If This Were the Private Sector, Those Congressional Staffers Would End Up in Jail

This is really crazy. Yesterday, the Wall Street Journal had this front page story about how congressional staffers are allowed to use information about policies about to be implemented to invest in stocks and make money.

At least 72 aides on both sides of the aisle traded shares of companies that their bosses help oversee, according to a Wall Street Journal analysis of more than 3,000 disclosure forms covering trading activity by Capitol Hill staffers for 2008 and 2009. 

The Journal analysis showed that an aide to a Republican member of the Senate Banking Committee bought Bank of America Corp. stock before results of last year’s government stress tests eased investor concerns about the health of the banking industry. A top aide to the House Speaker profited by trading shares of Freddie Mac and Fannie Mae in a brokerage account with her husband two days before the government authorized emergency funding for the companies.

Now, this is called insider trading in the private sector, and people are going to jail for it. Now, whether one thinks that insider trading is a crime that deserves punishment is not even the issue here. What is stunning is that while insider trading is illegal in the private sector, it is totally legal for government employees to do it, because insider-trading laws don’t apply to Congress. Basically, Congress passed a law making insider trading illegal for the private sector and exempted itself.

Some lawmakers find the double standard shocking, and a few years back, a few of them proposed a bill that would prevent members and employees of Congress from trading securities based on nonpublic information they obtain. That bill went nowhere. Here is the interesting part — according to the Journal:

When the bill was introduced nearly five years ago, just 14 other lawmakers endorsed it. The current version of the bill has fared worse: Only nine lawmakers support it. There is no companion legislation in the Senate.

The whole story is here. And here is a follow-up piece about trying to make it illegal for congressional staffers to trade on information they gather while watching their bosses regulate the heck out of us.

Veronique de Rugy — Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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