It’s no secret that members of Congress qualify as political insiders, but a new report strongly suggests that they also may be insiders when it comes to trading stocks.So, isn't insider trading illegal? Certainly, if I got insider information (like that will happen) and I took advantage of it to make a killing on a stock, I'd be pretty nervous about being investigated and arrested for insider trading like say, Martha Stewart. But when you make the laws...
An extensive study released Wednesday in the journal Business and Politics found that the investments of members of the House of Representatives outperformed those of the average investor by 55 basis points per month, or 6 percent annually, suggesting that lawmakers are taking advantage of inside information to fatten their stock portfolios.
“We find strong evidence that members of the House have some type of non-public information which they use for personal gain,” according to four academics who authored the study, “Abnormal Returns From the Common Stock Investments of Members of the U.S. House of Representatives.”
To the frustration of open-government advocates, lawmakers and their staff members largely have immunity from laws barring trading on insider knowledge that have sent many a private corporate chieftain to prison.This must be those dastardly Republicans, in bed with industry, that are raising the Congressional average, right? Well, not exactly:
Despite the GOP’s reputation as the party of the rich, House Republicans fared worse than their Democratic colleagues when it comes to investing, according to the study. The Democratic subsample of lawmakers beat the market by 73 basis points per month, or 9 percent annually, versus 18 basis points per month, or 2 percent annually, for the Republican sample.So, what to do? Congressmen should be held to the same standards regarding insider trading as the rest of us, but that means they have to pass a law against their own interests. Fat chance. The other alternative is transparency in their investments, and voters choosing to punish those who abuse their insider knowledge. I'm not confident that will work either.
“Given the almost folkloric belief that Wall Street invariably favors Republicans, the superior performance of trades made by Democratic representatives may seem surprising,” the study authors said.
One theory is that Democrats were the majority for most of the years under review and thus held more leadership posts, giving them greater access to nonpublic information. Once they took power in 1995, Republicans may have limited their ability to profit from the perks of political power because of their lack of leadership experience.