Insider trading. Political corruption. These words are used constantly to describe acts in which people find ways to profit from information – either acting on it, as in the caes of the former, or reserving it in the case of the latter. Both are illegal, but what about the information gleaned through the investigation of these acts? CBS’ 60 Minutes explored this question recently. Steve Kroft reports, “members of Congress and their aides have regular access to powerful political intelligence, and many have made well-timed stock market trades in the very industries they regulate. For now, the practice is perfectly legal, but some say it’s time for the law to change.”
The Insider Advantages of Being a Congressman
Congressmen make just $174,000 a year. Considering the large amounts of money required to run, sometimes in the millions, being a Congressman is more about helping the people, personal prestige or power. According to 60 Minutes, “the opportunity to become a Washington insider with access to information and connections that no one else has, in an environment of privilege where rules that govern the rest of the country, don’t always apply to them,” may also factor in and could be the reason, “Most former congressmen and senators manage to leave Washington – if they ever leave Washington – with more money in their pockets than they had when they arrived.” How? By leveraging their positions.
Peter Schweizer Explains the ‘Soft Grafts’ That Make Many Congressmen Rich Beyond Their Salaries
Peter Schweizer, a fellow at the Hoover Institution, wondered the same thing – specifically, “he wanted to know why some congressmen and senators managed to accumulate significant wealth beyond their salaries, and proved particularly adept at buying and selling stocks.” After a year of research, which 60 Minutes verified, Schweizer found several types “of honest grafts that congressmen engage in that allow them to become very, very wealthy.” This is the example Schweizer used, “The fact is, if you sit on a healthcare committee and you know that Medicare, for example, is– is considering not reimbursing for a certain drug that’s market moving information. And if you can trade stock on– off of that information and do so legally, that’s a great profit making opportunity.” Schweizer explained to 60 Minutes that Congress gets a pass on this bceause of ” the way the rules have been defined.”
Congressmen Get a ‘Pass’ on Insider Trading
The fact is that “Congressional lawmakers have no corporate responsibilities and have long been considered exempt from insider trading laws, even though they have daily access to non-public information and plenty of opportunities to trade on it.” Schweizer noted, “during the healthcare debate people were trading healthcare stocks. We know that during the financial crisis of 2008 they were getting out of the market before the rest of America really knew what was going on.” The meetings would be so secret that Fed Reserve Chief Ben Bernanke required cellphones confiscated, yet, the very next day, people like Alabama Representative Spencer Bachus were “buying option funds that would go up in value if the market went down.” In the case of Representative Bacchus, 60 Minutes reports that when they asked about Bacchus’ trades, “What we got was a statement from Congressman Bachus’ office that he never trades on non-public information, or financial services stock. However, his financial disclosure forms seem to indicate otherwise. Bachus made money trading General Electric stock during the crisis, and a third of GE’s business is in financial services.”
