Regulating Wall Street Like Las Vegas: Yes We Can 15 comments
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One of the givens of Las Vegas is that the odds are always stacked in favor of the house. But to the credit of Nevada’s gaming commission, aggressive measures are taken to ensure that only individuals with squeaky clean records are allowed to operate casinos. Just associating with someone of questionable repute can lead to a revocation of a casino license.
The arrest Thursday morning of 14 more individuals accused of insider trading serves as yet another reminder as to why Wall Street must be regulated with the same aggressiveness and diligence as state-licensed casinos. With more than three decades of experience representing individual investors who were deceived or cheated by Wall Street firms I can say with considerable authority that unmitigated greed and dishonesty is rampant in the securities industry. While Federal prosecutors are to be commended for collaring nearly 24 alleged cheaters connected with Galleon Group for trading on inside information, they simply don’t have the resources to root out the legions of crooks that permeate the stock markets.
The latest arrests include yet another well known hedge fund and an attorney from a prestigious law firm and underscore how insider trading activity typically involves a tangled web of conspirators who often work at well known and seemingly respectable organizations. What is especially alarming is that Galleon founder Raj Rajaratnam and some of his accused cohorts have allegedly been involved in other questionable and possibly illegal activities but nonetheless were allowed to continue to operate unfettered. Rajaratnam’s earlier problems with the SEC and the IRS quite possibly could have prevented him from getting a Nevada gaming license, but it didn’t stop him from taking in institutional assets and being one of Wall Street’s most active players.
Contrary to what some economists and academics theoretically argue, insider trading amounts to criminal theft and it is not a victimless crime. For every buyer of a stock there has to be a seller, and if someone has material inside information about a company, he or she has a decided advantage determining an appropriate price for the security. Insider trading is somewhat akin to card counting - a practice that will get you permanently barred from Las Vegas casinos. It cannot be allowed or tolerated in the securities industry.
What is needed on Wall Street is a suitability rule to determine who is qualified to work in the securities business. Demonstrating character should be a major criterion and repeated SEC and other regulatory violations should be grounds for a permanent ban. I appreciate that a character standard would forever bar countless Wall Street executives, but we need to dramatically raise the securities industry’s admission bar to facilitate meaningful change and ensure a level investor playing field.
The regulation of state casinos is admirably above politics, as state elected officials understand and appreciate that if character standards aren’t required and enforced, organized crime will ultimately gain control of the gaming industry. It’s high time that both parties in Congress come to realize that Wall Street is rife with corruption and a task force should be created to figure out how best to clean it up. The SEC clearly isn’t up to the task.
President Obama promised us “Change We Can Believe In,” and the Democrats control Congress. Ironically, Senate Majority Leader Harry Reid is a former chairman of the Nevada Gaming Commission whose unwillingness to be compromised by a gangster was featured in the Martin Scorsese film Casino. Mr. Reid has since been accused of some personal ethical lapses, but he could easily redeem himself if he used his gaming regulation expertise and spearheaded a movement to take on Wall Street’s powerful lobby and create a no-nonsense regulatory agency akin to the Nevada Gaming Commission.
Now that would be real change we could believe in.
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This article has 15 comments:
HOwever, since they run the Fed and are behind both political parties, it is unlikely that they will be called to account.
Madoff is the tip of the iceberg - the real Ponzi scheme is ongoing, and operating at the highest levels.
Okay, let's think this through. Suppose that grandpa has decided to sell his Proctor & Gamble this morning, and it so happens that some insider-trading M&A lawyer or banker just discovered that next week a bunch of PE firms are going to band together and make an offer to take PG private. So, the insider trader enters the market with a buy order for $5 million of PG at the same time my unknowing grandpa is a seller. Seeing as this constitutes $5 million of additional buying strength that otherwise (without the insider traders) wouldn't be there, what does this mean? It means a *better* price for grandpa. On the other hand, let's say grandpa wanted to *buy* PG this morning, in which case he'd now have to *compete with* that $5 million of additional buying power. In *that* case, the insider trader will *cost* grandpa a little money. So, depending upon whether you're buying or selling (and whether the insider traders are buying or selling), insider trading itself is actually "price neutral" to the honest anonymous buyers and sellers out there. The *real* reason to ban insider trading is simply that it "smells", and thus will discourage the vast majority of honest folks from participating in the capital markets and thereby render those markets smaller and less efficient. (Of course, when Goldman Sachs only has one down trading day out of every 100, one might start to believe that the markets are somewhat odorous anyway.)
And as for that comment about insider trading being "somewhat akin to card counting", that's bullshit. Someone who counts cards has no more information available to him or her than any other participant at the table-- all he or she is doing is paying close attention to the cards that have been dealt (the same cards that anyone else can see, too) and then making the "highest percentage move" based upon those cards.
Aside from that, I agree with your article.....but the problem is that we've had decent regulations for decades...they just aren't enforced at all anymore and everyone knows it. We need a strong leader, ie not Shapiro who is part of the problem, to clean things up.
See any naked short selling prosecutions lately? Didn't think so....Shapiro must go.
The problem with setting up a system of rules is that sociopaths thrive on rules, because they then stretch them to the abolute limit.
There was a big push in the eighties by the mental health workers in the country to steer sociopaths into business careers, in an attempt to get them out of crime. It was reasoned that they would be more successful in business than in crime given the possibility of arrest, etc. Addtionally the sociopath personality is well suited for business it was asserted because they could make the cold hearted ruthless decisions required to thrive as a corporation.
In retrospect pushing sociopaths towards business may not have been one of the best ideas to ever come out of the mental health system.
The justification for pushing them towards business was that they would do less harm through out their lives in business careers than in criminal career.
I suppose the only way to bring them into line is to forst implement Glass Stegall so the variety of illicit activities can be curbed. Next, strictly enforce anti-trust laws so that every firm must face their inappropriate actions with losses in marketshare and defamation. Nothing works better to keep companies in line and serving the public better than good old functioning capitalism. In order for that to happen, financial companies can not be allowed to become shielded from competition ever.
You can say that it's price neutral, but only under certain circumstances and only to certain players.
On Nov 09 02:20 PM Silentz wrote:
> Logicalthought, lets look at a different example. Grandpa has his
> P&G stock and is thinking of sending his little granddaughter
> Sally to college. He sets an appointment to meet with his broker
> next week. Meanwhile, some insider traders find out that P&G
> is going to be investigated by the FDA. They dump their shares,
> driving the price down prior to the public being made aware of the
> issue. The news comes out on the day grandpa meets with his broker.
> The price has already dropped because of the insider trading, and
> grandpa ends up losing his shirt.
>
> You can say that it's price neutral, but only under certain circumstances
> and only to certain players.
On Nov 09 03:19 PM logicalthought wrote:
> Under your example, grandpa was going to buy that stock no matter
> what. So, because the insiders dumped the stock, grandpa paid less
> for it, and wound up losing less money when the bad news became public.
>
On Nov 08 09:36 AM logicalthought wrote:
> >>... insider trading amounts to criminal theft and it is not a victimless
> crime. For every buyer of a stock there has to be a seller, and if
> someone has material inside information about a company, he or she
> has a decided advantage determining an appropriate price for the
> security... Insider trading is somewhat akin to card counting...
> <<
>
> Okay, let's think this through. Suppose that grandpa has decided
> to sell his Proctor & Gamble this morning, and it so happens
> that some insider-trading M&A lawyer or banker just discovered
> that next week a bunch of PE firms are going to band together and
> make an offer to take PG private. So, the insider trader enters the
> market with a buy order for $5 million of PG at the same time my
> unknowing grandpa is a seller. Seeing as this constitutes $5 million
> of additional buying strength that otherwise (without the insider
> traders) wouldn't be there, what does this mean? It means a *better*
> price for grandpa. On the other hand, let's say grandpa wanted to
> *buy* PG this morning, in which case he'd now have to *compete with*
> that $5 million of additional buying power. In *that* case, the insider
> trader will *cost* grandpa a little money. So, depending upon whether
> you're buying or selling (and whether the insider traders are buying
> or selling), insider trading itself is actually "price neutral" to
> the honest anonymous buyers and sellers out there. The *real* reason
> to ban insider trading is simply that it "smells", and thus will
> discourage the vast majority of honest folks from participating in
> the capital markets and thereby render those markets smaller and
> less efficient. (Of course, when Goldman Sachs only has one down
> trading day out of every 100, one might start to believe that the
> markets are somewhat odorous anyway.)
>
> And as for that comment about insider trading being "somewhat akin
> to card counting", that's bullshit. Someone who counts cards has
> no more information available to him or her than any other participant
> at the table-- all he or she is doing is paying close attention to
> the cards that have been dealt (the same cards that anyone else can
> see, too) and then making the "highest percentage move" based upon
> those cards.
On Nov 09 04:24 PM Silentz wrote:
> Actually, in my example, he ALREADY owned the stock. He sold it
> for a lower price than he would have had the insider traders not
> sold theirs until the news became public.
Feel free to refute the logic of my argument (assuming, of course, that you have the ability to understand it). I am all ears.
On Nov 09 04:36 PM Genesis wrote:
> logicalthought, like most people who make much ado about being "rational"
> and "logical," you are neither.
I created this post just for you, and I would be honored if you would take a look at it. It is my insta-blog on SA. I know you are interested in insider trading. What I have would never stand up in a court of law, because it is based on a custom algorithm that only I use, but if you ever want me to examine a couple of stocks in this manner, let me know.
seekingalpha.com/insta...
thanks