Should lawmakers refrain from taking actions in their financial portfolios when they have information not yet known by the public?
That is the question at the heart of a Washington Post analysis published Sunday which found that 19 Democrats and 15 Republicans, many in leadership positions, adjusted their portfolios 166 times within two business days of contacts with Federal Reserve or Treasury officials.
The Post’s lengthy analysis found no smoking guns. For example, it found no evidence of insider trading and said that the portfolio moves it did discover were permitted under congressional ethics rules and the STOCK Act, which Congress passed this year. Under that law, lawmakers and senior congressional staffers cannot use confidential information for their personal benefit.
But the Post points out that Congress has imposed stricter rules on executive branch officials, such as the chairman of the Fed or secretary of the Treasury, who cannot invest in the stock of financial institutions.
So the main takeaway of the Post article is that, even following the passage of the STOCK Act, lawmakers can still take actions that would be prohibited for Treasury Secretary Tim Geithner or Fed Chairman Ben Bernanke. In other words, the STOCK Act does not prevent lawmakers from trading in stocks of companies they oversee or in shifting their portfolios after meeting with senior Fed or Treasury officials.
Readers can judge for themselves the scenarios the Post describes. A typical one involves Kent Conrad (D-N.D.), chairman of the powerful Senate Budget Committee. At 4:30 p.m. on Aug. 13, 2007, Conrad met with then-Treasury Secretary Hank Paulson at a time when the market was plunging in reaction to the first revelations of the subprime mortgage crisis.
The day of the meeting with Paulson, Conrad shifted some $150,000 to $300,000 invested in three mutual funds in his wife’s 401(k) account (congressional rules allow for ballpark rather than precise amounts) to safe money-market accounts.
The move proved savvy; countless stories at the time related the depletion of assets in 401(k) account invested in stocks. But Conrad vigorously denied any connection between the meeting with Paulson and his portfolio moves.