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The Feds Say One Schmuck Trading From His Parents' House Caused a Market Crash. Here's the Problem.

Nick Baumann — Thu, 23 Apr 2015 23:17:01 +0000

On Tuesday, the Justice Department and the Commodity Futures Trading Commission, a key Wall Street regulator, blasted out press releases declaring a great victory in their war on illegal manipulation of financial markets. The reason for the feds' braggadocio? They think they've caught the guy who caused May 2010's "flash crash," a market seizure that vaporized a trillion dollars in shareholder value in a matter of minutes.

Federal regulators say that Navinder Singh Sarao, a 36-year-old British futures trader whose company was reportedly based in his parents' home, illegally placed huge sell orders he never intended to complete, artificially driving down the price of a key futures contract so he could later swoop in to buy it cheaply. (This is called "spoofing" in financial jargon.) There's one big problem, though: By charging Sarao with "contributing to the market conditions that caused" the flash crash, federal regulators are changing their story about what really happened to financial markets five years ago.

Here's the background. In the days and weeks after the flash crash, the Securities and Exchange Commission, alongside other regulators, worked diligently to figure out what had happened. The flash crash was chaos: Liquidity evaporated, the same stocks traded at both a penny and at $100,000, and CNBC hosts freaked out even more than usual. (Prices eventually returned to normal, and the SEC canceled some of the weirdest trades.)

The flash crash was essentially over in five minutes. But it took regulators nearly five months to come up with a theory about what happened. And in late September 2010, when the SEC and the CFTC—the same agency now charging Sarao with causing the crash—released a joint report on what happened, they didn't mention spoofing, let alone Sarao. Instead, they blamed a large trade by a firm out of Kansas City.

It's not even clear that the feds' new explanation is correct. As Matt Levine notes over at Bloomberg View, regulators believe that Sarao continued to place massive fake sell orders in the years after the flash crash, but somehow that activity never triggered another crisis:

If regulators think that Sarao's behavior on May 6, 2010, caused the flash crash, and if they think he continued that behavior for much of the subsequent five years, and if that behavior was screamingly obvious, maybe they should have stopped him a little earlier?

Also, I mean, if his behavior on May 6, 2010, caused the flash crash, and if he continued it for much of the subsequent five years, why didn't he cause, you know, a dozen flash crashes?

So I mean…maybe he didn't cause the flash crash?

But in some ways, it doesn't particularly matter whether regulators' new theory is correct. What matters is that it took so long for them to develop it.

As I reported in January 2013, today's financial markets move so fast that regulators can't even monitor them in real time, let alone intervene if something starts to go wrong. Sophisticated trading algorithms can buy and sell financial products faster than you can blink—all without human intervention, let alone real-time human judgment. When something does go wrong, it can take months or years to figure out what happened. "A robust and defensible analysis of even a small portion of the trading day can itself take many days," Gregg Berman, who wrote the 2010 SEC/CFTC report, told me in 2013.

Since real-time intervention by human regulators is impossible, regulators have to rely on automatic measures—fail-safes that stop trading if prices rise or fall too fast, for example. But these sorts of automatic braking systems are, by definition, designed in response to the previous crisis. "We're always fighting the last fire," Dave Lauer, a market technology expert who has worked for high-speed trading firms, said in 2013. As I wrote then:

Years of mistakes and bad decisions led to the 2008 collapse. But when the next crisis happens, it may not develop over months, weeks, or even days. It could take seconds.

More here.

The American Teen Whose Death-by-Drone Obama Won't Explain

Nick Baumann — Thu, 23 Apr 2015 15:15:15 +0000

On Thursday, President Barack Obama appeared in the White House press room to reveal that a US strike in January on an Al Qaeda compound had killed two hostages held by the terrorist group, Giovanni Lo Porto, an Italian, and Warren Weinstein, an American. He offered his condolences to their families for the mistake that led to their deaths.

It's remarkable that Obama spoke of this at all. The US targeted killing program is shrouded in secrecy, and the president had never before issued a statement like this about people accidentally killed by US drone strikes. (He did not use the word "drone.") One such death that stands out is that of Abdulrahman al-Awlaki, a 16-year-old American citizen who was killed in a US drone strike.

Abdulrahman was the son of Anwar al-Awlaki, the radical cleric turned Al Qaeda propagandist. The father was killed in a drone strike that targeted him in Yemen in September 2011. The son was killed weeks later in a separate strike in Yemen. According to his family, the attack was on a restaurant. Attorney General Eric Holder later said that this strike did not "specifically" target the young man.

The US government has never said that Abdulrahman was involved in terrorist activities. In 2012, I asked Obama during a Reddit AMA what he thought about the teen's death, and the question received hundreds of votes from Redditors, meaning the president and/or his social-media team almost certainly noticed it. Yet Obama didn't respond.

Now that he's established the precedent of explaining the killings of US citizens in targeted strikes, Obama and the administration might see fit to say what happened in the case of Abdulrahman. Was his death accidental or is there evidence he was involved with terrorists?

For more on Abdulrahman al-Awlaki, read Tom Junod's 2012 piece on his killing.

Republicans Blew Their Chance to End Hillary Clinton's Career 15 Years Ago. Have They Learned Their Lesson?

Nick Baumann and Patrick Caldwell — Thu, 19 Mar 2015 10:00:14 +0000

On the evening of September 13, 2000, after his first debate with Hillary Clinton, Rick Lazio was feeling confident. Several polls had shown the Republican congressman ahead of the first lady in the race for New York's open Senate seat, and Lazio and his team felt the debate had bolstered his lead. He wasn't alone in this view. "The post-debate conventional wisdom was clear," Michael Tomasky wrote in Hillary's Turn, his account of the contest. "Lazio had won." Even Patti Solis Doyle, Clinton's chief of staff for the Senate campaign who would go on to head her 2008 presidential bid, wasn't confident her boss had come out on top. "I wasn't actually sure how it was going to play," she tells Mother Jones. But Lazio and his allies were not taking into account a moment during the debate that was not immediately or widely recognized as being a problem for him.

This key exchange came at the end of the debate, when Lazio interrupted Clinton mid-sentence, walked across the stage with a campaign finance pledge in hand, and urged her to sign it. Clinton awkwardly tried to shake Lazio's hand as he towered over her, his finger wagging in her face. In the hours and days after the debate, Clinton's team worked mightily to turn this interaction to her advantage. Clinton aide Ann Lewis told the press that Lazio had "spent much of the time being personally insulting." Howard Wolfson, another veteran Clinton hand, said Lazio was "menacing" to Clinton.

"They saw this opportunity and they drove it and that's the clip that was on TV over and over again," Lazio says now. The next day, media outlets began to embrace Wolfson's portrayal of Lazio as a sexist bully. "In Your Face," proclaimed a headline in the Daily News. Jon Stewart titled his segment on the debate "Rodham 'N Creep." Eventually, the Clinton campaign's depiction became the dominant assessment. Lazio was "Darth Vader with dimples," Gail Collins wrote in the New York Times later that week. Clinton went on to win by 12 points.

Lazio leaving his podium to confront Clinton

Clinton is now preparing for a second presidential campaign, which multiple outlets have reported she will announce early next month. Though some societal attitudes have no doubt shifted in the past decade and a half, the Republican presidential nominee—who will likely be a man—would do well to pay attention to how charges of sexism shaped Clinton's first race. At least, Lazio believes that. He notes that Republicans who aspire to beat Clinton should realize that if the Clinton campaign "can connect with women who have faced sexism…it will resonate. This is going to be one of the tactics to put the Republican on defense."

Charges of sexism—from the press, campaign surrogates, or even candidates themselves—are a fixture of modern American politics. In 2014, then-Sen. Kay Hagan's campaign criticized her opponent, Thom Tillis, for calling her "Kay" instead of "Senator Hagan" during a debate. (Tillis ended up winning in a close contest.) In 2012, staffers for Elizabeth Warren accused then-Sen. Scott Brown of being condescending by repeatedly calling her "Professor." That year, two Republican Senate candidates, Todd Akin and Richard Mourdock, lost crucial Senate races after making bizarre remarks about rape. (Some Democrats will accuse Republican men of sexism "regardless" of their actions, Lazio contends, "but there can be self-inflicted wounds." He warns that "words or actions that would be considered by a fair-minded person to be egregiously sexist" will get any candidate in trouble.) In 1990, Ann Richards won a race for governor of Texas after her opponent made a rape joke and later refused to shake her hand in public.

Lazio's debate maneuver is "the example we use all the time" of a male candidate's blunder that helped his female opponent, says Kelly Dittmar, an assistant professor of political science at Rutgers University who studies gender in politics. Democrats, of course, have also been accused of sexism in campaigns. Clinton surrogates charged that Barack Obama was condescending to her during a debate in 2008. But the charges seem to stick to Republicans more often "because they fit the narrative that we have," says Kathleen Dolan, a political scientist at University of Wisconsin-Milwaukee who also focuses on these issues.

Lazio agrees. "I do think the media, broadly speaking—this is a gross generalization—tends to be sympathetic to these charges, particularly when they're levied against Republicans," he says. This is partially because "it fits into a narrative that many of them have that Republicans are insensitive to women," he argues. He cites the example of former Rep. Pete Stark, a Democrat from California who in 1994 claimed that then-Rep. Nancy Johnson, a Republican who was married to a doctor, learned everything she knew about health "through pillow talk." Stark apologized, but went on to serve another two decades in Congress.

Dittmar has surveyed scores of political professionals about gender and politics, and most of them agree that running against women carries certain risks for male candidates. "In my surveys, two-thirds of the respondents said, 'Yeah, men do need to tread carefully'" when running against women, Ditmmar says. She adds that male candidates tend to be more worried than campaign managers and consultants about the possible pitfalls of competing against a woman—and Democrats are generally more worried about this than Republicans.

Lazio wagging his finger at Clinton

That caution can affect campaign strategy—fewer negative ads on personal issues, for example. How a male candidate handles personal interactions, such as debates, with a female opponent is particularly important, Dolan argues. Those in-person interactions—"those things in the moment," she says—can define a race and stir voters' emotions.

Mary Beth Rogers knows this well. In 1990, she ran Ann Richards' campaign for governor of Texas. Richards' opponent, a millionaire rancher named Clayton Williams, put his foot in his mouth early in the campaign by making a joke about how rape victims should just "relax and enjoy it." But it was a physical interaction, not the rape comment, that most damaged Williams, Rogers says. That summer, Richards and Williams appeared together before a meeting of the Texas Crime Commission. "And Ann came up there on the stage, and she stuck out her hand and said, 'Well hello, Claytie!'" Rogers remembers. Williams refused to shake Richards' hand. "Fortunately for us, because this was one of their first appearances together, it was on television and it was played every newscast in the state," Rogers says. "Twenty-five years ago in Texas that was a very ungentlemanly like thing to do. We felt that that was a key turning point in the campaign."

Four years later, Richards ran for reelection. Her opponent that year was George W. Bush, a failed congressional candidate then serving as the managing general partner of the Texas Rangers baseball team. But Bush had learned from Williams' mistakes. "He was the perfect gentleman throughout the whole process," Rogers says. "A model of propriety, respectfulness, and kindness to Ann. That perception of Republicans as more insensitive to women certainly did not come through in the Bush election." Richards lost, and Bush went on to serve a term and a half as governor before becoming president in 2001.

Another Republican candidate who proceeded carefully when running against a woman was New Jersey Gov. Chris Christie, a Republican with a reputation as a bully. In 2013, when he faced challenger Barbara Buono, a Democratic state senator, Christie "did a pretty good job" reining in his baser instincts, Dittmar says. "I've heard members of his team talk about this," she notes. "Regardless of the fact that he was in such a huge lead, perceptions of him as a bully already led him to be particularly cautious in those debates going against a woman candidate. So his campaign folks have mentioned that the goal in that was to keep it very steady and not react in the way that would yield those outcomes."

Most campaign consultants now train candidates to avoid Lazio-like missteps, Dittmar says. "Don't invade her personal space" is a prime directive. But the men who want to take on Clinton will need to be careful to steer clear of sexist tropes that will repel female voters and could rebound to boost Hillary, Solis Doyle maintains. "Whether it was during the Lewinsky scandal or whether it was when Lazio was bullying her, people seem to like damsel-in-distress sort of thing," Solis Doyle says. "Which is sad to me, but it helped her [as first lady] in '98 and it helped her in 2000 certainly." But it didn't win her the race in 2008, when she was perceived as the clear front-runner. "When she has been quote-unquote 'victimized,'" Solis Doyle says, "she's been more beloved."

The Washington Free Beacon Is Unapologetically Conservative. It's Also Kind of Good.

Nick Baumann — Fri, 13 Mar 2015 09:45:04 +0000

On July 21, 2013, Sen. Rand Paul reluctantly accepted the resignation of Jack Hunter, a.k.a. the "Southern Avenger." Hunter had been one of the senator's closest aides and had coauthored the Kentucky Republican's 2011 book, The Tea Party Goes to Washington. But before that, a reporter revealed, he'd been a pro-secessionist shock jock who donned a Confederate-flag wrestling mask and annually toasted Abraham Lincoln's assassin. Why, Paul was asked a few weeks later by a National Public Radio host, would he have worked with someone like Hunter? "Many of the things he wrote were stupid and I don't agree with," the presidential contender answered. "I do think, though, that he was unfairly treated by the media."

The scoop that put Paul on the spot "and led him to blame the media" didn't come from the New York Times, a Kentucky paper, or even a Democratic opposition researcher. Credit belonged to Alana Goodman, a reporter at the Washington Free Beacon, an avowedly conservative website that had launched just a year and a half earlier.

In its short history, the Free Beacon's tiny staff of fewer than two dozen journalists has pulled off an almost unprecedented feat: Amid a conservative movement that has often evinced something between disinterest and disdain for the work of investigative reporters, it has built genuine muckraking success.

In May 2014, reporter Lachlan Markay obtained a secret list of donors' pledges to the progressive Democracy Alliance—something akin to getting the Koch brothers' political ledgers. A month later, Goodman posted previously unreleased audio of Hillary Clinton candidly discussing her vigorous defense, as a young court-appointed attorney, of an accused child rapist. In October, she uncovered Arkansas Sen. Mark Pryor's college thesis, in which he described school desegregation as a "figurative invasion." Two weeks later, the Democrat lost his reelection race. Like the Southern Avenger expose, each of these stories was picked up by the mainstream media, a rare accomplishment for a conservative outlet. Taken together, the stories suggest that the Beacon may be poised to break out of the agitprop model of much conservative media to become a real player in hardcore news reporting.

The Beacon was initially inspired by ThinkProgress, the Center for American Progress' blog, which fills liberals' social-media feeds with quick-hit news and analysis. "There's been a real gap between the left and right on reporting and the quality of the people engaged in those efforts, and we thought we could help," says Michael Goldfarb, the Beacon's publisher. "Another objective was to have some fun going after people."

Conservative outlets from Fox News to Breitbart and the Daily Caller also offer alternatives to the perceived liberal bias of the mainstream media. But they have mostly emphasized opinion and aggregation over breaking news. David Brock scored some scoops in the Clinton-era American Spectator, but right-leaning outlets' record of hard reporting has since been spotty. While liberal sites like Talking Points Memo and the Huffington Post have been awarded the industry's highest honors (a Polk Award and a Pulitzer Prize, respectively), their conservative competitors have been notable mostly for overhyping and clinging to stories like Benghazi, Solyndra, or the IRS's targeting of right-wing groups, long after mainstream reporters have moved on.

And when the Beacon's contemporaries do try to break news, they often get it wrong: In 2012, the Daily Caller published a series of now thoroughly debunked reports that Sen. Bob Menendez, a New Jersey Democrat, had consorted with prostitutes in the Dominican Republic. And then there's conservative blogger Charles C. Johnson, who's demonstrated a knack for flinging dirt but not a sense of proportion. For years, Markay argues, many conservatives "thought all they needed to do was to point out bias" and satisfy a dedicated right-wing audience. The Beacon aims to pop that media bubble—to "break out of the insular conversation and report stuff that's compelling enough that other people pick up on it."

Part of the problem in producing smart conservative reporting, according to Goldfarb, is a lack of training grounds for right-leaning journalists. Becoming a reporter has "not been a real career path on the right," says the former Weekly Standard writer and spokesman for Sen. John McCain's 2008 presidential campaign. Take Rob Bluey, a mentor for many of DC's young conservative political journalists and the editor of the Daily Signal, a news site launched by the Heritage Foundation in 2014. When he graduated from college in 2001, Bluey says, "My dream job was at the Washington Post." But, he recalls, "I could probably count on one hand, maybe two, conservative places that had jobs for journalists. The circle was pretty tight." He took a job with the Media Research Center, and then moved to Human Events. He next headed to Heritage, where in 2011 he hired Markay as the think tank's first investigative reporter. A few conservatives have tried to establish reporting outlets over the decades, Bluey explains, but the institutional right has only recently started to appreciate the need to get beyond messaging. Now, he says, conservatives are playing catch-up.

The Beacon hasn't always steered clear of stories that please the base but don't really stand up. One article, noted The New Republic, reported that then-Treasury Secretary Timothy Geithner had called Obama's 2013 budget "unsustainable"; he'd actually been talking about future health care costs. Another article claimed NPR had carried water for a donor by publishing a "series" of anti-nuclear articles; one of the two examples was a reposted article from Foreign Policy. And the Beacon isn't above titillating for traffic. The site serves up regular "news" about bikini model Kate Upton along with short pieces that push conservatives' buttons ("Daniel Halper Explains How the Clintons Are Like the Mafia"), usually without a reporter's byline.

Nonetheless, the Beacon's goals have become increasingly ambitious. In August, Goldfarb and Matthew Continetti, the editor in chief, declared that the site would one day take "its rightful place alongside the New York Times and the Washington Post." That goal may not be so reality-based—those papers together employ some 1,800 journalists—but the Beacon has already proved its reporters can write the kind of stories it takes to shake things up. Conservatives "have better opinion journalism," Goldfarb says, "but that has not been sufficient to win the fights. You need facts, and facts are in short supply on the right."

Republicans Claim Net Neutrality Will Mean Billions in New Taxes. That's Incredibly Misleading.

Nick Baumann — Mon, 23 Feb 2015 11:00:10 +0000

"Stop the federal internet takeover!" That's the warning that Sen. Mike Lee blasted out to readers of conservative email lists last month. "This is essentially a massive tax increase on the middle class, being passed in the dead of night without the American public really being made aware of what is going on," wrote the Utah Republican. "New taxes and fees" could total "$15 billion annually," Grover Norquist, the head of Americans for Tax Reform, claimed in an op-ed. It's "Obamacare for the internet," Sen. Ted Cruz (R-Texas) hollered.

These conservative icons were raising the alarm about something that might seem remarkably boring: the Federal Communications Commission's plan—scheduled for a vote next week—to classify the internet as a public utility. President Barack Obama has urged the FCC to do this in order to protect net neutrality, the idea that internet service providers shouldn't discriminate between different types of content moving across their networks. For example, the rules would prevent Comcast from making shows from NBC, which it owns, stream faster than those from Netflix, which it doesn't.

Net neutrality has some powerful supporters, including Obama and many major technology companies. But conservatives have generally opposed net neutrality. They warn that enforcing it through the FCC would just mean more regulation—and more taxes. And in their quest to defeat the president's plan, net neutrality foes have repeatedly—and misleadingly—claimed that it will mean billions in new taxes.

Continue Reading »

Inside Republicans' Plan to Kill America's Most Effective Anti-Teen-Pregnancy Program

Nick Baumann — Wed, 11 Feb 2015 11:15:07 +0000

Late in 2007, an employee at the Colorado health department received an unusual request. A private foundation wanted the state to provide long-acting, reversible birth control—intrauterine devices and hormonal implants—to low- and moderate-income women at little or no cost. The foundation was willing to foot the bill—which ended up being $27.4 million—so long as it was allowed to remain anonymous.

Seven years later, the program has been, by most measures, a huge success. Teen birthrates are dropping across the country, but Colorado's has fallen faster than the nationwide average, allowing it to leapfrog 11 spots in the national rankings. Between 2010 and 2012, the state estimates, 4,300 to 9,700 births to women on the state's Medicaid program that would have otherwise occurred did not—saving Medicaid between $49 million and $111 million. The state's abortion rate has also cratered, falling 42 percent among women ages 15 to 19 and 18 percent among women ages 20 to 24 between 2009 and 2012.

Now the private donor—whose identity remains secret—is ending the grant. A bipartisan pair of legislators in the Democrat-controlled state House have introduced a bill to use state money to continue the program. But in the state Senate, where the GOP holds a one-vote majority, abortion politics—and the Supreme Court's Hobby Lobby decision—may scuttle the plan.

At issue are some abortion foes' beliefs that IUDs can cause abortions—the same belief that led to the Oklahoma-based hobby chain's lawsuit against the Obama administration's requirement that employers provide insurance that covers contraception or pay a fine. Most scientists say IUDs primarily work by preventing fertilization. But some IUDs can occasionally prevent a fertilized egg from implanting in a woman's uterus. Fertilized eggs often fail to implant, even without birth control, so most doctors define abortion as the termination of an already implanted pregnancy.

But many conservatives who believe human life begins at conception consider preventing implantation akin to abortion.

"By the time you get to that implantation point, we are not talking about a fertilized egg, we're talking about a new individual that's growing," says state Sen. Kevin Lundberg, who serves as the Republican assistant majority leader and chairs the Senate's health and science committee. He has vowed to fight the measure. "In Hobby Lobby, this was really the point there. They had no objection to contraceptive materials being funded through their insurance. But they had significant objections when it was an abortifacient."

Democratic Rep. K.C. Becker, who introduced the bill to continue the program in the House, is aiming for broad bipartisan support. "Without this funding the program will not continue," she says. "To me, when you find the best method to achieve a statewide goal of reducing unintended pregnancies, reducing abortion, reducing Medicaid costs...reducing costs for other state and federal programs—we absolutely should continue the program. The return on investment and the benefit to women, to families and to the state are very clear."

Lundberg disagrees. "I've looked into this pretty thoroughly," he says. "An IUD has both contraceptive and abortifacient characteristics. It's clear to many professionals that it jeopardizes a child that may have been formed through fertilization—jeopardizes means kills."

Morgan Carroll, the Democrats' leader in the state Senate, says she thinks her party will be united in favor of Becker's bill, and may be able to peel off a few Republican votes to push the funding through—so long as GOP leaders don't bring down "too hard of a hammer" on their caucus. "Contraception used to be an area of common ground," she says. "I can recall days when we were all fighting together to reduce teen pregnancy, to reduce abortions."

It would be a shame if politics killed off the program, says Payton Hoops, an 18-year-old Colorado College freshman who obtained an IUD through the program when she was a senior in high school. "It would be a great use of money coming from the state to fund programs like this, especially for someone like me who really believes that contraceptives should be accessible and affordable to everyone," she says. "It'd be really nice to see the state prioritize that in terms of women's reproductive health, and it would be a really great use of the money."

Lundberg says he has no moral objections to hormonal implants, which he understands to act only by preventing ovulation. But "there is a question of should we be providing long-term contraceptives to young unmarried girls. Are we saying, 'Go ahead and have sex—just don't get pregnant'?" He says the debate presents an opportunity to educate Coloradans, "because there is so much misunderstanding of what an IUD is"—and warned that "far too often young women die from the pill" too. (Hormonal birth control can cause fatal blood clots, but such side effects are incredibly rare.)

Carroll says she's mystified as to why Republicans would want to pick a political fight over such a successful program. "I am entirely convinced that they are on a terribly losing side of this issue," she notes. "We so often have this position of Republican men mansplaining our lady parts and how they work like we're too dumb to understand science and make our own decisions…To oppose this is a very serious political mistake."

The FBI Just Arrested an Alleged Russian Spy Who Wanted to Know How to Trigger an Economic Meltdown

Nick Baumann — Mon, 26 Jan 2015 23:04:03 +0000

On Friday, federal prosecutors in New York filed a complaint accusing three men, Evgeny Buryakov, Igor Sporyshev, and Victor Podobnyy, of spying for Russia. Buryakov, who was arrested in the Bronx on Monday, allegedly posed as a Russian bank official while working for Russia's intelligence service, the SVR. According to the 26-page complaint, which was unsealed Monday, Buryakov had a good reason to choose that cover: He was interested in learning about high-speed Wall Street trading, automated trading algorithms, and "destabilization of markets."

This is a real threat. As I reported in 2013, markets have become dramatically faster in the years since the collapse of Lehman Brothers. Automated trading algorithms can buy and sell financial products in less time than it takes you to blink. Markets move way too fast for regulators to monitor. On August 1, 2012, rogue computer code at Knight Capital ran for 45 minutes before anyone at the firm could stop it. By the end of the day, the company was insolvent. And that was just "a canary in the mine," says Michael Greenberger, a University of Maryland law professor and former regulator at the Commodity Futures Trading Commission (CFTC). The big worry is trading algorithms causing "a series of cascade failures," warns Bill Black, another former regulator. "If enough of these bad things occur at the same time, financial institutions can begin to fail, even very large ones."

So is it possible Russian spies are trying to find out how to purposefully unleash this chaos? The complaint doesn't make clear whether the alleged spies were trying to find out how to destabilize US markets or worried about Russian markets being destabilized. But "fears of algorithmic terrorism, where a well-funded criminal or terrorist organization could find a way to cause a major market crisis, are not unfounded," John Bates, a computer scientist who, in the early 2000s, designed software behind complicated trading algorithms, wrote in 2011. "This type of scenario could cause chaos for civilization and profit for the bad guys and must constitute a matter of national security."

According to the complaint, the FBI learned of the alleged spies' interest in market destabilization by eavesdropping on a May 2013 phone call between Buryakov and Sporyshev, a Russian trade representative. Sporyshev was the person "responsible for relaying assignments from Moscow Center to Buryakov," according to the complaint; Podobnyy was mostly responsible for "analyzing and reporting back to Moscow Center about the fruits of Buryakov's intelligence-gathering efforts." (Sporyshev and Podobnyy, who were protected by diplomatic immunity, were not arrested and have left the country.) Buryakov and Sporyshev usually met in person, but on that day they didn't have time. On the phone, Sporyshev asked Buryakov what questions an unnamed Russian news organization should ask New York Stock Exchange executives that would be useful to Russian intelligence, according to the complaint. Buryakov allegedly suggested the news organization inquire about high-frequency and automated trading systems.

According to the complaint, Buryakov was especially interested in Exchange-Traded Funds (ETFs), which are baskets of financial products that are combined and bought and sold like stocks. Many Americans might assume the Russians were interested in destabilizing American markets, but "it might be the other way around, where they are concerned with us attacking them," says Eric Hunsader, who runs Nanex, a market data firm that tracks high-speed trading. On April 23, 2014, Hunsader's company tracked extremely unusual movement in trades of RSX, RUSL, and RUSS—three ETFs that are based on the Russian stock index. "It was something that was definitely manipulated," Hunsader says. "You don't generally see that kind of movement go on…Maybe they're concerned about us screwing with them."

But here's another fear: If foreign intelligence services are looking into algorithms, high-speed trading, and destabilizing financial markets, nonstate actors are probably not that far behind.

Here's a relevant excerpt from the complaint:

Read the rest of the complaint against the alleged Russian spies here.

"Rectal Feeding," Threats to Children, and More: 16 Awful Abuses From the CIA Torture Report

Nick Baumann, Jenna McLaughlin, Patrick Caldwell, and Mariah Blake — Tue, 09 Dec 2014 18:10:39 +0000

More coverage of the CIA torture report.

"Rectal Feeding," Threats to Children, and More: 16 Awful Abuses From the CIA Torture Report

No, Bin Laden Was Not Found Because of CIA Torture

How the CIA Spent the Last 6 Years Fighting the Release of the Torture Report

Read the Full Torture Report Here

5 Telling Dick Cheney Appearances in the CIA Torture Report

Am I a Torturer?

On Tuesday morning, the Senate intelligence committee released an executive summary of its years-long investigation into the CIA's detention and interrogation program. President George W. Bush authorized the so-called "enhanced interrogation" program after the 9/11 attacks. The United States government this week has warned personnel in facilities abroad, including US embassies, to be ready in case protests erupt in response.

The full report includes over 6,000 pages and 35,000 footnotes. You can read the executive summary here. Here are some of the lowlights:

1. The CIA used previously unreported tactics, including "rectal feeding" of detainees (p. 100, footnote 584):

2. CIA officers threatened the children of detainees (p. 4):

3. Over 20 percent of CIA detainees were "wrongfully held." One was an "intellectually challenged" man who was held so the CIA could get leverage over his family (p. 12):

4. One detainee, Abu Hudhaifa, was subjected to "ice water baths" and "66 hours of standing sleep deprivation" before being released because the CIA realized it probably had the wrong man (p. 16, footnote 32):

5. The CIA, contrary to what it told Congress, began torturing detainees before even determining whether they would cooperate (p. 104):

6. CIA officers began torturing Khalid Sheikh Mohammed "a few minutes" after beginning to question him (p. 108):

7. The CIA planned to detain KSM incommunicado for the rest of his life, without charge or trial (p. 9):

8. During waterboarding sessions, KSM made up a story that Al Qaeda was trying to recruit African-American Muslims…in Montana (p. 118):

Continue Reading »

The Supreme Court Might Gut Obamacare. Your State Could Save It.

Nick Baumann — Tue, 11 Nov 2014 11:15:05 +0000

On Friday, the Supreme Court announced that it would hear King v. Burwell, a case that could gut Obamacare and leave millions of Americans without health insurance. The case hinges on what is essentially a typo in the Affordable Care Act, a mistake that conservatives claim invalidates most of the subsidies the bill provides to help people buy insurance. If the justices buy the conservatives' argument—and there's reason to think they might—residents of the 34 states that provide health insurance via the federal government's HealthCare.gov, rather than through a state-run exchange, could lose their subsidies. Many people would be unable to afford to buy insurance (as the ACA requires), and the whole system could collapse.

Here's the good news: There may be a workaround. But there's also bad news: The solution requires the cooperation of Republican governors and legislators.

The King plaintiffs base their argument on the fact that in parts of the Affordable Care Act, the text says subsidies will be available for people "enrolled through an Exchange established by the State." Conservatives argue that the phrase "established by the state" means the government never intended to, and therefore cannot, offer subsidies in the 34 states that use the federal exchange, a.k.a. HealthCare.gov. There's plenty of evidence that Obamacare opponents are wrong about this. The rest of the law, its legislative history, and the recollections of lawmakers and journalists who were present at its creation all suggest that conservatives are misinterpreting a vague mistake in the legislation. Even the Cato Institute's Michael Cannon—the intellectual force behind the lawsuit—once referred to this language as a "glitch."

Salon's Simon Maloy calls the conservative case the "Moops" argument:

I've been trying to figure out how to best characterize and/or mock the legal reasoning… and I think it can be boiled down to one word: Moops.

I'm referring, of course, to George Costanza's famous game of Trivial Pursuit against the Bubble Boy, in which Costanza tries to cheat his way out of losing by taking advantage of a misprint on the answer card: "Moops" instead of "Moors."

"That's not 'Moops,' you jerk. It's Moors. It's a misprint," the Bubble Boy explains, accurately presenting the game manufacturer's intent in spite of the minor technical error.

"I'm sorry, the card says 'Moops,'" Costanza replies, adopting an absurdly narrow and nonsensical interpretation of the rules that furthers his own interests.

There are all sorts of other reasons why the anti-ACA argument here is ridiculous. (Brian Beutler gets into a few here.)

But let's say the Supreme Court agrees that the card says "Moops." What then? There's a way out—for states that want it.

Remember: Even if the King plaintiffs succeed in invalidating health care subsidies for people using the federal exchange, state-run exchanges would remain eligible for subsidies. So if a state wants to save its residents' health insurance, all it would need to do is set up its own exchange.

There's even federal money available for states to do this, but the deadline to apply for those funds is this coming Friday, November 14. (The federal Center for Medicare and Medicaid Services would not say whether it would extend the deadline in light of the Supreme Court's decision to hear King.) Health care exchanges are complex, and a few days is not much time for a state to get its act together.

States could still set up their own exchanges after Friday—as long as they do it with their own money, not federal funds. That could get expensive. But Nicholas Bagley, a professor at the University of Michigan law school, explains that there's a relatively cheap workaround:

A state could…establish an exchange and appoint a state-incorporated entity to oversee and manage it. That state-incorporated entity could then contract with Healthcare.gov to operate the exchange. On the ground, nothing would change. But tax credits would be available where they weren't before.

This idea—a state exchange in name only—is clever, and it would take less time and money than a state setting up its own exchange. (It's also eminently achievable: Oregon and Nevada already operate state exchanges that use federal technology.) But Bagley's plan still requires a state to want to save its residents' Obamacare subsidies. Republicans hate Obamacare—in fact, the reason so many states don't have their own exchanges already is because state-level Republicans refused to set them up. And that's the real problem: Most of the states that are on the federal exchange—and risk losing subsidies—are controlled at least partially by Republicans, who may block any attempt to salvage Obamacare. (The exceptions are Delaware, Illinois, and West Virginia, and the latter two states will fall under partial Republican control in January.)

"The politics of this will be volatile," Bagley says. "Governors and legislators are going to come under intense pressure to think about creating exchanges, but it's probably much too optimistic to assume that Republican governors and legislators will move to establish exchanges in short order. Even if at some point in the future all the states were to establish their own exchanges, that point could be a very long time from now."

Some experts think it may never happen. Many states "will never establish exchanges, because it means going along with Obamacare," says Timothy Jost, a health reform expert at Washington & Lee University Law School.

And that, it seems, is exactly the point of King: Setting up a system in which only a handful of blue states have Obamacare, while people in red states—the states that benefit the most from the law—go without. "My personal feeling is that a decision for the [King] plaintiffs would create an unavoidable catastrophe," Jost says. "There is no easy way out of it."

How the Penn State Scandal Haunted the Pennsylvania Governor's Race

Nick Baumann — Wed, 05 Nov 2014 01:15:58 +0000

Tom Corbett, the Republican governor of Pennsylvania, was defeated in his bid for a second term Tuesday, falling to Democratic businessman Tom Wolf, who is not the dapper southern guy who wrote Bonfire of the Vanities.

One of the biggest issues in the race—and a key driver of liberal rage—was education. Corbett and the GOP-dominated Pennsylvania legislature cut a staggering $1 billion from public education after he took office in 2011. The distribution of the cuts was highly discriminatory, with poor students losing, on average, 50 percent more funding than rich kids. In part because of these cuts, the Philadelphia school district faced a $300 million shortfall in 2013. That year, and again this year, Philadelphia students were allotted zero dollars for textbooks. But pissed-off liberals fuming about education cuts weren't the only people who hated Corbett—some Penn State fans did, too.

It seems quite plausible that some voters thought Corbett went too easy on Penn State. But there's little hard evidence to support that he did. Corbett, who was the state's attorney general before being elected governor, was initially accused of stalling the probe of Jerry Sandusky's actions for political gain. But Kathleen Kane, the Democrat who succeeded Corbett as AG, investigated the matter and cleared him of that charge.

In fact, many Pennsylvanians thought Corbett went too hard on Penn State, and specifically Joe Paterno, the late, legendary coach of the school's football program. The Philadelphia Inquirer's Tom Fitzgerald explains:

Anger still burns among some PSU alumni over Corbett's role, as governor and a member of the school's board of trustees, in firing legendary football coach Joe Paterno after Sandusky was arrested in November 2011.

Corbett at the time also publicly backed the NCAA sanctions imposed on the university, including limits on football scholarships and the erasure of 111 of Paterno's 409 victories, the most ever for a coach, from the record books.

"The Kane report doesn't cause more bleeding, but it doesn't heal past wounds for those who are angry at him for how he treated the university in the aftermath," said Christopher Borick, a pollster based at Muhlenberg College.

"A lot of Penn State people feel he was heavy-handed and kicked him when they were down, piling on and gloating over the Paterno decision," Borick said.

Paterno died shortly after he was fired, leading some alumni to accuse Corbett of being "complicit" in the coach's death, as one GOP strategist put it.

In his first run for governor during the 2010 midterms, Corbett dominated in Centre County, where Penn State is located. But as Fitzgerald notes, Republican turnout in Centre County was down dramatically during this year's primary—with 14 percent of GOP voters writing in someone other than Corbett for governor.