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> But it's certainly not for the other participants who are getting rolled over by insiders. Why play a rigged game? This only makes sense if you think of mark

by prvit 4y ago

> But it's certainly not for the other participants who are getting rolled over by insiders. Why play a rigged game? This only makes sense if you think of markets as gambling. Otherwise, other participants are always getting rolled by parties with better research, or perhaps just a faster internet connection. > The latter two reasons are why it's illegal, by the way. It undermines confidence in markets, and it creates perverse, value-destroying incentives. This doesn’t stand up to the most basic scrutiny. Sabotaging your publicly traded company is illegal whether or not you also engage in insider trading, what benefit is there to be had from criminalising the same thing twice?

bee_rider 4y ago
We should just make it illegal to do bad things, then we won't have to write all these really specific laws.
- prvit 4y ago
  In this context, the bad thing (sabotaging your publicly traded company) is illegal regardless of the not-bad thing (insider trading).
vkou 4y ago
> This only makes sense if you think of markets as gambling. Otherwise, other participants are always getting rolled by parties with better research, or perhaps just a faster internet connection. Or if you think of markets as a way to encourage investment into the economy. Why should I invest if insiders are going to be scooping up a lion's share of the windfalls? Anything that reduces the ROI on my investments creates an incentive for me to not invest. > This doesn’t stand up to the most basic scrutiny. Sabotaging your publicly traded company is illegal whether or not you also engage in insider trading, what benefit is there to be had from criminalising the same thing twice? 1. Without these incentives, you have far fewer reasons to behave unethically and illegally. 2. You usually can't tell the difference between accidental incompetence and malicious sabotage. Being able to do sabotage under the guise of incompetence, while having a profit motive is a colossal conflict of interest, and any system that encourages it is going to produce a lot of poor outcomes. 3. When the executive doesn't benefit from either incompetence, or sabotage, and their rewards are based on good performance (stocks go up), their incentives are aligned to chase good performance. Better price discovery is a good thing, but in this case, the juice is not worth the squeeze.
- prvit 4y ago
  Insider trading does not and can not reduce ROI on your investments unless you’re a shop specialising in rapidly trading on corporate announcements.
  - vkou 4y ago
    Of course it does. The money they make comes from their counterparties, which is people entering and leaving positions - namely, everybody else. It's not a large tax on each individual participant, but it's not magical free money.
    - prvit 4y ago
      If you were going to sell or buy at price $x, you would’ve done so regardless of the insider trader. I think the crucial detail you might be missing here is that markets are not zero sum games.
      - vkou 4y ago
        I buy and sell based on my availability of and need for money, not because I am timing the market. It's true that markets aren't zero sum games, but some insider extracting value from a stock in this manner does not create value for me. And the third point that I made very clearly creates incentives to turn it into a negative sum game. Good luck proving that Bob ran the company into the ground (and got rich doing so) because he's a crook, rather than just an idiot. You can't. (You also can't make running a company like a well-intentioned idiot illegal.)
        prvit 4y ago
        > Good luck proving that Bob ran the company into the ground (and got rich doing so) because he's a crook, rather than just an idiot. You can't. Insider trading doesn’t make this any easier to prove. Bob can just start drinking or doing drugs before running the company into the ground, now his friends and family have a solid defense against any insider trading claims. Bobs drug problem isn’t material nonpublic information, but it sure as hell explains why everyone around him started shorting the company.

by prvit 4y ago

bee_rider 4y ago

We should just make it illegal to do bad things, then we won't have to write all these really specific laws.

prvit 4y ago
In this context, the bad thing (sabotaging your publicly traded company) is illegal regardless of the not-bad thing (insider trading).

vkou 4y ago

> This only makes sense if you think of markets as gambling. Otherwise, other participants are always getting rolled by parties with better research, or perhaps just a faster internet connection. Or if you think of markets as a way to encourage investment into the economy. Why should I invest if insiders are going to be scooping up a lion's share of the windfalls? Anything that reduces the ROI on my investments creates an incentive for me to not invest. > This doesn’t stand up to the most basic scrutiny. Sabotaging your publicly traded company is illegal whether or not you also engage in insider trading, what benefit is there to be had from criminalising the same thing twice? 1. Without these incentives, you have far fewer reasons to behave unethically and illegally. 2. You usually can't tell the difference between accidental incompetence and malicious sabotage. Being able to do sabotage under the guise of incompetence, while having a profit motive is a colossal conflict of interest, and any system that encourages it is going to produce a lot of poor outcomes. 3. When the executive doesn't benefit from either incompetence, or sabotage, and their rewards are based on good performance (stocks go up), their incentives are aligned to chase good performance. Better price discovery is a good thing, but in this case, the juice is not worth the squeeze.

prvit 4y ago
Insider trading does not and can not reduce ROI on your investments unless you’re a shop specialising in rapidly trading on corporate announcements.
- vkou 4y ago
  Of course it does. The money they make comes from their counterparties, which is people entering and leaving positions - namely, everybody else. It's not a large tax on each individual participant, but it's not magical free money.
  - prvit 4y ago
    If you were going to sell or buy at price $x, you would’ve done so regardless of the insider trader. I think the crucial detail you might be missing here is that markets are not zero sum games.
    - vkou 4y ago
      I buy and sell based on my availability of and need for money, not because I am timing the market. It's true that markets aren't zero sum games, but some insider extracting value from a stock in this manner does not create value for me. And the third point that I made very clearly creates incentives to turn it into a negative sum game. Good luck proving that Bob ran the company into the ground (and got rich doing so) because he's a crook, rather than just an idiot. You can't. (You also can't make running a company like a well-intentioned idiot illegal.)
      - prvit 4y ago
        > Good luck proving that Bob ran the company into the ground (and got rich doing so) because he's a crook, rather than just an idiot. You can't. Insider trading doesn’t make this any easier to prove. Bob can just start drinking or doing drugs before running the company into the ground, now his friends and family have a solid defense against any insider trading claims. Bobs drug problem isn’t material nonpublic information, but it sure as hell explains why everyone around him started shorting the company.