You cannot read the description of the options trading conducted by Rep. Spencer Bachus, the ranking member of the House Financial Services Committee during the financial crisis, and conclude anything other than the following:
Our government is completely corrupt.
Yes, this behavior may be technically legal, because of an absurd loophole that makes insider-trading rules not apply to Congress.
Yes, this behavior may be widespread on Capitol Hill.
No, there is no universe in which a reasonable person would consider this behavior ethical or in any other way okay.
According to a new book called Throw Them All Out by Peter Schweizer, as relayed by Dave Weigel at Slate, Rep. Bachus made more than 40 trades in his personal account in the summer and fall of 2008, in the early months of the financial crisis.
In one case, the day after getting a private briefing on the collapsing economy and financial system from Ben Bernanke and Hank Paulson, Rep. Bachus effectively shorted the market (by buying options that would rise if the market tanked.)
A few days later, after the market tanked, Bachus sold his position and nearly doubled his money.
If a corporate executive or Wall Street trader did this--cashed in personally after getting private, non-public information from his work--Rep. Bachus and every other member of Congress would be screaming from the rooftops about how the financial system is deeply corrupt and how the executive should be charged with insider trading.
And they would be right.
Rep. Bachus should return whatever money he made by betting on the direction of the markets (or anything else) in the fall of 2008. He should apologize for his behavior and jaw-dropping lack of judgement. He should urge his fellow members of Congress to immediately enact legislation that defends the fairness of the markets by holding Congress to the same insider trading laws as everyone else in the country. He should then resign in disgrace.
Here's the passage from Throw Them All Out, as relayed by Slate's Dave Weigel. According to Weigel, it is only one of many examples of Bachus's insider trading:
On the evening of September 18, at 7 p.m., Bachus received [a] private briefing for congressional leaders by Hank Paulson and Federal Reserve Bank Chairman Ben Bernanke about the current state of the economy. They sat around a long table in the office of Nancy Pelosi, then the Speaker of the House. These briefings were secretive. Often, cell phones and Blackberrys had to be surrendered outside the room to avoid leaks.
What Bachus and his colleagues heard behind closed doors was stunning. As Paulson recounts, "Ben [Bernanke] emphasized how the financial crisis could spill into the real economy. As stocks dropped perhaps a further 20 percent, General Motors would go bankrupt, and unemployment would rise . . . if we did nothing." The members of Congress around the table were, in Paulson's words, "ashen-faced."
Bernanke continued, "It is a matter of days before there is a meltdown in the global financial system." Bachus was among those who spoke. According to Paulson, he suggested recapitalizing the banks by buying shares.
The meeting broke up. The next day, September 19, Congressman Bachus bought contract options on Proshares Ultra-Short QQQ, an index fund that seeks results that are 200% of the inverse of the Nasdaq 100 index. In other words, he was shorting the market. It was an inexpensive way to bet that the market would fall. He bought options for $7,846 on a day when the Dow Jones Industrial Average opened at 8,604. A few days later, on September 23, after the market had indeed fallen, he sold the options for over $13,000 and nearly doubled his money.
SEE ALSO: Forget Pelosi: Here's The Most Stunning Detail About Congress's Insider Trading
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See Also:
- Study Finds Europe's Far-Right Parties Are Gaining Support Online
- '60 Minutes' Blows The Lid Off Congressional Insider Trading
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