That was the report from a “friend” on October 20th. Whether Mr. Rajaratnam’s good spirits have held up despite recent events — which have ranged from the collapse of his firm, the Galleon Group, to accusations that he was funding the Tamil Tigers — is less clear; but perhaps Mr. Rajaratnam knew all along that that he had friends out there, and that his friends would rise to his defense. No need to be glum.

Friends of Raj have included, so far, a number of prominent newspaper columnists and professors of law and finance, as well as, it would appear, the entire editorial staff of The Wall Street Journal.

Most are not defending Mr. Rajaratnam himself: nobody, not even his closest friends, have stepped up to declare him innocent or incapable of any wrongdoing. Instead, we are asked to consider that what the Feds call insider trading is really another form of market transparency, or alternatively, that it is, or ought to be, perfectly legal for outsiders to trade on information provided by insiders, even if those insiders betray their fiduciary duties in providing that information.

The latter of these arguments could amount to little more than this: if you tell me a secret, and I act on that information, you may have violated a trust, but I have not. I have only acted in my own self-interest, and what else can you expect me to do? Of course this conveniently overlooks the question how I induced you to tell me the secret, or how I colluded with you in violation of a trust. Any investigation of wrongdoing at Galleon will likely focus on whether there were inducements in Mr. Rajaratnam’s network of informants and contacts, or what form collusion took. After all, we’re not really being asked to believe that these were just friendly exchanges.

Or are we? Mr. Rajaratnam cultivated friends in high places and friends with access to proprietary information, to be sure. And as L. Gordon Crovitz noted in a piece that tries to blur the line between insider and outsider trading:

Information flows these days are increasingly about networks, including information about markets shared by members of various communities. Traders use Web sites to compare notes on companies and use social media like Facebook to share information, looking for an edge. Sophisticated traders such as hedge funds draw on more selected networks such as their investors.

The word “community” is doing a lot of work here it shouldn’t do. And it’s a little hard to imagine an entire hedge fund entrusted to the fortunes of six-degree, social media friendships. The role these informal exchanges played in giving Galleon the “edge” that Mr. Rajaratnam insisted upon is most likely negligible. Instead, it seems fair to assume, Mr. Rajaratnam and his associates depended on what Crovitz calls “more sophisticated” social information networks. (If you like acronyms, call them SINs). How sophisticated, and how social, remains to be seen.

The other argument, the argument about market transparency, is usually attributed to Milton Friedman (but originates, according to Stephen Bainbridge, with Henry Manne). Friedman summed it up when he quipped: “you should want more insider trading, not less. You want to give the people most likely to have knowledge about deficiencies of the company an incentive to make the public aware of that.” The merits of this view aside — and Bainbridge has argued persuasively that its merits are slim — it paints a deliberately naive picture of the markets, with knowledgeable insiders merely lacking some incentive to inform “the public” of a company’s deficiencies.

The public? It’s difficult to say why Friedman should choose this word. No doubt about it, inside information about a company’s shortcomings, or failures, or misdeeds can serve the public, or be a public good; and in a perfect world, or even a better world, there might be real incentives and protections for those who come forward with information about companies that serves the public interest. But in our world, in the real world, who among the public, broadly construed, the publicus, would benefit from this kind of information, or even know how to benefit from it?

It’s a very small percentage of the public, and it is disingenuous to pretend otherwise. It’s a “community,” to use Crovitz’s word. But the trouble is this: this particular community is like a gated enclave, restricted, shut off from the traffic and noise of the public world. Just Mr. Rajaratnam and friends — nobody else; a very small, very closed circle, a social information network, to which only a select few are privy.

There are, no doubt, many such networks of friends and boon companions where the line between inside and outside is blurred: after all, friends don’t let friends stay out in the cold. But these social information networks are still a long way from true transparency and public disclosure, or information that is a public good, even though we have all the technology we need to make information public. What we lack is the political intelligence to do it right, or maybe just the political will to do it at all.