11/22/2010 02:59 pm ET Updated May 25, 2011

Insider Trading: 'Steal A Lot, They Make You King'

It feels perversely quaint that the national conversation is momentarily focused on the likelihood of insider trading cases dropping on a hive of nefarious and presumably well-connected individuals -- huge cases, we are told via breathless leaks from the federal cops on the beat, cases worth -- are you sitting down? -- tens of millions of dollars. With numbers like these, one can only imagine what's up next -- a crackdown on employees who brazenly pilfered office supplies from their jobs at publicly bailed-out institutions like Bank of America, perhaps?

Don't get me wrong: Insider trading is unambiguously bad. It corrodes the working of the marketplace and shortchanges honest investors. People who engage in it ought to be prosecuted and forced to suffer consequences. But put this up against the multi-trillion-dollar financial shenanigans that turn out to be pretty much legal or so maddeningly nebulous that they render prosecution impotent, and insider trading seems, well, adorable.

More importantly, it is hard to see how a nation still furious about the financial crisis and its aftermath will (or should) take consolation from cases such as these. Not without justification, the public wants scalps on the wall and the spectacle of a perp walk, following the effective demolition of much of the real economy by a handful of gazillionaire executives for whom freedom still entails private jets and mansions by the sea.

In this context, insider trading reeks of the small-time. The smart kids in school, we have learned, went into major-league banking and invented brilliant financial machinery that effectively turned smoldering waste into gold. They lent money to any would-be homeowner with a signature and bundled these lousy loans together. Then they refashioned these malodorous piles of trash into new securities that complicit ratings agencies deemed as safe as Uncle Sam's savings bonds. They sold their inventory to pension funds, municipalities and other institutions that saw a AAA rating and dug no deeper. By the time the world figured out that the bankers had been peddling garbage, somebody else owned it.

Would-be prosecutors then found themselves mired in confusing and unpalatable circumstances. They had to unravel arcana with forbiddingly awful names -- collateralized debt obligations, credit default swaps. Perp walk? Good luck merely describing the crime.

Even the one high-profile case that has captured the public fancy, the Securities and Exchange Commission's fraud charges against Goldman Sachs, failed to leave a satisfying sense that justice had been fully served. Goldman was accused of cheating clients by stuffing a security with particularly ridiculous loans and then peddling it to clients just so another client would have something to bet against. In the end, Goldman settled the case for $550 million, a veritable fleabite to a company whose revenues reached nearly $9 billion in its most recent quarter.

And the Goldman case might never have been brought, given its considerable legal uncertainty, had it not been for the extraordinary politics of the moment. People close to the SEC have described an effort inside the building to find a case that would distract the public from the agency's miserable track record in failing to act on tips that once-respected money manager Bernie Madoff had been operating a global Ponzi scheme. Goldman found itself in the right spot at the wrong time. In the national narrative, the firm's name had become a synonym for everything wrong with American capitalism -- which is to say, mother earth-style socialism for giant banks and Ayn Randian laissez faire for everyone else.

You almost -- and only almost -- can pity these naïve insider traders who failed to keep pace with the cool kids in finance, who so foolishly bought and cashed the shares they allegedly manipulated and thereby left a handy paper trail for the prosecutors to follow. They failed to master the lessons of the era: The way to cheat people and stay on the side of the law with valet parking is to avoid touching the product. You play hot potato with the toxic stuff, move it quick and get your money out. And you do your business on such an enormous scale that it becomes the normal course of finance; so huge that its cessation would threaten the real economy. You keep it so mind-bendingly complicated that anyone without an advanced degree in high finance has no idea what's going on; so that any prosecutor who hopes to ever again see their family at dinner time would run screaming from such a case. Too Big To Fail works brilliantly, we have learned. So does Too Complicated to Build A Case.

All of which makes the insider traders seem both a little bit pathetic and largely beside the point. They are another sacrifice thrown into the volcano that is American populist anger. This latest offering may sate the populist fury for a few minutes, much as the Madoff case captured public fascination because it seemed to provide a readily identifiable villain to the story of imploding national fortunes (particularly for wealthy people who live in Manhattan and Beverly Hills). Where did our retirement money go? That guy took it!

Except, of course, that's not true. Insider trading and demonstrably criminal Ponzi schemes are not why the economy stopped functioning for tens of millions of ordinary people. They don't explain why homes are continuing to slide into foreclosure and people who have been out of work for two years still don't have jobs (and are about to lose their unemployment insurance: Happy Holidays!).

It's not the small-time cheats who explain the strains of contemporary America, but rather the grand and diabolical geniuses who have learned to grow so huge and interconnected that their model has insinuated itself into the commonplace ways of the marketplace. And if everyone is doing it, how can it be a crime?

Bob Dylan had it right: "Steal a little and they throw you in jail, steal a lot and they make you king."