Sunday, November 13, 2011

[Video] CNBC Delves Deeper into the Fact Congress Can Legally Inside Trade

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Good news - I just checked the 60 Minutes website to see what is on top tonight, and they move fast.  The topic of insider trading by Congress is on the docket - so instead of the CNBC audience of 300,000 realizing it, it's going to hit the mainstream in hours.

Until then, it is hard to make a jaded person's jaw hit the floor, but these revelations are a shock even to someone like me.  It appears even respected long time host Bill Griffin feels the same.  Late Friday there was a much more extensive discussion on the topic on CNBC which included an ex SEC lawyer.  It was quite fascinating while also disgusting.  Apparently it's not just Senators and folks in Congress, but their staffers in on the game.  And it's not just hearings - these people in D.C. can trade in between the time a whistleblower reports something, and the time it comes public.  Bam.

What I didn't know is either we have a bunch of investors in the Senate who are as (or more) talented than Warren Buffet.... or we have something that stinks to high heaven.  The average Senator in the market beats the index by 12% over the long run.  That's a record you'd gladly pay 2 and 20 in the hedge fund world for.  And they can do it part time, while focusing on their other job - what skill!  Even lowly folks in the lower house beat the averages by 6% over the long run - also, quite 'skillful'.

Gordon Gekko: The most valuable commodity I know of is information.

A reader sent along this article from earlier in the year if you are a Barron's subscriber - Fire Your Hedge Fund, Hire Your Congressman.

9 minute video - email readers will need to come to site to view







Preview of the 60 Minutes piece tonight

Martha Stewart went to jail for it. Hedge fund honcho Raj Rajaratnam was fined $92 million and will go to jail for years for it. But members of Congress can do the same thing -use non-public information to make stock trades -- and there's no law against it. Steve Kroft reports on how America's lawmakers can legally make tidy profits on information only they know, simply because they won't pass a law against themselves. 


Among the revelations in Kroft's report:


* Members of Congress have bought stock in companies while laws that could affect those companies were being debated in the House or Senate.


* At least one representative made significant stock purchases the day after he and other members of Congress attended a secret meeting in September 2008, where the Fed chair and the treasury secretary informed them of the imminent global economic meltdown. The meeting was so confidential that cell phones and other digital devices were confiscated before it began.


If senators and representatives are using non-public information to win in the market, it's all legal says Peter Schweizer, who works for the Hoover Institute, a conservative think tank. He has been examining these issues for some time and has written about them in a book, "Throw them All Out." "[Insider trading laws] apply to corporate executives, to Americans...If you are a member of Congress, those laws are deemed not to apply," he tells Kroft. "It's really the way the rules have been defined...[lawmakers]have conveniently written them in such a way as they don't apply to themselves," says Schweizer.


Efforts to make such insider trading off limits to Washington's lawmakers have never been able to get traction.


Former Rep. Brian Baird says he spent half of his 12 years in Congress trying to get co-sponsors for a bill that would ban insider trading in Congress and also set some rules up to govern conflicts of interest. In 2004, he and Rep. Louise Slaughter introduced the "Stock Act" to stop the insider trading. How far did they get? "We didn't get anywhere. Just flat died," he tells Kroft. He managed to get just six co-sponsors from a membership of over 400 representatives. "It doesn't sound like a lot," says Kroft. "It's not Steve. You could have Cherry Pie Week and get 100 co-sponsors," says Baird.

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