For aging baby boomers, and their retirement accounts, the stock market over the past decade has been a severe disappointment. Many will have to work longer, for a retirement lifestyle dramatically compromised from what they were expecting. Some will not be able to retire at all. But for some members of Congress the stock market’s become a supernatural boon for their wealth.
According to a study from the Journal of Financial and Quantitative Analysis titled, “Abnormal Returns from the Common Stock Investments of the U.S. Senate,” Senators outperformed the stock market by about 10 percent. Perhaps the reason the Senate, as a whole, is so successful at investing is because it’s comprised of the smartest guys in the room. That would explain their abnormal returns…right?
The flaw in this hypothesis, however, is that from what we’ve observed, the Senate is comprised of both idiots and morons – or a combination thereof. Take Senate Majority Leader Harry Reid, for instance. Not long ago he argued that paying income tax in the United States is voluntary. This alone makes him an idiot…and a moron too.
Consequently, given that the Senate is, by and large, comprised of idiots and morons, from where do they derive their prescient stock picking abilities? Do they count Elliott Waves? Do they trade Bollinger Bands? Do they study tasseography?
Don’t kid yourself. All of these methods would be far too honest and far less profitable. In short, the abnormal returns enjoyed by the U.S. Senate are the result of non-public information they’re privy to on Capitol Hill.
Congressional Scum Buckets
Several weeks ago 60 Minutes reported that members of Congress can legally trade stocks based on non-public information. In particular, many members of Congress use their knowledge of pending legislation to buy and sell stocks. Under current law this may be perfectly legal.
Congress has asserted that non-public information, which they have access to as part of their job, is different than insider information – information inside a company. This distinction has allowed them to skirt insider trading laws.
By any sort of common sense determination, what Congress has been doing is akin to insider trading. Maybe under current law there’s nothing restricting Congress from trading the markets based on information they learn on the job, but, nonetheless, just because it’s legal doesn’t mean it’s right.
The problem with laws is that there are too many of them. No matter how hard one tries to walk the straight and narrow, they’ll be guilty of a violation here or there; for it’s impossible to follow them all. To reconcile this, most people of sound mind and honest intentions go about their business following the Golden Rule.
But others – like Congressman, defense attorneys, and tax accountants – make a living by working the law for their benefit. Yet just because what they do is perfectly legal doesn’t mean it is right. What we mean is, as citizens of a representative government, when members of Congress play the system for their unfair advantage, we are obligated to point a finger at them and call them scum buckets.
In Defense of Government Fraud
Since the 60 Minutes report, proposed legislation called the Stop Trading on Congressional Knowledge Act has gained support. The law would specifically prohibit trading on “pending or prospective legislative action.” The financial services committee will hold a hearing on the proposed law on December 6. But the problem with the proposed legislation is that it won’t be enforceable.
The Constitution’s Speech or Debate Clause, as explained by Peter Henning at the New York Times, protects Congress “from having to answer questions in court, responding to subpoenas, or being prosecuted with evidence of actions involving the legislative process.”
“An insider trading investigation typically requires the S.E.C. [Securities and Exchange Commission] to subpoena records to determine what information a person who traded or tipped had at a particular point in time and who the person communicated with,” continues Henning. “Once it gathers the relevant documents, the S.E.C. usually takes the testimony of those who may have been involved in the transaction, which could require questioning representatives and senators about the likelihood of legislative action to establish the information was material.”
As you can see, the Speech or Debate Clause will prohibit the S.E.C. from investigating and building a case against members of Congress who have traded stock on pending or prospective legislation. So what good would the law be since it doesn’t protect the people from being taken advantage of by their government?
The question, of course, is rhetorical…though we’ll scratch for a response…
Government, today, is tremendously wasteful, profligate, and dishonest. It elevates idiots, frauds, cads, and scoundrels. What’s more, the populace demands this. But while it’s supremely idiotic, it’s supremely amusing.
“If the people cannot trust their government to do the job for which it exists – to protect them and to promote their common welfare – all else is lost,” said Senator Obama, before he was President. Obviously, the smooth talker had his fingers crossed behind his back while his lips were moving.
We confess, in defense of government fraud, we find the spectacle critically delightful.
for Economic Prism