Crony capitalism exposed

Posted by on Nov 14, 2011 at 1:16 pm

Insider trading is illegal — except for members of Congress. A Wall Street executive who buys or sells stock based on insider information would face a Securities and Exchange Commission investigation and quite possibly a federal prosecutor. But senators and congressmen are free to legally trade stock based on nonpublic information they have obtained through their official positions as elected officials — and they do so on a regular basis.

On Sunday night, CBS News’ “60 Minutes” looked into this form of “lawful graft.” The “60 Minutes” story exposed, among others, then-House Speaker Nancy Pelosi for participating in a lucrative initial public offering from Visa in 2008 that was not available to the general public, just as a troublesome piece of legislation that would have hurt credit card companies began making its way through the House (the bill never made it to the floor). And it showed how during the 2008 financial crisis, Rep. Spencer Bachus (R-Ala.) — then-ranking Republican on the House Financial Services Committee — aggressively bought stock options based on apocalyptic briefings he had received the day before from Federal Reserve Chairman Ben Bernanke and Treasury Secretary Hank Paulson.

The report was based on an explosive new book by Peter Schweizer that will hit stores on Tuesday. It’s called “Throw Them All Out: How Politicians and Their Friends Get Rich off Insider Stock Tips, Land Deals, and Cronyism That Would Send the Rest of Us to Prison.” (Full disclosure: Schweizer is a close friend, a former White House colleague and my business partner in a speechwriting firm, Oval Office Writers.

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One Response to “Crony capitalism exposed”

  1. Chris on 14/14/11 at 5:10 pm

    In the RW, you get arrested, fired or both.
    Here is how the RW works for people at large publicly traded institutions.
    I worked for many years in M&A and Corporate Development for a large financial institution. Directors, officers and just about everyone dealing with sensitive client information had to register their personal brokerage accounts with a compliance department.

    Every trade was passed through them and could be approved by the person on the desk or if it set off alarms of possible conflict of interest, it got bumped up the ladder. It did not matter if the trade dealt with other departments or you knew nothing about other deals. If something was on a hot list, no one traded.

    This was a condition of employment. You basically stop trading and buy funds while you work in an area like that. Higher up, you can afford a directed, blind fund so someone else trades.

    Members and staffers should not be trading individual stocks without a similar barrier and given that just about everything is going to be a potential conflict, they should just get broad ETF’s in American companies. You don’t like it, move on. There is a line of thousands who want tto take your place for those staff positions. Mathematically, even a super trader might make 1% to 2% p.a. over the market averages – just quit and day trade if you are so special.