Freedom New Mexico
Want to get rich? Get elected to the U.S. Congress. Recent revelations show that a lot of members of Congress came to Washington to do good — and stayed to do well. Very well.
The most celebrated case involves Rep. Nancy Pelosi, D-California, the speaker of the House of Representatives from 2007-10 and the current House Democratic leader. A segment of CBS’ “60 Minutes” Sunday reported that she and her husband “have participated in at least eight” initial public offerings of stock, which generally provide lucrative profit opportunities.
“60 Minutes” said that one such IPO came in 2008 from the credit card company Visa, “just as a troublesome piece of legislation that would have hurt credit card companies began making its way through the House. Undisturbed by a potential conflict of interest, the Pelosis purchased 5,000 shares of Visa at the initial price of $44. Two days later it was trading at $64. The credit card legislation never made it to the floor of the House.”
Pelosi’s spokesman, Drew Hamill, denounced the CBS report as “a right-wing smear.” The report did rely partly on a book, “Throw Them All Out,” by Peter Schweizer, an editor at the conservative Breitbart news site. But CBS long has been considered the most liberal TV network. And “60 Minutes” also reported on similar profits made by current House Speaker John Boehner, an Ohio Republican, on health stocks while medical legislation was before Congress.
And in Schweizer’s book, the most egregious example of using insider information for profit involved a conservative Republican, Rep. Spencer Bachus of Alabama, chairman of the House Financial Services Committee. He made “no less than 40 options trades,” the book reports, from July to November 2008, just as the financial crisis stuck America, profiting handsomely from his inside information.
A bill has been introduced in Congress to reduce such deals. It’s HR1148, by Rep. Timothy Walz, D-Minn., and is called the Stop Trading on Congressional Knowledge (STOCK) Act. In the congressional summary, it would “prohibit commodities and securities trading based on nonpublic information relating to Congress, to require additional reporting by Members and employees of Congress of securities transactions, and for other purposes.”
Profiting from insider information is illegal for Wall Street traders. Although theoretically illegal for members of Congress, currently loopholes effectively make it legal.
It’s a complicated matter, Kirk O. Hanson told us; he’s executive director of the Markkula Center for Applied Ethics at Santa Clara University. He said the politicians certainly have an ability to move markets, “but it’s hard to tell when.” For example, if a congressman gives a speech on pharmaceuticals, does that influence markets, or is it just a speech?
He said the choice is between “no standards and Draconian standards.” The latter would put all Congress members’ investments in blind trusts.
“An additional problem is that it’s not just stocks, but all kinds of other investments, such as property and dividends,” Hanson said. “How do you prevent them from buying a house in an area where they know values will increase?”
We’ll keep an eye on HR1148 as it moves through the legislative process. We certainly favor more disclosure of these politicians’ investment actions. In the meantime, voters need to put in place better politicians.
But the bigger problem is the immense influence of government on every aspect of our lives. Smaller government would mean fewer temptations for lawmakers to game the system — and more prosperity and freedom for the rest of us.