The Ultimate Insiders | Richard W. Rahn | Cato Institute: Commentary

The Ultimate Insiders | Richard W. Rahn | Cato Institute: Commentary: "[members of Congress] have prior knowledge about which companies or industries will or will not be 'bailed out,' have their taxes raised or lowered, be subject to costly new regulations or exempted from such regulations, receive government contracts, etc. However, because the members of Congress and their staffs do not obtain their information from employees of the companies affected, they are not considered insiders.

There have been a number of recent news stories about how the average member of Congress showed an increase in net wealth over the past couple of years, while the average American was losing net wealth. The obvious conclusion is that members of Congress knew things the rest of us did not and acted on this knowledge to their own advantage — no surprise."

"The authors of the study, Jiekun Huang and Meng Gao, found that hedge funds connected with lobbyists, relative to non-connected ones, outperform by 1.6 percent to 2.5 percent per month in politically sensitive stocks compared to nonpolitical stocks. These results suggest that hedge-fund managers exploit private information, which can be an important source of their superior performance."

"Time and time again, the U.S. government has shown that it cannot protect sensitive information, from atomic secrets to sensitive financial data held by the Internal Revenue Service. Those who tell us that any information is safe when held by the U.S. government are both supremely arrogant and ignorant of history, including the news of recent weeks."

"The SEC is in the process of trying to find ways to criminalize those who (outside a firm) find better ways of doing research or modeling what they think is going on in a firm, even though they have received no direct, nonpublic information from real insiders. This approach eventually could kill the whole field of securities analysis. Only government employees at the SEC could dream up a scheme to try to keep everyone ignorant and call it 'progress.'"

"the decades of failure at the SEC show that enforcement of insider-trader laws is not feasible and often is counterproductive. Also, there has never been a clear definition of insider trading either from Congress or the SEC."