Second, why the hell should it be legal if the same thing done by a normal citizen results in ultra harsh penalties ( look up laws on Insider Trading).
But the distinction between public information and private information can be quite arbitrary. Especially when Congressional leaks are so common.
If a congressman takes confidential information, puts it in their blog, then makes trades with it, is that ok?
It just seems like the “public information/private information” distinction is less clear, and the harm the law seeks to prevent less defined. And it’s already pretty unclear and undefined, at least to me.
I think that that ownership by a diverse group of non-insiders is preferable to consolidating the control over huge individual insider shareholders, for two reasons:
- That ordinary citizens can be shareholders of companies, and so won't make decisions against their own interests.
- That large groups tend to be more ethically moderated (in the nuclear physics sense: slowed down from snap decisions) and less likely to become cynically corrupt than individuals.
Now, big groups still do those things all the time, but the idea is that, for a few reasons (e.g. people don't corrupt at the same rates, so the unless the group shifts all at once they'll identify the people that become corrupt as interlopers and outgroup them), it's still better than taking the chance on an individual.
But I see a lot of confusion here between “public” in the sense of “oriented towards the common good” and “public” in the sense of “not widely known”.
Same with “private” - could mean “oriented towards the good of only certain individuals” and also “not generally known.”
If people believe that there is widespread insider trading going on, the stock market becomes a market for lemons. As someone without insider information, your assumption should be that whoever you are trading against has more information than you, which means you got the raw end of the deal. If your assumption is that you get a bad deal whenever you trade, you are never going to trade, and then the market collapses.
This was a contributing factor to the crash of '29, and sure enough, the SEC was created in 1933. Its first chairman, Joe Kennedy (father of JFK), was one of the most notorious insider traders in history, and his mission was to prevent anyone else from getting away with what he did.