Congress: Trading stock on inside information?

http://www.cbsnews.com/8301-18560_162-57323527/congress-trading-stock-on-inside-information/

by espeed • 15 years ago

189 75 15 years ago

cbsnews.com

smhinsey• 15 years ago

We had a government of laws, not of men. Now we have a government of men and honest graft.

Duff7• 15 years ago

I've become something of a political cynic at this point in my life. Stories like this usually leave me unmoved.

But this particular story has left almost shaking in anger -- this is more than graft. Our government will persecute all sorts of people for inane things. Hell, Pete Rose was investigated and prosecuted because he bet against his team. And yet we have a system where the Congressman responsible for oversight of a hydra like the financial services industry can get rich betting against America? This is disgusting.

thret• 15 years ago

It's wrong and the laws should be changed, but you cannot expect people to avoid legally pursuing their own self-interest out of their own high morals. They are politicians after all.

It's disgusting that anyone should be treated differently by the law because of their status.

numlocked• 15 years ago

Slightly off-topic, but an important correction: Pete Rose actually bet on his team to win, not against his team. It makes your point even stronger - he didn't have a conflict of interest.

Duff7• 15 years ago

Good catch!

billpatrianakos• 15 years ago

Really? They get the awesome health care, they can't be charged with insider trading... since when did our elected officials rise above the law? These people are supposed to represent me yet they're far removed from mine, yours, and most everyone else's reality.

My mother works as a sales assistant to a well known broker at Morgan Stanley and she isn't allowed to trade for her own account or even have an account there yet these public officials who are known to hob-knob with people who are in the know get to trade as they please using any information they stumble across?

Come on now. There should be one set of rules here but I see two: one set for me and another set for those who are supposed to represent me. Disgusting.

stretchwithme8• 15 years ago

Perhaps part of the problem is that you cannot select who represents you.

You can pick your lawyer and he has to do what you say. Same with your plumber.

But you have only two choices for your representative, selected by others and both will ignore you and their promises once they get in. There's something very wrong with that.

Of course, the real problem is the break down of the federal arrangement. Power is way more concentrated than the founders intended.

rayiner4• 15 years ago

> Power is way more concentrated than the founders intended.

I'm not sure this is anything more than technically true.

It's easy to forget that the Constitution actually created a very powerful central government for its day. The Federalists, at least, envisioned the Constitution as giving Congress sweeping powers over inter-state economic activity, foreign relations, etc.

The difference between then and now is that most human activity at the time of the writing of the Constitution was strictly local. You grew your own food, died where you were born, etc.

What has happened today is not so much Congress extending its power closer to our day to day activities, but our day to day activities coming closer to the reach of Congress. Nearly every thing today involves a market transaction, often an inter-state one. If you asked one of the founders whether a purchase of a product produced with components from multiple states, in a transaction involving multiple multi-national corporations at the point of sale, was within the scope of Congressional power over commerce, the answer would likely be "well if such activity isn't within its scope, what is?" Yet that is precisely the transaction that would occur if I were to go downstairs and buy a Snickers bar from the VISA-enabled vending machine.

If you lived today on a farm, self-sufficient, perhaps trading with other self-sufficient people, like it was 1789, I don't think you'd notice much difference in Congress's power over you. You'd have to file a yearly tax return, but the Tax Code doesn't tax self-created value so you wouldn't pay much if anything in taxes. You wouldn't be paying into social security, etc. You wouldn't be using health care services, so that would all be inapplicable. The biggest burden on you would be the collection of state property taxes, just the same as it would've been in 1789.

dkokelley3• 15 years ago

The issue really became one of scaling democracy. 200 years ago our congress was much closer to the citizens because there were so few citizens per elected official. An increasing population could not easily be represented by an increasing number of delegates, so each one had to represent more people. Representing the desires of a few thousand people is fairly simple, and there is less voter 'inertia' to carry delegates if they fail to adequately represent the people.

Let's just say for the sake of argument that a typical congressman can fairly represent 20,000 people. This gives them the ability to hear the issues of those people, and a group that size can pick a representative who is close to those issues. Given congresses current size the limit of effective government is about 10,000,000 people (or perhaps just voters). To represent the United States, congress would need to have 15,000 members. As it currently stands, each member of congress represents on average 560,000 people. I'm not proposing any solutions here. I just want to illustrate what I believe to be a key issue with our democratic republic.

einhverfr4• 15 years ago

The Old Icelandic system was interesting. Those who were lawmakers and representatives were fixed , and they could buy/sell their positions. However, you could choose who your lawmaker/representative was from any that were there.

masklinn• 15 years ago

> since when did our elected officials rise above the law?

Since the first article of the United States Constitution, Section 6 Clause 1?

> [The Senators and Representatives] shall in all Cases, except Treason, Felony and Breach of the Peace, be privileged from Arrest during their Attendance at the Session of their respective Houses, and in going to and returning from the same; and for any Speech or Debate in either House, they shall not be questioned in any other Place.

This makes it very tricky to try house members for any reason at all. As a result, few try as it's so hard to handle in court.

cma• 15 years ago

It's also illegal to lie to the government, but not illegal for the government to lie to us:

http://www.overcomingbias.com/2011/09/we-ban-lies-to-officia...

dman2• 15 years ago

Ive wondered recently if one can invoke the fifth amendment to avoid all interaction with a government official because the potential to unintentionally lie to the official is always present.

Duff7• 15 years ago

My layman's understanding is that you cannot invoke the 5th amendment in many circumstances where you might want to. The Supreme Court has also ruled that an adverse inference may be taken if you assert your 5th amendment right.

The safest way to get more time to answer a question is to refer the questioner to counsel.

espeed2• 15 years ago

Peter Schweizer's (http://www.hoover.org/fellows/9706) research at the Stanford Hoover Institution was the catalyst for this report.

jrockway• 15 years ago

Of course, if you watch their trades, the information becomes public, and you can get in too.

pmorici• 15 years ago

I doubt it. The example of getting preferential access to stock market IPOs wouldn't be able to be acted upon by the general public. Also several of the examples cite timing between a trade and the price moving event as a few days. Usually financial discloser reports are only made on a yearly basis and if you go to the congressional website http://clerk.house.gov/public_disc/financial-search.aspx there is a disclaimer saying that the use of the information for commercial purposes is illegal.

matwood2• 15 years ago

The problem is, according to 60 minutes, government officials only have to disclose their trades once/year. A couple in congress have tried to change the law to quarterly but of course that goes nowhere.

Even if we change disclosure laws to zero day (haha, good chance) it still doesn't fix the obvious bribing with IPOs. The fact that it isn't legally a bribe is laughable.

dman2• 15 years ago

Are their trades available to watch in realtime?

aaronbrethorst• 15 years ago

He's also the author of a book with the subtitle: "Why conservatives work harder, feel happier, have closer families, take fewer drugs, give more generously, value honesty more, are less materialistic and envious, whine less … and even hug their children more than liberals." (http://en.wikipedia.org/wiki/Makers_and_Takers).

mahmud• 15 years ago

Ok, that's an even longer, harder and more arrogant-er subtitle than Kanye West's upcoming autobiography.

_delirium• 15 years ago

I sometimes wonder how much of the contemporary non-fiction publishing industry is based on 1980s/90s trolling. Is adequacy.org used as a case-study? They've even perfected the art of the paired troll, where you publish two un-nuanced books taking opposite inflammatory positions, which feed on each other, driving sales of both.

orijing• 15 years ago

Another interesting point is that Congress can actually influence outcomes. For example, if you (the congressperson) have a lot of cash invested in the defense department, you'd likely push for as much defense spending as possible, even if it it's against the best interests of the nation.

I think it's time to end that. Public officials should not be able to influence their financial portfolio. At the very least, every trade, investment, position by an elected official should be made public so that we are aware of what we're voting for: Not a representative of ourselves, but of industry and their pockets.

espeed2• 15 years ago

You can make as much on a financial crisis as you can a bull market if you know in advance or can influence it -- this is a key component in the "Great American Bubble Machine" (http://www.rollingstone.com/politics/news/the-great-american...).

andrewfelix2• 15 years ago

That is f*ing remarkable. In Australia there are strict rules governing conflict of interest. If there is even a hint of someone gaining financial benefit through their position they are hounded by the press and their political opposition. Of course parliamentarians find other ways to make money such as fake tenders. But it isn't as flagrant as this.

I really feel for you guys over in the US. These are your representatives...they sound like mafioso.

wallflower• 15 years ago

One thing about corruption in some Asian countries: they give up the pretense of separating politics from business.

For example, when I visited Bangkok, I read in the local paper about the Minister of Telecom who also happened to be the owner of the largest telecom interest in Thailand.

In Western countries, we seem to cling to a standard that politics and business can be caissoned off. I do not know if this is better but more transparency never hurts.

matwood2• 15 years ago

Reminds of the zerohedge disclosure statement.

http://www.zerohedge.com/content/zero-hedge-conflictsfull-di...

It's long, but the most important line:

The reality is, critical readers should read analytic posts and the rest of Zero Hedge with the blanket assumption that the author is totally "conflicted."

andrewfelix2• 15 years ago

If regulated properly it isn't entirely a pretense. Regulation isn't 100% effective, but it can make a huge difference.

Bangkok probably isn't the best example of a transparent and corruption free economy.

einhverfr4• 15 years ago

And all their stock trades should be public, in real time!

Or better yet, make them announce all trades an hour in advance!

cpeterso2• 15 years ago

I think politicians should only be able to hold investments in diversified US stock index funds, like the S&P 500. This avoids conflict of interest involving individual companies (and telegraphs that they "believe in America").

If a US politician's portfolio was 100% invested in international stock funds, I would like to know!

isamuel• 15 years ago

I don't really understand why insider trading is illegal in the first place (it makes the market more efficient, and no one is defrauded) but it does seem weird to make it legal only for a certain class of favored people. The right answer, though, is to just legalize it.

stretchwithme8• 15 years ago

Its only illegal for people that don't know how to wink.

Dove2• 15 years ago

It's insider trading because the information that motivates it isn't public. It's like selling someone a work animal that you (but not they) know has a fatal disease. It's not literally fraud, but it smells the same.

I think of the market as a medium for transmitting and storing information about how much people value things. It has incredible bandwidth and storage capacity, but its latency is not always the best. Anyone proposing a replacement for a market (in anything!) needs to have respect for the incredible volume of information they're seeking to replace, but the market is not the best tool for everything.

I think this is one of those degenerate cases where the latency kills you. Specifically, the time it takes to go from "some people know this company is in trouble" to "everyone knows it" is way too long when the market is the medium of transmission. Lots of people can be ruined in the mean time.

jarek• 15 years ago

I'm sure all publicly listed companies will be thrilled to see material secret information central to their business openly traded to highest bidder under your scenario. Who wouldn't want to know exactly how many CPUs Intel sold yesterday and intends to sell tomorrow?

edit 1 hr later: Now, a dilemma: do I blame the Apple fanboys or the Android fanboys for these downvotes? HN hive mind, please advise.

brown9-2• 15 years ago

The person on the other side of the trade is defrauded.

anamax2• 15 years ago

Actually, lots of people and companies can legally trade on non-public information. See http://en.wikipedia.org/wiki/Insider_trading For example, it's not clear that Google can't trade stock based on what it observes its customers doing, even though that information is not public.

That said, Congress-critters are in a very different position. They're writing the rules. And, they keep claiming to be "public servants", so their use of non-public information should be at least as restricted as employees.

sixtofour• 15 years ago

I'm fine with it, but only if they reveal the information to the rest of us. We should be able to trade on the same information. Very roughly based on the idea that government information is public domain. <harumph />

baddox• 15 years ago

That's not really surprising, considering that essentially every power of government is something that would be illegal for anyone else to do. Just a few examples: withholding money from your paycheck, trapping you in a metal cage, annexing your property for a "better cause," and printing cash.

ahallock• 15 years ago

Exactly. It's the biggest and most successful ruse ever employed: creating an exception for yourself on what should otherwise be universally accepted moral rules.

ecdavis• 15 years ago

The things you have listed are all powers that can only be exercised by the government, not by individual legislators. There is a significant difference between giving power to government and giving power to the individuals that form the government. The former - though the amount of power may be debatable - gives purpose to the government. The latter, on the other hand, is probably one of the most poisonous influences on a democracy.

nknight2• 15 years ago

Article 1 of the US Constitution:

"[Senators and Representatives] shall in all Cases, except Treason, Felony and Breach of the Peace, be privileged from Arrest during their Attendance at the Session of their respective Houses, and in going to and returning from the same; and for any Speech or Debate in either House, they shall not be questioned in any other Place."

This passage has an incredibly long and complex history behind it and implicates ancient rights and privileges beyond its literal text dating back to the earliest days of Parliament that are too complex to describe in detail here, but people need to realize that it does exist, it exists for a reason, and it has implications for attempts to restrict "insider trading" by members of Congress.

Even bribery statutes can come into conflict with the Congressional privilege, and some prosecutions that probably should be brought never will be because it becomes such a close call in court.

This particular problem can and should be fixed, probably by requiring a blind trust, but people need to realize that such legislation is getting into an area that's much more complex than simply "they shouldn't personally profit from their privileged position" -- few would argue with the principle, but all should be cautious that we don't end up with laws that risk partisan prosecutions for legitimate political activity.

einhverfr4• 15 years ago

That doesn't mean they can't be arrested and charged with crimes they commit while in office, as long as the arrest and trial occurs after they leave, does it? Indeed they could even be charged in between sessions, couldn't they?

nknight2• 15 years ago

The point isn't the "arrest" part (which doesn't mean what you think, actually -- they can, in fact, be arrested and charged for serious crimes while serving, and have been), it's the totality of the clause and its history, which acts to protect and caution against the criminalization or suppression of political activity.

It's not a straightjacket, but more a statement of principle and warning shot.

Edit: By the way, see http://en.wikipedia.org/wiki/Parliamentary_privilege

linuxhansl• 15 years ago

This is a very important rule that facilitates the separation of the three powers: executive, legislature, and judiciary.

The idea is that if one institution or person has any two of these power it can "take over the country".

Executive and judiciary: Enforce your own court orders. Executive and legislature: Enforce your own laws. Legislature and judiciary: Enforce your own laws (through the courts this time).

That is why members of congress cannot be arrested. That is actually the same in most democracies.

Ultimately this does not apply here, though, as (1) congress can remove other member from congress and (2) prosecution and arrest can start as soon as the person is no longer member of congress.

Edit: Spelling

Duff7• 15 years ago

The issue here isn't this particular problem. The insider trading problem is just a particularly egregious example of how modern American government holds many of the fundamental founding principles of the nation in contempt.

I respect the need for our representatives to be able to speak their mind and vote their conscience without fear of intimidation by some tyrant in the executive or judiciary. But according to the byzantine code of law enacted by Congress and based on statements made in the 60 Minutes report, every member of congress mentioned in this article likely committed one or more felonious acts.

Who watches the watchers? The rules of the House of Representatives and Senate need to address issues such as this. Widespread corruption of this nature, extending into the leadership of the Congress brings the integrity of the United States government into question.

chernevik• 15 years ago

_You_ watch the watchers. The best reason for a simpler, smaller government is the ability to see what it's doing, and for whom.

danbmil99• 15 years ago

What should happen at the very least is they should be required to disclose publicly exactly what investments they have made.

Also, while they may be immune from prosecution, it should be considered an ethical violation to fail to disclose if you have a financial interest in pending legislation, and/or to be profiting in a way that would be considered illegal in another context.

derekreed• 15 years ago

"some say it's time for the law to change".

lol, "some say", just "some", really?

Dove2• 15 years ago

You know how people get really outraged -- not just morally, but legally! -- about things that might maybe possibly be discrimination?

I wish they felt the same way about corruption.

I wonder if someone could write a meme for that.

sudonim• 15 years ago

Here are a couple of studies from 2004 and 2011 by the same group of researchers showing congress and the house of representatives outperforming the market.

http://robinson.gsu.edu/news/04/senators.html

http://www.bepress.com/bap/vol13/iss1/art4/

teyc• 15 years ago

Someone should set up a hedge fund to track that.

mathattack• 15 years ago

True. And their stock trading performance bears this out. Very sickening.

adammichaelc• 15 years ago

When is CBS going to fix their broken web technology so that I can read their site on the iPhone?

wavephorm• 15 years ago

As an outsider to US politics I hear nothing but absurdities from what is supposed to be the shining example what a true democratic society is supposed to be. Instead what we see is a deep rooted system of hypocracy and corruption that trancends the only two political parties capable of being elected and a support system fueled by a propaganda machine that would make Hitler spit up his milk.

Duff7• 15 years ago

Democracy is messy, and everyone has dirty laundry.

rdtsc• 15 years ago

Wouldn't this information eventually be diluted into the market if ETFs are created to effectively track congressmen's picks?

tzs• 15 years ago

Anyone know how to get at whatever this is supposed to be from an iPad? The site is putting up one of those "download our useless app" pages, and doesn't have any apparent way to get past that.

jamesbressi• 15 years ago

tl;dr

"The buying and selling of stock by corporate insiders who have access to non-public information that could affect the stock price can be a criminal offense, just ask hedge fund manager Raj Rajaratnam who recently got 11 years in prison for doing it. But, 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."

anamax2• 15 years ago

The big economic information advantage of being in congress is not so much wrt trading stocks in public companies, but in private investments.

Congress: Trading stock on inside information?

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