18 September 2009

The stock trading advantages of Congressmen

Like corporate executives, they are not allowed to trade on "inside information" regarding company developments - BUT - they are allowed to use their knowledge of pending legislation and other non-public information for their personal profit. Audio discussion (and transcript) at American Public Media's Marketplace, from which I abstracted the following tidbits.
STEVE HENN: A year ago this week Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke dashed to Capitol Hill. They hastily met with a small group of congressional leaders to tell them that the country was teetering on the edge of financial catastrophe...

The next day, according to personal financial disclosures, Boehner cashed out of a fund designed to profit from inflation. Since he sold, it's lost more than half its value.

Sen. Dick Durbin, an Illinois Democrat, who was also at that meeting sold more than $40,000 in mutual funds and reinvested it all with Warren Buffett.

Durbin said like millions of others he was worried about his retirement. Boehner says his stock broker acted alone without even talking to him. Both lawmakers say they didn't benefit from any special tips.

CRAIG HOLMAN: It's called political intelligence.

Craig Holman is at Public Citizen, a consumer watchdog. Holman believes lobbyists shouldn't be allowed to sell tips to hedge funds and members of Congress shouldn't trade on non-public information. But right now it's legal.

HOLMAN: It's absolutely incredible, but the Securities and Exchange Act does not apply to members of Congress, congressional staff or even lobbyists.

That law bans corporate insiders, from executives to their bankers and lawyers, from trading on inside information. But it doesn't apply to political intelligence. That makes this business lucrative. Bagley says firms can charge hedge funds $25,000 a month just to follow a hot issue.

More at the link.

Reddit discussion thread.


  1. Worried about his retirement? C'mon. Senators have really generous retirement, not to mention benefits.

  2. Surprised that they're allowed to do that - an oversight, or conveniently slipped into the law by those that pass the law? ;)

    Its no different to insider trading.


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