University of Florida Tom Lin is here at UCLA today to present his paper, The New Investor, to a law review symposium. (The New Investor. 60 UCLA Law Review 678 (2013). Available at SSRN: http://ssrn.com/abstract=2227498.)
I've been asked to comment on the article. So here's what I plan to say:
There is much to like about Professor Lin’s article, The New Investor. The article provides a comprehensive survey of how technology is changing the capital markets and thus, inevitably, providing new challenges for securities regulation. Lin writes well and clearly, even about highly technical legal and technological issues. The article is exhaustively researched, reflecting a command of literatures from a number of disciplines.
As a lifelong tech geek and science fiction fan, moreover, the many explicit and implicit references to classic science fiction tropes tickled my fancy. Indeed, it is in my fanboy capacity that I must take issue with Lin’s foundation metaphor; namely, We are all cyborgs now.
But when we think of cyborgs, we think of organisms that are part man and part machine, such as the Borg of the Star Trek franchise or Darth Vader of the Star Wars franchise. Instead, a better model would be the working relationship between humans and computers.
A classic science fiction trope is the ironically named “the computer is your friend,” in which a super computer becomes a super-villain. Before there was The Matrix there was Skynet. Before there was Skynet there was Colossus. (I digress to note that The Forbin Project is one of those movies that’s so bad it’s good.) And so on back to at least Isaac Asimov’s The Machines. An apt metaphor for the hazards Professor Lin identifies in the computerization of the markets.
Conversely, of course, there are some science fiction supercomputers that turn out to be super-heroes. Holmes IV of Robert Heinlein’s novel The Moon is a Harsh Mistress springs to mind as an apt metaphor for the positive potentialities of technology.
So, first criticism, Borgs out, Skynet in.
On to a more serious point. As I said, there is much to like about this article, but I must confess to being left rather frustrated by it.
For one thing, like most law review articles, it is too long. (Mea culpa.) Consider, for example, Part I.A of the article, in which Lin traces the rise of the machines in society. That section easily could have been boiled down into the single sentence “computers are really important.”
In addition to being too long, law review articles all too often suffer from grandiose ambition, which detracts from their utility for end users such as practitioners, judges, legislators, and regulators. I’m afraid that Part V of Professor Lin’s article is a case in point. In it, Lin takes on the question of whether technological advances “necessitate the fall of humans in society and finance,” concluding that they do not. I have no doubt that it is also a question worthy of serious philosophical musing, but I am not convinced that an article on regulating the impact of technology on capital markets is the right venue for it.
Turning to my principal criticism, however, as I thought about why the article left me frustrated, it occurred to me that I felt the same way when I finished George R.R. Martin’s book A Dance with Dragons. When a 1040 page book that is the fifth in a series ends on a cliffhanger, one is—I think—entitled to be a tad peeved. But by my count Professor Lin leaves us with not just one but 11 cliffhangers.
Lin’s article thus called to mind my former University of Illinois College of Law colleague John Nowak’s advice that the way to become a successful professor is to “[t]ake an obscure little problem that no one has thought much about, blow it all out of proportion, and solve it, preferably several times, in prestigious law reviews.” Unfortunately, other than publishing in a prestigious law review, that is not advice Professor Lin chose to follow in The New Investor.
Let’s start with John’s recommendation that one select “an obscure little problem.” Lin violated all three precepts. Instead of one problem, he chose many. Instead of an obscure problem, he chose very important ones. Instead of a little problem, he chose very big ones. But then he doesn't solve them.
The discussion of how cyber crimes threaten capital markets, for example, concludes with the observation that “[c]ybersecurity prevention and protection efforts are undoubtedly difficult, but they must also be sensible, thoughtful, and not obstruct the promise and progress of cyborg finance.” Lin therefore urges that the endeavor to balance these competing concerns “must be pursued vigorously because, ultimately, technological advances in finance may hold more promise than threat in the future.” But the reader is left wondering (1) assuming all turns out well, how do we effect such a balance and (2) what happens if the future of computerized finance looks more like Skynet than HOLMES IV?
Lin’s failure to provide solutions is particularly frustrating when one comes to his discussion of the implications technological change has for the legal definition of the “reasonable investor.” Here indeed was a “problem that no one has thought much about,” albeit not a little one, crying out for a solution. I left the analysis fully persuaded that technological changes and new insights from behavioral economics require us to rethink what it means to be a reasonable investor, but I also left it with no idea of how courts might go about reframing the existing legal definition to take cognizance of those developments. Telling the reader that “regulators need to become more mindful of the dynamism and realism of the new investor model if they hope to remain relevant” is not a solution.
What makes Lin’s failure to offer solutions here even more frustrating is that this is one context in which his interest in broader social questions may well prove relevant. In U.S. v. Sayre, the Ninth Circuit held that a district court had not abused its discretion by refusing to instruct the jury in a securities fraud case as to the meaning of “reasonable investor.” The appellate court explained that “[t]he term ‘reasonable investor’ is a concept within the jury's ordinary experience and understanding.” But if Lin is right about the way technology is changing what it means to be a reasonable investor and I’m right that most investors are not cyborgs, will it remain the case that the everyday experiences of ordinary jurors will equip them to decide questions of materiality? Put another way, will Wall Street’s Skynets be able to find a jury of their peers?In sum, if one wants a broad survey of technology and capital markets from which one could mine multiple problems one could proceed to solve, “preferably several times, in prestigious law reviews” Professor Lin’s article will serve the purpose admirably. Indeed, in closing, I hope that Professor Lin himself will do so. His article demonstrates a command of several relevant literatures that will give him a launching platform from which to move on to detailed analyses of the problems he has identified herein. Just skip the cliffhangers from here on out, okay?