Last Sunday, 60 Minutes had an explosive piece about what appears to be insider trading conducted by members of Congress. It looked at various examples of when elected representatives used non-public information to buy or sell stocks accordingly, thus profiting from their privileged status.
Washington took notice of the story in a major way. It was the subject of several floor speeches this week, and bills were introduced in both the House and Senate—including one sponsored by Republican Senator Scott Brown—to bar such deals, which are currently well within legal limits and probably even within Congressional ethics rules.
The thrust of the story is that when members of Congress are allowed to have vast stock portfolios while also working behind the scenes on legislation that could affect various industries, and this might motivate members to act not in the public interest, but for their own enrichment.
It’s an important story, in some ways more ominous than 60 Minutes suggested, and in some ways much less so. There have been charges of unfairness, particularly by some liberal blogs, in relation to the accusations towards House Minority Leader Nancy Pelosi. So let’s have a look.
Where the piece falls short
The piece, reported by Steve Kroft, named a few specific examples of potential insider trading. Kroft confronts both Pelosi and House Speaker John Boehner about shaky seeming transactions. He asks Pelosi about her participation in an IPO of Visa stock, just as the House was debating a credit card reform bill that would hurt companies like Visa:
And former House Speaker Nancy Pelosi and her husband have participated in at least eight IPOs. One of those came in 2008, from Visa, just as a troublesome piece of legislation that would have hurt credit card companies, began making its way through the House. Undisturbed by a potential conflict of interest the Pelosis purchased 5,000 shares of Visa at the initial price of $44 dollars. Two days later it was trading at $64. The credit card legislation never made it to the floor of the House.[…]
Congresswoman Pelosi pointed out that the tough credit card legislation eventually passed, but it was two years later and was initiated in the Senate.
That sounds awful, and footage of Pelosi stuttering and struggling to respond to Kroft’s questions at a press conference make it seem worse. But this version of events leaves out a lot of key facts: that bill did pass through a House committee, on the very last day of votes before the House adjourned for the November elections. Kroft is heavily suggesting that Pelosi didn’t bring the bill to the floor so that she might profit on her newly acquired stock, but doesn’t mention that there was no time left to do so and that a new Congress was soon to arrive in Washington that January anyhow. Kroft also doesn’t mention that the new Congress, with Pelosi leading the House, passed the Dodd-Frank financial reforms which were deeply opposed by credit card companies, and that before she bought her stock, she helped pass the Credit Cardholders’ Bill of Rights, which was also opposed by the industry.
For anyone that knows Pelosi’s tenure as a Congressional leader, it’s near laughable to believe that she was helping Visa so that she could profit on a relatively small stock purchase—it just doesn’t fit with the reality of her legislative record. And as many liberal blogs were quick to point out, Kroft admits he based his story on a book by Peter Schweizer, a conservative think tank staffer who has worked for George W. Bush, Glenn Beck and Sarah Palin, and who has lobbed completely baseless charges at Pelosi before. (Media Matters has more on Schweizer here).
But the hit on Boehner is just as shaky, too. Kroft notes that in 2009, Boehner bought a bunch of health insurance company stocks only days before the public option was killed. Kroft notes that Boehner “led the opposition against the so-called public option,” and implies he was trying to enrich himself.
This is off for several reasons. One, there’s a wide constellation of political and philosophical reasons Boehner opposed the public option, many of them much more compelling than a few stock purchases. Two, Boehner didn’t really have any inside track on finally killing it off—that happened in the Senate, where Joe Lieberman threatened to join a Republican filibuster if the public option wasn’t removed from the bill. There’s an ongoing debate over whether the White House and moderate Democrats were going to kill it anyway due to a secret deal, but in any case, Boehner didn’t really play a role. And the debate was heavily covered—anyone following blogs or news reports in those final days could read the writing on the wall. (I remember agonizing over it myself, presumably along with many other liberals). Kroft doesn’t prove that Boehner had any information that nobody else did.
Finally, critics of the story point to data that Congressional stock portfolios actually underperform the market, at least in recent years—meaning the problem of insider trading can’t be that widespread. Kroft should have mentioned this.
What the story gets right
The shakiness of these examples aside, most would agree that it’s still not good to have Congressional leaders buying health insurance and credit card stocks while dramatic legislation affecting those industries is being debated. Boehner and Pelosi don’t appear to have done anything wrong, but in a broad sense they probably shouldn’t have been involved in those stock purchases.
The story also squarely nails Representative Spencer Bachus, now chair of the House Financial Services Committee, for an obvious case of using inside knowledge on the stock market. Bachus was in a closed-door meeting in 2008 with Treasury Secretary Hank Paulson and Federal Reserve chairman Ben Bernanke—this is the infamous meeting where the duo told Congressional leaders there could be a second Great Depression.
Within a day, Bachus was buying stock options that would yield high returns if the market tanked—which it did. These meetings were so sensitive and secret that Blackberries were confiscated beforehand, but Bachus was apparently able to use that information to make sure his stock portfolio was protected.
Kroft also commendably looks at other examples of what he terms “honest graft”—where members of Congress take perfectly legal advantage of the system to enrich themselves. And these, too, are real problems. He notes that former House Speaker Dennis Hastert entered Congress worth a few hundred thousand dollars, and left a multi-millionaire. Primarily, Hastert achieved this buy purchasing a lot of land, and then using federal earmarks to enhance nearby infrastructure, thus boosting the land values. My colleague Lee Fang has uncovered very similar enrichment schemes by Representative Darrell Issa. This type of two-bit self-enhancement needs to be strongly addressed.
The potential for insider trading in DC surely serious reform, too, even given the paucity of Kroft’s evidence of abuse. Members of Congress should not be able to ply inside information in stock trades—Wall Street and the Congress are far, far too intertwined as it is, and public servants should only be motivated by the public good.
Of course, many are not so motivated, and this is one final area where Kroft’s piece falls a little short—missing, in a way, the forest for a few trees. John Boehner didn’t oppose the public option because he could swing a quick buck on the stock market; he opposed it largely because of the dump trucks of money his party has accepted from the for-profit healthcare industry over the years. The violation of the public interest is the same, and to a much greater degree—but this type of corruption is a lot harder to explain in a ten-minute broadcast piece.