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.
Do you know what George Washington would have done, He would have hung every single one of these crooked treasonous politicians by the neck from every oak tree he could find in public view for all to see in Washington! These people sold American down the drain for their own selfish wealth. This is why Masons founded America. The only way I can even call this place America again is when all these people are held responsible and prosecuted for treason! and sentenced to DEATH! This is no longer America, America was sold out from under us this place is just a stomping ground for the rich and the wicked. One nation under GOD my ass more like one nation under Moloch!!!!!
#1 Posted by Wyatt Larew, CJR on Tue 15 Nov 2011 at 08:58 AM
Perfectly legal.
Or, maybe not, according to Donna Nagy:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1750308
"This article refutes what has become the conventional wisdom that insider trading by members of Congress and legislative staffers is “totally legal” because such congressional officials are immune from federal insider trading law. It argues that this well-worn claim is rooted in twin misconceptions based on: (1) a lack of regard for the broad and sweeping duties of entrustment which attach to public office and (2) an unduly restrictive view of Supreme Court precedents, which have interpreted Rule 10b-5 of the Securities Exchange Act to impose liability whenever a person trades securities on the basis of material nonpublic information in violation of a fiduciary-like duty owed either to the issuer’s shareholders or to the source of the information. It also argues that nonpublic congressional information constitutes property which, like congressional funds and tangible property, rightfully belongs to the federal government and its citizens."
#2 Posted by Edward Ericson Jr., CJR on Tue 15 Nov 2011 at 12:12 PM
Edward wrote: "It also argues that nonpublic congressional information ...:
padikiller responds: What is "nonpublic congressional information"?
The premise of Congress' exemption from insider trading regulation is that the information received by Congress is public information by definition. Aside from issues related to national security, all other Congressional business is ostensibly public.
What's really going on, of course, is that many members of Congress (on both sides of the aisle) are undoubtedly using insider information from K Street to get themselves (and their families and friends) very wealthy in the financial markets. Jawn Kerry didn't get to be a 1% multimillionaire on his salary, after all.
An easy solution to this problem would be to limit members of Congress to an "open season" for financial transactions, say twice a year, or once a quarter,, or perhaps limit them to a small fixed number of transactions, say four a year....
An opt-out provision could allow members the option of establishing an unrestricted blind trust, with a periodic certification under oath by the trustee to the respective ethics committees that the trust is truly "blind"..
#3 Posted by padikiller, CJR on Tue 15 Nov 2011 at 03:02 PM
@wyatt
Washington, of course, became a Freemason at the age of 20, took the oath of office on a Freemason Bible, was the charter Master of the Alexandria Masonic Lodge and was buried in Masonic regalia...
#4 Posted by padikiller, CJR on Tue 15 Nov 2011 at 03:37 PM
The rampant corruption is a natural, intended consequence of an unduly powerful central govt.
Hamilton & Co. got the ball rollin' 200 years ago with "The Inherent Corruption of Central Banking in America."
#5 Posted by Dan A., CJR on Tue 15 Nov 2011 at 04:15 PM
You know what I think; first chance we get and with willing representation, we should explore and push a term limits agenda for our elected representatives...to limit their influence and the potential damage that twenty, thirty and forty year political careers do to this country...and how much damage these politicians do through the course of such a career...look at Ted Kennedy...over forty years and look at how much he enriched himself, how much damage he did and the fact he allowed someone to die almost fifty years ago in Massachusetts didn't stop him from being elected...he along with his buddy Christopher Dodd were the sleaziest, most egregiously corrupt politicians of their day..and there are many many others from both parties....the American people don't need any of this; it's time the party was over because we can't afford it..
#6 Posted by Kristen McFarland, CJR on Tue 15 Nov 2011 at 06:06 PM
We have term limits.
They're called "elections".
Legislation as a substitute for citizenship is an irresponsible and undemocratic alternative to representative democracy.
The fix for our country is to let people fail. Let dumbasses who write stupid mortgages get fired. Let dumbasses who take out stupid mortgages go bankrupt. Let people feel the consequences and rewards of their own decisions - in their choices in banking, in health care, in eating, in smoking... In everything.
More than 90% of American voters can't name their U.S. congressional representatives. More than 95% of Americans can't name all of their federal and state representatives.
Representative democracy isn't designed for ignorant, lazy, dependent dumbasses. It is designed for hardworking, independent and vested citizens.
If we get rid of all the commie welfare stupidity that is dumbing down our citizenry and bankrupting our treasury, the idea of term limits will become a silly moot point, a footnote in the history books. The School of Hard Knocks will educate, inform and motivate voters like nothing else can.
#7 Posted by padikiller, CJR on Tue 15 Nov 2011 at 06:38 PM
The founding fathers would be rolling over in their graves. To become a member of congress or serve your country should not enrich your own life but should enrich the lives of the people that you serve. No one in Washington should make more money than our men and women serving in uniform. The fact that the average salary of a Washington bureaucrat is over $100,000 a year is criminal and if I was on the deficit reduction panel bureaucratic pay would be the first place that I would look for savings.
#8 Posted by Heather Mae, CJR on Tue 15 Nov 2011 at 07:01 PM
At least now we have a better understanding why politicians have a 1 in 2 chance of being millionaires
http://m.motherjones.com/politics/2011/02/income-inequality-in-america-chart-graph
Vs 1 in 22 for the rest of us. Turns out they're not only owned, they're owners.
#9 Posted by Thimbles, CJR on Tue 15 Nov 2011 at 07:39 PM
Padkiller, you are absolutely right. Its been commie influence over Law, Academia, Media and Politics since the 1960s that have led us to Obama and his fellow commies like Piglosi, Hoyer, and 90% of the D party. And the commie influence in the media has pulled the republicans left(Both Bushes and McShame ARE not conservatives-Niether is Romney or Huntsman). Just to give one small example-John Glenn came to the Senate in the late 70s as a virtual pauper and left it in 2001 worth millions. No coincidence that Glenn sold out to Bubba in the 90s and protected Bubbas sale of nuclear targeting technology to Red China-Bubba likley had an FBI file on where Glenn was making his millions. And Glenn was far from alone.
#10 Posted by stormyweather, CJR on Wed 16 Nov 2011 at 01:36 PM
This doesn't really go to the specifics of the case against Bachus, Moran, et al, but on the academic research front, a recent study using data on congressmembers' portfolios from 2004 to 2008 found that they actually underperformed the market. Nolan McCarty has a summary and a link to the study here. The time period is different from the studies Ryan mentioned, so it could be a methodological difference, or it could be that something actually changed.
#11 Posted by Greg Marx, CJR on Thu 17 Nov 2011 at 02:20 PM
You mean Here?
And as a follow up to the half of congress is millionaires angle, check out the Center for Public Integrity.
#12 Posted by Thimbles, CJR on Thu 17 Nov 2011 at 05:32 PM
The interesting thing is how that 50 percent figure has gone up from 6% a year ago.
http://www.mcclatchydc.com/2010/05/03/93358/congress-where-44-percent-are.html
The amount of government help to the economy has gone up since 2007. Perhaps the increased amount of government assistance has improved the accuracy of congress person's portfolio.
Or perhaps the midterm shift brought a slew of 1% politians in.
#13 Posted by Thimbles, CJR on Thu 17 Nov 2011 at 06:43 PM
Padikiller writes: "We have term limits. They're called "elections."
Sir, I would agree EXCEPT: take a look at what it takes to just run for office. I saw a wonderful piece by John Stossel about 2 years ago and he detailed how Congress has written laws for it to become so tough for the average person to run for office. It is insane.
I think if it is good enough for the President to have term limits, it is good enough for Congress. 12 years - 2 terms for a Senator and 6 for a member of the House. I would have no issues if someone did their 12 years in one chamber and then tried to run for another. Also, change the rules and laws back so the average person can run.
A final thought: it is nice to see Padikiller and Thimbles not arguing! :-)
#14 Posted by Serving Soldier, CJR on Fri 18 Nov 2011 at 10:23 AM