logicalthought

Regulating Wall Street Like Las Vegas: Yes We Can

>>... 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.