Legalize insider trading?
Read this article: https://reason.com/2012/11/28/legalize-insider-trading/
I'm interested in what the more libertarian leaning posters think about it.
In MY opinion the author seems to be under the impression that legalizing insider trading would mean the information would become public. This misunderstands what insider trading is.
Insider trading is trading based on information that does not become public until after the trades are made, if ever. It is a way of fleecing a broad community of investors who never had the opportunity to compete with with the insider because the insider has information they do not. In this way it is a kind of natural monopoly. The insider can even create situations over and over again where he or she can trade before knowledge becomes public that moves the stock price in a predictable way, taking large sums of money from people, being rewarded by the market for having done nothing of real value.
Nor can private exchanges enforce a rule to bar insider trading on their own because private entities cannot create criminal penalties. (This point is especially basic and the article author really can't be forgiven for not knowing it)
An environment with rampant insider trading means only insiders will invest because no one else can compete. Anyone without the insider information is just doomed in that environment to be fleeced by those who do have it. That keeps nearly all investors out of the stock market. The net effect of that would be a drastic reduction in the amount of capital available to companies to start and grow.
It's pretty clear this idea was motivated by the libertarian 'everything is better without government involvement' dogmatic axiom, and the author wasn't especially interested in looking too closely at the likely outcomes of such a policy. His conviction in his philosophical position meant that he blinded himself to any way that position could go wrong, and it makes for flawed policy suggestions.
A long time ago, I watched a lawyer advocating for legalizing insider trading. Insider trading is illegal and should stay that way. A system in which only insiders have special advantages is bad for everyone except the insiders. While there are laws on the books that address both the civil and criminal penalties for insider trading, it has to be very difficult to discover it. The only ways that I could think of would if a tipper goes to the authorities after listening to someone flexing about it or if volume in a security is unusual. Also, check the trading activity for people in Congress.
I definitely second checking the trading data for congressional leaders. I'm going to single out Nancy Pelosi here (I mean, I could do any congressional leader but this is an easy one since she and her husband made headlines over this back in June), but when you're a congressional leader and you have access to everything going on in the halls of congress, you should be under even stricter scrutiny.
I don't want to get fired up this AM - but this is the only thing I've ever agreed with Elizabeth Warren on, when she tweets about congress not being able to hold/trade stocks like this. That's all. Hell has frozen over.
I seem to recall that his profits were a lot of smoke and no fire - her husband sold ahead of hearings, which were public knowledge, not on the basis of knowledge of a vote. Unlike, say, Senators Loeffler and Burr, who blatantly profited from insider briefing on the COVID-19 pandemic.
But in general I agree wholeheartedly that politicians shouldn't be allowed to trade or even own stock, especially not in their own name. I think Donald Trump has put paid to any notion of government probity, even if just the veneer of it, which is a shame. Guess it's a better time than ever to run for office and profit!
Keep it illegal, how else am i (hypothetically speaking) supposed to have a competitive advantage if everything is legal
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