Last November, 60 Minutes correspondent Steve Kroft reported on a nice little perk that members of Congress have enjoyed for some time, insider trading.
According to a report entitled, Insiders, Kroft interviewed “Peter Schweizer… a fellow at the Hoover Institution, a conservative think tank at Stanford University… Schweizer says he wanted to know why some congressmen and senators managed to accumulate significant wealth beyond their salaries, and proved particularly adept at buying and selling stocks.
“Schweizer: There are all sorts of forms of honest grafts that congressmen engage in that allow them to become very, very wealthy. So it’s not illegal, but I think it’s highly unethical, I think it’s highly offensive, and wrong.
“Steve Kroft: What do you mean honest graft?
“Schweizer: For example insider trading on the stock market. If you are a member of Congress, those laws are deemed not to apply…
“The fact is, if you sit on a healthcare committee and you know that Medicare, for example, is – is considering not reimbursing for a certain drug that’s market moving information. And if you can trade stock on– off of that information and do so legally, that’s a great profit making opportunity. And that sort of behavior goes on.
“Kroft: Why does Congress get a pass on this?
“Schweizer: It’s really the way the rules have been defined. And the people who make the rules are the political class in Washington. And they’ve conveniently written them in such a way that they don’t apply to themselves.”
“We know,” Schweizer said, “that during the health care debate people were trading health care stocks. We know that during the financial crisis of 2008 they were getting out of the market before the rest of America really knew what was going on.”
Flash forward to February 2, 2012 —
“Senate Approves Ban on Insider Trading by Congress”reads a headline in the New York Times.
“The Senate passed a sweeping new ethics bill on Thursday,” the TIMES reported, “that would ban insider trading by members of Congress and require prompt disclosure of stock transactions by lawmakers and by thousands of officials in the executive branch of government.
“The 96-3 vote followed three days of impassioned debate in which senators tried to outdo one another in proclaiming their support for ethics in government.
“President Obama called for passage of such legislation in his State of the Union address last week. More than half of House members, including at least 100 Republicans, have signaled support for it, and House Republican leaders said Thursday that they would schedule consideration of the Senate-passed bill on the House floor next week.”
At a time when the public’s trust in Congress has sunk below 15 percent, the bill signals that lawmakers in Washington are keenly aware that, 1) this is an election year, and 2) the public will likely remember the story come November – a story which has received considerable public attention since it first aired last November.
The Senate version of the bill “…would prohibit members of Congress from trading stocks and other securities on the basis of confidential information they receive as lawmakers. It says explicitly that they are not exempt from the federal law and regulations that ban such insider trading.”
“Moreover, the bill requires members of Congress to disclose the purchase or sale of stocks, bonds, commodities futures and other securities within 30 days of transactions. The information would be posted on the Web.”
“A similar disclosure requirement would apply to many federal employees in the executive branch, including the White House, cabinet departments and independent agencies.”
“Senator Kirsten E. Gillibrand, Democrat of New York and an architect of the bill, said its purpose was simple: ‘to make sure that members of Congress play by the exact same rules as everyone else.’ ”
However, what’s interesting is that this idea isn’t new. As Kroft points out, it’s been floated before.
“Brian Baird is a former congressman from Washington state who served six terms in the house before retiring last year. He spent half of those 12 years trying to get his colleagues to prohibit insider trading in Congress and establish some rules governing conflicts of interest.
“Baird: One line in a bill in Congress can be worth millions and millions of dollars. There was one night, we had a late, late night caucus and you could kind of tell how a vote was going to go the next day. I literally walked home and I thought, ‘Man, if you– if you went online and made– some significant trades, you could make a lot of money on this.’
“So in 2004, Baird and Congresswoman Louise Slaughter introduced the Stock Act which would make it illegal for members of Congress to trade stocks on non-public information and require them to report their stock trades every 90 days instead of once a year.
“Kroft: How far did you get with this?
“Baird: We didn’t get anywhere. Just flat died. Went nowhere.
“Kroft: How many co-sponsors did you get?
“Baird: I think we got six.
“Kroft: Six doesn’t sound like a very big amount.
“Baird: It’s not, Steve. You– you could have– ‘National Cherry Pie Week’ and get 100 co-sponsors.”
Well, I don’t know what happened to National Cherry Pie Week, but last week Congress took a look at the numbers and quickly realized that many of them just might be out of a job by the end of the year if they didn’t act. That something is the Stop Trading on Congressional Knowledge Act, or Stock Act.
Connecticut Independent Senator Joe “Lieberman, the chief sponsor of the bill, said its passage would ‘help assure our constituents that we are here in Washington to address their concerns and not to profit personally’ from public service…
“The Senate also approved an amendment to block payment of bonuses to senior executives of Fannie Mae and Freddie Mac. Senator John McCain, Republican of Arizona, said it was outrageous that the executives were receiving bonuses after the mortgage giants had been bailed out by taxpayers.”
Now, it’s on to the House.
Let’s see if both Houses can finally take decisive action to “get their houses in order” when it comes to profiting from insider information.
Good work, Mr. Kroft.