In Defense of Raj Rajaratnam

So your brother-in-law works at a major Wall Street bank that’s advising on a big corporate takeover. Now, let’s say he slips up at Thanksgiving dinner after downing too many martinis and gives you a hot tip about the pending deal. In Doug Bandow’s world, you should be able to trade, and profit, on that info without being afraid of ending up like “Martha f__ing Stewart” in the words of one Danielle Chiesi.

Here’s more from Bandow, a senior fellow at the Cato Institute, via his Op-Ed in Barron’s over the weekend.

The distinction between public and non-public information is legally decisive but economically unimportant. Perversely, the insider-trading laws seek to prevent people from trading on the most accurate and up-to-date information. The law seeks to force everyone to make today's decisions based on yesterday's data. It's a genuinely stupid thing to do.

Insider trading shouldn't be a crime. There typically is no victim. To the contrary, most of us benefit when prices move more rapidly to the right level.

Unfortunately, prosecutors, regulators and politicians alike periodically demonize insider trading to justify their offices and budgets. But there is no reason to punish investors who trade on accurate information. In fact, that is precisely what the financial markets should encourage.