Should this be a crime? Isn't it just a question of information? Isn't information vital to markets?
No. Yes. Yes.
I'm sure you can find more if you use the search on Mises.
This. This. This.
To paraphrase Marc Faber: We're all doomed, but that doesn't mean that we can't make money in the process. Rabbi Lapin: "Let's make bricks!" Stephan Kinsella: "Say you and I both want to make a German chocolate cake."
It's interesting you asked this right now.
I was listening to the tapes of Raj Ratanaram of Galleon Group and Rajat Gupta of Goldman Sachs. They are both involved in a high profile insider trading scandal.
Ratanaram asked Gupta whether there was any determined outcome to a deal to purchase a commercial bank named Wachovia (I believe). Gupta told him (get this) that he had no idea. He was a small part of the decision-making process and was not allowed to have all the information. Ratanaram then asked for Gupta's personal opinion. Gupta said that he thought commercial banks were a bad buy, because they were a low return business and didn't think it was a good idea. Ratanaram responded that (get this) he wanted to buy Wachovia anyway.
Two things I gathered from this 5-7 minute part of a 17 minute conversation.
1) The insider never had enough information.
2) The outsider was only wanting to confirm or validate a decision that he would have made anyway.
Couple this with the fact that stock prices may change in any direction irrespective of whether the Wachovia deal went through, due to a dozen factors other than the deal itself, and all of this scandal seems rather...pointless?
OTOH, I think Gupta and Ratanaram were careless. The latter was quite up front in asking if the former heard any rumours lately. Surely they could have acted on a little self-preservation instinct and not bothered with breaking the law, especially when it was not going to influence any decision they were going to make.
Lol yea, the reason I asked it is because I'm watching Wall Street right now. I was liking this movie until Gordon Gekko's rant near the end where he says "You're not naive enough to think we're living in a democracy are you? It's the free market." How dumb.
Figured I'd go ahead and post these:
Mises Daily today by Robert Murphy:
http://mises.org/daily/5289/Is-Insider-Trading-Really-a-Crime
No it is not a crime. It should be a civil issue however between the executives and the share holders. And if you look at the issue this way then the solutions are relatively simple. Here is one that will stop most if not all insider trading:
1. Have the executives sign a contract that they will not divulge information to people ourside the corporation without divulge it to everybody.
2. Hold a portion like 90% of the executive compensation in an account until so much time has passed that the insider trading would have been washed out.
3. Allow a challenge with an external arbitrator for shareholders to make a claim of insider trading and if they win the get back their damages from the executive compensation held.
Now if the executive abides by their contract then they are off with the cash. Otherwise it will be held in arbitration.
The real question is:
Would you value a company more if insider trading was a crime OR if you could convince an arbitrator of the behavior and your damages then you get some money back?
I do not care if the EVIL EXECUTIVES SPEND YEARS IN JAIL if I do not receive restitution for the damages. And if I receive restitution then I am not some psycho who enjoys seeing people go to prison.