Why, exactly, is it a silly idea?

Insider trading is obnoxious as a matter of fundamental principle, in that it involves public company directors placing their own private interests before those of the shareholders generally whose interests they are appointed to promote.

In a more specifically practical sense, McConvill argues (echoing American academic David Haddock) that “mum and dad” investors aren’t hurt by insider trading, because while some mums and dads may inadvertently sell in the early part of a price rise generated by unannounced insider information, others may inadvertently buy and so inadvertently profit. But this argument is surely nonsense. By definition, insider trading results in the insiders capturing the vast majority of a price rise generated by good news, before outsiders even know about it. By the time the news breaks and most of us get an opportunity to buy in, most of the rise has already occurred and insiders are taking their profits by selling to us poor ignorant suckers. The fact that a handful of suckers might accidentally buy during the period before the announcement of the good news does nothing to mitigate the overall adverse effect on the “information poor” outsiders.

Moreover, there is a likely more general adverse effect. If ordinary investors come to believe (accurately if insider trading laws are abolished) that only insiders can ever reap decent profits from the stock market, then they’re going to be much less likely to invest their hard-earned savings in that market, so that corporate equity capital will become much harder to obtain.

Finally, McConvill argues that some people will always have an “informational advantage” anyway, and therefore why bother to reduce this by prohibiting insider trading? He’s certainly right that some investors have significant informational advantages over others, just as dedicated punters who religiously study the form and attend trackwork etc have an advantage over those who just stick a pin in the form guide. But few horse racing enthusiasts would argue that this means that racing authorities should abolish all rules prohibiting the doping of horses to produce a predetermined result known only to the insiders who engineered it.

The stock market, like punting on the gee-gees, is a marketplace, and markets are artificial human constructs that exist only so long as we all subscribe to and enforce some basic rules that maintain reasonable confidence on the part of market participants that they have a fighting chance of making a buck if they’re smart and hard-working enough. Insider trading, like drugging horses, fundamentally undermines that essential basic confidence in the integrity of the market.

Mind you, no set of rules could ever completely prevent insiders from covertly passing “price sensitive” information to friends or colleagues, and one would be naive to think otherwise. But again that doesn’t mean we should abandon having rules or attempting enforce them as much as reasonably possible. Quite probably only a small proportion of shoplifters are ever caught too, but that doesn’t mean Woolworths should have signs out the front saying “help yourself to a five finger discount”. Making an example of those who ARE detected has a deterrent effect, especially among corporate directors who enjoy basking in social respectability (whether deserved or othewrwise). One would think that the fates of Rovkin, Adler and (to a lesser extent) Vizard will cause others to think twice at least for a while.

I can understand your dismay at finding the profession of legal academic disgraced in this way but I think Rafe may have a point. The only thing I can think to add to it is that the instances you’ve cited are further demonstrations of something I’ve suspected for quite a while; traditional liberal education don’t always work as a moralising influence. (That word “liberal” is going to be a red rag to a few people but I can’t see any way around that. Pointing out that I’m referring to a notion at least as old as the nineteenth century obviously isn’t going to cut it so let’s move on.)
Take some bastard and give him a university education and, like as not, all you’ll end up with is a knowledgeable bastard.

Looking on the bright side, I’m heartened by the implied humility in Fraser’s description of his opponents:

Associate Professor Fraser told the Herald it was only the “educated middle class” who opposed his views. “I think most ordinary people would find what I’m saying more or less self-evident,” he said.

Translation: look, there’s nothing special about me, I’m just some guy who happens to make a living teaching Law. But when it comes to other stuff – like my opinions on immigration – I can’t hold myself out as an expert. When it comes down to it, I’m no better informed than anyone else whose opinion you might ask.

I did say that people “could be forgiven” for drawing adverse conclusions about academic lawyers generally from the plethora of silly articles some of our brethren have published ver the last month or two. I didn’t say that this was what I myself believed, and in fact I don’t. I KNOW that there are lots of thoughtful, erudite academic lawyers who are as appalled as I am by the antics of the Frasers and Bagarics. But it IS fairly remarkable that we seem to have such a concentrated burst of noxious thought spewing into the public arena from one professional/academic discipline. Maybe it’s just a statistical anomaly, but it does seem quite strange.

Will hard-working Asians want their taxes being spent on pensions for ‘lazy whites’ who had every opportunity, but did not provide for their own retirement?

What will the attitude of Africans be towards indigenous Australians? Will they say “My family was wiped out in Rwanda; I spoke no English when I arrived, but now I’ve got a job, a house and a car – and I’m blacker than you.”

Fraser obviously is a sincere racist.

Bagaric and McConvill seem to have cottoned on to the market value of outrageous nonsense for op/ed fame and fortune. As I argued here:

http://www.onlineopinion.com.au/view.asp?article=3591

The analogy to a racetrack, though popular, is flawed. In particular you’re trying to connect gambling to what is supposed to be investment. A race is subject to chance, and betters bet on the basis that the outcome is not certain. Fixed races violate those expectations and the suspicion of fixing is enough to bring bookies and racetracks to ruin.

A stock market is not subject to chance, not directly. The value of a given stock will vary over time but it varies in relation to the perceived fortunes of the company. The future price cannot be fixed – the outcome of a report can’t be fixed, and when it is, that’s fraud, which the law already addresses.

It makes sense that directors are self-interested, as they’re shareholders too. In a market where they can free buy or sell their shares there would be those in the know watch those who are even more in the know. The vast majority of money in the market is institutional and not individual. Insider trading if legalised is far more likely to be less carefully hidden. John’s gotten out of X and doesn’t mind telling his mate at Acme Prudential that he has.

More to the point, any market, properly formed, is voluntary. Equity only appears on a company balance sheet when it is issued. After that the shares take on a life of their own, and no amount of buying and selling will affect the underlying profitability of a company which drives the attractiveness of its debt and equity issues.

Finally, if you ask me, insider trading is an unimpeachably popular law because it’s about jealousy. Why should the folk who have donkey’s years of experience get to know stuff? The bastards!

Most of the time it comes down to “Those bastards have enough money already”. As Jacques said, it’s simply tall-poppy syndrome enshrined in legislation.

“How you’re going to devise a test which is as relevant to a suburban kid from Tokyo as it is to a Sudanese farmer’s boy is beyond me.”

But in immigration we don’t need to worry about these things, since culturally-specific attributes are just what we want. What use are Sudanese farm skills in Australia?

(Post on McConvill’s defence of Fraser) -

http://larvatusprodeo.redrag.net/2005/07/28/deakin-law-opedders-strike-again/

http://larvatusprodeo.redrag.net/2005/09/14/oops-deakin-law-did-it-again/