Insider Trading Should be Legal
by Veronique de Rugy
Don Boudreaux of George Mason university had a great article in the Wall Street Journal on Saturday defending insider trading.
“Prohibitions on insider trading prevent the market from adjusting as quickly as possible to changes in the demand for, and supply of, corporate assets. The result is prices that lie.
And when prices lie, market participants are misled into behaving in ways that harm not only themselves but also the economy writ large.
Remember the 1970s-era price ceiling on gasoline? By causing prices at the pump to lie about the scarcity of oil, that price ceiling led Americans to waste untold hours waiting in lines to fuel their cars. Similar wastes occur when corporate assets are mispriced.”
He concludes:
“By allowing companies as they compete for capital to experiment with different ways of dealing with insider trading, we would discover which proscriptions work best for some kinds of firms and which proscriptions work best for other kinds of firms.
Relying upon competition and the self-interest of shareholders and creditors (both actual and potential) to discover which types of information are proprietary—and, hence, protected from insider trading—and which types of information are not proprietary removes politics from this vital task. Importantly, it also replaces the unreliable judgments and “best guesses” of political officials with the much more reliable determinations of competition.”
In his piece, Boudreaux channels the work of another great scholar, former dean of George Mason Law School Henry Manne. Read Manne’s article on why insider trading should be legal here.
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21 Comments
Insider trading apparently is legal. That is what they have been doing behind the closed door in Washington as it relates to the Health Care Con.
Only in business is it perceived as illegal, and with the implementation of Sarbanes-Oxley, the SEC supposedly saved US from ourselves………….
The flip side of allowing insider trading would be severe price manipulation. I know this occurs already but it would be rampant. What I disagree with is low level employees with little or no say in corporate decisions denied the ability to trade stock in their companies for fear of "insider trading." These policies always have the feeling of letting the executives make the first buck on any news, good or bad.
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What world am I living in? Gov wants to take over health care, has taken over auto companies, banks, etc… and now someone suggests making insider trading legal????
Queue twilight zone music.
You're correct about "some" $$$$Big buck$$$$$ executives that can, through 15 sub-sub-sub accounts and accountants legally trade their own, and their friends, companies stock BEFORE the public announcements.
(Now before anyone goes off – it's NOT all of them. Just like ANY group of people – executives, police, union MEMBERS, high school kids, etc. etc. – you have a small minority SCREWING up the reputation of the larger majority who actually TRY to do good. Except Lawyers and Politicians, where the vast majority screw up the reputation of the small minority who try to do good!)
One of the first rules I would institute – You can't SELL something you don't ALREADY own. But that should be common sense right?
YOU'RE FUCKING RETARDED!!!! No system works correctly when the lil' guys are consistently fucked over. Democracy = The most good for the most people, idiots.
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Democracy is dead when the most voters get to vote themselves other people's money.
Insider trading will always occur when the fox is guarding the henhouse. Why doesn't Congress investigate its own hen house?
IMPORTANT: Beck is UNDER fire on Twitter, please pass this link along. These idiots are taking Becks comments about Hitler out of context.
Here is a twitter link to the full context video
http://myfreepress.net/2189
Insider trading should legal? Was this person born this stupid or did they take courses?
Milton Friedman advocated legalizing insider trading years ago, using the same argument that the non-public information known by the insiders will be discounted more quickly making for a more efficient market. He went so far as to say there's no need to even disclose when insiders buy and sell based on material non-pubic information.
But then, he was a true libertarian who really believed in free markets. R.I.P. professor Friedman.
Apparently, they studies economics and ethics at Harvard, Princeton, Columbia or Yale.
I knew the day would come, that you and I were closer to agreeing on a topic, than not. This might be the day.
One of the best indicators of a company's real health is what the upper management is doing with the stock, shares they own and what they are doing with their options.
The stock market can react pretty quick, when someone starts dumping the rest often jump in fast, just in case they missed some bad news that someone else knows. The ones waiting for the verified news reports can get hit rather hard. Likewise there are surges, where the fast buyers make the biggest money.
If legal insider trading will trigger these events sooner, let whatever damage happens get done faster so the markets can adjust quicker, why is that a bad thing?
I was watching when he said it. I briefly thought, "They're going to take that out of context," but then I figured people wouldn't be stupid enough to believe it, so it wouldn't be worth the effort. Guess I was wrong. Idiots.
Language like that demonstrates a distinct lack of ability to engage in meaningful debate. Try cleaning it up so people will at least consider taking you seriously.
Legalized insider trading wouldn't be popular, but it would provide for more efficient markets.
Repealing prohibitions against self-incrimination and dual jeopardy would make the legal system more efficient. /s Sorry, not buying it.
If insider trading were legal, why would not murder?
I believe so sir! Legalizing insider trading will legalize market rigging. On an institutional level (think Gordan Gecko from Wall Street), this will create greedy chaos of a massive proportion.
For all intents and purposes, to a certain extent, the markets are rigged. Granted, there is the official position, but everyone on Wall Street has their own private, personal little networks. Whether it is at lunch at Harrys, or after the market closes uptown at the Bulls and Bears, everyone connected, who has paid their dues, knows "the real deal". What happens on Wall Street tomorrow, or this week, was already discussed tonight, or last weekend at the Synagogue. That is the way it works, and anyone who doubts it, is a pollyanna and sings kum-ba-ya.
Greedy chaos of massive proportion? There is enough there now, to be kept in an effective order. Sometimes though, the Bernie Maddofs and George Soros' get out of hand, and get taken down. One can only hope Soros gets his comeuppance……….
I agree with whole-heartedly. Greedy chaos already exists and this economic meltdown over the past year proves it and there is more than enough blame to go around on that as far back as Clinton. As somebody who has worked in the financial and banking sector though, there are ways to track insider trading. Timing and patterns are a dead give-away. The SEC and the NASD have very good methods to track these things and prosecutions do happen on a regular basis. Most notably, Martha Stewart.
Legal inside trading also can include government or government officials culpability. If someone in the government knows that the FDA is going to approve this new cancer treating drug then based on legal inside trading, massive profits can be made by the pre-purchase of the pharmaceutical drug prior to the announcement being made. What's left of ethics on Wall Street as well as government officials who have access to loads of inside information (FDA, defense contracts, etc.) will fly right out the window even worse than now.
A lesson that should have been learned even back in Clinton's years when it comes to the financial sector…If it ain't broke, don't fix it!