The hypocrisy of Washington elites is nothing new, as we’ve covered here and here, just to give two recent examples. Yet another example of hypocrisy is that of insider trading, which is disallowed for the peasants, but perfectly acceptable for members of Congress and their staff:
Your senator learns that a much- maligned weapons system now has enough votes for funding. Before the news gets to a reporter, he buys shares in the arms manufacturer for a quick, handsome profit.
…Laws that criminalize insider trading cover corporate insiders and those they tip, but not specifically Congress.
…This week the Wall Street Journal reported that during the past two calendar years, 72 congressional aides from both parties made trades in companies that their bosses’ help oversee. Among them are top advisers to Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi.
…Companies stuck in asbestos litigation suddenly saw inexplicably heavy trading and a rise in share price on Nov. 15, 2005. The next day, then-Senate Majority Leader Bill Frist announced a breakthrough on a bill to create a government-backed fund to settle asbestos cases. It turned out that political intelligence firms benefitted from a leak in Frist’s office, Business Week reported the following month.
…U.S. senators, representatives and congressional staffers routinely attend high level, closed briefings or engage in conversations where secrets are disclosed that might send shares climbing or slumping if widely known.
That access lets them buy low and sell high based on material, non-public information, and they can do it without concern that their remarkable prescience will alert federal investigators of possible wrong doing.
“This is an area in which the public is quite justifiably suspicious about dual standards,” says Representative Brian Baird, a Democrat from Washington state.
I should point out that insider trading laws are actually harmful for markets. Insider trading promotes market efficiency. Allowing experts to capitalize on their specialized knowledge introduces that knowledge into the system and results in prices that more accurately reflect the true value of a stock. Watching how members of Congress trade, likewise, can alert others to which industries they are about to destroy or otherwise tamper with.
It wasn’t until the 1960′s that insider trading was prohibited in the first place. Perhaps if members of Congress weren’t hypocritically exempt from the laws they pass, bad policies such as this would be more likely to be repealed.
