Insider Trading Rules Don’t Apply To Congress

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Congress has created a body of laws that act as public-alert systems to both prevent and reveal when powerful private and public figures abuse their authority to boost personal wealth. The ethics laws — and rules from regulatory organizations — require that officials and executives disclose details of their personal finances to protect the public from corruption, including insider trading.

In many cases, the laws that Congress has passed for others are more stringent than those they impose on themselves.

Lobbyists from the financial industry have paid hundreds of millions to Congress and the Obama administration. They have bought virtually all of the key congress members and senators on committees overseeing finances and banking.

The Congress people who receive the most money from lobbyists are the most opposed to regulation. See this, this, this, this, this, this, and this. Obama received more donations from Goldman Sachs and the rest of the financial industry than almost anyone else.

Summers and the rest of Obama’s economic team have made many millions – even in the first few months of being appointed, or right beforehand – from the financial industry.

Two leading IMF officials, the former Vice President of the Dallas Federal Reserve, and the the head of the Federal Reserve Bank of Kansas City have all said that the United States is controlled by an oligarchy.

Specifically, Congress members and Senators can trade on inside information.

As Forbes’ blogger Kyle Smith notes notes:

One thing you can do as a member [of the House or Senate] is study pending legislation and regulatory changes, call up your broker and instruct him to trade on that nonpublic information. Do this as often as you want; you will suffer no penalty. There is no limit to how much money you can earn on insider trading in the House or Senate. Lawmakers and their staffers are specifically exempted.

As you might expect, those who work in the hallowed halls are not shy about availing themselves of the opportunity. A Wall Street Journal analysis published more than six months ago that has thus far provoked no particular sense of shame on Capitol Hill found that at least 72 Congressional aides in both parties had recently traded shares of companies that their bosses helped regulate. In 2009, while Senate Banking Committee member Mike Crapo, a Republican from Idaho, was involved in discussing “stress tests” on banks such as Bank of America, his aide Karen Brown traded the company’s stock on several occasions in the weeks before May 7, 2009 — when BofA surged thanks to a press release on its stress-test result, assuring Ms. Brown a nifty profit.

Asked by the Wall Street Journal to explain, Sen. Crapo’s office said the trades weren’t really made by Karen Brown but by her husband, who had no knowledge of what was going on in the banking committee. Would you go to your compliance officer, much less the SEC, with that line? True, these folks do need a good laugh now and again, and the SEC has to be in a jolly mood after the jury in the Galleon case all but repeated the verdict from The Producers: “We find the defendants incredibly guilty.”

A study of some 16,000 stock transactions carried out by House members was published in the journal Business and Politics. This detailed analysis showed that the investment portfolios of House members beat the market by about six points a year. (Democrats did especially well, outperforming by some nine points a year, while Republicans topped the average investor by only two percent annually.) Senators apparently do even better: “their portfolios show some of the highest excess returns ever recorded over a long period of time, significantly outperforming even hedge fund managers,” noted the journal, citing a previously published study.

So Congress members make money if they bail out the big banks which they have invested in.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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