Forensic economists examine the effects of CIA-led coups on the stock market.

The search for better economic policy.
Oct. 28 2008 7:07 AM

They Made a Killing

Did people who knew about secret, CIA-led coups use that information to game the stock market?

(Continued from Page 1)

Furthermore, these gains were concentrated in the days following crucial government authorizations or plans for the coup (suggesting the trades weren't simply the result of good guesswork about a coup in the making). For example, in the week that President Eisenhower gave full approval to Operation PBFortune to overthrow Árbenz, UFC's price went up by 3.8 percent; the stock market overall was flat that week.

In all, shares of coup-affected companies went up by a total of 10 percent following top-secret authorizations, swamping the 3.5 percent gain that came immediately in the coups' aftermaths. If information hadn't been leaking into the stock market via insider trading, then the entire impact of the coup should have appeared only when the very public invasions took place and the investing world finally got news of the regime change. Unfortunately, there are limits to what these stock-market forensics can uncover. When the researchers contacted the Securities and Exchange Commission to find out who was trading on these days, they learned that there are limits to what the Freedom of Information Act could provide. So, we can't pin the apparent insider trading on anyone in particular.

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There's also some evidence, albeit tentative, that the market was very good at forecasting the coups' success and failure—a further indication that the traders driving up the price had detailed knowledge of the covert plans (and their expected outcomes). The CIA-led invasion of Cuba is referred to these days as the Bay of Pigs fiasco for a reason, and whoever was trading on insider knowledge seemed to place his bets accordingly—the pre-invasion increase in American Sugar's stock price was much lower than the gains for companies affected by the other, successful coups in the study.

What about the forensic economics of the Bush administration? Researchers have already estimated what it's worth for Republican-connected companies to have George W. Bush in the White House by looking at what happened to the stock prices of companies with former Republican lawmakers on their boards when Al Gore gave up his fight for the presidency on Dec. 13, 2000 (they went up; Democratically connected companies' prices went down).

If and when the story behind the U.S. invasion of Iraq becomes public, researchers will surely also be analyzing the share prices of the many companies that profited from a U.S.-occupied Iraq. None will see greater scrutiny than oil services giant Halliburton, whose former CEO Dick Cheney left the company to become vice president in 2000 and undoubtedly took part in the invasion's planning. (Some say he was pivotal in the decision to invade.) In the Iraq war's aftermath, Halliburton received billions in no-bid reconstruction contracts, boosting its profits and leading to accusations of corruption.

Halliburton's stock price jumped 7.6 percent the day the Senate authorized the use of force in Iraq, so investors clearly anticipated that war would be good for the company. Did insiders also profit from advance notice of these sweetheart deals to come? Conspiracy theorists will no doubt be interested in what happened to Halliburton stock on days when less-public meetings took place. Cheney himself certainly could not have traded on any inside information—monitoring of insider trades and stock transactions is much more sophisticated now than it was in the 1950s. But perhaps others in the V.P.'s office or at Halliburton (or their cousins, or their cousins' cousins) might have been able to do some trading on the sly. If so, they may have left tracks in the data for researchers to follow.

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