An study in the journal Business and Politics last week reported that the investments of members of the House of Representatives outperformed those of the average investor by 55 basis points per month, or 6 percent annually. It concluded that lawmakers are taking advantage of inside information to make significant profits, engaging in conduct that would send a Gordon Gekko or Martha Stewart to jail.
“We find strong evidence that members of the House have some type of non-public information which they use for personal gain,” the four researchers who authored “Abnormal Returns From the Common Stock Investments of Members of the U.S. House of Representatives” wrote.
Lawmakers and their staffs have immunity from laws barring trading on insider knowledge. A similar 2004 study found that U.S. senators do even better than Congress when it comes to picking stocks, outperforming House members with their insider knowledge by an average of 30 points per month. They also make more money at it, because they have more money to invest—you know, from all their years in the House of Representatives before graduating to the Senate.
Under current laws, Senators and Representatives can trade shares on the market while voting on legislation that affects their own portfolios. How can this be? The House ethics manual explains that requiring lawmakers to divest their holdings would “insulate a legislator from the personal and economic interests that his/her constituency, or society in general, has in governmental decisions and policy.”
Today’s Ethics Quiz: Which of the following statements reflects your reaction to this information?
1. “I’m not surprised.”
2. “So THAT’s why all these people are rich!”
3. “That quote from the ethics manual is the most pathetic rationalization I’ve ever heard in my life.”
4. “This is both unconscionable and easy to fix, and voters need to make Congress fix it.”
The right answer is 4., but 3. is correct as well.
Reps. Louise McIntosh Slaughter (D-NY) and Timothy J. Walz (D-MN) re-introduced the Stop Trading on Congressional Knowledge (“STOCK”—cute!) Act in March, a bill which would limit the ability of lawmakers to buy and sell stock shares.
It’s been around since 2006, but for some strange reason, it has not received widespread support.
It is despicable that both houses of Congress expect the public to tolerate a an obvious conflict of interest that allows members to vote for what benefits their portfolios rather than what is in the best interests of their constituents and nation, all while cynically attacking the ethics of Wall Street.
If we allow this to continue, we deserve the consequences.