I agree that we have to be careful that the SEC and other institutions are not over supervising the economy. But suppose you are legally allowed to trade on superior or inside information. In fact this is a good thing because it means that all information will be immediately reflected in prices. So investors know that under such a law prices will adjust quickly to all information. You will see that a few people get very rich and a lot of investors end up with little below average returns. You will probably say that is inherent to the free decision of the bigger fools to invest in the stock market. The bad thing is that the 100 million fools know that the information asymmetry is squeezing them. This could make them decide to leave the stock market and thereby kill the capitalistic engine. So the smart guys also loose their money after all.

Did you ever read 'Den of Thieves'? You wanna be a latter-day Rothschild? Milken paid over half a billion dollars as punishment, mostly because he could afford it. Even the scammers at ENE and WCOM will have trouble matching this number. I don't think that the argument is well-defended. I'm guessing that most people here have spent little time on the other side of the Chinese Wall - it's an education that might make this crackpot's argument a little less plausible.

You have here a delicate agency problem.As a soon to be retired CEO I can see that it is a complete absurdity that big shareholders ask from me a 20% ROE with sug a gigantic mature company as the one I have to manage.It would really be a herculean task and frankly I am too old for that. As for taking the most stupid global investment or management decision that will bring this poor company to the brink of ruin, that is easy (I can call specialized consultants anytime).Short selling or buying long puts will go a long way to help me finance my retirement, and as for other staff members, they can sell their badge holders bearing the company logo on ebay, cant they ?PS : I got no solution for the interest conflict between management and shareholders. Try to be CEO or create your own company.

I was not specially defending the SEC system nor mom and pop investors. Beats me to understand why anybody could earn a 12% risk premium without a lot of hard work (just by picking the best morningstar rated mutual fund)Just pointing that the information advantage belongs first to managers. And that they can profit from it both ways. Therefore insider trading aggravate a natural conflict of interest between executives and shareholders, be they large investors or (soon to be) impoverished individuals.Which remind me of an old french market proverb : "Small minority shareholder : sucker... Big minority shareholder : big sucker."

MobPsycho, please answer a question for me.I imagine that we live in a world with no SEC, no insider trading regulations, none of that regulation. Anyone who is in a position that gives him an information advantage vis a vis a traded security can and will use that information to extract the maximum profit.If you are the CEO of a public company, this is a very good thing for you, because not only are you often the first one to find out interesting information about the company, but you can also create information about this company by yourself.However, if I am not the CEO of a company, why would I ever want to invest in a public company?Basically, why would anyone except some kid who just got off the bus from Wisconsin invest in anything except government bonds or private equity?

There is a certain vein of libertarianism I highly enjoy. This is a bit off-topic but related to the question of what companies report and how much value they add and how an investor can differentiate. This also hits on the topic of the role of government. I was thinking about a world without corporate taxes. Corporations are just collections of people. If those people were not affiliated with a corporation they would be using public resources through some other entity, but eventually its turtles all the way down. Let's assume the average tax rate is 30%. The implication there is that the FEDERAL gov't interact with you (expicitly or implicity) 30% of every day. No I realize that some of the implicit effects are hard to see (patent clerks for example) but 30% of every day? Frankly, the government is committed to self-preservation at all levels, not efficiency or value add. This much has been talked to death. If we transfer the tax burden to individuals a few things happen. No more corporate tax lawyers and accountants, no IRS regs, no FASB, none of the layer of crap which stifles corporations. No corporate tax inclusions, exclusions, exemptions, temporaty deferred assets,arggh! Just cash flow. How many public resources does a company use?Ahh, but what about transparency? How the heck do I know what to invest in? Well, companies need capital, so it's in their best interests to be as open AS THE MARKET WILL ALLOW. This is Mob's implication. Information is a commodity to be generated, bought and sold with varying degrees of quality and the degree and quality will shift over time, getting better and better but without the arbitrary oversight subject to Special Interest Group interjection. Granted, this would generate a new era of Caveat Emptor, but that should be the REAL reason why traders and invesment managers should exist, not to execute trades but to analyze.Ok, enough proselytizing, cheers on a great week.

QuoteNature has solved so many permutations of this problem in so many situationsThat's not true. Peacocks have fancy feathers because of a random genetic mutation that doesn't improve their 'operating efficiency'. It is common knowledge that the stuff you buy on informercials is highly likely to be crap, and yet we have more and more informercials these days rather than less. It's worse on cable where you pay, than it used to be on regular old broadcast TV where you didn't pay. But if you put some sleazy woman with big jigglers next to a plastic juicemaker, those phone lines are gonna light up! Scamming people is an art that is as old as time. There are just so many different ways, but beyond that, there is so much gray area there, and almost nothing in life is 100% honestly presented. To imagine that there will ever be a clear delineation that allows one to say, "This is fraud, and that's not" is naive. You are basically saying that the real truth must win out, because traders with bad genetic algorithms would be culled. But the physics of this depends on the temperature of the system. If there is too much noise, it doesn't happen that way. Look at these guys fighting in Liberia - what they believe is a combination of black magic and hallucination. I wouldn't jump to the conclusion that their phony beliefs will cost them the war. Informational uncertainty is just too great.I'm afraid I am again siding with Taleb in 'Fooled'... for most events in the markets, very little actually qualifies as an explanation. You're suggesting that if people competed sufficiently, then all the nonsense would go away. But the world isn't that way - just look around you.

Some time in the 1990's the Germans introduced insider trading laws. Does anyone know what difference they made, if any?