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Quote:Congress's Phony Insider-Trading Reform
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The denizens of Capitol Hill are remarkable investors.

A new law meant to curb abuses would only make their shenanigans easier.




Members of Congress already get better health insurance and retirement benefits than other Americans. They are about to get better insider trading laws as well.

Several academic studies show that the investment portfolios of congressmen and senators consistently outperform stock indices like the Dow and the S&P 500, as well as the portfolios of virtually all professional investors. Congressmen do better to an extent that is statistically significant, according to studies including a 2004 article about "abnormal" Senate returns by Alan J. Ziobrowski, Ping Cheng, James W. Boyd and Brigitte J. Ziobrowski in the Journal of Financial and Qualitative Analysis. The authors published a similar study of the House this year.

Democrats' portfolios outperform the market by a whopping 9%. Republicans do well, though not quite as well. And the trading is widespread, although a higher percentage of senators than representatives trade—which is not surprising because senators outperform the market by an astonishing 12% on an annual basis..



....The "Stock" Act, as it is called, would make it illegal for members of Congress and staff to buy or sell securities based on certain nonpublic information. It would toughen disclosure obligations by requiring congressmen and their staffers to report securities trades of more than $1,000 to the clerk of the House (or the secretary of the Senate) within 90 days. And it would bring the new cottage industry in Washington, the so-called political intelligence consultants used by hedge funds, under the same rules that govern lobbyists. These political intelligence consultants are hired by professional investors to pry information out of Congress and staffers to guide trading decisions.


....Congress's rules would be clear and precise. And not too broad; in fact they are too narrow. For example, the proposed rules in the Stock bill are directed only at information related to pending legislation. It would appear that inside information obtained by a congressman during a regulatory briefing, or in another context unrelated to pending legislation, would not be covered.



...If the law passes in its current form, insider trading by Congress will not become illegal. I predict such trading will increase because the rules of the game will be clearer. Most significantly, the rule proposed for Congress would not involve the same murky inquiry into whether a trader owed or breached a "fiduciary duty" to the source of the information that required that he refrain from trading.

If enacted, the law of insider trading will remain one of many where one reality applies to Congress and an uncomfortable and insecure reality applies to everybody else. Just as Congress is protected from the vicissitudes of ObamaCare, Congress will remain safe from the vagaries of insider trading law. The rest of us will still be vulnerable.


" enacted": To make into law


Full story here: http://online.wsj.com/article/SB10001424...lenews_wsj
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