

Congress: Trading stock on inside information? - espeed
http://www.cbsnews.com/8301-18560_162-57323527/congress-trading-stock-on-inside-information/

======
orijing
Another interesting point is that Congress can actually influence outcomes.
For example, if you (the congressperson) have a lot of cash invested in the
defense department, you'd likely push for as much defense spending as
possible, even if it it's against the best interests of the nation.

I think it's time to end that. Public officials should not be able to
influence their financial portfolio. At the very least, every trade,
investment, position by an elected official should be made public so that we
are aware of what we're voting for: Not a representative of ourselves, but of
industry and their pockets.

~~~
wallflower
One thing about corruption in some Asian countries: they give up the pretense
of separating politics from business.

For example, when I visited Bangkok, I read in the local paper about the
Minister of Telecom who also happened to be the owner of the largest telecom
interest in Thailand.

In Western countries, we seem to cling to a standard that politics and
business can be caissoned off. I do not know if this is better but more
transparency never hurts.

~~~
matwood
Reminds of the zerohedge disclosure statement.

[http://www.zerohedge.com/content/zero-hedge-conflictsfull-
di...](http://www.zerohedge.com/content/zero-hedge-conflictsfull-disclosure-
policy)

It's long, but the most important line:

 _The reality is, critical readers should read analytic posts and the rest of
Zero Hedge with the blanket assumption that the author is totally
"conflicted."_

------
sudonim
Here are a couple of studies from 2004 and 2011 by the same group of
researchers showing congress and the house of representatives outperforming
the market.

<http://robinson.gsu.edu/news/04/senators.html>

<http://www.bepress.com/bap/vol13/iss1/art4/>

~~~
teyc
Someone should set up a hedge fund to track that.

------
Duff
I've become something of a political cynic at this point in my life. Stories
like this usually leave me unmoved.

But this particular story has left almost shaking in anger -- this is more
than graft. Our government will persecute all sorts of people for inane
things. Hell, Pete Rose was investigated and prosecuted because he bet against
his team. And yet we have a system where the Congressman responsible for
oversight of a hydra like the financial services industry can get rich betting
against America? This is disgusting.

~~~
numlocked
Slightly off-topic, but an important correction: Pete Rose actually bet on his
team _to win_ , not against his team. It makes your point even stronger - he
didn't have a conflict of interest.

~~~
Duff
Good catch!

------
anamax
Actually, lots of people and companies can legally trade on non-public
information. See <http://en.wikipedia.org/wiki/Insider_trading> For example,
it's not clear that Google can't trade stock based on what it observes its
customers doing, even though that information is not public.

That said, Congress-critters are in a very different position. They're writing
the rules. And, they keep claiming to be "public servants", so their use of
non-public information should be at least as restricted as employees.

~~~
sixtofour
I'm fine with it, but only if they reveal the information to the rest of us.
We should be able to trade on the same information. Very roughly based on the
idea that government information is public domain. <harumph />

------
cma
It's also illegal to lie to the government, but not illegal for the government
to lie to us:

[http://www.overcomingbias.com/2011/09/we-ban-lies-to-
officia...](http://www.overcomingbias.com/2011/09/we-ban-lies-to-
officials.html)

~~~
dman
Ive wondered recently if one can invoke the fifth amendment to avoid all
interaction with a government official because the potential to
unintentionally lie to the official is always present.

~~~
Duff
My layman's understanding is that you cannot invoke the 5th amendment in many
circumstances where you might want to. The Supreme Court has also ruled that
an adverse inference may be taken if you assert your 5th amendment right.

The safest way to get more time to answer a question is to refer the
questioner to counsel.

------
baddox
That's not really surprising, considering that essentially every power of
government is something that would be illegal for anyone else to do. Just a
few examples: withholding money from your paycheck, trapping you in a metal
cage, annexing your property for a "better cause," and printing cash.

~~~
ecdavis
The things you have listed are all powers that can only be exercised by the
government, not by individual legislators. There is a significant difference
between giving power to government and giving power to the individuals that
form the government. The former - though the amount of power may be debatable
- gives purpose to the government. The latter, on the other hand, is probably
one of the most poisonous influences on a democracy.

------
espeed
Peter Schweizer's (<http://www.hoover.org/fellows/9706>) research at the
Stanford Hoover Institution was the catalyst for this report.

------
aaronbrethorst
He's also the author of a book with the subtitle: "Why conservatives work
harder, feel happier, have closer families, take fewer drugs, give more
generously, value honesty more, are less materialistic and envious, whine less
… and even hug their children more than liberals."
(<http://en.wikipedia.org/wiki/Makers_and_Takers>).

~~~
_delirium
I sometimes wonder how much of the contemporary non-fiction publishing
industry is based on 1980s/90s trolling. Is adequacy.org used as a case-study?
They've even perfected the art of the paired troll, where you publish two un-
nuanced books taking opposite inflammatory positions, which feed on each
other, driving sales of both.

------
Dove
You know how people get really outraged -- not just morally, but legally! --
about things that might maybe possibly be discrimination?

I wish they felt the same way about corruption.

I wonder if someone could write a meme for that.

------
smhinsey
We had a government of laws, not of men. Now we have a government of men and
_honest_ graft.

------
isamuel
I don't really understand why insider trading is illegal in the first place
(it makes the market more efficient, and no one is defrauded) but it does seem
weird to make it legal only for a certain class of favored people. The right
answer, though, is to just legalize it.

~~~
stretchwithme
Its only illegal for people that don't know how to wink.

------
mathattack
True. And their stock trading performance bears this out. Very sickening.

------
jamesbressi
tl;dr

"The buying and selling of stock by corporate insiders who have access to non-
public information that could affect the stock price can be a criminal
offense, just ask hedge fund manager Raj Rajaratnam who recently got 11 years
in prison for doing it. But, congressional lawmakers have no corporate
responsibilities and have long been considered exempt from insider trading
laws, even though they have daily access to non-public information and plenty
of opportunities to trade on it."

------
anamax
The big economic information advantage of being in congress is not so much wrt
trading stocks in public companies, but in private investments.

------
rdtsc
Wouldn't this information eventually be diluted into the market if ETFs are
created to effectively track congressmen's picks?

------
adammichaelc
When is CBS going to fix their broken web technology so that I can read their
site on the iPhone?

------
nknight
Article 1 of the US Constitution:

 _"[Senators and Representatives] shall in all Cases, except Treason, Felony
and Breach of the Peace, be privileged from Arrest during their Attendance at
the Session of their respective Houses, and in going to and returning from the
same; and for any Speech or Debate in either House, they shall not be
questioned in any other Place."_

This passage has an incredibly long and complex history behind it and
implicates ancient rights and privileges beyond its literal text dating back
to the earliest days of Parliament that are too complex to describe in detail
here, but people need to realize that it does exist, it exists for a reason,
and it has implications for attempts to restrict "insider trading" by members
of Congress.

Even bribery statutes can come into conflict with the Congressional privilege,
and some prosecutions that probably should be brought never will be because it
becomes such a close call in court.

This particular problem can and should be fixed, probably by requiring a blind
trust, but people need to realize that such legislation is getting into an
area that's much more complex than simply "they shouldn't personally profit
from their privileged position" -- few would argue with the principle, but all
should be cautious that we don't end up with laws that risk partisan
prosecutions for legitimate political activity.

~~~
Duff
The issue here isn't this particular problem. The insider trading problem is
just a particularly egregious example of how modern American government holds
many of the fundamental founding principles of the nation in _contempt_.

I respect the need for our representatives to be able to speak their mind and
vote their conscience without fear of intimidation by some tyrant in the
executive or judiciary. But according to the byzantine code of law enacted by
Congress and based on statements made in the 60 Minutes report, every member
of congress mentioned in this article likely committed one or more felonious
acts.

Who watches the watchers? The rules of the House of Representatives and Senate
need to address issues such as this. Widespread corruption of this nature,
extending into the leadership of the Congress brings the integrity of the
United States government into question.

~~~
chernevik
_You_ watch the watchers. The best reason for a simpler, smaller government is
the ability to see what it's doing, and for whom.

------
billpatrianakos
Really? They get the awesome health care, they can't be charged with insider
trading... since when did our elected officials rise above the law? These
people are supposed to represent me yet they're far removed from mine, yours,
and most everyone else's reality.

My mother works as a sales assistant to a well known broker at Morgan Stanley
and she isn't allowed to trade for her own account or even have an account
there yet these public officials who are known to hob-knob with people who are
in the know get to trade as they please using any information they stumble
across?

Come on now. There should be one set of rules here but I see two: one set for
me and another set for those who are supposed to represent me. Disgusting.

~~~
stretchwithme
Perhaps part of the problem is that you cannot select who represents you.

You can pick your lawyer and he has to do what you say. Same with your
plumber.

But you have only two choices for your representative, selected by others and
both will ignore you and their promises once they get in. There's something
very wrong with that.

Of course, the real problem is the break down of the federal arrangement.
Power is way more concentrated than the founders intended.

~~~
rayiner
> Power is way more concentrated than the founders intended.

I'm not sure this is anything more than technically true.

It's easy to forget that the Constitution actually created a very powerful
central government for its day. The Federalists, at least, envisioned the
Constitution as giving Congress sweeping powers over inter-state economic
activity, foreign relations, etc.

The difference between then and now is that most human activity at the time of
the writing of the Constitution was strictly local. You grew your own food,
died where you were born, etc.

What has happened today is not so much Congress extending its power closer to
our day to day activities, but our day to day activities coming closer to the
reach of Congress. Nearly every thing today involves a market transaction,
often an inter-state one. If you asked one of the founders whether a purchase
of a product produced with components from multiple states, in a transaction
involving multiple multi-national corporations at the point of sale, was
within the scope of Congressional power over commerce, the answer would likely
be "well if such activity isn't within its scope, what is?" Yet that is
precisely the transaction that would occur if I were to go downstairs and buy
a Snickers bar from the VISA-enabled vending machine.

If you lived today on a farm, self-sufficient, perhaps trading with other
self-sufficient people, like it was 1789, I don't think you'd notice much
difference in Congress's power over you. You'd have to file a yearly tax
return, but the Tax Code doesn't tax self-created value so you wouldn't pay
much if anything in taxes. You wouldn't be paying into social security, etc.
You wouldn't be using health care services, so that would all be inapplicable.
The biggest burden on you would be the collection of state property taxes,
just the same as it would've been in 1789.

~~~
stretchwithme
No, its true.

The Constitution originally let the states directly appoint senators. That
gave state governments more power than they have now.

The Constitution also originally prohibited any taxes that were not
proportional, making direct taxation of citizens very difficult. But when that
was thrown out, the federal government was free to grab a huge percentage of
your income.

Money is power. Now the states have to kiss up to the federal government to
get money.

~~~
rayiner
Fair point about states appointing Senators.

The taxation bit isn't on point at all. The Constitution gave Congress broad
taxing authority: "That the authority conferred upon Congress by § 8 of
Article I 'to lay and collect taxes, duties, imposts and excises' is
exhaustive and embraces every conceivable power of taxation has never been
questioned" Bruschaber v. Union Pacific, 240 U.S. 1, 12 (1916).

The limits the Constitution imposed were in "the requirements of Art. I, § 8,
cl. 1, that 'all duties, imposts and excises shall be uniform throughout the
United States,' and... the limitations of Art. I, § 2, cl. 3, that 'direct
taxes shall be apportioned among the several States' and of Art. I, § 9, cl.
4, that 'no capitation, or other direct, tax shall be laid, unless in
proportion to the census or enumeration hereinbefore directed to be taken.'"

I.e. direct taxes must be apportioned, while excise (indirect) taxes must be
uniform throughout the states.

Now, "direct" is a term of art. It does not mean that Congress can't directly
tax individuals. The Framers intended for "direct taxes" to be a narrowly-
defined category.

"What are direct taxes within the meaning of the Constitution? The
Constitution declares that a capitation tax is a direct tax, and both in
theory and practice a tax on land is deemed to be a direct tax." Hylton v.
U.S., 3 US 171, 176 (1796).

"I never entertained a doubt that the principal, I will not say, the only,
objects that the framers of the Constitution contemplated as falling within
the rule of apportionment were a capitation tax and a tax on land." Id. at
177.

Now an 1895 case called Pollock v. Farmers' Loan & Trust Co. ruled that a tax
on income from property was effectively a direct tax. It noted that a tax on
the gross value of land was one of the two taxes considered direct by the
Framers (the other being a capitation--head tax), and determined that a tax on
income from land was basically the same thing.

What the 16th amendment did, then, was not grant Congress a broad new taxing
authority had did not previously have, but nor even resolve the question of
whether an income tax was a direct tax or an indirect tax, but simply removed
the constraint of apportionment from the income tax, whether or not it was a
direct tax.

Many people think Pollock was wrongly decided, for the simple reason that the
income tax is much more like an excise tax than a property tax. The
distinction between the two, as the Framers understood it was that a direct
tax could not be shifted to another person, but had to be paid by the person
it was legally allocated to. A head tax is the ultimate direct tax: you have
to pay it, regardless of anything else.

The prototypical indirect tax is something like a sales (excise) tax, where
the cost of the tax can be passed along to the buyer. The income tax is much
more like an excise tax than a direct tax. It only taxes the proceeds from
market transactions involving goods and labor. Income taxes are readily
shifted to someone besides who it is legally incident to. Payroll taxes, for
example, are apportioned by the market among employer and employee
irrespective of how they are apportioned legally. Essentially, the income tax
for most people functions like an excise tax on labor.

What changed between 1789 and today was not really that the 16th Amendment
gave Congress carte blanche to tax the heck out of people, but rather that
nearly all of the country's activity became subject to market transactions
that brought it within Congress's taxing power. If you lived on a farm like in
1789, being nearly self-sufficient, like most of America at the time, the IRS
could collect very little from you even today. It can't tax the value
resulting from growing your own food or making your own clothes. It's only
because you participate in market transactions for every little thing, from
selling your labor on the open market to buying your bread on the open market,
that brings so much activity within Congress's taxing power.

~~~
stretchwithme
Article 1 Section 2 states:

Representatives and direct Taxes shall be apportioned among the several States
which may be included within this Union, according to their respective
Numbers, which shall be determined by adding to the whole Number of free
Persons, including those bound to Service for a Term of Years, and excluding
Indians not taxed, three fifths of all other Persons.

Article 1 Section 9 states:

No capitation, or other direct, Tax shall be laid, unless in Proportion to the
Census or Enumeration herein before directed to be taken.

------
wavephorm
As an outsider to US politics I hear nothing but absurdities from what is
supposed to be the shining example what a true democratic society is supposed
to be. Instead what we see is a deep rooted system of hypocracy and corruption
that trancends the only two political parties capable of being elected and a
support system fueled by a propaganda machine that would make Hitler spit up
his milk.

~~~
Duff
Democracy is messy, and everyone has dirty laundry.

------
derekreed
"some say it's time for the law to change".

lol, "some say", just "some", really?

------
tzs
Anyone know how to get at whatever this is supposed to be from an iPad? The
site is putting up one of those "download our useless app" pages, and doesn't
have any apparent way to get past that.

------
jrockway
Of course, if you watch their trades, the information becomes public, and you
can get in too.

~~~
matwood
The problem is, according to 60 minutes, government officials only have to
disclose their trades once/year. A couple in congress have tried to change the
law to quarterly but of course that goes nowhere.

Even if we change disclosure laws to zero day (haha, good chance) it still
doesn't fix the obvious bribing with IPOs. The fact that it isn't legally a
bribe is laughable.

