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Should Insider Trading by Congress be Banned?

Congressional Ethics and Insider Trading

I’ve dealt with all kinds of issues in my blogs but none as unexpected as insider trading in Congress. I don’t mean to be overly-facetious but don’t they already use their influence in enough marginally appropriate ways and sufficiently trade-off on their political positions to adequately line their pockets? I mean, when is enough, enough? Here is a list of the ten wealthiest members of Congress as developed by the Capitol Hill newsletter, Roll Call.

1. Sen. John Kerry (D-Mass.) --- $188.37 million      

2. Rep. Darrell Issa (R-Calif.) --- $160.05 million

3. Rep. Jane Harman (D-Calif.) --- $152.62 million

4. Sen. Jay Rockefeller (D-W.Va.) --- $81.50 million

5. Rep. Michael McCaul (R-Texas) --- $73.75 million

6. Sen. Mark Warner (D-Va.) --- $70.19 million

7. Rep. Jared Polis (D-Colo.) --- $56.49 million

8. Rep. Vern Buchanan (R-Fla.) --- $55.47 million

9. Sen. Frank Lautenberg (D-N.J.) --- $49.70 million

10. Sen. Dianne Feinstein (D-Calif.) --- $46.07 million

Let’s get back to the point at hand. It took a recent report on “60 Minutes” to galvanize Congress into action after the program criticized members who made profitable securities trades based on information they had learned on Capitol Hill. In a recently published book, “Throw Them All Out,” (a sentiment I wholeheartedly supported in a previous blog), Peter Schweizer asserted that members of Congress may be exempt from some insider trading laws. House and Senate committees plan to hold hearings soon on bills that would prohibit trading on information “relating to any pending or prospective legislative action” to address this perceived gap in the law. The House bill, titled the Stop Trading on Congressional Knowledge (STOCK) Act, was first introduced in 2006, but it went nowhere. Not to be too pessimistic but I wonder how such a law would be enforced? As the saying goes, “the devil is in the details” and that is why Congress is likely to build in loopholes that enable most of them to escape punishment. They don’t have a 9% approval rating by the public for nothing.

Before the “60 Minutes” report, the House bill that would outlaw the practice of insider trading only had nine co-sponsors. In the week following the “60 Minutes segment,” that number jumped to 92. Of the 83 additions, 19 are facing competitive reelection races as defined by the Cook Political Report. That’s not surprising. Those in Congress routinely fail the integrity test: not supporting a worthy bill up front because of the lack of public awareness of the problem but jumping on the bandwagon once the practice becomes public knowledge.

In playing down the substantive importance of the STOCK Act, Andrew Eggers, a lecturer in government at the London School of Economics, and Jens Hainmueller, assistant professor of political science at MIT, point to the fact that congressional ethics rules already prohibit the practice. The House Ethics Manual states that "all government employees, including officeholders" should "never use information received confidentially in the performance of governmental duties for making private profit." The authors believe the purpose of the new law probably will be to help salvage whatever credibility Congress has left. I guess their approval rating could even go from 9% to 9.5%.

This whole issue got me thinking. What is the point of banning any illegal or immoral practice by those in Congress? We know they will find a way around any restrictions and those who do get caught will receive a pat on the wrist – at worst a reprimand, the same sanction imposed on Representative Barney Frank for fixing parking tickets for his boyfriend.

The moral of this story is that we, the public, should exercise our fundamental right to vote next November and “throw all the bums” out of office. The Super Committee was a super failure; unemployment is stuck at historically high levels; the government has done nothing to ameliorate the housing crisis; the middle class continues to get pinched; and not one program passed by Congress since the crisis began in 2008 has made any meaningful difference.

Blog posted by Steven Mintz, aka Ethics Sage, on November 28, 2011