You would think members of Congress would realize, on their own, that trading stocks based on inside political information they may possess is wrong. But it turns out they may indeed need a law to telll them so. Ever since 60 Minutes exposed the ways in which some lawmakers, and their staffers, have profited based on privileged insider knowledge, the public has clamored for action. (See: OUTRAGE OF THE DAY: Insider Trading In Congress)
President Obama heeded those cries in his State of the Union Address in January.
"I've talked tonight about the deficit of trust between Main Street and Wall Street. But the divide between this city and the rest of the country is at least as bad — and it seems to get worse every year," Obama said. "Send me a bill that bans insider trading by Members of Congress, and I will sign it tomorrow. Let's limit any elected official from owning stocks in industries they impact. Let's make sure people who bundle campaign contributions for Congress can't lobby Congress, and vice versa — an idea that has bipartisan support, at least outside of Washington."
Earmarks are another prime example of how politicians can wield their influence for personal gain. The Washington Post on Tuesday published the results of a comprehensive investigation into pork-barrel spending on infrastructure projects that conveniently took place close to property that Congressional members own.
"Thirty-three members of Congress have directed more than $300 million in earmarks and other spending provisions to dozens of public projects that are next to or within about two miles of the lawmakers' own property," reports the Washington Post. (View the full results of the Post investigation.)
The STOCK Act
In a rare example of Congress responding with alacrity to a call from the president, the Stop Trading on Congressional Knowledge (STOCK) Act has been moving its way quickly through Congress. The Senate passed the bill in a sweeping 96 to 3 bipartisan vote last Thursday. The House is working to take up the legislation this week but has pledged to strengthen the version passed by the Senate. (The text of the STOCK Act can be seen here)
"Members of Congress want to keep their jobs, so that is why I think the vote was so lop-sided," says Peter Schweizer, author of Throw Them All Out who was featured in the CBS 60 Minutes interview. He joined The Daily Ticker's Daniel Gross to discuss the bill, which "by no means is perfect."
In its current form the Senate's version of law does the following:
#1 Makes insider trading illegal: "It says that it is a federal crime to use congressional inside information to trade on stocks to gain an informational advantage," says Schweizer, a fellow at the Hoover Institution. "There would be penalties for that for congressmen but also for their staff members."
#2 Changes financial reporting requirement: "Right now they only have to report their finances — that is their assets and their trades — once a year and they only do it on paper," he says. "The STOCK Act says they now need to report every 90 days, rather than just once a year."
#3 Regulates political intelligence: "It would regulate the people who collect political intelligence" and then sell it to the financial community, says Schwiezer.
The three regulations above have Washington spinning, but the last point has caused the most uproar from political insiders. The provision introduced by Sen. Chuck Grassley (R-Iowa) would require those who collect political intelligence to register in a similar manner as lobbyists.
But the bill overlooks several items Schweizer believes are necessary. "It does not deal with options trading, it does not deal with members of Congress who get these sweetheart IPO deals and it doesn't deal with land deals and other forms of enrichment," says Schweizer. It is hard to know how pervasive this issue is "but [the bill] is a first-step forward and I think there are other steps we need to take to make sure this practice ends completely."
Do you support the STOCK Act? Tell us what you think!