a 1% excise tax that President Biden recently proposed quadrupling in his State of the Union address.

“When you are told that all repurchases are harmful to shareholders or to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive),” wrote Mr. Buffett."

It’s Time to Stop Demonizing Buybacks

See Stock Buybacks Aren’t Bad. They Aren’t Good, Either by Jason Zweig of The WSJ. Excerpts:

"Don’t let a handful of anecdotal examples blind you to the broader evidence. A clear-eyed look at some of the rhetoric swirling around buybacks will show whether it holds up.

Buybacks starve companies of capital they could deploy more profitably by investing in the growth of their businesses.

This critique implies that the same management we shouldn’t trust to allocate excess capital correctly in a buyback will allocate it correctly for other purposes.

Expecting oodles of surplus cash not to burn a hole in the typical CEO’s pocket, however, is like putting a pile of raw meat in front of a lion and expecting it not to disappear.

My favorite examples come from the 1970s, when—just like now—giant oil companies had vastly more capital than they could plow back into their existing wells.

Instead of buying back shares, in 1979 Exxon Corp. bought an electric-motor maker for $1.2 billion—only to bail out a few years later, barely breaking even. Exxon also pumped at least $1 billion into futuristic office equipment—only to back out of those businesses, too, by the mid-1980s.

Exxon’s then-rival, Mobil Oil Corp., spent more than $1 billion to buy a company that made cardboard boxes and ran the Montgomery Ward department-store chain. That flopped, too.

Companies have been artificially hyping their market value by repurchasing their own shares.

A new study, “Share Repurchases on Trial,” by accounting and finance professors Nicholas Guest of Cornell University, S.P. Kothari of the Massachusetts Institute of Technology and Parth Venkat of the University of Alabama, analyzes the stock returns of thousands of companies from 1988-2020, comparing those that repurchased shares against firms that didn’t, adjusting for their size and other factors. In the year of a repurchase, companies that did large or frequent buybacks had slightly lower—not higher—returns. Over longer periods, their returns were indistinguishable.

Research published in 1967 showed similar results. 

Companies doing buybacks invest less in capital expenditures or research and development.

Younger companies with great prospects for internal growth tend to plow all their cash back into the business, leaving nothing for buybacks. As companies mature, their growth opportunities dwindle and their business generates more cash than they need, making share repurchases an appropriate choice for the surplus.

So, on average, accelerating companies don’t do buybacks, while decelerating businesses do. Investors tend to pay more for fast-growing stocks, so the short-term market performance of slower-growing companies doing buybacks turns out to be a bit lower.

In general, it isn’t that companies invest less because they’re doing buybacks. It’s that they do buybacks because they have less left to invest in.

Buybacks are on the rise because overcompensated CEOs are using them to fatten their own pay.

While the raw dollar amounts of buybacks have risen, as a percentage of the total value of the U.S. stock market they have shrunk by almost half since 2007—to roughly 0.7% from 1.3%, according to S&P Dow Jones Indices. The buyback boom has been dwarfed by the rise in stocks overall.

"What’s more, the “Share Repurchases on Trial” study finds that CEOs of companies doing buybacks don’t earn noticeably more compensation—including salary, bonus and stock options—than those at comparable companies that aren’t repurchasing shares. On average, CEOs doing buybacks don’t even earn 1% more in total pay."

No, the SEC Can’t Regulate Climate Change

If Congress wanted to authorize that, it would have said so

By Donald Kochan.

"Justice Antonin Scalia cautioned more than 20 years ago that Congress doesn’t “hide elephants in mouseholes.” When Congress chooses not to pursue a certain policy or delegate a new authority, it isn’t inviting administrative agencies to step in and fill the empty space. But federal agencies are increasingly attempting to impose major climate regulations with no mandate from Congress.

In its June 2022 decision in West Virginia v. Environmental Protection Agency, the Supreme Court made clear that federal agencies may not assert “highly consequential power beyond what Congress could reasonably be understood to have granted.” The EPA couldn’t find a provision in the Clean Air Act in which Congress gave the agency sweeping authority to restructure the country’s mix of electricity generation with its Clean Power Plan. Under the so-called major-questions doctrine, an agency action of political and economic significance—such as regulating carbon emissions—requires clear congressional authorization. The EPA didn’t have it, so the Clean Power Plan had to go.

With its recently proposed climate change policies, the Securities and Exchange Commission is similarly trying to exercise authority it doesn’t have. In an April 2022 rulemaking, the SEC proposed a set of expansive and costly regulations that would require public companies registered with the SEC to publish information about “climate-related risks” in annual reports and audited financial statements if those risks are “reasonably likely to have a material impact” on a company’s “business, results of operations, or financial condition.” The SEC also proposed requiring disclosure of registrants’ direct greenhouse-gas emissions as well as those from its purchases of electricity and its supply-chain partners.

This isn’t mere “disclosure.” It’s a heavy regulatory burden designed to serve climate policy goals, and it goes beyond the SEC’s statutory authority.

Climate change involves some of the biggest and most complicated policy debates of our day. A financial regulator empowered by Congress only to police fraud and protect investors isn’t equipped to engage with the policy questions surrounding climate change. That’s a mousehole of authority. There’s no room in it for a climate elephant to hide.

West Virginia v. EPA clearly poses a problem for the SEC’s climate proposal—and the commission knows it. Chairman Gary Gensler acknowledged that the case is “significant and meaningful,” and former Commissioner Joseph Grundfest noted that the SEC “was thrown for a loop” by the high court’s ruling. Nevertheless, the commission seems determined to dictate broad-reaching climate rules. In January, the SEC asserted that its climate disclosure requirements will be promulgated as a final rule in April 2023.

West Virginia v. EPA should serve as a clear warning to the SEC and other federal agencies—including the National Aeronautics and Space Administration, the Defense Department and the General Services Administration—not to act outside their purviews. If Congress had wanted them to have such broad power, it would have given it to them.

Mr. Kochan is a professor and executive director of the Law and Economics Center at George Mason University’s Antonin Scalia Law School."

Biden’s Stock Buyback Tax Would Hit the Little Guy

Mutual-fund investors would pay, and the result would be less-efficient allocation of capital.

By Burton G. Malkiel. Excerpts:

"Stock buybacks don’t take money away from pro-growth investments. Most buyback funds are reinvested in the stock market and in private equity, where they can be put to more productive use."

"If the company undertakes an investment with a lower expected return, it will destroy shareholder value."

"If the dollar value of such projects is less than the cash available, any excess cash should be returned to shareholders. The preferred method of returning these excess proceeds is to engage in buying back the firm’s stock (on which the purchase will earn the company’s cost of capital) or by declaring a special dividend. Buybacks are typically preferred to increasing dividends since the company doesn’t have to commit to continuing repurchases. Buybacks also provide flexibility with respect to timing. Unlike a regular dividend, there is no expectation that the buyback will continue."

"Critics say that buybacks substitute for productive investments, thereby harming the economy and its growth prospects. But a study published in the Harvard Business Review covering the years 2007-16 showed that research and development and capital expenditures soared over the same period when shareholder payouts and stock buybacks were rising sharply. The disconnect between robust investment and large cash payments is explained by offsetting equity issuance. Moreover, stockholders who sell their shares use much of the cash received to invest in other companies. Indeed, buybacks permit shareholders to redirect funds to smaller and higher-growth companies, which can improve the economy’s capital allocation by reallocating capital from older, established firms to more innovative ones."

"there is no evidence that firms that engage in buybacks reduce their investments. The Tax Foundation reported that firms that buy back their stock tend to outperform their peers over the next several years."

"Most common stock is held by the mutual (and exchange-traded) fund industry and by a variety of public and private pension plans. Entities such as the California Public Employees’ Retirement System as well as state-run pension plans own enormous amounts of common stocks. These institutions usually reinvest the proceeds from buybacks, and they rely on returns from the stock market to preserve the viability of their programs."

A Convenient Political Target: President Biden’s proposed tax hike on stock buybacks is misguided

By Allison Schrager.

"Finance professor Ken French once said about stock buybacks: “Buybacks are divisive. They divide people who do understand finance from those who don’t” Put Joe Biden and his administration in the “those who don’t” category. In last night’s State of the Union, the president proposed quadrupling the tax on corporate stock buybacks “to encourage long term investments instead.”

The concept of stock buybacks—when a public corporation uses its profits, or sells debt, to buy its own shares—may seem like a bad thing. After all, in theory, the company could have used that money to invest in its growth or to pay higher wages. But technically, a share repurchase is simply returning money to shareholders—just like paying a dividend, but more tax efficient.

AQR Capital Management’s Cliff Asness estimated that net investment did not decrease as stock buybacks became more popular. A corporation may buy back shares when it sees no profitable investment opportunities. In this case, it is better to return the money to shareholders; they can then invest that money in a company that might have better investment prospects.

Take oil companies. Biden is angry that oil companies did buybacks this year after raking in large profits. He says they should have used that money for more exploration and expanding refining capacity to boost the supply of oil. But why would an oil company invest in infrastructure to increase production when the administration has openly stated that it hopes to eliminate fossil fuels in the next decade? A rational response—one that maximizes shareholder value—is to return money to shareholders, not to make a large investment in something that may be worthless in the not-too-distant future. Biden should be delighted the profits are getting returned to shareholders, who will now invest in industries his administration finds more palatable.

True, most of the buybacks in the pre-pandemic period were financed by debt. While that sounds like a risky way to increase share prices, it’s just a way for a firm to recapitalize by switching from equity to debt, which, in a low-interest-rate environment, is a reasonable thing to do. Also, stock buybacks do not raise stock prices all that much. Research finds that they may push them up by 1 percent to 2 percent, but there’s nothing artificial about this increase. Instead, a buyback sends a signal that management thinks the company’s stock is undervalued, or that profits will improve by having more tax-favorable debt financing, or that investors are happy to hear that the firm is not chasing unprofitable investments.

Stock buybacks may make a convenient political target, but in principle and practice they’re morally and economically justified."

Gary Gensler Plays Robinhood

The SEC’s stock trading redesign won’t help individual investors

WSJ editorial.

"Gary Gensler has some plans for you. His Securities and Exchange Commission on Wednesday gave Americans until March 31 to digest and comment on 1,656 pages of proposed regulation that would re-engineer the equities market in the name of fixing a nonexistent problem.

The impetus for the SEC’s stock-trading overhaul was the rally in “meme” shares such as GameStop last year. Multiple stocks surged in price as retail investors trading via firms such as Robinhood shared bullish tips on social media, many with the goal of squeezing hedge funds that had short positions. 

Several brokers limited trades amid volatile prices and clearinghouse margin calls. An SEC staff report last fall found no evidence of market manipulation or systemic risks. Yet Mr. Gensler argued that the practice known as “payment for order flow” presents business conflicts that harm retail investors.

Where’s the evidence? We can’t find it in the 1,656 pages of new rules. The payments to Robinhood, Schwab and other brokers from wholesalers such as Citadel Securities aren’t conflicted or shady like Sam Bankman-Fried’s FTX with his Alameda trading house. The arrangements are disclosed to investors.

Here’s how it works: Brokers that offer zero-commission trading route customer orders to wholesalers, which can execute trades at better prices than are available on stock exchanges because they aren’t competing with large institutional investors. This “payment for order flow” lets wholesalers make money from the spread between a stock buying and selling price. Retail investors benefit since they don’t pay commissions and can get better prices on trades even if it’s fractions of a cent.

But stock exchanges are unhappy because less trading on exchanges means less revenue. About 40% of trading volume now occurs off exchanges. Institutional investors such as pension funds that trade mostly on exchanges also complain that they get worse prices when there are fewer counter-parties. Mr. Gensler dislikes trading off exchanges because it’s less visible to regulators. “The markets have become increasingly hidden from view, especially for individual investors,” he said Wednesday.

Yet the SEC’s proposed rules concede that payment for order flow offers better prices for individual investors. The SEC claims, however, that investors would benefit from even better prices if markets were structured differently—i.e., the way Mr. Gensler wants.

The new SEC rules seek to replace payment for order flow with auctions that have “various market participants competing to execute their marketable orders at the best price possible.” These auctions would be separate from the exchanges but could be operated by the exchanges.

Brokers would funnel small retail orders into these auctions where institutional investors and others would compete for best price. Only if wholesalers can beat some price metric would they be allowed to skip the auctions. Institutional investors “potentially could trade at better prices if given an opportunity to interact with the marketable orders of individual investors in fair and open auctions” (our emphasis), the SEC says. It also estimates that its “fair and open auctions” could yield $1.5 billion for investors, or about one cent per $100 traded.

That’s doubtful. Brokers might have to return to charging commissions or other trading fees to replace payments from wholesalers. As GOP Commissioner Mark Uyeda noted in a dissent, the SEC estimate also “does not factor in the potential benefits associated with the proposed changes” from two other SEC rule-makings that could “facilitate competition.”

One change would let exchanges reduce the price increments at which stocks are quoted and traded—known as “ticks”—to less than one cent. This reduction of tick sizes could help “level the playing field,” to borrow Mr. Gensler’s words, between the exchanges and wholesalers that often execute trades at increments smaller than a cent.

But most of Mr. Gensler’s stock-trading overhaul isn’t intended to improve competition or protect retail investors. The beneficiaries are Nasdaq, Calpers and brokers that can support zero-commission trading with other revenue.

***

Amid the crypto crashes and alleged FTX fraud, one would think that Mr. Gensler would have higher priorities than redesigning the stock market to fulfill a thought experiment. An SEC Inspector General report recently warned that his move-fast-and-break-things agenda is overwhelming staff and diverting resources from investor protection. His redesign of stock trading is a regulatory vanity project that won’t help investors."

Sen. Warren and the Wild West of Crypto

America has a working regulatory regime. It needs to be adapted to digital-asset exchanges

Letter to The WSJ.

"Behind the problem with FTX was the SEC’s failure to create a path for digital-asset exchanges. This drove FTX to do its business overseas, where it was able to make its own rules and gamble with investors’ deposits. Existing regulatory regimes in the U.S. and U.S.-based companies remain the best protections against fraud (“Regulate Crypto or It’ll Take Down the Economy” by Elizabeth Warren, op-ed, Nov. 23).

Not every financial instrument is guaranteed a return on investment. Risk is inherent. In 2000, at the height of the dot-com bubble, Pets.com lost nearly $150 million, but online retail became one of the most profitable investments in history.

Following the flawed, sky-is-falling, “Chicken Little” logic of Sen. Warren, regulators in 2000 should have forced the internet into a government-run, highly regulated platform, instead of allowing it to mature naturally into the successful marketplace it is today.

Like the internet of 2000, the digital-asset market of 2022 should abide by existing consumer-protection rules and allow digital-asset securities, commodities and exchanges. Overregulating, however, will stifle innovation and limit consumer choice.

Digital assets provide the opportunity to make more private, secure and quick transactions across entirely electronic platforms. This is certainly innovative, but hardly likely to take down the entire economy.

David McIntosh

President, Club for Growth

Washington"

Blowing the Whistle on Misconduct in Crypto

Whistleblower offices at the SEC and CFTC have made a difference

Letter to The WSJ.

"Sen. Elizabeth Warren’s op-ed, “Regulate Crypto or It’ll Take Down the Economy” (Nov. 23) misses one important safety feature in existing Securities and Exchange Commission and Commodity Futures Trading Commission regulations: whistleblower programs that encourage those with knowledge of wrongdoing to step forward and report to federal regulators.

The 2010 Dodd-Frank Act established whistleblower offices at both agencies. These offer confidentiality to whistleblowers and the potential for large financial rewards, as much as 30% of monetary sanctions collected.

Of the more than 12,000 SEC whistleblower complaints received in financial year 2022, the third-most common concerned wrongdoing by the crypto industry. Likewise, the majority of whistleblower submissions the CFTC received in the past year concerned crypto and digital assets.

Over the past decade, SEC enforcement actions originating from whistleblower information have led to enforcement orders of more than $6.3 billion, of which more than $1.5 billion will be or has been returned to investors. Add $3 billion more from the CFTC.

Erika Kelton

Partner, Phillips and Cohen LLP

Washington"

Biden Puts Your 401(k) to ESG Work

A new rule offers legal protection for progressive investments.

WSJ Editorial.

"The Biden regulatory machine doesn’t rest, even in Thanksgiving week. On Tuesday the Labor Department finalized a rule that empowers retirement plan sponsors to invest based on environmental, social and governance (ESG) factors and put your 401(k) to progressive political work.

The Labor Department casts its rule as a mere clarification of the 1974 Employee Retirement Income Security Act (Erisa), which requires that retirement plan sponsors act “solely in the interest” of participants and beneficiaries. A Trump Labor rule barred retirement managers from considering factors that weren’t material to financial performance and risk. 

Asset managers and union pension plans claimed the Trump rule limited their discretion to consider such ESG factors as climate, workforce diversity and labor relations. The Biden DOL says it created a “chilling effect” on ESG investing. Its replacement rule gives plan sponsors nearly unlimited discretion and legal protection to invest based on these often political considerations.

“A fiduciary may reasonably conclude that climate-related factors” including “government regulations and policies to mitigate climate change, can be relevant to a risk/return analysis of an investment,” the rule says. Ditto workforce diversity, inclusion and labor relations since they may affect employee hiring, retention and productivity.

Government climate policies can no doubt affect financial performance, but not necessarily in the way that ESG investors say. Fossil-fuel producers are reaping enormous profits as Western governments seek to restrict supply. A pension plan that divests from fossil fuels would be less diversified and probably produce lower returns over the long term.

Many ESG investing strategies take into account future policies that would be needed to meet the Paris CO2 emissions targets but which may never be implemented because the economic costs are higher than society is willing to bear. Is it prudent for retirement plan managers to shun companies that don’t plan for a “net-zero” world that may never arrive?

DOL offers a long list of debatable theories and studies to support its claim that social and governance factors might be important investment considerations. “Labor-relations factors, such as reduced turnover and increased productivity associated with collective bargaining, also may be relevant to a risk and return analysis,” the rule says.

The main point of the Biden rule is to give legal protection to retirement plan fiduciaries that invest based on ESG. A secondary goal is to steer more retirement savings into ESG funds that often charge higher fees by allowing retirement sponsors to offer them as default options in 401(k) plans. Workers automatically enrolled in default funds can opt out, but they usually don’t.

Workers will have to cover 401(k) shortfalls if ESG strategies don’t pan out. That means they may have to increase their contributions or retire later. In the case of union pension plans, taxpayers might bear the cost. Democrats authorized some $86 billion in their Covid relief bill last March to shore up distressed multi-employer pension plans.

Since these pension plans enjoy a taxpayer backstop, unions will be more inclined to leverage worker retirement savings to promote progressive causes even if they result in lower returns. In sum, the Administration is politicizing retirement savings and putting taxpayers and workers on the hook for the costs. No wonder it released the rule right before Thanksgiving."

The Virtues of Stock Buybacks

They’re good for just about everyone, including employees and shareholders as well as overpaid CEOs

By Jesse M. Fried and Charles C.Y. Wang. Mr. Fried is a professor at Harvard Law School. Mr. Wang is an associate professor at Harvard Business School. Excerpts:

"The critics argue that buybacks are driven by greedy executives and starve firms of capital for investment."

"These critics ignore equity issuances to shareholders, which move cash in the other direction. Across the market, firms recover from shareholders, directly or indirectly, most of the capital distributed by repurchases. Taking into account equity issuances, net shareholder payouts in public firms during 2012-21 were only about $4.4 trillion. By our calculations, this left public companies with approximately $10 trillion for investment, not counting proceeds from debt financing. 

Much of this money, our research shows, is in fact plowed into investment. Overall investment levels, as measured by capital expenditures and R&D, reached historical record highs in six of the last 10 years, totaling $12 trillion during 2012-21. Investment intensity at these firms, measured by the ratio of investment to revenue, has also been rising over the past 10 years and is now near two-decade highs.

At the same time, firms are piling up cash. During 2012-21, cash balances rose by 78%, reaching around $8 trillion and thus leaving firms with ample resources for additional expenditure. There is no evidence that dividends and repurchases are starving firms of capital. If anything, public companies are sitting on too much cash.

A tax on buybacks will harm shareholders. It creates an incentive for managers to hoard cash, leading to even more corporate bloat and underused stockholder capital. Because CEO pay is tied closely to a firm’s size, this bloating will drive up executive compensation, further hurting investors.

Buyback critics may argue that companies could simply switch from repurchases to dividends. But executives will be reluctant to make this switch, partly because dividends (unlike repurchases) reduce the value of their stock options. When buybacks are taxed, overall shareholder payouts will decline."

"most repurchased shares either go to employees, who later sell to investors, or are acquired to reduce equity dilution after employees have sold stock. This repurchase-issuance cycle moves cash to employees and is cash-neutral for shareholders. Our research shows that 85% of this value flows to employees below the top executive level. Increasing the tax burden will tend to lower equity pay, to the detriment of workers."

"The cash from shareholder payouts by public companies often flows to private ones, such as those backed by venture capital or private equity. These private firms account for half of nonresidential fixed investment, employ almost 70% of U.S. workers, are responsible for nearly half of business profit, and have been important generators of innovation and job growth."

Life is more complicated than Rupert Russell's book "Price Wars" suggests

See ‘Price Wars’ Review: Hedge Funds on the Attack: Investors can easily be blamed for all sorts of problems if prices are seen as ‘weapons’ deployed by the few to harm the many by Roger Lowenstein.

"Albert Einstein looked for a theoretical framework to tie up the universe but didn’t succeed. Rupert Russell, a British filmmaker and writer, believes he has done it. In “Price Wars: How the Commodities Markets Made Our Chaotic World,” Mr. Russell reduces much recent history to a morality play in which global financial capitalism wreaks chaos on the developing world.

The author, who traveled to Iraq, Ukraine, Venezuela, Somalia and other hot spots for his research, attempts to link “disparate episodes of chaos large and small.” His thesis is that far-flung events over the past two decades or so were not “free-floating snowflakes but bound together in an avalanche.”

Price Wars

By Rupert Russell

(Doubleday, 276 pages, $29)

His avalanche is really a series of storms in which reverberations in commodities markets unleash mayhem. Thus prices of foodstuffs such as wheat soared in 2008, triggering the Arab Spring, terrorist militias and refugees. Coffee plummeted, spurring more refugees, from Guatemala. Soaring oil prices, supposedly inflated by Wall Street, emboldened Vladimir Putin to bully neighboring states—but then oil prices fell, unleashing chaos on Venezuela.

Such avalanches, Mr. Russell maintains, also rocked the West.In Britain and in the U.S., refugee arrivals tore at the social fabric and a housing bubble (also the fault of oil prices) spurred voter discontent. Voila, Brexit; hello, Donald Trump.

The trouble with such deterministic exercises is that life tends to be more complicated. If oil encouraged Russia’s imperial ambitions, why not a similar effect in Norway? And if, as the author suggests, Venezuela was undone by wild price fluctuations and not by its leftist and corrupt government, why did it implode and not other petrostates?

Mr. Russell assures us that his logic is “devilishly simple” and that in commodity prices he has found his “butterfly.” He means the proverbial insect whose wing flap leads to a hurricane. It seems that he has scarcely seen a butterfly that didn’t cause a hurricane. “Price,” he intones, “can spark riots, revolutions and war. Prices unlock cages and release monsters.” 

According to standard theory, prices are not a causal agent any more than newspapers or cell towers. Prices communicate scarcity or surplus, or uncertainty. They transmit information. For Mr. Russell, prices are “engines of chaos”; they “hide,” spread “magic” and “manipulate.” They are tools for the few to enrich themselves at the expense of the many.

Mr. Russell focuses on the 2008 global food crisis. Scholars have identified a host of factors contributing to rising grain prices: inadequate investment in developing countries, misdirected subsidies, weather events, export restrictions, increasing oil prices and rising demand for biofuels. Mr. Russell isn’t buying it. He says there wasn’t any food shortage; higher prices resulted from traders piling into commodity index funds. He views hedge-fund investors as akin to terrorists for manufacturing hunger. He is similarly suspicious of the market’s judgment, in the early 2010s, that political unrest in the Arab world posed a threat to oil supplies. That claim, he says, was only a story that “maintained the bubble,” though he doesn’t trouble to say who was maintaining it. He says that prices can be a “carefully deployed rational weapon.”

“Price Wars” thus leaps from the truism that prices often turn out to be wrong to the more sinister implication that omniscient traders are knowingly distorting them. Mr. Russell makes much of the fact that feedback loops convey plenty of dodgy information; but they also convey plenty of true stuff. Nassim Nicholas Taleb, the “Black Swan” author and a former options trader, coined the term “narrative fallacy” for the urge to impose causality on random events. Mr. Russell is its avatar.

For him, prices are supposed to deliver “peace and harmony” rather than transmit news from a turbulent world. He misconstrues “chaos” as an unnatural condition foisted on society by hedge funds. When harmony is absent (or chaos present), Mr. Russell smells a rat. He pines for the pre-deregulatory era and in particular blames the Commodity Futures Modernization Act of 2000 for turning the market henhouse over to Wall Street foxes. There is much not to like about the bill, but Mr. Russell’s assertion that, before then, “order had reigned” is baffling. What about the Hunt brothers’ effort to corner silver? Futures markets have always been volatile and speculative.

Mr. Russell is furious at neoliberalism, but his attack is a muddle. He accuses the late Fed chairman Arthur Burns of conservative “austerity” policies that thwarted the desires of democratic masses for freer spending. But it was Burns, who ran the central bank for most of the 1970s, whose policies led to the Great Inflation. And Mr. Russell excoriates the U.S. for promoting liberalized markets, a policy he says left the developing world “to experience the full force of the mushroom cloud.” This radioactive metaphor is an example of his inflated language. (Accusing “many hedge funds” of the equivalent of “war crimes” is another.) And he has neoliberalism backward. Whatever its effects on Gary, Ind., global trade brought unprecedented growth to the developing world.

Though Mr. Russell is unhappy with central bankers, his real venom is saved for government officials who have supposedly appeased Wall Street with Hooverish tight budgets. He asserts that the huge deficits of the Covid period have demonstrated that inflation “was no longer a threat”—a seriously ill-timed assessment—and that, therefore, the U.S. and other governments should have been more free-spending all along. Mr. Russell says that his story shows how global financial capitalism is undermining political freedom, but no evidence is offered. “Price Wars” is a painful book. It reads like a Twitter feed, a deluge of words in the service of rhetoric."