It has been nearly a week since 60 Minutes aired its expose on legalized insider trading in Congress, featuring Peter Schweizer and his new book, Throw Them All Out: How Politicians And Their Friends Get Rich Off Insider Trading, Stock Tips, Land Deals and Cronyism That Would Send The Rest of Us to Prison.
Public outrage over this news has spurred some members of Congress to take action. Two bills have been introduced in the Senate to prevent government officials from profiting on nonpublic information gained during the course of doing the peoples' work.On Thursday, House Financial Services Committee Chairman Spencer Bachus agreed to hold a hearing on a House version of the legislation know as the STOCK Act — short for Stop Trading on Congressional Knowledge Act.
Bachus (R-AL) himself is a target in "Throw Them All Out" for shorting the market after privately meeting with Chairman Ben Bernanke and Treasury Secretary Henry Paulson in the wake of the 2008 financial crisis. Sen. Bachus fired back against Schweizer earlier this week: The book has "several major and serious untruths and outright factual errors about me," he wrote in a letter to the publisher.
Other notables who have been cited for profiteering include, Rep. Nancy Pelosi (D-CA), Sen. John Kerry (D-MASS) and House Speaker John Boehner (R-OH). (See: OUTRAGE OF THE DAY: Insider Trading In Congress)
Schweizer, who joined The Daily Ticker's Aaron Task in the accompanying video, does not believe any sort of law banning Congress from trading on inside information will do much good for two reasons: A sense of entitlement on the part of our elected officials and the fact that the SEC does not have the "guts" to enforce such a law.
Congress: The Entitlement State
After speaking with a number of current and former members of Congress on the issue, "the attitude that you get is basically a sense of entitlement or justification," he says.
Apparently because many of them believe it is so difficult to maintain the public servant lifestyle —including multiple homes of at least one in D.C. and one in their home districts — on a public servant's salary, which is upwards of $100,000 a year.
Even if a bill like the STOCK Act should pass, Schweizer does not believe the Securities and Exchange Commission would have the "guts" to go after the hand that feeds it.
Not only is Congress is responsible for the regulatory agency's budget, it also is responsible for confirming the agency's top position.
Throw Them All Out
"It is hard to know" how pervasive insider trading in Congress actually is, Schweizer says, because it is nearly impossible to sift through every financial disclosure of every single member of Congress.
"There certainly are people who don't trade stocks, who don't engage in this activity, but that seems to be more the exception than the rule," says Schweizer. "The fact that they are doing so well and the fact that this is not illegal we have to assume that this is pretty widespread and I think it needs to stop…. It goes to the heart of this issue: Why is it that politicians are able to operate in ways that is illegal for everybody else in the country?"
In fact, he says that many members of Congress outperformed the markets on a regular basis and outperformed the average hedge fund manager as well, giving new meaning to the term 'smart money'. "The fact of the matter is that there are a lot of members of Congress trading a lot of stock and they are doing very, very well," according to Schweizer.
Another study contradicts that claim. Andrew Eggers of Yale University and Jens Hainmueller of MIT examined the stock portfolios of members of Congress between 2004 and 2008 and found the country's representatives "unperformed the market by 2-3% annually" during that period.
But whether elected officials outperform or trail the market is almost beside Schweizer's main point: Insider trading by members of Congress needs to stop.