-And They Refuse To Pass A Law That Would Change That
Is insider trading wrong? Most Americans would say that it is. In fact, some very wealthy and very prominent Americans (including Martha Stewart) have gone to prison for it. It just is not right for those with inside information that is not generally available to the public to make huge profits in the stock market by making key trades based on that information. But there is one group, members of the U.S. Congress, that can do all the insider trading they want and get away with it. That is because insider trading is perfectly legal for members of Congress. Yes, you read that correctly. So how would that work? Well, for example, a member of Congress may know that a law that is about to be proposed would have a very positive effect on a particular company and could buy up a ton of stock in that company a few days before that law is introduced. Isn’t that wrong? Of course. Is there any law against it? Not at all.
You would think that some of the more ethical members of Congress would want to close this glaring loophole, but it just isn’t happening. Legislation has been introduced from time to time that would end this practice, but it has gotten very, very little support. The Wall Street Journal recently published an article about this issue which described the current situation this way….
“A few lawmakers proposed a bill that would prevent members and employees of Congress from trading securities based on nonpublic information they obtain. The legislation has languished since 2006.”
But even though insider trading is legal for members of Congress, they would never take advantage of the situation, would they?
Well, there is at least one study that seems to indicate that members of the U.S. Congress have been much more successful in the U.S. stock market than most members of the general public….
“A 2004 study of the results of stock trading by United States Senators during the 1990s found that that senators on average beat the market by 12% a year. In sharp contrast, U.S. households on average underperformed the market by 1.4% a year and even corporate insiders on average beat the market by only about 6% a year during that period. A reasonable inference is that some Senators had access to – and were using – material nonpublic information about the companies in whose stock they trade.”
But it isn’t just the members of Congress themselves that are using inside information to do well in the stock market. According to a recent article in the Wall Street Journal, a significant number of Congressional staffers have also been involved in some questionable dealings….
“At least 72 aides on both sides of the aisle traded shares of companies that their bosses help oversee, according to a Wall Street Journal analysis of more than 3,000 disclosure forms covering trading activity by Capitol Hill staffers for 2008 and 2009.”
The Wall Street Journal goes on to describe example after example of Congressional staff members that have made large profits from trades that could have been influenced by inside knowledge.
But should we be surprised?
The truth is that Congress exempts themselves from the laws that they pass on a regular basis.
Integrity is in real short supply up on Capitol Hill.
Is it any wonder that the approval rating for the U.S. Congress has been hovering around 20 percent?
Just think about that.
Approximately 80 percent of the American people are dissatisfied with Congress.
Our system of government is deeply corrupt and deeply broken.
- More Evidence of Insider Trading Inside the Beltway (professorbainbridge.com)
- Capitol Hill’s Stock Trading: What the Academic Research Concludes (blogs.wsj.com)
- What Conflict of Interest? How Power Blinds Us to Our Flaws (online.wsj.com)
- Highway Robbery on Capitol Hill, Part Deux (fool.com)
- Congressional Aides Allowed To Trade Stocks In Companies Their Bosses Oversee (huffingtonpost.com)