There have been, over the last several years, a large number of contributions to the debate over insider-trading: What constitutes it? What are the roles of blood ties and distance? Does it even exist? Some of these are valuable, learned documents. Many, many others are not. Few, if any, are as garbled and batshit as that offered yesterday by Forbes contributor John Tamny.
Tamny, as you’d expect from a man multiply published by neo-Fascist hack-house Regnery Publishers who’s latest book-length effort is a tome apparently arguing that the moderately bad flu that has killed 800,000 Americans and another 4.5 million around the world should have been left to run its course in absence of any public health intervention, is on the “insider trading should be legal” side of things. And when he sticks to that line of argument, he’s at least coherent, if not convincing.
It will be said up front that the markets and economy would be much more vibrant if they got rid of undefinable “insider trading” laws altogether. The more informed the markets are, the much better. What a backwards, confused world we live in that something so additive to market and economic health is so demonized.
Furthermore, it’s obvious that the prosecutors and pundits who look askance at “insider trading” haven’t a clue how difficult it is to know what to do with information, even if it’s of the MNPI variety. Getting right to the point, it’s no easy feat to divine the future direction of markets when armed with information that others lack….
Unfortunately for Tamny, the ostensible raison d’être of his 3,000-word screed is to be a review of Raj Rajaratnam’s new book, Uneven Justice. You remember Raj, don’t you? ‘Bout yea high, yea wide, got sent to a fabulous life in prison for seven-and-a-half years for insider-trading, taking a whole host of people—including the former head of McKinsey—down with him? You might not recognize him given that he’s lost the ‘stache, but in the two-and-a-half years since he got out—three-and-a-half years early, thanks to Kim Kardashian—Raj has done some thinking and, as fun as jail was, he’d really on the whole rather not have gone at all.
Tamny obviously agrees that RajRaj shouldn’t have gone on trial in the first place, let alone to jail. But since his goal is, for some reason, to show that not only is insider-trading not bad enough to send people to prison, nor not even bad at all, but a verifiable good, he can’t simply portray Rajaratnam as a victim of injustice, but as a market her nonpareil.
Investors like Rajaratnam are what Canadian economist Reuven Brenner refers to as “price givers.” They’re the rare, intrepid souls willing to take big risks, and in doing so, their courageous trading renders equity markets far more informed. Rajaratnam was handcuffed for his intrepid ways…. In Rajaratnam’s case he’s up front that “I, like every other hedge fund portfolio manager, did not turn away information.” What’s sad is that something so basic requires saying. It’s the job of courageous hedge fund managers to digest good and bad information so that we don’t have to.
In this case, courage meant losing more than $30 million on the trades that sent him to prison, but isn’t that really what being a hedge fund manager is all about? Selflessly losing your clients’ money so that the market has the most up-to-date information possible, specifically the information you got from your buddy who just happens to sit on Goldman Sachs’ board 23 seconds after that board’s meeting ended, which information is not of course immediately shared in a blog post or with a reporter but which has to be divined from a hedge fund’s trades, themselves not broadly knowable in a public way until up to four-and-a-half months after the fact?
In the end, the fact that Rajaratnam lost money on his insider trades rather than made it is not elaborated upon as a reason insider-trading should be A-OK, much as I’d rather not have to explain to a police officer that while, yes, I was going 93 miles an hour down the Grand Central Parkway, I was driving so fast that I missed my exit and thus would actually have shown up at my destination later than I would have had I stuck to the speed limit in the first place, and therefore what I did can’t really be described as illegal. Nor, due the reasons explicated above, can Tamny satisfy himself with the wrong but at least arguable case that while insider-trading is currently illegal and Rajaratnam definitely did it, it shouldn’t be, and Congress or the courts should do something to that end. Instead, it boils down to two key points: First, prosecutors want to participate in the carnival of capitalism, as a simple-minded libertarian like Tamny presumably would want them to be, as much as someone like Rajaratnam and therefore can’t be trusted:
Ambitious prosecutors earning government salaries are desperate to get into much higher-paying, private practice work. They throw undefinable rules at well-heeled Wall Street types desperate to avoid ruin, and possibly prison. Careers are made by attacking the price givers with what is legally malleable. Let’s be honest about what “insider trading” laws are: a relief act for public and private sector attorneys…. In his nationally televised press conference announcing the arrest of Rajaratnam, Bharara proclaimed that “Greed is sometimes not good.” Bharara’s lack of self-awareness is amazing. That’s the case because among other things, he’s the greedy one. Rajaratnam made his money the hard way….
Yes, as mentioned, by having a friend rise to the top of McKinsey and win a seat on the Goldman board so as to spill its secrets to him, which admittedly doesn’t sound like an easy thing to do. Anyway, the second conclusion is the dead giveaway as to which books Tamny read as a teenager and never grew out of, which is the Galt’s Gulch argument: The less smart simply cannot sit in judgment of the smarter.
Can you imagine someone possessing a small fraction of Rajaratnam’s intelligence presuming to interrogate him? About market matters? The arrogance of government is astounding, and needs to be exposed. It seemingly never occurred to Kang that his badgering of Rajaratnam, and his efforts to essentially trap him with “tough” questions, would be the equivalent of a 7th grade flag football coach attempting to stump Bill Belichick on the intricacies of defensive alignments…..
We look forward to Tamny’s next book for Regnery, arguing for posthumous pardons for Leopold and Loeb, or at least we would were they not both Jewish and gay therefore beyond the pale for Regnery’s audience. What we don’t think we’ll have to look forward to is any Supreme Court decision citing Tamny’s column as the basis for throwing the markets open to an insider-trading free-for-all.
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