It may come as a shock to learn that it is perfectly legal for members of Congress and Congressional staffers to use inside information they may have from their positions to buy and sell stocks. This is completely legal and has been going on for quite a while. This was documented in a UCLA paper published in 2009:
A 2004 study of the results of stock trading by United States Senators during the 1990s found that that senators on average beat the market by 12% a year. In sharp contrast, U.S. households on average underperformed the market by 1.4% a year and even corporate insiders on average beat the market by only about 6% a year during that period. A reasonable inference is that some Senators had access to – and were using – material nonpublic information about the companies in whose stock they trade.
Under current law, it is uncertain whether members of Congress can be held liable for insider trading. The proposed Stop Trading on Congressional Knowledge Act addresses that problem by instructing the Securities and Exchange Commission to adopt rules intended to prohibit such trading.
The New York Times is reporting that this might be about to change:
But in this era of Occupy Wall Street protests and public loathing of Congress, the sentiment toward any nexus between Congress and Wall Street seems to have changed considerably. In the wake of the “60 Minutes” story on Nov. 13, about 90 House members of both parties have been racing to sign on to legislation limiting Congressional trading, which Representative Louise Slaughter, Democrat of New York, has been introducing since 2006 to little effect.
“My colleagues are really starting to understand that light needs to be shed on insider trading and political intelligence which has been creeping into the halls of Congress for years now,” Ms. Slaughter said after the Financial Services Committee agreed to hold a hearing on the measure. “There are 535 of us privileged enough to serve in this Congress, and the fact that any one of us would think to personally profit off the information that’s shared with us upsets me greatly.”
The bill she drafted with Representative Tim Walz, Democrat of Minnesota, would prohibit lawmakers from trading on knowledge gained from their status; prevent them from sharing that information; and establish new requirements for reporting transactions of $1,000 or more within 90 days.
Notice how this bill keeps being introduced and has yet to pass. You can read a Wall Street Journal article from last year about the failure of Congress to prevent its members from cheating the stock market.
How can we expect these people to keep the banks from cheating when they’re too busy cheating themselves?
Tags: congress, corruption, insider trading
