Congressional Insider Trading: The Double Standard
by Jeannette Di Louie, Investment U Research
Tuesday, November 15, 2011
In 1934, Congress enacted the Securities Exchange Act, which banned what is now commonly known as “insider trading.” At the time, taking revenge on corporations and Wall Street for their roll in the 1929 stock crash and subsequent depression seemed like a good idea to just about everybody.
Members of Congress, in particular, probably thought that voting “yes” on the measure meant that they could escape similar criticism for the poor economic policies that also contributed to the mess. Politicians, of course, will say and do just about anything to get another vote.
In both former Speaker of the House Nancy Pelosi (D-CA) and current Speaker of the House John Boehner’s (R-OH) cases specifically, that apparently means voting for heavy restrictions on the business world while flagrantly flouting them in the political realm.
The Sarbanes-Oxley Act
Consider the Sarbanes-Oxley Act of nearly a decade ago, which Congress – including both Pelosi and Boehner – passed nearly unanimously. As The New York Times aptly put it, “It took just five weeks after the WorldCom accounting scandal erupted in 2002 for Congress to pass, and President George W. Bush to sign, the Sarbanes-Oxley Act.”
In other words, not a whole lot of thought went into it…
Lawrence Kudlow, host of CNBC’s “The Kudlow Report,” noted back in 2006 that “700 corporate crimes have been punished with 250 million in fines since 2002… [all] based on pre-Sarbox laws and regulations.”
In other words, we didn’t really need it anyway…
It was just a big publicity stunt, and one that Kudlow also noted put so many rules and regulations on private businesses that a mere eight percent of global IPOs were listed in the United States after its passage… down from 50 percent before.
Politicians Don’t Measure Up to Their Own Rules
For all of the posturing politicians did about the issue back then, apparently they didn’t take the issue nearly as seriously as they wanted us to believe they did. Or at least they didn’t think that the rules they forced onto corporate America should apply to them.
Thanks to an edition of “60 Minutes” that aired on Sunday, November 13, it’s come to light that Congress can do as much insider trading as it’d like to.
(Courtesy: CBS, 60 Minutes)
No wonder the San Francisco Gate reports that “stock portfolios on Capitol Hill outperform the market!”
Nancy Pelosi, for instance, bought up over $1 million in Visa stock during its IPO in March 2008… the same month that she made sure the Credit Card Fair Fee Act, which credit card companies like Visa didn’t care for, never made it to the floor for a vote.
Unfortunately, she isn’t the only one who will come under scrutiny on Sunday’s “60 Minutes.” That kind of trick seems to be a fairly rampant practice among lawmakers, who act on knowledge the public doesn’t have access to in a way they wouldn’t let anybody else get away with.
It’s no big surprise that Congress likes to follow the “Do as we say, not as we do” philosophy. But that doesn’t make it any less destructive considering the conflict of interest presented. As was stated on the show, the only interest for politicians should be improving America… How legislation can increase personal wealth should not become a factor in that equation.
Good investing,
Jeannette Di Louie
Article by Investment U