Occupy Wall Street: Great! Regulate Wall Street: Even Better

by Stuart Shapiro

The timing is purely coincidental but as the Occupy Wall Street protests gather steam and public attention, two other events this week may have a longer term impact on behavior on the targets of the protests.  The Galleon Group hedge fund manager Raj Rajarantam (pictured) was sentenced to 11 years in prison for insider trading.

The sentence was a watershed moment in a two-year push by federal prosecutors. Over that period, Preet S. Bharara, the United States attorney in Manhattan, has brought charges against 54 people with insider trading crimes. Of those, 50 have been either pleaded guilty or have been convicted at trial. Three others’ situations are pending, and the fourth is a fugitive.

On another front, pursuant to the Dodd-Frank Act, four federal agencies issued a draft version of the Volcker Rule.

That section of the Act generally prohibits two activities of banking entities. First, it prohibits insured depository institutions, bank holding companies, and their subsidiaries or affiliates (banking entities) from engaging in short-term proprietary trading of any security, derivative, and certain other financial instruments for a banking entity’s own account, subject to certain exemptions. Second, it prohibits owning, sponsoring, or having certain relationships with, a hedge fund or private equity fund, subject to certain exemptions.

I think the protests are an excellent expression of the anti-corporate sentiment that many Americans feel.  However, in the long run, prosecutions of insider trading and cracking down on risky behavior by banks (and many other actions like them) are going to be what prevents another crash and begins to crack down on the cancerous wealth disparities that plague our economy.

By: Stuart Shapiro

Stuart is a professor and the Director of the Public Policy
program at the Bloustein School of Planning and Public Policy at Rutgers
University. He teaches economics and cost-benefit analysis and studies
regulation in the United States at both the federal and state levels.
Prior to coming to Rutgers, Stuart worked for five years at the Office
of Management and Budget in Washington under Presidents Clinton and
George W. Bush.