Subject: Re: Would Libertarians legalize Insider Trading?

From: [email-masked] (Derek Nalecki)
Date: 19 Sep 1996 05:19:20 GMT

In article <[email-masked]>, [email-masked] (B. Bergmann) says:
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>[email-masked] (Derek Nalecki) wrote:
>
>>In article <[email-masked]>, [email-masked] (Steve Ranta) says:
>>>
>>>In article <[email-masked]>, Ken Wiebe
>>><[email-masked]> wrote:
>>>
>>>. . . There's no evidence that
>>>> 'inside traders' do any better or any worse than
>>>> anyone else on the stock market.
>>>
>>>This is a partial summary of the argument in a book recommended by Ken
>>>Wiebe, leader of the B.C. Libertarian Party, who claims that insider
>>>trading should not be illegal.
>>>
>>
>>"Insider trading" is just a straw-man invented by regulators to allow
>>themselves a better leverage againsts the matkets. Ken is correct that
>>there is absolutely no statistical evidence that the "insider traders"
>>do any better on the stock market than anyone else.
>>Fr every "spectacular" trade you could claim was the result of an "insider
>>trade", I could show you a better one that wasn't.
>>So in conclusion, there is no reason to make "insider trading" illegal,
>>but then there is no reason to make farmers selling their grain to 
>>willing customers illiegal, there is no reason to make self-defence
>>illegal, etcetera, etcetera...
>
>     Far from a "straw man invented by regulators", insider trading
>laws have evolved from the Securities Exchange Act of 1934 into an
>effective means of preventing the abuses that exacerbated the
>financial roller coaster of the first half of this century. The
>maintenance of fiduciary responsibility to shareholders is key to fair
>and balanced market participation,

Oh-vey. I _do_ get tired of repeating this simple and straight forward
historical fact... hmm.. mayhap _that_ is what you are after?!?!?

The "financial roller coaster of the first half of this century" was 
actually the roller coaster of the 1913-1929 period. It was cause single-
handedly by the creation of Federal Reserve Board in the US and other
"central" banks in the West.
(The Bank of England was not _created_, it did exist before, but it was
only following the creation of the FED that it become a "central" bank
able to issue currency backed by government fiat not an intrinsic value
held by each individual bank as deposits).
It was this separation of currncy being issued, from the base of deposits
held - iussue based solely by the assumption of the government's power
to collect *future* taxes, that caused the speculative roller coaster on
every stock exchange in the west, and subsequently the Great Depression.
Banks which hitherto could lend only based on how much deposits they
held - and in the event of running down on deposits increased the interest
rate and dried up the borrowing demand - could now effectively loan an
unlimited amount of money, at interest rates regulated by the government.
They did, as much as possible - because it made money *and* to offset 
unreasonable rates set by those governments.
People who borrowed the money at artificially low rates - hey "free"
money!!! - invested it in stock market.
By 1929 the prices of most companies traded on world stock exchanges, 
New York in particular, had absolutely nothing in common with the actual
value of the assets of those companies.
Guess what happened when people holding, what now was worthless stock,
realized this?!?!? Ah-ha! One giant cry of "sell" hit every stock exchange
in the western world.
Presto, the Great Depression. Curtesy of your government and its central
bank.

>
>    A hypothetical example from Industry Canada:

I _do_ love those "hypothetical" examples. Tell us the one about the
aliens from Ursa Major taking over the corporate boardrooms.
...and the connection of this to reality would be...

[sniped a tale of what happens if something or other...]

>
>     In both the U.S. and Canada, insider trading laws are only
>violated if the information is confidential, non-public and when used
>to advantage while trading in the corporation`s securities. Hardly an
>onerous regulatory requirement, rather a necessary attempt to stop
>abuse.

Onerous or not - and I _will_ agree it is not as bad as most, it is 
unnecesary, self-serving (for the government) and thus wrong.

derek n, RdNck, Pen-Arm of the Righteous, esq.

"Never initiate force against another.  That should be the underlying
principle of your life.  But should someone do violence to you, retaliate
without hesitation, without reservation, without quarter, until you are
sure that he will never wish to harm - or never be capable of harming
 - you or yours again."
(F. Paul Wilson - 'THE SECOND BOOK OF KYFHO; Revised Eastern Sect Edition')
********************* MY OTHER COMPUTER IS A LAP-TOP *******************

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From: Victor Levis <[email-masked]>
Date: 19 Sep 1996 20:18:17 GMT

>>onerous regulatory requirement, rather a necessary attempt to stop

Libertarian theory precludes government using force to dictate terms
of trade to a market, but it also precludes fraudulent practices of
individuals in the marketplace.  

The solution to your postulated problem is not difficult.  If
shareholders of a company feel that they would be harmed by officers,
directors and employees using confidential information gained from
their employ by the shareholders to private advantage, they have 
only to insist that the employment contracts cover this eventuality.
An employee who then used concealed information in violation of his
contract could be judged guilty of either fraud or breach of contract
by a court of law.  Furthermore, there is nothing wrong with
private-sector Securities Commissions setting up voluntary standards
in the interests of all participants, and refusing to sanction trade
in stocks of companies that do not meet the standards.  In addition, a
Securities Commission could refuse continued privileges to trade to
people who have demonstrated a willingness to flout the standards of
the Commission.

This way, the natural forces of free markets can be put to work to
further the aims of investors and companies alike, without the big
disadvantages and rights-violations when government imposes arbitrary
standards on market participants, and selectively enforces them, to
boot.

The reputation of freely competitive Securities Commissions will be of
utmost importance to them, and we can expect this to be a great
improvement over the present, politicized system.

Victor Levis