Learn something new every day.
And have fun doing it.
As we reviewed in Part 1: Fortuitous Land Investments, politicians are quite skilled at investing their income from (relatively) modest public servant salaries. So skilled, in fact, that many of them become multi-millionaires while in office. We can only hope to learn from their careful investing in the stock market and frugal spending habits…
Insider trading is a pretty straightforward scheme. Someone tells someone else about future news (good or bad), and that someone else makes a profitable stock trade before the general public knows anything about it. Easy money. Also illegal.
Our faithful public servants arguably have plenty of access to insider information, but they also have far more insidious opportunities to make serious bank on the market.
Public companies register to lobby in Washington to win legislative victories favorable to their business. What company leadership wouldn’t want to do that? The problem occurs when the very same people who decide what legislation is going to pass or not pass are also able to buy shares in the companies about to be impacted by their actions.
Sound rotten to the core? It is. And surprisingly, also mostly legal. Yet another reason not to trust our fearless elected leaders, as if we needed that…
You, too, can aspire to stock market champion if you make the laws that influence the prices.
Keep it simple, stupid
Sometimes, following the legislation-to-money trail is easy. Senator Tom Coburn once bought tens of thousands of dollars in bonds for a genetic technology company right around the same time he released a hold on legislation favorable to the company. He reported it per policy, so it was arguably perfectly legal. Coburn replied that the investment was made by a broker, the timing was coincidental, and the government actions couldn’t be proven to increase the value of the investment. Most of us would agree that kind of potential direct impact on a market investment represents, at minimum, a conflict of interest.
It’s good to have ESP. Or friends who know what news is coming.
Senator Dick Durbin was briefed by Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke that the economy was in deep trouble. Within 48 hours, Durbin had sold over $115K of securities, sure to be negatively impacted by a downturn. He also purchased lots of Berkshire Hathaway stock days before BH purchased a big chuck of Goldman Sachs. Savvy investing indeed.
House Financial Services Committee member Rep. Shelley Capito of West Virginia also got lucky when she coincidentally decided to dump up to a quarter million in Citigroup stock the day after the same briefing.
Buy, then legalize weed…
Rep. John Yarmuth bought stock in a few cannabis companies while pushing legislation supportive of the industry. As a co-sponsor of the Marijuana Opportunity Reinvestment and Expungement (MORE) Act, Yarmuth was in a great position to influence the value of his investments. At least one of the three stocks Yarmuth purchased increased in value by a factor of nearly four, and the representative did purchase more shares in all three companies. That’s sick, man…
Timing is everything
Senator Reid invested somewhere between $50 and $100K in the Dow’s Energy Sector Fun (IYE) in late 2005 at $29.15 per share. No problem. He later made a partial sale of IYE shares at $41.82 in August 2008. Again, no problem. One month later, Reid worked to bring a bill to the floor that would cost energy companies billions in taxes and fees. Most reasonable people would agree a bill like this would tank energy sector stock prices. The bill passed, and energy stocks, say, like IYE, collapsed 42 percent to $24.41. Good thing he sold the previous month, huh?
Lots of elected officials made money related to the COVID pandemic. Few would argue that Capitol-dwellers had the earliest and most accurate information about both negative impacts on industry and opportunities for new businesses like treatment and vaccine companies.
Allegations have arisen linking trades on pandemic-influenced stocks by a smorgasbord of politicians, including Dianne Feinstein, Kelly Loeffler, Richard Burr, David Perdue and Rand Paul, just to name a few.
Active bipartisanship lives!
While our Congress Critters can’t agree on much, there is one issue where they’re in lockstep—self-enrichment. According to a Washington Post report some years back, the split between Democrat and Republican lawmakers cashing in on shady market investments was almost exactly evenly split.
Regardless of party affiliation, these folks sure keep busy with stock trades. A report claims total activity for Congress in 2021 exceeded $355 million. A 2010 study determined that 150 of the 535 elected representatives in Congress exceeded congressional paycheck earnings with outside investments.
See? You, too, can make a fortune in the market in just one easy step: get elected to Congress. If this article hasn’t ticked you off quite enough, you may want to check out the book, Throw Them All Out: How Politicians and Their Friends Get Rich Off Insider Stock Tips, Land Deals, and Cronyism That Would Send the Rest of Us to Prison