Why Insider Trading Is A-Okay With Me

Of all the crimes Enron executives have been charged with, insider trading is the only crime I can see myself committing because I believe, as the kids used to say, information wants to be free. Thus, I don’t think insider trading should be a crime at all. It seems logical that if your broker knows something other brokers don’t know, you would pay him handsomely to trade on that information. If you work hard to learn what is going on in a company, you should get the benefit of that, and should be able to trade on it.

Ken Rice traded on information that Skilling was leaving the company and I am a-okay with that. Good for Ken. That was smart. What was he supposed to do, sit there and watch his stock tank when he had the means to prevent it?

And I’m consistent about this. Sherron Watkins’ insider trades are also cool with me. What bothers me is that right now it is against the law, she violated the law, was never punished for it, and she has the audacity to make a living telling everyone else how to be ethical. It’s the hypocrisy I can’t stand – and the veneration of the media.

So I’m down with insider trading. I think insider trading is probably how the markets are supposed to work. However, I accept that investors might think it’s unfair because they don’t have the same opportunity to make money on the same information that insiders have. But if they did the work to find out what was going on, or if they used a broker who offered the competitive advantage of knowing what was going on in your companies, they’d be singing a different tune.

In the Smartest Guys music video someone (maybe Amanda Martin?) says that “anyone could get into the market.” This always struck me as an incredibly elitist thing to say. Of course anyone can get into the market! But the market, like life, is not fair. There’s no affirmative action program for stupid people. You don’t get points for being good-hearted. You have to know what you’re doing and if you don’t, it’s your own stupid fault.

That being said, most of the executives charged with insider trading have much more respect for the market than I do and would never actually trade on insider information.

One Enron executive told me the mere idea of insider trading was “abhorrent” to him. I argued about that, stating that when people trade on insider information, they’re actually using the competitive advantage that is so valued everywhere else in business. He was shocked that I’d say such a thing, and I went even further, stating that when an executive trades on insider information, he is rewarded for it, like a bonus on his intelligence, whereas those who don’t have the information can look at it like a tax on being out of the loop.

He was perplexed by my attitude about it and said I’d make a good viking queen – a compliment so far never matched.

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4 thoughts on “Why Insider Trading Is A-Okay With Me

  1. You certainly have the right to your opinion. It is against the law, Rice broke the law and was caught. He then broke the law and so did the DOJ by coersing a lie from Rice about the EBS defendants who did not trade on insider information. They did not conspire, they did not pump and dump, they did not lie about the status of the EBS network.

    The thing that seems to be implied is that these defendants did trade on insider information which is OK with you. However, there is no evidence from the record that they did trade on insider information.

    The fact that you think it is OK is implying the defendants did commit a crime when they did not. I assume you did not mean to imply they did trade on insider info?

  2. I’m sorry – I have the flu and am sky-high on Nyquil so I am probably not entirely coherent. The point is that though insider trading is fine with me, that’s one thing the defendants most assuredly did not do. The trade that I was talking about with Ken was not even criminalized by the DOJ and nor was Sherron Watkins’ trade, which buttresses my position that since it’s a crime that is capriciously criminalized for some and not for others, it’s not really really a good accusation for the DOJ to make.

    The vast majority of Enron defendants not only DIDN’T trade on insider info, such a thing is “abhorrent” to most of them. No no no, they DID NOT commit any crime at all. My point was only that even if they did commit insider trading – which they didn’t – I’d be fine with that in principle.

    I’m not the first person to think insider trading is a relic of the old Robber Barron days. A couple of defenses of insider trading can be found here:

    http://arbyte.us/essays/Defense_of_Insider_Trading.html

    and

    https://commerce.wsj.com/auth/proxy/refresh?url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424052748704224004574489324091790350.html

  3. The law makes sense. Free markets depend on a level playing field. Allowing someone who has inside knowledge to trade against the general public is inherently unfair. When you decide to take the public’s money, then the deal you make is timely, accurate and non-selective dissemination of information.
    As Cara said, information wants to be free. To which I would add, “and needs to be free” for markets to function.

  4. The law makes sense. Free markets depend on a level playing field. Allowing someone who has inside knowledge to trade against the general public is inherently unfair.

    But why? If there was no insider trading prohibition, wouldn’t there be a market for better, more accurate information? Why not make information competitive?

    When you decide to take the public’s money, then the deal you make is timely, accurate and non-selective dissemination of information.

    By “taking the public’s money” I assume you mean that by being a publicly traded company, you owe all that. I agree. But I also think that, because insiders have information, and others can obtain it, they should be permitted to trade on it.

    As Cara said, information wants to be free. To which I would add, “and needs to be free” for markets to function.

    Right. So all I’m suggesting is making it truly free by forcing better information into the marketplace.

    Incidentally, Observer was right: the record shows that no Enron defendant actually traded on inside information, and I want to keep that perfectly clear.

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