People are finally beginning to understand how our elected officials are benefiting from a system of “legalized graft” in the form of campaign contributions. Voters have seen so many politicians breach their campaign promises while providing new meaning to the expression “follow the money”, that there now seems to be a resigned acceptance that political payoffs are an uncomfortable fact of life. Worse yet, most people aren’t aware of another loophole in the law allowing Congress-cretins to make real money.
On January 26, 2009, Congressman Brian Baird introduced H.R.682, the “Stop Trading on Congressional Knowledge Act” (STOCK Act). The bill was intended to resolve the situation concerning one of the more sleazy “perks” of serving in Congress. As it presently stands, the law prohibiting “insider trading” (e.g. acting on confidential corporate information when making a transaction involving that company’s publicly-traded stock) does not apply to members of Congress. Remember how Martha Stewart went to prison? Well, if she had been representing Connecticut in Congress, she might have been able to interpose the defense that she was inspired to sell her ImClone stock based on information she acquired in the exercise of her official duties. In that scenario, Ms. Stewart’s sale of the ImClone stock would have been entirely legal. That’s because the laws which apply to you and I do not apply to those in Congress. Needless to say, within six months of its introduction, H.R.682 was referred to the Subcommittee on the Constitution, Civil Rights, and Civil Liberties where it died of neglect. Since that time, there have been no further efforts to propose similar legislation.
Here is a summary of the most important provisions of the “Stop Trading on Congressional Knowledge Act”:
Amends the Securities Exchange Act of 1934 and the Commodities Exchange Act to direct both the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) to prohibit purchase or sale of either securities or commodities for future delivery by a person in possession of material nonpublic information regarding pending or prospective legislative action if the information was obtained: (1) knowingly from a Member or employee of Congress; (2) by reason of being a Member or employee of Congress; and (3) other federal employees.
Amends the Code of Official Conduct of the Rules of the House of Representatives to prohibit designated House personnel from disclosing material nonpublic information relating to any pending or prospective legislative action relating to either securities of a publicly-traded company or a commodity if such personnel has reason to believe that the information will be used to buy or sell the securities or commodity based on such information.
Back in September of 2009, a report by American Public Media’s Steve Henn discussed the investment transactions made by some Senators in September of 2008, after having been informed by former Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke, that our financial system was on the verge of a meltdown. After quoting then GOP House Minority Leader John Boehner’s public acknowledgement that:
We clearly have an unprecedented crisis in our financial system. . . .
On behalf of the American people our job is to put our partisan differences aside and to work together to help solve this crisis.
Mr. Henn proceeded to explain how swift Senatorial action resulted in a bipartisan exercise of greed:
The next day, according to personal financial disclosures, Boehner cashed out of a fund designed to profit from inflation. Since he sold, it’s lost more than half its value.
Sen. Dick Durbin, an Illinois Democrat, who was also at that meeting sold more than $40,000 in mutual funds and reinvested it all with Warren Buffett.
Durbin said like millions of others he was worried about his retirement. Boehner says his stock broker acted alone without even talking to him. Both lawmakers say they didn’t benefit from any special tips.
But over time members of Congress do much better than the rest of us when playing the stock market.
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The value of information that flows from the inner workings of Washington isn’t lost on Wall Street professionals.
Michael Bagley is a former congressional staffer who now runs the OSINT Group. Bagley sells access and research. His clients are hedge funds, and he makes it his business to mine Congress and the rest of Washington for tips.
MICHAEL Bagley: The power center of finance has moved from Wall Street to Washington.
His firm is just one recent entry into Washington’s newest growth industry.
CRAIG HOLMAN: It’s called political intelligence.
Craig Holman is at Public Citizen, a consumer watchdog. Holman believes lobbyists shouldn’t be allowed to sell tips to hedge funds and members of Congress shouldn’t trade on non-public information. But right now it’s legal.
HOLMAN: It’s absolutely incredible, but the Securities and Exchange Act does not apply to members of Congress, congressional staff or even lobbyists.
That law bans corporate insiders, from executives to their bankers and lawyers, from trading on inside information. But it doesn’t apply to political intelligence. That makes this business lucrative. Bagley says firms can charge hedge funds $25,000 a month just to follow a hot issue.
BAGLEY: So information is a commodity in Washington.
Inside information on dozens of issues, from bank capitol requirements to new student loan rules, can move markets. Consumer advocate Craig Holman is backing a bill called the STOCK Act. Introduced in the House, it would force political-intelligence firms to disclose their clients and it would ban lawmakers, staffers, and lobbyists from profiting on non-public knowledge.
Mr. Henn’s report went on to raise concern over the fact that there is nothing to stop members of Congress from acting on such information to the detriment of their constituents in favor of their own portfolios.
Take a look at the list below from opensecrets.org concerning the wealthiest members of Congress. In light of the fact that these knaves are able to trade on “inside information” you now have the answer to the following question from the opensecrets website:
Congressional members’ personal wealth keeps expanding year after year, typically at rates well beyond inflation and any tax increases. The same cannot be said for most Americans. Are your representatives getting rich in Congress and, if so, how?
Here is the Top Ten List of the Richest Members of Congress from opensecrets.org:
NAME MINIMUM NET WORTH AVERAGE MAXIMUM NET WORTH
Darrell Issa (R-Calif) $156,050,022 $303,575,011 $451,100,000
Jane Harman (D-Calif) $151,480,522 $293,454,761 $435,429,001
John Kerry (D-Mass) $182,755,534 $238,812,296 $294,869,059
Mark Warner (D-Va) $65,692,210 $174,385,102 $283,077,995
Jared Polis (D-Colo) $36,694,140 $160,909,068 $285,123,996
Herb Kohl (D-Wis) $89,358,027 $160,302,011 $231,245,995
Vernon Buchanan (R-Fla)$-69,434,661 $148,373,160 $366,180,982
Michael McCaul (R-Texas) $73,685,086 $137,611,043 $201,537,000
Jay Rockefeller (D-WVa) $61,446,018 $98,832,010 $136,218,002
Dianne Feinstein (D-Calif) $46,055,250 $77,082,134 $108,109,018
Jay Rockefeller’s position on the list is easy to understand, given the fact that he is the great-grandson of John D. Rockefeller. How the first eight people on the list were able to become more wealthy than Jay Rockefeller should be matter of interest to the voting public. In the case of #10 — California Senator Dianne Feinstein — we have an interesting situation. As chair of the Senate Military Construction Appropriations subcommittee, she helped her husband, Iraq war profiteer Richard C. Blum, benefit from decisions she made as chair of that subcommittee. In an article for bohemian.com, Peter Byrne discussed how Senator Feinstein was routinely informed about specific federal projects coming before her in which one of her husband’s businesses had a stake. As Byrne’s article explained, the inside information Feinstein received was intended to help the senator avoid conflicts of interest, although it had the effect of exacerbating such conflicts.
“Inside information” empowers the party in possession of that knowledge with something known as “information asymmetry”, allowing that person to take advantage of (or steal from) the less-informed person on the other side of the trade. Because membership in Congress includes a license to steal, can we ever expect those same individuals to surrender those licenses? Well, if they were honest . . .