Why Care About Rajat Gupta?

If you’re one of the many Americans—including both Tea Partiers and Occupiers—angry at privileged people who seem to make private profits on socialized risks, you may feel a certain schadenfreude at the news that Rajat Gupta has been charged with a felony: Gupta is being prosecuted for his alleged conduct during the period when Goldman Sachs, of whose board he was a member, received a massive bailout from the United States Treasury, whose secretary, one of the leading advocates of bailing out financial businesses like Goldman, was a former CEO of Goldman. No doubt Goldman has made money honestly, but it has also received massive corporate welfare, both directly in the form of its TARP benefits and indirectly through AIG. Without this loot—money taken by force from the taxpayers, but not spent on the proper functions of government—Goldman Sachs might have failed.

Goldman lived by the government’s sword, one might say, so why does it matter if its directors die the same way? It matters for three reasons.

First, Gupta is an individual, not an avatar for Goldman. Merely because Goldman received loot, it does not follow that Gupta was reprehensibly involved in obtaining it. Objectivity requires distinguishing him from Goldman Sachs, especially when criminal punishment is at issue.

Second, Gupta is not being charged with looting the Treasury. And even if it were clear that Gupta can be held personally responsible for the looting from which the company he helped lead benefited, the fact is that Goldman Sachs did not violently pillage the Treasury. It received money under various government programs. And it would be both absurd and obscene, morally, for the government to offer handouts, then prosecute people for taking them.

So whatever resentment it may be appropriate to bear toward Goldman, or even toward Gupta personally, and whatever private nonviolent adverse action may be justified (such as refusing to do business with them), as far as the legal case is concerned, the fact that Goldman received corporate welfare is entirely irrelevant. Gupta is charged with insider trading. Objectivity requires examining the case as an insider trading case.

And that means that the questions that are relevant are those that are always relevant in insider trading cases: Does the law of insider trading clearly show that the actions alleged were criminal if committed? Does the evidence show beyond a reasonable doubt that the defendant committed the actions alleged? And should insider trading of the sort alleged be a crime?

To that last question, the answer is very clear: Rajat Gupta is accused of privately telling a friend some valuable information. This ought not to be a crime. Not even if the friend, Raj Rajaratnam, then used the information to trade stocks—which also should not be a crime.

Which brings us to the third reason it matters that Gupta is being prosecuted: The law he is accused of violating is an unjust law. It violates the liberty of every American who seeks to understand the value of businesses and invest in them on that basis. And if we are interested in protecting liberty, we must protect it regardless of who happens to be today’s victim of an unjust law. Someone else may be tomorrow’s.

It seems as if it should be OK for any person to tell any other person whatever they want to. That's free speech after all.

However, officers of corporations are given certain benefits, such as limited liability, in exchange for following the laws of the governmental entity that has allowed them to incorporate. If a government requires all of the officers of a company to hop on one foot for at least one hour each week in order to remain incorporated then so be it.

It happens that the insider trading law makes a lot of sense, unlike a law requiring corporate officers to hop on one foot.

If insider trading were allowed then it could reasonably be surmised that an even larger share of the profits from stock investing would go to an even smaller percentage of the population. This could very well lead everyone that wasn't a member of a corporate board to cease investing in stocks.

Why would you want that to happen?

If I knew that people were allowed to trade insider information with their close friends, and I wasn't a close friend then I would be an idiot to invest.

Corporations do not have some inalienable right to exist. They are a public convenience. They serve a useful purpose when properly regulated. Certainly they are overregulated in some areas, but allowing, for example, a single business to speculate with fractional banking reserves backed by U. S. taxpayers is reckless indifference of the highest order.

As has been shown by the recent housing bubble and crash it can clearly be shown that they have not been properly regulated. Allowing the crony bastards to trade inside information would merely compound the current level of stupidity.

Gupta is being prosecuted so that the remaining cronies on Wall Street can dust off their hands and say “There. Did that. All fixed. You rubes in flyover country can be sure your money and your investments are getting a fair shake with us! Nothing to see here.”

It’s always been a rigged game and will remain so.

Oldplayer

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