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OfflineDaishi
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Insider trading laws=socialism
    #8342622 - 04/29/08 04:26 PM (15 years, 10 months ago)

Quote:

Insider Trading

What is "insider" trading?
The essential principle of socialism, applied to the physical realm, is that property belongs to the "public" regardless of who undertook the effort to create the property. The insider trading laws are its intellectual corollary; if government can take control of the physical creations of your body, it is no great stretch to expect it will take control the intellectual results of your mind, i.e., knowledge. The result is the socialist corruption of the free market known as "insider" trading. The idea that knowledge gained within a company, about that company and its products, belongs to the public, because that company sells its shares to the public.

Who does "inside" information belong to?

In today's division-of-labor society, it is inevitable that some individuals will discover and act on information before (and better than) others do. Such differences are also the inevitable consequence of the fact that the human mind is individual by nature. Just as there's no such thing as a "collective mind," there is no such thing as "collective information." To grasp information an individual must expend effort; he must either create the information or discover it. After he does this, he may well choose to trade it with others or give it away in some act of charity (just as he may do with his tangible assets). But he should not be obligated (nor compelled by law) to do these things. Morally, he doesn't "owe" his knowledge to anyone. The primary moral obligation rests on others: they should be obliged to keep their hands off such assets and not destroy or steal them (or hire government to do so).

Contrary to the Marxist dogma preached by the SEC, "inside" information does not "belong" to the "public" — or to the government. If that were the case, we'd have public ownership of the means of production (socialism) — because in today's "information economy," information is a crucial means to production.

"Inside" information about any company — its trade secrets, strategies, etc — are assets that belong solely to shareholders (and to shareholding-executives too, if other shareholders approve of such a policy). Only a firm's owners have the moral right to decide how their employees can use such information. Government-bureaucrats should have no say in the matter as no fraud is involved—and as long as a firm discloses its insider-information policy no fraud is involved.

By what right does the SEC prevent a company's employees from benefiting from the knowledge they've gained by working in that company? The answer is that the state has no such rights whatsoever—and it acts immorally when it proceeds to act upon those so-called "rights."

How may firms use "inside" information?
Under the principles of agency law, firms may use "inside" information as employee compensation; or the company through its bylaws can restrict its use (only then can "insider trading" be punished by owners as a breach of a contractual obligation). In a free-market, investors choose the kinds of companies they want to invest in (rather then have the SEC choose for them): a company which allows insider trading, or a company that prohibits it, or a company somewhere in-between.

Isn't "Insider" trading an act of fraud?
"Insider trading" is a victim-less crime. It's an innocent act that should be legal. But worse than being a victim-less crime, "insider trading" is a crime that has never been defined in law. (1) Thus even though "it" is illegal, there is no real way to know if one has engaged in "it." This permits regulators to persecute whomever they wish – at anytime – for whatever reason they choose. To face jail time for an undefined crime is characteristic of a dictatorship – not a free society. There are legitimate laws against securities fraud – but, "insider" trading, per se, is not fraud. The government should prosecute fraud, but only by an objective, legal process in a court of law—and not an arbitrary, back-room regulatory process by a "rule of politicians." The legal burden should be on the government — or the allegedly aggrieved party—to prove that a drug is dangerous and that its distribution would violate the rights of others.

What is the philosophical root of the insider trading laws?

At the fundamental root of the false claim that the creators of knowledge and wealth owe it to the non-creators is the anti-American, ethical code of altruism — of allegedly-noble self-sacrifice. In Marxist terms this means that wealth and information must be plundered "from each according to his ability" and distributed "to each according to his needs." The producer has the ability, i.e., "greed"—the "public" has a need—the inalienable rights of the producer be damned.



References:

(1) "Section 10 of the Securities Exchange Act of 1934 broadly outlawed stock fraud. Eight years later the SEC adopted Rule 10b-5, making the fraud provisions applicable to purchases as well as sales of securities. Section 10 and Rule 10b-5 became crucial to the prosecution of illegal insider trading. Neither defines it, however." ("Whispers Inside; Thunder Outside: A New Hunt Is On For Insider Trading," The New York Times, June 30, 2002, Section 3, pp. 1&14;).






http://capitalism.org/faq/insider_trading.htm


--------------------
Man has to be man--by choice; he has to hold his life as a value--by choice; he has to learn to sustain it--by choice; he has to discover the values it requires and practice his virtues—-by choice. A code of values accepted by choice is a code of morality.”-- Ayn Rand, Atlas Shrugged

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Offlinephi1618
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Re: Insider trading laws=socialism [Re: Daishi]
    #8342833 - 04/29/08 05:26 PM (15 years, 10 months ago)

Who the fuck would buy stock if insiders could freely trade their informational advantage? Seriously, you might as well stick your hand in a meat grinder.

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OfflineRedstorm
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Re: Insider trading laws=socialism [Re: Daishi]
    #8342858 - 04/29/08 05:32 PM (15 years, 10 months ago)

I'm about as pro-capitalist as you will find and even I realize that the market needs some regulation.

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Invisiblejohnm214
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Re: Insider trading laws=socialism [Re: Redstorm]
    #8342994 - 04/29/08 06:06 PM (15 years, 10 months ago)

The only argument I'll buy is that public regulation of insider trading is improper, and that such should be left to private agrieved parties.

But I can perhaps buy some of these arguments, in that people with private information are acting in the very best sense of capitalism. Someone who knows through industry contacts that a company is operating inefficiently is free to start a competing company. Why then should they not be free to divest themselves of shares in a company they no longer feel they can support?

I'm not firm on this position.

I do think that public regulation is bad, generally. At most, laws should provide for full disclosure of the nature of a good or service, and someone who has been decieved should sue.

If a company is lieing about their preformance, and does so after they definatly know that it is untrue, then this should be actionable. That they sell stock while touting the companies position in the market, like enron did after it was clear the company wasn't doing as well as they claimed, then this could be evidence of improper advertising of the company.

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OfflineRedstorm
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Re: Insider trading laws=socialism [Re: johnm214]
    #8343045 - 04/29/08 06:17 PM (15 years, 10 months ago)

One of the only times government should interfere with the market is when there is a clear gap of information between the public and the companies doing business. This is why ingredients and nutritional facts must be public. It's also why insider trading is harshly penalized.

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Invisiblejohnm214
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Re: Insider trading laws=socialism [Re: Redstorm]
    #8343075 - 04/29/08 06:24 PM (15 years, 10 months ago)

Yeah, but who says the public should have all the information on the company? We recognize limtis to required disclosure, trade secrets, and the like.

I agree they should have all the information on the product they buy.

I guess you're saying the stock is the product, which I guess it is. I suppose it may be right to require a person to not act on any information that is not known to the public, as he is, in effect, commiting a fraud upon the stock purchasers/holders.

But the trouble is, when the guy isn't doing any affirmative act to deceive people, how can penalizing the stock sale be right? If he has no responsibility to disclose information, i.e. he's not a high level official, but just an assembly line worker, say, who's gotten information, how can he be restrained from acting on this?

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OfflineRedstorm
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Re: Insider trading laws=socialism [Re: johnm214]
    #8343114 - 04/29/08 06:31 PM (15 years, 10 months ago)

You can still sell stock if you are an insider, but there are restrictions because of the fiasco which happened a little while back. I can't remember what they are, but I know they exist.

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Invisiblejohnm214
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Re: Insider trading laws=socialism [Re: Redstorm]
    #8343133 - 04/29/08 06:41 PM (15 years, 10 months ago)

yeah, but I believe you cannot sell them if you're motivated by non public informaiton gained from sources inside the company.

Their may be a time limit or waiting period, but I don't think so. Maybe I'm confused by the practice of presetting sales at certain events or times based on price, date, et cet. I don't think that's a rule, though maybe I'm wroong, rather a way to insulate people from accusations of insider trading.

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Offlinephi1618
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Re: Insider trading laws=socialism [Re: johnm214]
    #8345220 - 04/30/08 07:31 AM (15 years, 10 months ago)

Insider trades are allowed through 10b5-1 plans. Basically, a corporate executive can make and register a plan to sell shares, and trades under the plan aren't subject to insider trading rules. This loophole reduces the effectiveness of insider trading regulations since the executive can cancel the trade for any reason, including material information.

If you invest in specific companies, always check the SEC filings for insider trades - they can be indicative of management's expectations for the company (though they can also be misleading for various reasons).

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OfflineDaishi
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Re: Insider trading laws=socialism [Re: phi1618]
    #8346798 - 04/30/08 06:09 PM (15 years, 10 months ago)

Quote:

phi1618 said:
Who the fuck would buy stock if insiders could freely trade their informational advantage? Seriously, you might as well stick your hand in a meat grinder.




The stock market is a risk by its very nature. When you invest in a company you are doing so based on the information you have. If you do not feel the information is sufficient--don't invest. It's pretty simple.

Quote:

Stocks
Under capitalism, can't a group of a few wealthy individuals acting as a fund "manipulate" a stock, causing unaware investors to buy the stocks at inflated prices, where then wealthy individuals would dump the stocks, causing prices to collapse? Would this count as fraud even though it is technically legal under the laissez-faire capitalism? If government had to step in to regulate things, wouldn't it violate the system?


People do indeed occasionally try this strategy, particularly in regards to small, illiquid stocks, often trading outside of the U.S. The situation described didn't constitute fraud, however. If a few people aggressively bought stock to drive up the price, there can have no certainty that others will follow them and buy enough to drive the price high enough for the original buyers to sell profitably. Such a strategy sounds risky, and would likely be a losing strategy by itself.

There is no such thing as an "inflated price" by the way. Prices are only determined by those willing to buy and sell. If a person believes the price that others pay is higher than what he believes it should be, he can sell or sell short that "inflated" stock. A person who buys a stock merely because it has gone up is pretty foolish and has little basis to complain about the actions of others.

If enough people have enough money, they can increase a stock price by buying heavily, faster than sellers are easily willing to accommodate. But remember, unless fools rush in afterwards with even more zeal than the original group, the original group will be the ones who lose money, as the stock would tend to settle back down afterwards, all other things being equal.

The situation which happens more often, and is more serious, is for people to buy up a stock, and then make false statements about the prospects of the company or stock, soliciting others to buy it. While this is immoral, it would probably not be illegal if these people were just private individuals exaggerating the quality of a stock. That's why one should take free investment advice with a grain of salt, and carefully judge its source and quality. If on the other hand, such false statements were intentionally made by (for example) a stockbroker to clients, then this would simply be fraud, and would be punishable as such.

Neither of these situations pose a threat to capitalism. All business is subject to risks, and all business requires one to use good judgment. -- Andrew West




--------------------
Man has to be man--by choice; he has to hold his life as a value--by choice; he has to learn to sustain it--by choice; he has to discover the values it requires and practice his virtues—-by choice. A code of values accepted by choice is a code of morality.”-- Ayn Rand, Atlas Shrugged

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Invisiblecarbonhoots
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Re: Insider trading laws=socialism [Re: Daishi]
    #8347955 - 04/30/08 11:09 PM (15 years, 10 months ago)

Quote:

I'm about as pro-capitalist as you will find and even I realize that the market needs some regulation.




You're a socialist, who want to live in north korea and thinks Stalin was the best ruler of all time. Just like all socialists.


--------------------
  -I'd rather have a frontal lobotomy than a bottle in front of me

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OfflineDaishi
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Re: Insider trading laws=socialism [Re: carbonhoots]
    #8389444 - 05/11/08 03:13 PM (15 years, 10 months ago)

Quote:

carbonhoots said:
Quote:

I'm about as pro-capitalist as you will find and even I realize that the market needs some regulation.




You're a socialist, who want to live in north korea and thinks Stalin was the best ruler of all time. Just like all socialists.




Well he may not be a socialist but he does accept several of their principles. Principles that if taken to their logical conclusions will lead to socialism.


--------------------
Man has to be man--by choice; he has to hold his life as a value--by choice; he has to learn to sustain it--by choice; he has to discover the values it requires and practice his virtues—-by choice. A code of values accepted by choice is a code of morality.”-- Ayn Rand, Atlas Shrugged

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OfflineRedstorm
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Re: Insider trading laws=socialism [Re: Daishi]
    #8389505 - 05/11/08 03:31 PM (15 years, 10 months ago)

Some government regulation is necessary due to human nature. I certainly do not accept "several" of their principles, however.

Please, list me these numerous socialist policies I am a proponent of.

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Invisiblejohnm214
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Re: Insider trading laws=socialism [Re: Redstorm]
    #8390529 - 05/11/08 08:12 PM (15 years, 10 months ago)

Quote:

Redstorm said:
Some government regulation is necessary due to human nature. I certainly do not accept "several" of their principles, however.

Please, list me these numerous socialist policies I am a proponent of.




IMO, regulation is permissable if it is based on moral equitable principles, mostly ten comandments type stuff

Like, don't steal, don't lie, et cet.

If a company wants to sell itself, there should be a forum, provided by the government, capable of determing whether they lied, decieved, engaged in fraud, et cet.

This is different in form from a government regulation that says: You cannot get a loan if it appears to the government you don't make enough money to pay it, or You cannot sell stock at a price deemed too high, provided the sale isn't fruadulent or unconscionable.

Provided everybody is honest, there should seldom be a cause for government intrusion into private affairs.

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InvisibleMushmanTheManic
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Re: Insider trading laws=socialism [Re: Daishi]
    #8391391 - 05/12/08 01:23 AM (15 years, 10 months ago)

Milton Friedman must be a goddamn socialist then!

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Invisiblejohnm214
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Re: Insider trading laws=socialism [Re: Daishi]
    #8391468 - 05/12/08 01:56 AM (15 years, 10 months ago)

Quote:

Daishi said:
Quote:

carbonhoots said:
Quote:

I'm about as pro-capitalist as you will find and even I realize that the market needs some regulation.




You're a socialist, who want to live in north korea and thinks Stalin was the best ruler of all time. Just like all socialists.




Well he may not be a socialist but he does accept several of their principles. Principles that if taken to their logical conclusions will lead to socialism.




Like I said before, I don't think this is necessarily true. If you aim to enforce equitable, moral, rules of buisness relating to honesty, then there is no reductionist problem if you aim to avoid socialism and enhance a free market.

One can argue that insider trading laws are merely a prohibition on fraud, at least as applied to the person with direct insider knowledge. As they know something not known to the public at large, and which would likely alter the market had it been known, it is something akin to fraud or an unconscionable sale commited upon the other parties to teh transaction. Of course this presumes you have some duty to disclose the information, or a duty not to act on it.

I suppose you could argue that with the actual inside person who works for the company, that the duty flows out of the company's duty to not commit fraud. If the person acts on information not disclosed by the company, and in fact contradicting known information released by the company, then that person has committed fraud as much as the person who sells a new car without disclosing defects he knows to exist. Even though the company that made the car had an obligation to disclose the information relating to the defect, that doesn't relieve the person selling it for themselves of disclosing negative information.

Of course the above only covers the situation where an insider sells stock. I would imagine that a similar situation may be applicable when an insider buys stock. If they know the price they offer is far below the fair value, they may have injured another even at common law and equity by buying something based upon an innacurate or incomplete representation by the company. I think this is a more difficult case though. Do you have a duty to tell the person who's watch you buy that the jewels on it are, in fact, real? Since the seller makes the decision to sell at whatever price they like without a direct proffer from the buyer in the public markets, based on my understanding of them, then I would think the buyer simply accepts the offer, and thereby has no duty to correct the seller. I guess I'd have to think about it.

More tenuous is the individual not affiliated w/ the company who acts on insider information contrary to law. I think its difficult to reconcile this situation and the governing law w/ the free market philosophy.

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