The Freak Show: Our Corrupt Congress Hal B. Selzer November 22, 2011 Columns 2 A shocking number of revelations have come to light recently revealing a total lack of ethics on the part of many members of Congress. They have been taking part in activities that would be considered illegal if done by anyone else, using information they are privy to concerning corporations that is not available to the public, to engage in stock trades that have made them millions. Jack Abramoff has been doing interviews concerning his new book, Capitol Punishment: The Hard Truth About Washington Corruption From America’s Most Notorious Lobbyist. In it, he details examples of insider trading, and the bragging about it he heard from members of Congress. Before you say that might be the vitriol of a lobbyist himself convicted of corruption, his story jives with a recent 60 Minutes story about the problem, as well as a radio show on American Public Media that looked at two cases of suspicious financial activity that took place during the initial days of the financial crisis back in September of 2008, and a 2004 study in the Journal of Financial and Quantitative Analysis titled “Abnormal Returns from the Common Stock Investments of the U.S. Senate.” The 60 Minutes piece showed that the issue is actually ingrained in the system, and has been going on for a long time. Their report was based on 16 years of analysis by an academic group led by Alan Ziobrowski, a professor of finance at Georgia State University. In summarizing the results, Ziobrowski stated, “The bottom line was that they considerably beat the market. In academic finance, we consider that to be prima facie evidence of insider trading. They were even better than corporate insiders at it. Senators were the best and even outperformed hedge fund managers.” The trading has been done by members of both parties, and is especially evident among the members of committees that are assigned to work in specific areas, where they would get the most sensitive information. One outrageous example was cited in a book called Throw Them All Out by Peter Schweizer, concerning Representative Spencer Bachus of Alabama. Rep. Bachus is a ranking member of the House Financial Services Committee. The account of his actions begins in 2008, just as the financial crisis was starting. Bachus received a private briefing for congressional leaders by Hank Paulson and Federal Reserve Bank Chairman Ben Bernanke on the current state of the economy. What Bachus and his colleagues heard was shocking, as Paulson recounted, “Ben emphasized how the financial crisis could spill into the real economy. As stocks dropped perhaps a further 20 percent, General Motors would go bankrupt, and unemployment would rise… It is a matter of days before there is a meltdown in the global financial system.” You would think these leaders of our nation would spend every waking hour trying to find solutions to a disaster of this magnitude. But, along with some of his colleagues, Congressman Bachus bought contract options on Proshares Ultra-Short QQQ, an index fund that would profit on what they call “shorting the market.” It was a bet that the market would fall. A few days later, after the market had indeed fallen, he sold the options and nearly doubled his money. At the same time, financial investments by House Speaker John Boehner and Senator Dick Durbon also took suspicious paths. Boehner cashed out an inflation-based fund that soon after lost half its value. Senator Dick Durbin cashed out a mutual fund. Of course, its hard to prove these things. Boehner says his stockbroker did it without his knowledge. Just lucky for him, I guess, that his stockbroker was smarter than the other 98 percent of stockbrokers out there and knew to sell right before the fall. Durbin just says he was worried about his retirement “just like everyone else.” They both claim the meeting had nothing to do with it. If a corporate executive, Wall Street trader, or you or I had heard this information and did this, we would, and should, be charged with insider trading. However, legal analysts say that Wall Street insider trading laws do not apply to Congress. As an open and public institution, the legal assumption has long been that any member of the public can have access to information about how Congress works. In practice, though, that’s not true. Members of Congress come into contact daily with corporate executives and private information about economic movements in the system. Abramoff says everybody on the inside knows it, and it’s just a commonly accepted practice. I suppose they figure it’s one of the “perks” they get with the job. As Abramoff said, “Hearings under almost every circumstance are going to have a bad impact on a company. And so some staffers I’ve seen in the past talking about the fact that, ‘Oh, I’m gonna go out and short that company.’” It appears the corruption has also spread to Congressional aides. Karen Brown, an aide to Senator Mike Crapo of Idaho, who is a member of the Senate Banking Committee, traded Bank of America stock seven times in 2009, for a minimum profit of 43 percent. This occurred when Bank of America was under government scrutiny. Crapo’s office says Brown’s husband was the one actually doing the trading, “independent of any direction from Mrs. Brown,” and the husband had no information from Crapo about the meetings of the Banking Committee. It’s not like Congress isn’t aware of the possible conflicts of interest or possibility for financial gain from privileged information. For example, the Senate Armed Services Committee forbids their staff, as well as presidential appointees requiring Senate confirmation, from owning stocks in 48,096 companies that have Defense Department contracts. However, 19 of the 28 senators on the committee from 2004 to 2010 held assets in the prohibited companies, worth a total of $3.8 million to $10.2 million. That obviously speaks for itself… they wouldn’t make the rules apply to themselves, would they? 2 Responses Should Insider Trading Laws Apply to Congress? - Fox News November 23, 2011 […] heats upCanadianBusiness.com (blog)UPDATED: Bachus under fire for stock tradingNorth Jefferson NewsThe Freak Show: Our Corrupt CongressAquarian WeeklyDesert Dispatch -Victoria Times Colonistall 28 news […] Reply Daily Strategic Report - FXstreet.com November 25, 2011 […] Ed Koch Blasts Insider Trading Reported by Peter SchweizerBig GovernmentNorth Jefferson News -Aquarian Weekly -Victoria Times Colonistall 37 news […] Reply Leave a Reply Cancel ReplyYour email address will not be published.CommentName* Email* Website Save my name, email, and website in this browser for the next time I comment.