|The Daily Bell |
Issue 443 • Saturday, October 17, 2009
Billionaire Rajaratnam arrested for insider trading
Alex Wong/Getty Images
Raj Rajaratnam, the Sri-Lankan-born billionaire investment wizard who founded Galleon Group, was arrested Friday along with five others on federal charges of illegal insider trading. According to the charges, the scheme also involved Rajiv Goel of Intel Capital, Anil Kumar of McKinsey & Co and Robert Moffat of IBM Corp. Two former officials at Bear Stearns Asset Management, are Danielle Chiesi and Mark Kurland, who were affiliated with the firm's New Castle Partners, were also arrested. The defendants operated in a world of, ‘you scratch my back, I'll scratch your back,' US Attorney Preet Bharara said at a New York press conference. 'Greed, sometimes, is not good.' Bharara said investigators used wiretaps for the first time ever in probing insider trading. Wiretaps are normally reserved for organized crime and drug cases. - Monsters and Critics
Dominant Social Theme: Catching the crooks?
Free-Market Analysis: So we see the increased criminalization of finance. The trouble with all this increased authoritarianism is that it will inevitably attempt "trickle down." Today, billionaires are being arrested for "insider trading." Tomorrow, middle class people will feel the wrath of federal law for trading in and out of mutual funds (destabilizing the market?) or investing in hedge funds or private equity even if they don't have the requisite net worth. There is an endless supply of criminal activities to invent and we don't doubt they are busily being invented now by creative legal minds.
As far as insider trading is concerned - how can a market value a product WITHOUT inside information. Markets are almost entirely composed of inside information of one sort or another and the idea that markets react only when such information is publicly released must be seen as naïve in the extreme, in our humble opinion. But there are other reasons to wonder about insider trading. Would you, dear sir, like to buy a stock at the top on a day that something big is brewing, only to find that the stock moves down 10 or 20 points because the company didn't release information that most "insiders" knew, even if they didn't act on it. This "negative" form of insider trading is never prosecuted because there is no way of reading people's minds. But people go to jail for the other kind.
Insider trading prosecution is usually justified on the grounds that the "buying public" needs to be assured the market is fair. But this, too, is questionable during the Internet era during which the public observes central bankers dumping literally trillions into the marketplace out of thin air - and enriching certain "too big to fail" enterprises in the process. Markets are NOT fair and the entire equity concoction of the 20th (and 21st) century may be said to be - at least in part - a creation of fiat money and the euphorias it encourages.
Conclusion: Honest money is gold and silver. We remember at the height of one market boom, it was beginning to be fashionable to speak of how certain blue-chip stocks ought to be handed down from "generation-to-generation" like heirlooms. In truth, Western stock markets are an invention of a certain kind of imagination, just as the penalties applied to them are also a kind of fiction. None of it has much to do with economic reality, though waking up to that realization is like waking up from a dream. It is certainly not comfortable to understand that one's assumptions are the product of a certain kind of deliberate intellectual and media manipulation. Of course, considerable money can be made in stock markets but one may be more likely to do so if one understands reality.