21 Dec 2010 by Jim Fickett.
Members of Congress may legally trade on the basis of knowledge gained in lawmaking. This astonishing conflict of interest seems to attract relatively little complaint from the docile taxpayer.
The record speaks for itself:
From a Cleveland newspaper, in 2009:
Financial disclosure records show that some of [the House] Financial Services Committee members, including Ohio Rep. Charlie Wilson, made bank stock trades on the same day the banks were getting a government bailout from a program Congress approved. The transactions may not have been illegal or against congressional rules, but securities attorneys and congressional watchdog groups say they raise flags about the appearance of conflicts of interest.
In October Ann Woolner at Bloomberg commented:
Your senator learns that a much- maligned weapons system now has enough votes for funding. Before the news gets to a reporter, he buys shares in the arms manufacturer for a quick, handsome profit.
What’s wrong with this picture? Nothing, according to the law. Nor would it be illegal for him to tip someone else, say, his largest campaign contributor. …
This week the Wall Street Journal reported that during the past two calendar years, 72 congressional aides from both parties made trades in companies that their bosses’ help oversee. Among them are top advisers to Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi. Their timely investments proved profitable, but the staffers deny the trades sprung from inside knowledge, the Journal reported. …
Companies stuck in asbestos litigation suddenly saw inexplicably heavy trading and a rise in share price on Nov. 15, 2005. The next day, then-Senate Majority Leader Bill Frist announced a breakthrough on a bill to create a government-backed fund to settle asbestos cases. It turned out that political intelligence firms benefitted from a leak in Frist’s office, Business Week reported the following month.
Note that it is not illegal for a member of Congress to tip off a contributor. And the largest contributions come from the financial industry.
And today this, again from Bloomberg:
Even as members of Congress fail to beat the stock market overall, they excel when buying and selling stocks of local companies, a new study shows.
“They seem to know something that other people don’t know,” said Jens Hainmueller, an assistant professor of political science at the Massachusetts Institute of Technology.
Hainmueller and Yale University post-doctoral fellow Andrew Eggers discovered that when members of Congress bought the stocks of public companies with headquarters in their districts, they exceeded the market by more than 4 percent per year.