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Matthew Yglesias get his libertarianism on and questions why insider trading is illegal.
Let me back up a second and explain that insider trading is perfectly legal. All that corporate insiders need to do is declare what trades they make with their own stock, how much and when.
What's illegal is when corporate insiders trade on "non-public" info. Let's say the CEO knows that the earnings report is going to be terrible, so she dumps her shares ahead of time.
It's actually a very murky subject. Even the movie Wall Street gets insider trading wrong. Hard as it may be to believe, Bud Fox didn't do anything illegal (well"¦except for theft when he was dressed as a janitor). But the dirt he gave to Gekko wouldn't be a legal issue because all that information was publicly observable. That's the key. It comes down to what the public can see and what it can't.
The libertarian argument is that information is information, and it's a waste of time trying to label what's known and unknown. Plus, you get Yglesias' view that it really doesn't matter since insider trading goes on anyway. (By the way, has anyone mentioned that the SEC's case against Goldman Sachs was leaked to the New York Times? This is a scandal twice over"”once for the deed and again because no one cares.)
I see the case for allowing trading based on non-public information, but I would still prefer the companies I own to prohibit their executives from doing so. This, of course, is a non-government solution. The goal should be to get companies to disclose as much information as possible.
Posted by edelfenbein at May 17, 2010 3:15 PM
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