Where Insider Trading Becomes Treason

Paul Krugman has the gentle and precise cadence you might expect from a guy who has won

a Nobel Prize in economics.

But every once in a while, his careful tone gives way to a sick burn.

All the way back in 2016, he called Donald Trump's economic policies completely incoherent,

for instance.

In the last week, he's used a different descriptor for Trump world genanigans, economic

treason.

I wanted Paul to talk about this allegation.

But before we get into it, let me just explain what he's talking about here.

Last week, you might remember that the president did this funny two-step on Iran.

He began by threatening to obliterate Iranian power plants, unless the straight-of-form

moves was opened back up again, he gave a 48-hour deadline.

Then Trump pulled back on his threat.

But a few minutes before he did, the oil markets saw a massive spike in activity, a spike

so huge that it seems clear somebody knew something.

Yeah, so there were two places where we had, we don't know who, but we know that somebody

did big trades because we do have volume measures in financial markets.

This is Paul.

There's the oil futures market, which is where people buy and sell contracts on a barrel

of oil in the future, usually just not a very distant future.

As somebody sold, the financial times went and estimated it sold about $580 million worth

of oil futures, just at 6.49 a.m. and the announcement on Truth Social came at 7.05.

So right there.

Is that a time when trades are usually happening like that?

Yeah, it might not much, I mean the futures market is open, but it's very sleepy.

That's why we know that this was not a normal thing.

You look at the minute-by-minute transactions and sort of a little bit of self-balancing

alone, and then there's a big spike.

At that minute, somebody made a big trade.

So it's obvious that it's one person?

A group of people, but it's essentially one actor, somehow or other, is doing this.

And there are simultaneous trades in these two markets, in the S&P futures market for stocks

and in the futures market for West Texas intermediate oil.

In other words, it sure looks like closely guarded national security information was being

used to make a quick buck.

Paul reasons, if a spy was giving our adversaries this kind of info, we would certainly call

it a treason.

So why not use the same language now?

This is also not the first time White House moves have been tied to suspicious trading patterns.

Back when the president rolled out and then clawed back, Liberation Day tariffs a year ago,

some wondered if Trump was putting the country on a financial roller coaster so that his

pals could buy the dips.

In other words, everything is happening out in the open, including those weird market

moves last week.

I first saw the wow charts and the numbers on CNBC and they immediately flagged us saying

this is really weird.

Does it say something that this has not been a bigger scandal in real time, that it's been

like a page two story?

I kind of assume that eventually we will know who plays those trades because that has to be,

that can't be that well concealed, but everybody knows that this Justice Department is not

going to investigate it.

It's a weird thing that given the pervasiveness of the corruption and the certainty that nothing

will be done until someone else is in the White House, it becomes a one day page two story.

Today on the show, a deeper look at how someone is making a killing off the war in Iran.

I'm Mary Harris. You're listening to what next?

Stick around.

I want to focus in on what happened with the Iran situation and the oil futures.

First of all, we've talked about the trades and I kind of have a dumb question.

How does someone make money on a trade like this?

So we see a lot of activity right before an announcement is made.

What happens then that resulted in me getting a bunch of cash theoretically?

The basic story is that, well, think about oil futures.

You could sell a bunch of oil futures at 6.30 in the morning.

At, I guess at that point, I don't have the exact price as none, but let's say that the price

was $98 a barrel for WTI futures and you could, actually, you could even sell oil futures you

don't have. You could basically just borrow them and then buy them back at 707 after Trump has

made his announcement for $90 a barrel. So you're ahead. You sold stuff at 98 and you bought it back

at 90. So the actual amount of money you make is only not the entire volume of the trade,

but it's a lot of money. It's sort of the opposite on stock futures. If you were able to buy

stock futures and then sell them again after stock prices had jumped on the announcement,

again, you basically arbitrage between the price just before and the price just after.

And in the case of oil that meant it went down and the case of stocks that went up.

Do we have a sense of how much money some person or person's made here?

Well, I think we ought to be able to do that and I haven't actually done the number.

But if we say there was something like a 10% movement in oil prices. So there was something,

if it was $5,000 million of transaction volume, then somebody collected 10% of that. So let's say

it was $58 million. Now, yeah. And probably, I mean, it's a bigger amount, but slightly smaller

price change, but let's add to it a bunch in the stock futures market.

How would we know the identities of these traders? It seems like that is something that is

knowable. Does that just rely on a completely different administration, a completely different

securities and exchange commission? Like what would be the typical play here if we were in normal

world? Good question. And I don't do financial investigations, but I'm pretty sure that at some

level, these orders have to be in place with somebody. So, and they might have been anonymized,

but it's not usually, I'm pretty sure that if you did an investigation with subpoena power to

require the financial institutions that have to be active as brokers or something to reveal

the information, there would be a pretty clear trail pointing to it. But of course, we don't know

that, ordinarily, these things are not public knowledge. That's kind of how financial markets

work in many cases anyway. Could the trail dry up? I understand that maybe something won't be

investigated now, but I just wonder if time means that the investigation becomes as possible.

It's possible. I guess I'm assuming that given that in the end, all of this involves people and

the people who have to have known somebody new, not just the person who plays the trade, but some

people knew. And if they, that they can be tracked down, I could be wrong about that, but the

people who place these trades almost certainly have to have reckoned on the possibility that they

would detract, that we, that eventually they would be found out. And they're just operating on

the presumption that it will never be, they will never be held accountable. And maybe, maybe they

think that that, you know, we are effectively a one-party nation now, or they just think that by

the time time has passed and there'll be enough people to protect them, but it's, it's pretty

amazing. I mean, if somebody suggested to me, look here, you can make a million dollars by using

this deeply classified national security information and trust us, you'll never be found out, I

wouldn't do it. Leaving patriotism and morality aside, I would say, gee, I don't trust that. I think

I might be in trouble, but somebody obviously did. Yeah. Yeah. I mean, I think I want you to really

fully lay out your case for this being more than insider trading, because you did it really well

in your sub-stack. We were like, listen, there are like three things you need to know here. Can you

do that with me? Like, lay out why you think it's a step above? First of all, insider trading of

this kind would be illegal. If you were a corporate insider who had new stuff about, you know,

XYZ corporations, finances and traded on that basis, that would be illegal too. But in this case,

three things. First, the nature of the information. There is hardly anything that is more

sort of sensitive as national security information of the kind that we're going to

call off a bombing mission 15 minutes from now. I mean, that's extreme. That's more than knowing

that there's some unrealized losses on a corporate balance sheet. Do you really think that foreign

governments are at this point like with a magnifying glass looking at our markets and being like,

something might be about to happen? Of course they are. That's the easiest thing. It doesn't

require any deep undercover operations. Of course, I put it this way. The fact that financial media

was on this almost immediately. If CNBC and the financial times are watching these things,

how can you imagine that the Russians and the Saudis and the Chinese aren't watching it?

The second thing is that, as I said, this does reveal information.

But it's not specific, right? It's just sort of, it's like a market. It's not like specific.

It's an operational information, right? It's pretty close to. If there's suddenly a large transaction

and we're in the middle of a war with Iran and the transaction is somebody betting that

things will look less dire, then this is a clearly signaling that Trump is going to deescalate

in a few minutes. It's specifically that he was going to offer a four-day window or something

about a non-bombing. Now it's 10 days, but by the time this airs, it may be more.

Right. It's not clear that you wouldn't have been able to figure out the details of the policy,

but I don't think that the president has figured out the details of the policy either.

But I think this was pretty specific. You're really making the case that this actually is maybe

the most reliable signal you would get, right? Well, yeah, because the

what they say, I mean, I did say that Trump having announced that he's engaged in

productive negotiations with the Iranian government, and I said, and also with an invisible

six-foot rabbit, because there's no reliability about his pronouncements about what's happening.

But if you see insiders, what looks like an insider making a large financial

transaction, that carries much more weight than a simple statement.

Because you're putting your money on the line. Yeah. The third was a little bit less

conclusive, but as I see it, the morality, the general nature of essentially trading on or selling

national secrets through financial transactions is not really different from just playing selling

financial secrets. Somebody's willing to place a $580 million bit on in the futures market,

on the basis of national security. How different is that from just playing selling that information to

a to a foreign power or a domestic power? Right. It shows what you value. You value making the money

off of it. Yeah. And from what it's worth, I mean, this is pure speculation. My guess is this was

not actually somebody close to the White House directly making the trade. This was somebody

close to the White House selling the information to some large financial operator to make the trade.

Wow. You know, pro-publica did a bit of an investigation into individual staffers, government

staffers, who seemed to have been making suspicious stock trades in this second Trump administration.

Basically, they looked at like this happened on Liberation Day. You seem to have traded 20 grand

or 50 grand worth of stocks. What happened? It was interesting because part of what stood out to

me was how hard it was to prove that these trades were made with insider information. They had to

have a line in there that was basically like, we don't know that this is proof. We just know the

timing looks suspect. Is it possible that what looks very suspicious to you and me is sloppiness

somehow? Well, they ordinarily, I would have said that, well, this is really hard to prove. And we're

still proving that someone putting the finger on any individual is going to be very difficult.

But the fact that this is not a series, a number of transactions made within a day or so,

but it is actually just a large slug of money, basically all at once, and just 15 minutes before

the big announcement. You know, that could be a coincidence, but it's also possible that a meteor

will come crashing into my window and hit me right now. I mean, it's not very likely. And so,

the circumstantial evidence for some kind of wrongdoing is really strong here.

We'll be right back after a quick break.

Traditional financial markets are not the only way people seem to be getting rich using

inside information from this White House. There's also the big ugly world of online prediction

markets, websites like Calche and Polymarket, or you can bet on pretty much anything.

One of the most glaring examples of potential insider trading happened in early January.

Just hours before President Trump ordered the military to seize Venezuelan President Nicolas

Maduro, a Polymarket user placed a $32,000 bet that Maduro would be out of power by the end of the

month. After the Venezuelan President got nabbed, this user was looking at a payday of more than

400,000 bucks. And it was odd. And you can actually see this in the prices because the Polymarket

is much smaller. What do you mean when you say that? The volume of transactions. The

whoever was that sold oil futures did not actually move the futures price, at least not visibly,

because that's a big market. Even $580 million is not enough to really move the price.

The price plunges 15 minutes later. But you could actually see that there was a visible

uptick in the probability that Maduro would not be there before the Special Forces went in,

as measured by the market, which said that somebody was placing a bet big enough to actually move

the market price on Polymarket. So it was suddenly getting more or less expensive to make certain

bets? That's right. And the, yeah, the, you know, Polymarket on a given time. I mean, I use it to

just kind of, you know, as a measure of conventional wisdom. You look at what is the price of yes,

this will happen versus no, it won't happen. And that gives you a kind of a market estimate of

the conventional wisdom about the probability that this thing either will or won't happen.

But it's, it's, you can actually see those prices move in advance of policy decisions,

which is saying that that somebody is leaking. But in a way, there was some misplaced.

People have gotten all upset about the prediction markets and about the, about the incentives and

the possibility for profiting from insider government information that they offer. But I think

that everyone who says that is missing what we've just seen, which is the, there are enormously

bigger opportunities for malfeasance in conditional markets and futures markets. All financial

markets are bets on the future. And somebody who knows the future a little bit can make a lot of money.

It's interesting. It's like you're almost saying like this is not, this is just an indicator of

something bigger. What's happening with calcium or polymarket? Oh, yeah. I mean, I don't like the

fact that it becomes so frictionless to engage in malfeasance, but it's relatively penny-antime

malfeasance compared with what just went down in futures markets. Yeah, so interesting to me because

it's like, when I think about, I think what's frustrating about these stories is the feeling of

helplessness. Like this is just happening and there's nothing to be done about it. And with the

polymarket and calcium stuff, you did see like a bipartisan group of senators get together,

get some legislation together, barring lawmakers, the president congressional staffers from

trade-around insider information on these prediction markets, which is interesting,

but in some ways what you're saying is like, yeah, there's so much else out there to address.

And this is really just like the small change. Well, but this is a, let me say this, this is a

under any past administration, and I hope any future administration. This kind of thing would

be inconceivable. I can imagine that under a name your president, but under the AOC administration

or whatever, or even a Republican not named Trump, trading based on national security information

would be a good way to land yourself in prison. And you really would not expect to see that happening

whereas bets on polymarket, they're small change, but they're also the kind of thing that probably

can get away with. And therefore, I can see that there's a concern that there might be

really bad incentives coming out of these prediction markets that don't normally happen.

In futures markets, just because of the enormity of it would not happen.

Yeah, I mean, Donald Trump did this interview with the New York Times where he talked about

why he didn't pull out of his business interests this time around. And he basically said,

I found out nobody cared, which is notable because he's making so much more money

this time around. I think the New Yorker is telling it up. This is like $4 billion. He's made

off of various things, whether it's Bitcoin or, you know, memberships at Mar-a-Lago, he's

raking it in. Yeah, I will say that's that's first of all, I mean, that's something we used to

kind of ridicule, you know, Latin American polities where presidents would always come out of

office immensely richer than they came in. And that doesn't happen in America except now it does.

Yeah. And that is incredible. You were guaranteed a book deal as a former president. That's right.

Lobby money, I don't know, but not this. I mean, I think Harry Truman was actually kind of

poor afterwards. People had to sort of step in to help him. And U.S. Grant had to write his

memoirs. You know, it's the book deals easier for actually a good author. But anyway, the

sick bird. This is completely outside the realm of what we used to do. And yet it has become

normalized. And it's also worth pointing out if you look into, now I there's a much more detailed

reckoning the New York Times did of the Trump profiting from office. And it is worth asking

who is funneling this money to Trump and his family. You're saying like who are the enablers?

Well, not just the enablers, but who is actually buying Trump crypto? Who is actually making large

gifts? And it turns out, you know, a lot of it we don't know because we don't exactly know who's

buying the crypto, but actually the biggest sort of visible sheer and probably a substantial part

of the stuff that we can't pin down is actually Middle Eastern petro states.

So if you want to ask, you know, if you want to worry about the national security implications,

think about the fact that that that Saudi and Kuwaiti and United Arab Emirates interests are

clearly shoveling substantial amounts of cash at the at the family of the president.

Yeah, I mean, I was already worried because of the reports that, you know, Donald Trump was

taking MBS's call on it for advice on the air on war. Yeah, well, MBS controls the Saudi sovereign

wealth fund that has invested two billion dollars in Jared Kushner's firm. So if you want to

ask, you know, who is who is paying the president? It's not just this, you know, a lot of dubious money,

but it looks like it's a lot of dubious Middle Eastern money. Well, they were also funding,

for instance, the takeover of CNN. So it becomes like you're creating an atmosphere of corruption

that really is everywhere. It's not just in the White House. Yeah, sometimes I go back and read

old John Kennedy Albrecht books about the corporate order. And it seems incredibly naive because

he talked about, well, personal corruption is not an issue anymore. These are all corporate

bureaucrats and the idea that individuals are profiting from that's not. That's the corporate

state. And no, actually, we're back into into, you know, we make we make the yielded age

corrupt corruption look like it was trivial. Paul Krugman, I'm so grateful for your time.

Thanks for coming on the show. Okay, thanks. Good luck. Paul Krugman is a Nobel Prize winning

economist. You can find his writing on Paul Krugman.substac.com. If you like what you're hearing

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All right, that's the show. What next is produced by Atlanta Schwartz, Rob Gunther,

Anna Phillips, and Madeline Dusharm. Page Osborne is the senior supervising producer of What Next

and What Next TBD. Mia Lobel is the executive producer of podcast here at Slate. Ben Richmond is

our senior director of podcast operations. And I'm Mary Harris. Go check me out on Blue Sky. I'm

that Mary Harris. Thanks for listening. Get you back here. Next time.