If I could short Congress, I would right now.
Last night’s 60 Minutes report, based on the work of conservative scholar Peter Schweizer, shows how powerful members of Congress benefited by insider trading, which happens to be perfectly legal if you’re a congressperson.
We’ve known for a while that Congress has almost certainly been enriching itself by buying or selling stocks based on what it knows that others don’t yet. Four researchers reported earlier this year that the porfolios of members of the House of Representatives beat the market by an average 6 percent a year over a sixteen-year period. Senators beat the market by 10 percent. Both are stunning numbers that put the average lawyers and small-businesspeople in Congress approaching Warren Buffett territory. The only plausible answer for such outperformance was that members traded on nonpublic information.
But those were cold data based of the aggregate. To really tell a story you’ve got to attach names and faces to the data, and that’s what Schweizer and 60 Minutes have done here.
Take GOP Representative Spencer Bachus, for instance. He’s now the powerful chairman of the House Financial Services Committee and was ranking minority member when the financial system was imploding back in 2008. Slate’s David Weigel has a copy of Schweizer’s book and flags a section reporting that Bachus sat in on the famously devastating September briefing in which Fed Chairman Ben Bernanke in 2008 warned that the financial markets were near meltdown. The next day Bachus shorted the market by buying options on an ETF, doubling his money in four days.
In other words, one of the most critical member of government fighting to prevent a financial meltdown bet on that meltdown. It’s not hard to see the corrupting influence here. Brian Baird, former Democratic congressman from Washington, puts it well:
There should only be one thing in your mind when you’re drafting legislation, ‘Is this good for the United States of America?’ That’s it. If you’re starting to say to yourself ‘how’s this going to affect my investments,’ you’ve got— you’ve got a mixed agenda and a mixed purpose for being there.
Some members of Congress put their money in blind trusts.
There are other examples, of course. Democratic Representative Jim Moran went on a selling spree the day after a September meeting with Bernanke and Hank Paulson.
And Speaker John Boehner or his financial adviser bought health care stocks during the health care debate, as 60 Minutes points out:
Just days before the provision was finally killed off, Boehner bought health insurance stocks, all of which went up.
Kroft points out that while it’s hard to get IPO shares, but then-Speaker Nancy Pelosi and her husband got 5,000 shares of the Visa initial offering at a time when credit-card legislation was dying in the House. That was at least their eighth IPO.
I’m surprised that 60 Minutes doesn’t mention the academic research showing how much congresspeople beat the market. That would have made this story even better.
This has the ingredients for a very big story.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at firstname.lastname@example.org. Follow him on Twitter at @ryanchittum.
Tags: Congress, Corruption, Insider Trading, Slate