• Legalize Insider Trading

      Lately, government prosecutors have made much noise about prosecuting "insider trading" They seem to after Steven Cohen and his $14 billion hedge fund, SAC Capital.

      The media love this. Finally, the government punishes greedy Wall Street! But I argue in my syndicated column this week, insider trading should be related by market competition, not government:

      It's easy to hate the rich -- and in our bailout economy there are reasons for suspicion. But capital doesn't find the best outlets by itself. Hedge funds spot promising opportunities and quickly direct capital that way. Their reward is profit. When government interferes with that, we all suffer.

      Many investors support the ban:

      "It makes markets more robust. That gave us biotech, Wal-Mart, Microsoft," says hedge fund manager David Berman. "Companies raise capital in U.S. markets because of that confidence."

      Sure. But in America, a free market would take care of that. If a stock exchange or company wants to have a rule against insider trading, fine. Some of us will invest only in those companies or that exchange.

      The promise of government protection also encourages people to actively trade, even when they should think twice.

      These laws, like all regulation, create a false sense of security. They lead people to think stock traders play on the same level field. Far better to encourage investors to be wary -- not complacent -- when they buy stocks. For every buyer, there's a seller. What does the other party know that you may not know?

      For more arguments on insider trading, the rest of the piece is here.