Your Public Servants At Work

Highway Robbery on Capitol Hill, Part Deux

By Rich Smith (TMF Ditty) | More Articles
October 11, 2010 | Comments (4)

"What's good for the goose is good for the gander," or so the saying goes. But what happens when good geese go bad?

Two words: Gangster ganders
A few months back, I described the epidemic of insider trading -- legalized insider trading -- in Congress. Elected officials were snapping up shares of inverse ETFs, shorting homebuilders, and betting against the U.S. dollar at the same time they were approving hundreds of billions in bailouts.

Turns out, though, the problem is bigger than we thought. It's no longer just congressional geese flying foul -- now their salaried congressional staffers are ruffling investor feathers as well. As today's issue of The Wall Street Journal reveals, it's not just Congress-people dipping their hands in the till. In addition to your elected representatives, you see, some 17,000 of their paid and unpaid staffers roam the halls of Congress, and as it turns out, they're all stock market geniuses, too!

According to Journal analysis of publicly disclosed stock trades -- disclosed, of course, long after the fact -- placed in 2008 and 2009, congressional staffers have been caught investing in shares of:

·        Bank of America (NYSE: BAC), during the period between when bank "stress test" results were tallied, and when they were published.

·        Citigroup (NYSE: C), just before Treasury announced a conversion of the government's preferred Citi shares to common.

·        Fannie Mae (OTC BB: FNMA.OB) and Freddie Mac (OTC BB: FMCC.OB ), just two days before Congress authorized emergency funding for the mortgage lenders.

·        Sunpower (Nasdaq: SPWRA) and Energy Conversion Devices (Nasdaq: ENER), in the midst of debate over how much "stimulus" funding should go to subsidizing alternative-energy investments.

The list goes on and on -- and it's not even a complete list! These are just a few examples culled from the Journal's study, which polled the data on 1,700 of Congress's highest-paid (up to $170,000 a year) staffers. But another 15,000 staffers do not meet the requirements for even this kind of mealy-mouthed, once-a-year, "I bought somewhere between 10-and-10,000 shares" non-disclosure disclosure. Result: Ninety percent of the staffers on Capitol Hill have no obligation whatsoever to tell the public about their trading.

As I said in May, it's all totally legal. Crazy as it may sound, there's actually no law forbidding insider trading inside Congress, or requiring Congress-people to inform the rest of us of what they're up to. At best, we're given an annual report on what our representatives did ... months after it was done. And while Congressman Brian Baird of Washington and Louise Slaughter of New York have offered a "Stop Trading on Congressional Knowledge Act" to curb insider trading in Congress, only nine of their peers -- your representatives -- have signed on in the House. And none in the Senate.

For now, it seems, the game remains rigged.

Senator Reid? Caesar's wife called. She's not impressed.
Practicing damage control after his own staffer was caught trading Energy Conversion Devices shares on the sly, Sen. Harry Reid's PR spokesman declared yesterday: "[Our] actions must not only follow the law, but must meet the higher standards the public has a right to expect from elected officials and their staffs."

To which I reply: "Amen, brother." But there's a better solution. You're in the business of passing laws, so now pass this one: Henceforth, elected officials and their hirelings should take a page from the disclosure requirements we follow here at the Fool. They should publish their intent to buy or sell stock before placing the trade. Not months after the fact.

Love this article? Get our best articles delivered direct to your inbox at no cost. Sign up for Foolwatch Weekly by entering your email below.

The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.

Read/Post