http://knowledge.wharton.upenn.edu/article/how-big-data-ties-politically-connected-bankers-to-pre-tarp-insider-trading/
One of the core concepts we have been learning in class is how an unequal balance in power can lead to players having a bigger advantage. Is stock trading inherently unfair? Recent news has come out that has brought up some troubling implications about banking, politics, and insider trading. Data analyzed has revealed that in the days before the bank bailouts during 2008, high volume deals were being cut between the Treasury and nation’s largest investment banks. These unconventional deals resulted in artificial shocks and surges to the US economy and financial markets. To the average investor, money was being lost even in good investments.
In addition, insider trading activity surged months before the bailouts, which caused the market reaction prediction to the bailouts themselves. Thus, the high net worth investment bankers were insulated from the shock their own actions caused, which instead hit the average investors who had done nothing wrong. Furthermore, the data shows that the politically connected insiders had an information advantage over everyone else, and were thus even more insulated.
The seemingly direct link between high politics and investment banks is troubling to the average investor, who can’t hope to compete without an information edge. Market inefficiencies still persist today, even in the seemingly fair financial markets.