Throw Them All Out!

By William L. Garvin


According to the Federal Reserve’s Quarterly Report, the average U.S. household’s net worth declined by $21,261 over this summer alone. Interestingly enough, the net worth of Congress had increased 25% from 2008-2010. Why is it that our political leaders always leave office with so much more wealth than they possessed when they arrived? Maybe the reason is that they possess incredible investment acumen.

A recent study of 6,000 congressional stock trades revealed some interesting results. While corporate insiders beat the market by 5% and hedge fund managers managed 7-8%, members of Congress had a 12% return. During this period, the rest of the U.S. showed an overall decline of 1.4%. When confronted by Sixty Minutes about a particularly sweet deal on a VISA card Initial Public Offering (and a potential conflict of interest!), Princess Pelosi pompously proclaimed “It’s not true and that’s that.” This privileged member of the 1% saw no conflict with trading in credit cards while shepherding credit card legislation through the hallowed halls of Congress.

That’s why the Occupy protest misses the mark in several ways. First, it is the lawmakers who profit on inside information that should be their target. Wall Street is hardly the be-all, end-all of crony capitalism. It is the lawmakers who listen to the lobbyists and accept their campaign contributions. It is the lawmakers who are setting the rules that allow the banks to game the system. It is the lawmakers who pressured the banks to give home loans to people who had no way of paying them back. It is the lawmakers who give the approval for the bankers to walk through that revolving door between Wall Street and key administration positions. Throw them all out, as Peter Schweizer recommends in his new book of the same name.

Schweizer notes that Ms. Pelosi and her husband received 5,000 shares of the highly coveted VISA IPO at $44 which increased 50% in one day and nearly doubled in two weeks. She also received stock in at least eight other IPO’s. Schweizer also notes that there was a high degree of correlation between the investment portfolios of members of Congress and how they vote. He points to one study that reveals a significant correlation between how lawmakers voted with respect to the TARP bailout in 2008 and their own investment portfolios. “What they found was the number one determining factor in whether you voted for or against, was not whether you were conservative or liberal, not whether you were Republican or Democrat, but whether you owned stocks in the bank sector.” Again, according to Schweizer, “if you did, you voted in favor of the bailout. If you didn’t, you tended to vote against.”

The current brouhaha over congressional investment acumen pales in comparison to the investment prowess of Hillary Clinton. In 1978, she invested $1,000 in cattle futures and parlayed it into a 630% profit in a single week. She managed to work it up to $100,000 in less than a year by almost always magically selling at the highs and buying at the lows each day. A university study found that the odds of being able to do this are 1 in 31 trillion! As to why she isn’t Secretary of the Treasury, no one knows. At least let her invest the Social Security Trust Fund!

These types of transactions would put a private citizen behind bars but as usual, Congress gets to play by a different set of rules. Today, thanks to the furor raised by Schweizer’s book and the Sixty Minutes segment, there are currently three versions of the Stop Trading On Congressional Knowledge (STOCK) bills under consideration, (HR 1148, S. 1871, and S. 1903). While each bill is a step in the right direction, none will stop the crony capitalism and corruption in the Congressional ruling class. Until they are prohibited from trading in areas where they have influence or knowledge, until their portfolios are required to be in blind trusts for the duration of their terms, expect the system to be gamed by those who set the rules. We deserve better.