Did Bank Execs Know Their Firms Were in Trouble When They Sold Their Personal Bank Stock Holdings?

Fascinating discussion by SImon Johnson at Economix:

The key finding is that chief executives were “30 times more likely to be involved in a sell trade compared with an open-market buy trade” of their own bank’s stock and “the dollar value of sales of stock by bank C.E.O.’s of their own bank’s stock is about 100 times the dollar value of open market buys.” (See page 4 of the report.)

If the chief executives had really believed in what their banks were doing, they would have wanted to hold this stock — or even buy more. Disproportionately, more sales than purchases strongly suggests that the chief executives felt their stock was more likely overvalued than undervalued.

In the past, I have called for a new Quantitative division of the SEC to identify and investigate these sorts of issues. Unfortunately, the new House leadership prefers to cut the budget for the cop on the Wall Street beat (as their Lords & Masters have ordered) . . .


Ship of Knaves
Economix, February 10, 2011 

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