If you want to trade stock for huge profits using inside information without getting busted by the Feds, all you have to do is run for congress and win. This is an easy one to ridicule so I am going to take the other side of the issue.
First, like it or not the world is run by the politicians. If I need as little as a variance on the local level so my employees can park closer to the office right up to a favorable interpretation of a federal minimum wage law so that my best employees can make a lot more money and not have to carry the people who should be doing something else with their lives. (…sounds brutal when I read that last sentence back to myself but hey, I am what I am.)
Business people are constantly trying to shape public policy and the only way to do that is through our elected representatives. So your local congressman when he is not in Washington will find himself visiting businesses in the district he represents, choking down some rubber chicken and trying to keep his constituents happy. He will visit and or talk on the phone with the CEO’s of a bunch of these companies in his district. If he is told how a given CEO would like to see this or that legislation go a certain way because it would really help with the forthcoming merger or acquisition he takes a few notes and uses that information to help him represent the people he gets paid to represent.
Now remember here that a congressman might meet with a hundred or more such companies in his district and this type of soft lobbying does marginally mold the opinions of the representative but ultimately the representative is going to do what he thinks is best for his constituency. At the end of the day he or she may have been exposed to a truckload of what could be considered inside information.
Now we have to look at the less pretty side of who we are as human beings. While we might have voted for the guy in office or volunteered on his campaign maybe even contributed money to his election bid, there is no way every vote he might make in Washington is going to be the absolute best for us individually. Believe it or not there are those among us who would take such a thing personally. There are even those who would hold a grudge and who could make a case that their Congressman had been a party to privileged information before his money was put into a given company’s stock.
Its a tough pitch to go to your representative and tell him that you want something just because and can’t tell him why. Chances are you are going to sacrifice a fair amount of influence if you can’t adequately explain your position. If you do explain your position then there you have it, inside information.
So what do you do? Is it fair to prohibit elected representatives from investing or trading for their own account? For better or worse, the only reasonable solution is to look at it more like attorney client privilege than it is insider trading.
When all is said and done we have a form of government known as a representative republic and we elect representatives. We want these people to be intelligent and ethical and all of that stuff but we also want them to represent us in their voting. It is difficult, if not impossible, to do that if they are also constantly reviewing their 401K for any investments or trades that involve businesses that they can be linked to as a representative. Because, in the interconnected world in which we live, that is virtually all businesses. Immunity from these laws might not be the best solution but it is a solution that works. We need to leave it alone.
Immunity from these laws might not be the best solution but it is a solution that works. We need to leave it alone.