Insider Trading
Rules That Don’t Apply To Congress
Forbes
Kyle Smith
June 1 2011
We have long observed and wondered; how
it is that
This perk over time is worth tens of
millions per Senator or House Member as these are the folks not only write
legislation that affects manufacturing, importation, mining, fishing, farming,
communications, and general commerce – (These then appear to have experts
somewhere in this mix that then advise them on stock and commodity trading) so they
can clean up by positioning themselves in Stocks, Bonds, and the Mercantile Exchange
before anyone else knows what is contained in their thousand page legislative
bills and regulatory laws.
Example: When Hillary Clinton took 10,000
and proceeded to make 100,000 dollars admittedly with no experience whatsoever
in a matter of weeks.
Example: IPO’s we have read of Senators and House Members
having first dibs on IPO offerings which in some cases were IPO’s that were not
open for purchase by the general public.
In the past economic crash that involved
the housing bubble, the banking and the insurance industries one wonders how
many millions were vacuumed up by Senate and House members by selling short (Shorting)
their holdings of companies that they knew in advance of the public who were in
deep financial trouble.
We see here that Senator’s and House
Members via the SEC and over the transom information in the form of bribes can
with impunity buy and trade stocks bonds and commodities.
We
also strongly believe also that Senator’s and House Members have access to speculative
land and housing deals where they can likewise enrich their investment portfolios,
we are thinking in the area of royalties on land what contains oil, natural gas
or minerals. Where you buy worthless
rural land and make a killing by beforehand knowing a mine, oil
company or economic package is coming down the pike that will vastly
drive these land holdings up.
Laughably on the other side of Senate and House Member business we
are well aware of the tomes of law and regulations that have been written concerning
political donations and gifts in order to give these men and women the face of
propriety and honesty to the blind general voting public. Ouch!
You want strict ethics rules? Start at the top
— with the shining example of the noble knights of the House of
Representatives, which bans all gifts from lobbyists and imposes a $50 limit on
gifts from anyone else. And no, you can’t give an infinite number of $49 gifts
to Larry Lawmaker. Sayeth the holy rulebook.
The general provision goes on to state that a
member, officer or employee may accept from any other source virtually any gift
valued below $50, with a limitation of less than $100 in gifts from any single
source in a calendar year. Gifts having a value of less than $10 do not
count toward the annual limit.
Okay, so maybe you can give an infinite number
of $9.99 gifts, and meals are specifically designated as such. Feel free to
make your case to Rep. Portentous over a daily lunch at Arby’s. But still:
pretty tight rules, eh?
Except that one thing you can do as a member
is study pending legislation and regulatory changes, call up your broker and
instruct him to trade on that nonpublic information. Do this
as often as you want; you will suffer no penalty. There is no limit to how much
money you can earn on insider trading in the House or Senate. Lawmakers and
their staffers are specifically exempted.
As you might expect,
those who work in the hallowed halls are not shy about availing themselves of
the opportunity. A Wall Street Journal analysis published more than six months ago
that has thus far provoked no particular sense of shame on Capitol Hill found
that at least 72 Congressional aides in both parties had recently traded shares
of companies that their bosses helped regulate. In 2009, while Senate Banking
Committee member Mike Crapo, a Republican from Idaho, was involved in
discussing “stress tests” on banks such as Bank of America, his
aide Karen Brown traded the company’s stock on several occasions in the weeks
before May 7, 2009 — when BofA surged thanks to a
press release on its stress-test result, assuring Ms. Brown a nifty profit.
Asked by the Wall Street Journal to explain, Sen. Crapo’s office said
the trades weren’t really made by Karen Brown but by her husband, who had no
knowledge of what was going on in the banking committee. Would you go to your
compliance officer, much less the SEC, with that line? True, these folks do
need a good laugh now and again, and the SEC has to be in a jolly mood after
the jury in the Galleon case all but repeated the verdict from The Producers:
“We find the defendants incredibly guilty.”
Last week a study of some 16,000 stock transactions
carried out by House members was published in the journal Business and Politics. This detailed
analysis showed that the investment portfolios of House members beat the market
by about six points a year. (Democrats did especially well, outperforming by
some nine points a year, while Republicans topped the average investor by only two percent annually.)
Senators apparently do even better: “their portfolios show some of the highest
excess returns ever recorded over a long period of time, significantly
outperforming even hedge fund managers,” noted the journal, citing a previously
published study.
In a surprising twist, the study found that
there tended to be an inverse relationship between the lawmaker’s seniority and
the insider-trading profits pocketed by him and his minions. The authors
speculated that “Whereas Representatives with the longest seniority (in this
case more than 16 years), have no trouble raising funds for campaigns, junkets
and whatever other causes they may deem desirable owed to the power they wield,
the financial condition of a freshman Congressman is far more precarious. His
or her position is by no means secure, financially or otherwise. House Members
with the least seniority may have fewer opportunities to trade on privileged
information, but they may be the most highly motivated to do so when the
opportunities arise.”
Doesn’t that give you a cozy feeling, knowing
that nonpublic securities info is helping make your friendly local politician
more secure as he daydreams new ways to prevent, limit, or appropriate for his
own reelection purposes – sorry, the needs of the Republic!– your financial
success?
It’s not an accident that Congressionalites
are expressly exempt from insider-trading laws. The reasoning is that, were the
situation otherwise, “it might tend to “insulate a legislator from the personal
and economic interests that his/her constituency, or society in general, has in
governmental decisions and policy,” says the House ethics manual.
This is entirely beside the point: no one
would object if lawmakers placed their assets in ETFs,
in which case they’d still have an interest in the overall performance of the
market. Or why not be simple and allow Congressional trading on everything
except nonpublic information?
In what must be treated as more of a practical
joke than a serious effort at legislation, every so often a group of lawmakers
typically numbering in the high single digits proposes that Congress be
subjected to the same insider-trading laws as you or me. Said proposal is
always swiftly ignored — it has yet to reach the House floor and hasn’t even
been bandied in the Senate. Then everyone goes out to their Spartan lunches of
baloney and Cheez Curls, comfortable in the knowledge
that they have improved on the Golden Rule: He who makes the rules pockets the
gold.