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Company executives and other insiders moonlighting as consultants to hedge funds cannot blatantly peddle their company’s confidential information for personal gain. These PGR consultants and employees schemed to facilitate widespread and repeated insider trading by several hedge funds and other investment professionals.

Robert Khuzami, director of the SEC’s Division of Enforcement: via Bloomberg, related

“not one of us said, ‘Fonzie, jump a shark? Are you out of your mind,'”
Fred Fox Jr.

If you stand right fronting and face to face with a fact, you will see the sun glimmer on both its surfaces, as if it were a cimeter, and feel its sweet edge dividing you through the heart and marrow, and so you will happily conclude your mortal career. Be it life or death, we crave only reality.
Henry David ThoreauWalden

We may speculate with confidence when this band or that show jumped the shark, but do we know when Happy Days jumped the shark? No.

The fifth season of happy days brought the cast to Los Angeles. Memories of Elvis Presley’s Blue Hawaii, the Beach Boys, and Endless Summer conspired to roll the cultural archetypes of working-class

roustabouts through the waves and tribulations of a tropical setting. It was in the fifth season of an eleven season run, and many popular episodes would follow. Why, then, would an outrageous hijink from the Fonz, the otherwise unflappable assurance of cool, become synonymous with the show’s decline and inseparable from the culture’s idea of a fall from grace?

“Here we go, Fonz. I’m headed for the ramp. Are you sure you want to do it?” asked Richie Cunningham.  Fonzie gives him a thumbs up, and they plot an improbable route along the shoreline. Ralph Malph exclaims, “Look at that shark Potsie!” and points to a string of yellow buoys not more than fifty feet from the beach, marking the outline of the shark’s undersea pen. By now, the boat should have either skidded up over the sand or crashed through the nest of tall, wood stanchions holding up a not too distant pier. They hold their heads, work their hair and bite their lips. Fonz is going to do it. He’s going to jump the shark and usher into the idiom a phrase that would haunt the show and loom over many others for years to come.

The realization is said to have been made in 1987. The Iran-Contra scandal had broken the year before, and the ensuing investigation introduced C-Span to America while the many possibilities of Oliver North’s whereabouts and engagements distracted the audience from an increasingly bewildered presidency. A group of friends dropped the more the mundane engagements of a college education for the free-wheeling release of a few speculations on when Happy Days began it’s decline.

But the observation itself demonstrates one thing. The example doesn’t always fit the facts so much as fit the mold. In this case, Fonz having jumped the shark could only have happened with the onset of a general and persistent decline. It could only have happened at the end, not the beginning. But it didn’t.

To mark the decline of Happy Days with the Fonz jumping the shark relies on an accumulation of mistakes. Many years separated the group of friends and the fateful episode when Fonzie jumped the shark. The episode might have been only barely visible, mixed and spread among many others in the murky depths of their recollection – its position, unclear.

Syndication precipitated the slow erasure of sequence that had organized shows into seasons and seasons into the series. It mixed-up and confounded the series in a way that enabled one to connect jumping the shark with the end. Though the Fonz jumped the shark in season five, it could have happened anytime, so the question that fateful evening among friends wasn’t when did it happen, but when should it have happened? Though only three years had passed since the show had ceased production, the shift to syndication and its effects began earlier. Happy Days had long filled the slots before or after the evening news in an endless cycle of re-runs and run-ins between the periodically out of synch episodes – like a gropey old transmission, slipping between gears.

That night, the circle of friends conjured the decline of Happy Days irrespective of the facts. The distance in time softened the outlines of the past. Syndication took the sequence out of the series. It wasn’t in the middle. It wasn’t anywhere. Combined with the character of the show itself, it was easy to mistake its position for one closer to the end than the beginning. It was easy to mistake and agree to a reality according to the mold, not the facts.

The friends didn’t bother with the facts. The facts would have disrupted the story. And perhaps, if they had stood “face to face with a fact” and seen “the sun glimmer on both its surfaces, as if it were a cimeter [scimitar],” it would have cut right through their clever conceit of the irrepressible Fonz and his shark, concluding its career. So, in answer to Thoreau, do we only crave reality, be it life or death? Or are we just as happy to exist among the myriad inventions that underpin and imagine the relationships between the Fonz, a shark and the decline and fall of Happy Days?

The facts do not owe their origin to an act of authorship.
Justice Sandra Day O’Connor (Feist v Rural Telephone, 1991)

But does the hunt, the research, the interviews? Or perhaps its organization into a story for the dissemination to a reading public? And can these be made exclusive? These questions have bubbled up as the newspaper industry wrestles with what the internet is doing to their business.

The Cleveland Plain Dealer’s Connie Schultz has argued fervently about the rights of authors and their newspapers to capitalize on their product. She came out against “the aggregators” as though they were a malfeasant band of marauders bent on destroying the institution of journalism and by extension democracy. Citing Daniel and David Marburger, she claimed, “parasitic aggregators reprint or rewrite newspaper stories, making the originator redundant and drawing ad revenue away from newspapers at rates the publishers can’t match.”

James Moroney, publisher and CEO of the Dallas Morning News takes a similar approach. He invokes the ‘hot news’ doctrine and asks congress to apply it to the internet. Says Moroney, “perhaps it is time for congress to establish a principle of ‘consent for content’ for breaking news–similar to the ‘hot news’ doctrine recognized by a few states.”

Copyright law sufficed to protect the written word, fixed in a medium, but these claims demand remedy for a larger issue. They aim to protect the investment required to collect the facts and write a story, when it might easily be re-written and distributed by another. But they ask for monopoly control of the story itself — indeed, ownership of the collection of facts and ideas that might make up a breaking story on government corruption, for example. Justice O’Connor, however, finishes with little support for these views: “The distinction is between one of creation and one of discovery.” And discovery is not subject to property rights.

The viewpoints of Moroney, Schultz and the Marburgers have their origin in the nature of print. Print leads to a confusion between controlling the medium and controlling the content – that is, the mistaken idea that breaking a story equates to owning it. The Supreme Court compounded the confusion in 1918 with its decision to augment copyright protection with “quasi-property rights” for the facts and events that make up a news story — the hot news doctrine. It was a legal solution for the disruptive impact of a new technology: newswires. News was paper, and these rights formalized the metaphor. They derived from the physical qualities of the paper, attached property rights to the news and would provide a legal basis from which to make, in this case, the AP’s news exclusive. Theoretically, the AP could then exclude people from learning of it or reprinting it without permission. They wouldn’t just report the news, they would own the news. Read the rest of this entry »

Rising deficits. Burgeoning questions about economic recovery. A long shadow of war and conflict. These issues sound familiar today, but they share a common thread with the story of Eubulus in the fourth century BC in Athens.

The Athenian economy and culture had come undone. The war between the Greeks and Thebes had stretched on for many years and nearly bankrupted them politically and financially. The once tight control over the Greek city-states exerted by Sparta and Athens had withered with defeats in Leuctra in 371 and Mantinea in 362 BC, followed by the Social War. It was at that time that Eubulus took control of the Theoric Fund and engineered a remarkable recovery, the benefits of which accrued to both himself and Athens.

We find in Eubulus one of the first technocrats. Rather than pursue an imperialist policy bent on tributes, he recovers the Athenian economy through trade and investment. He incorporates the latest thinking on government and the economy from the likes of Xenophon. But today many remember him as a weak and corrupt precursor to the vigorous rise of Demosthenes and his noble resistance to Philip II of Macedon.

The Eubouleus Marble, a Roman copy after a Greek original

Today, the United States finds itself in similar circumstances. War. Economic despair. With the Obama Administration, we have a technocrat and his company in the Whitehouse. And we see the same clash, but this time, the press might call them populists or, perhaps, Republicans. Replace Demosthenes with Richard Shelby or Dick Cheney and shift the subject to the turmoil in the economy or the pervasive threat of terrorism and al Quaeda. Does the Obama administration face the same fate as Eubulus?

Eubulus gained broad influence over Athenian finances and politics through control of the Theoric fund. It is suggested that Pericles had instituted the fund to provide for festivals and various state expenditures. Perhaps most potent was the control over the amusements of the multitude. These captured the imagination of the citizens of Athens and distracted them from their wretched state. Control of the Theoric fund meant control over the access to and production of these events.

Though the appeal of free tickets may have helped Eubulus enhance his position among Athenians, unlike conventional descriptions from Britannica, for example, it did not figure greatly in his rise to power. Following the Social War, which ran from 357 to 355, the annual revenue of the Theoric fund had dropped to hardly 130 talents and hardly warranted the attention of ambitious Athenian politicians, such as Demosthenes. Moreover, election to the Fund only lasted one year.

Eubulus’ rise to power marked a decisive shift in statesmanship. Through careful maneuvering, Eubulus converted the Theoric fund to the Theoric Commission. The details are unclear on how he accomplished this, but he effectively came to control the Athenian finances in their entirety. He then focused on two things. First, to increase the revenues of the state and bring about some financial stability. Second, to increase the general prosperity of all Athenians. Both of these ambitions, however, would be approached in an entirely new way, one similar to that described by the recent publication Xenophon’s On Revenues (355 BC).

Xenophon’s On Revenues argued that Athenian wealth depended on trade, not tributes. His realization ran counter to the common wisdom. Most Athenians viewed their imperial tendency as the mainspring of their wealth, and poorer Athenians believed this most vigorously. City-states that did not pay signaled lost opportunities and the continuation of the poor’s mean condition.

Xenophon proposed creating a fund to finance the engines of trade. Citizens would contribute, and “most of the Athenians will receive annually more than they have contributed.” The fund would make investments in trade and the infrastructure related to trade. These investments would result in increased state revenues, a growing economy, and the resulting wealth of the Athenians. Xenophon said, “the more people settled among us and visited us, the greater the quantity of merchandise, it is evident, would be imported, exported, and sold, and the more gain would be secured and tribute received.”

For ancient Athens, Xenophon’s ideas were a meaningful departure from the policy of imperialism and the rapacious collection of tributes. Rather than rely on the grinding effort of collecting revenues from other city-states, Xenophon proposed that Athenian economic growth through trade would more than suffice. Indeed, he specifically argued against tributes and the military adventurism that they required: “if the full revenues from the state are to be collected, there must be peace.”

Eubulus engaged Xenophon’s ideas in earnest and perhaps also improved upon them. He set about three major changes to stimulate the economy, drive revenues, and enhance prosperity. First, he moved forward with taxing the Metics, who were resident aliens in Athens. Second, he invested in the encouragement of trade and traders. Third, he raised money for direct investment in capital projects, such as the repair of walls, ports, and other facilities to stimulate the economy, support trade, and improve the lot of Metics and citizens alike.

The results would speak for themselves. Rather than raising money through eisphora–essentially tax-increases, or levies–Eubulus financed his policies with direct borrowing, so it would present less of a strain on the citizens. By the year 346, the revenues had increased to 400 talents a year, almost thirty times the revenue when he introduced the Theoric Commission in 355 and took control of the Athenian finances. And just as Xenophon suggested, he continued to pay out a small amount to Athenians every year.

Joseph Addison’s Mr. Spectator would bring Eulubus the technocrat to life in 18th century London as a paragon of the Spectator’s audience: the emerging middle class. He eulogized Eubulus in Spectator [no. 49] as one who “presides over the middle Hours of the Day.” He holds reign over the Men formed for Society, whose “Entertainments are derived rather from Reason than Imagination.” They met after those in the morning rose, met in the coffee-houses and “published their laziness,” and before the Monarchs of the afternoon or Tom the Tyrant in the evening.

The Eubulus figure at midday is the embodiment of the Addison’s trader and business-man of the coffee-house. He approaches decisions with dispassion and a keen focus on the economic end: “He does not consider in whose Hands his Mony will improve most, but where it will do most good.” These qualities engender loyalty and ambition to “speak after him” and be “wise in his sentences.” Mr. Spectator would say of those that followed his Eubulus: “Every Man is Eubulus as soon as his Back is turned.”

But just as leadership in Mr. Spectator’s metaphor would shift to the Monarchs of the afternoon or Tom the Tyrant in the evening, the political climate would change for Eubulus in 4th century Athens. The growing wealth of the Theoric fund began to arouse interest in Demosthenes, who hadn’t paid any attention to the Theoric Commission in 355. By 349, however, Demosthenes began to pressure Eubulus to finance an expedition to Olynthus, and the subsequent record of his speeches illustrate the depth of his ambitions and the measure of his opposition to Eubulus and his allies only grew as he pushed for military funds.

Demosthenes sounded the alarm for Philip II of Macedon’s steady approach on Greece, and Eubulus became his foil. Athens faced a real, existential threat from Philip, so caution was warranted, and Demosthenes argued ceaselessly and credibly for intervention. Eubulus had also made a strategic error. Between 355 and 351, Eubulus passed a law that mandated all excess revenues of the state would pass to the Theoric Commission, not the military’s stratiotic fund. Theoric funds could not be applied to military adventures and expenditures, and those that did would be put to death. According to Demosthenes, Eubulus had hamstrung the people.Demosthenes

While the Theoric Commission had done much to improve the Athenian finances, it also paid a dividend to the citizens. Demosthenes would suggest that these payments amounted to a bribe. The citizens were reluctant to give up their individual gain for the greater good. In the First Olynthians, Demosthenes begged, “With regard to the supply of money, you have money, men of Athens; you have more than any other nation has for military purposes. But you appropriate it yourselves, to suit your own pleasure.” By implication, the policies of Eubulus enervated the citizens by giving succor to their selfishness.

Historians would take up Demosthenes’ criticism and mine a thick vein of contempt for the policies of Eubulus. He became the flatterer, a man of the multitude, a man of money, not the military. Eubulus brought on, whole cloth, the decline and fall of Athens on Philip’s approach. In Matthew Arnold’s Numbers, he would quote an unnamed, though temperate German historian: “The grandeur and loftiness of Attic democracy had vanished, while all the pernicious germs contained in it were fully developed. A life of comfort and a craving for amusement were encouraged in every way, and the interest of citizens was withdrawn from serious things.” John Gillies’, in his History, called Eubulus “an artful flatterer of the multitude,” and said, “it was vain for Demosthenes to resist the popular torrent.” The 1910 Britannica laid its own accusations: “there is no doubt that he took advantage of his position to make use of the material forces of the state for his own aggrandizement.” And Theopompus of Chios, writing during Eubulus’ time in his Philippica, claimed, “Eubulus raised a great deal of money and distributed it to the Athenieans, and in consequence the city became exceedingly cowardly and exceedingly lazy during his administration.”

Plutarch would remember Demosthenes as the sole countervailing force to Philip’s advance. Eubulus hardly appears, and in his place stands the firm, steady hand of Demosthenes and his constant warnings of Philip. In his Lives, Plutarch writes, “We have nothing of this kind to say against Demosthenes, as one who would turn aside or prevaricate, either in word or deed.” Instead, Demosthenes rises as one who can make difficult, unpopular decisions: “he pursuades his fellow-citizens to pursue not that which seems most pleasant, easy, or profitable; but declares over and over again, that they ought in the first place to prefer that which is just and honorable, before their own safety and preservation.” Though many, including Eubulus, would experience Demosthenes’ attacks, Philip remained his focus.

But are these criticisms of Eubulus warranted? Yes, the Athenians were unable to repel Philip. He took Olynthus in 348 and would soon force Athens into the embarrassing Peace of Philocrates. But it was not because Athens could not advance its military, they merely had to change the law or raise a levy on the citizens. Moreover, Professor G.L. Cawkwell at Oxford has argued that a defense of Olynthus would have been a military disaster. He also shows that far from starving the military, it grew under Eubulus’ administration. Cawkwell would conclude that, no matter the rhetoric, Athens was merely out-classed militarily and politically by Philip. They could not win, for the circumstances were set against them.The circumstances, however, would provide Demosthenes his foil and color Eubulus and his company an enemy of Athens. Whether he deserved the charge did not matter.

Demosthenes’ passion and his speeches overruled history’s favorable treatment of Eubulus. Eubulus would be known as a technocrat who captured the finances and administration of Athens but lacked the gall to make hard decisions, stir the languishing tendencies of the majority, and face down the true problems of the state. The details that Cawkwell would surface were too soon overrun by the speeches of Demosthenes, his followers, and those that would wish to tell the tale. Arnold would write of Eubulus’ Athens: “Plato was right afterall: the majority were bad and the remnant were impotent.” Eubulus would become synonymous with this impotence and the fall of Athens. Eubulus, however, was neither impotent nor responsible for the fall of Athens, but with Athens no match for Philip, Eubulus’ accomplishments would be no match for the passion and speeches of Demosthenes.

When Demosthenes finally met Philip II of Macedon, he was said to have fainted at the sight of him. The man who Plutarch introduced as the accomplished orator, the one who overcame stammering pronunciation by speaking with pebbles in his mouth, who recited speeches while running or going up steep places, so he could discipline his voice, was so overwhelmed by Philip that he crumpled to the floor.

Demosthenes captured the hearts and minds of many with his warnings and imprecations, but he failed to be the statesman that was Eubulus. His only success was in the failure of Athens and Greece to hold back Philip, for he would become known as the one relentlessly exercised over Philip’s advances. Athens’ failure would be Eubulus’ failure, and the blame would work to embellish his story with tales of corruption and weakness.

Today, we have the Obama administration. Technocrats. Their countless economic advisors. The studied decision-making before committing to Afghanistan. The appeals to reason on and practical pursuit of healthcare reform. The Keynesian logic behind the economic stimulus package. Each decision and initiative was flanked by support from experts and thought leaders, together evoking the story of Eubulus. Nonetheless, one only has to watch the Sunday morning news shows to see Demosthenes’ agenda played out by the vocal remnant of the Republican consensus in the hopes that Obama might be forgotten, like Eubulus, regardless of the cost.

Each firm has lost business in, and has reduced investment in and output of United States equity research as a result of the free riding by Fly and other services. This is a bread-and-butter case of hot-news appropriation.

Benjamin Marks to US District Judge Denise Cote: via Bloomberg.

The case of Barclays v. provides a recent test of the hot news doctrine in the investment research industry. Claims that Fly on the Wall was just reporting the news from the free marketplace of ideas would not protect them. Instead, Judge Denise Cote’s findings of facts and conclusions of law following the March 8-11 bench trial would institute an injunction that embargoed recent headlines and materials from the plaintiffs from publication by Fly on the Wall. The news of her decision has lathered the industry into froth over whether Thomson/Reuters and Bloomberg may be next. But its application may be greater than that. Though the opinion ruled in an industry that is traditionally seen as different than the news industry – investment research – can its application in the broader news industry be far behind? Read the rest of this entry »

Half the wrong conclusions at which mankind arrive are reached by the abuse of metaphors, and by mistaking general resemblance or imaginary similarity for real identity. Thus people compare an ancient monarchy with an old building, an old tree, or an old man, and because the building, tree, or man must from the nature of things crumble, or decay, or die, they imagine that the same thing holds good with a community…All that we hear every day of the week about the decay of the Turkish Empire, and its being a dead body or a sapless trunk, and so forth, is pure and unadulterated nonsense.

Lord Palmerston on Turkey, from his letters to Lord Granville and his brother.

Lord Palmerston recoils from the insistent caricature of the Turkish empire as in decay, a dead body or sapless trunk. Instead, he sees these for what they are, metaphor’s ability to mistake similarity or resemblance for identity.

Lord Palmerston’s letter continues with an overt shift in his language. He frames Turkey in terms of self-consciously technocratic considerations fitting a statesman. He continues: “if we can procure for it ten years of peace under the joint protection of the five Powers, and if those years are profitably employed in reorganizing the internal system of the empire, there is no reason whatever why it should not become again a respectable Power.” The problem of Turkey shifts from one of managing organic decay to a geo-political issue requiring the coordinated application of political resources.

Anthony Trollope would call these letters, in 1882, “sententious morsels of didactic wisdom, which would not have been put there in the hurry of private correspondence unless they had been intended for other eyes.” Nonetheless, the underlying wisdom around the nuance of metaphor persists. Metaphors are not merely rhetorical flourishes, but powerful tools that shape our understanding through the careful juggling of similarities. Benjamin Cardozo would later echo his caution in the context of the law. Cardozo warned in 1926, metaphors in law are “to be narrowly watched, for starting out as devices to liberate thought, they end often by enslaving it.

The Speculations of Mr. Spectator

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