A report by CBS’ “60 Minutes” is amplifying sensational charges that members of Congress are garnering private profits from their privileged access to information about legislation affection corporations and the economy.
The CBS report, based on a forthcoming book by Hoover Institution scholar Peter Schweizer called Throw Them All Out, suggests that congressmen are making far more than the $174,000 a year salary they are paid to make the nation’s laws.
Among the most riveting claims that CBS aired Sunday night is the suggestion that former Speaker of the House Nancy Pelosi, D-Calif., and her husband cashed in on a lucrative Visa (NYSE:V) IPO by ensuring the defeat of a bill regulating credit card interchange fees. The Pelosis’ investment–which ranged between $1 million and $4 million (congressional disclosure forms require only that a certain dollar range be checked off)–soared 203% during a period when stock market returns were down 15%. A credit card reform bill that eventually made its way out of Congress with Pelosi’s support did not address interchange fees included in previous versions of the bill.
Pelosi responded to the CBS report through a spokesman, who said “Congress has never done more for consumers nor has the Congress passed more critical reforms of the credit card industry than under the Speakership of Nancy Pelosi.” The spokesman added that the charges were based on a book by a politically conservative author “who has made a career of out attacking Democrats.”
But both the book and the CBS report take aim at members of both parties, including Republican Rep. Spencer Bachus of Alabama. Bachus in 2008 was the ranking Republican on the House Financial Services Committee when he attended a sensitive high-level briefing by then Treasury Secretary Hank Paulson and Fed chairman Ben Bernanke on the economic crisis. The next day Bachus bought contract options on ProShares Ultra-Short QQQ (NYSE: QID), nearly doubling his $7,846 trade when he sold a few days later.
A 2004 study of congressional members’ investment returns showed a huge informational advantage for legislators, with members of the House of Representatives earning a 6% premium over market returns between 1985 and 2001 and U.S. Senators besting the market by 12.3% per year between 1993 and 1998.
A new study published this year in the journal Business and Politics finds a 6.6% annual market-beating advantage for members of the House between 1985 and 2001. Economic blogger University of Michigan professor Mark Perry shows a House member investing $1,000 in 1985 would have $16,172 in 2001 vs. the same investment in the S&P 500 returning just $6,043.
A Wall Street Journal analysis published last year showed that not just congressmen and senators, but congressional staffers too have been making money on stock trades tied to privileged information. The report cited Chris Miller, the top energy policy advisor to Sen. Harry Reid, D-Nev, nearly doubling his money on a renewable energy stock that stood to benefit from congressional action. “At least 72 aides on both sides of the aisle traded shares of companies that their bosses help oversee,” The Journal concluded from its 2010 analysis of more than 3,000 disclosure forms.
The “60 Minutes” report drew renewed attention to a little known piece of legislation called the Stop Trading on Congressional Knowledge (STOCK) Act. First introduced nearly three years ago by Rep. Louise Slaughter, D-N.Y., former Rep. Brian Baird, D-Wash., the bill, which would make it illegal for members of Congress to trade on privileged information, has never attracted more than a handful of co-sponsors and has never been reported out of committee.