Presidential candidates today frequently use popular pieces of music as campaign "theme songs" often without approval from the musicians themselves. But using music on the campaign trail is not a modern phenomenon: it goes back to our earliest presidential elections.
Insider trading is illegal. Members of Congress and their staff are not immune, but some say the law, as it applies to Capitol Hill, needs serious strengthening. In a new book, author Peter Schweizer charges that many members of Congress use information gleaned from behind closed doors to make well-timed stock trades, a practice he claims is legal under current insider trading laws. In addition he and others say Wall Street firms regularly profit from public policy insights picked up from many of these same sources. Join us to discuss insider tips from Washington: what’s illegal, what’s unethical, and what we should do about it.
- Donna Nagy professor of law, Indiana University Maurer School of Law
- Peter Schweizer William J. Casey Research Fellow,the Hoover Institution and author of "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"
- Robert L Walker Of Counsel, Wiley Rein,LLP and former chief counsel and staff director of both the Senate and House ethics committees
- Brody Mullins reporter, The Wall Street Journal
Steve Kroft reports that members of Congress can legally trade stock based on non-public information from Capitol Hill:
MS. DIANE REHMThanks for joining us. I'm Diane Rehm. The American people are beyond frustrated with Congress. This week's back and forth over extending the payroll tax cut is but the latest example of Washington gridlock, but add yet another complaint. Some charge that both lawmakers and Wall Street investors are legally profiting on inside policy information.
MS. DIANE REHMJoining me to talk about the issue: Robert Walker -- he's former chief counsel and staff director of both the Senate and House ethics committees -- Brody Mullins of The Wall Street Journal, and Peter Schweizer of the Hoover Institution and author of the book titled "Throw Them All Out." Joining us by phone from Indianapolis is Donna Nagy. She is professor of law at Indiana University. Throughout the hour, I look forward to hearing your questions and comments. Join us on 800-433-8850.
MS. DIANE REHMSend us your email to email@example.com. Join us on Facebook or Twitter. Peter, if I could start with you, in your new book and on "60 Minutes" recently, you've talked about how elected officials use their positions to make money. Tell us how.
MR. PETER SCHWEIZERWell, you know, it's interesting. People have always wondered, why is it, Diane, that some people come into political office with relatively modest means, and they end up leaving fairly wealthy? And it's a mystery in a way. But one of the things that I discovered in the book, and that "60 Minutes" reported on, is that members of Congress actively and sometimes aggressively trade stock for which areas that they have responsibility. They can be, for example, on the Senate banking committee and be trading bank stocks.
MR. PETER SCHWEIZERBy itself, that may not present a problem, except for the fact that they have access to so much information that's market moving, especially now that you have, you know, the bailout. You have the stimulus. You have so many areas that the government is involved. The ability to have access to that information and trade on the stock is there.
REHMAnd how common do you believe the practice is?
SCHWEIZERIt's hard to say. I think it's fairly common. Now, some are more successful than others. But it's very clear there are some members from both political parties who, out of principle, don't trade stock. Barney Frank, who's retiring, has only done bonds. And he's done that out of principle, and the Republicans as well. But there are many that pretty actively trade stock and if I...
SCHWEIZERWell, for example, Spencer Bachus, who's the chairman of the House Financial Services Committee, trades a lot of stock options, you know, betting that individual companies or sectors of the market will go up and down. He did so rather aggressively during the 2008 financial crisis when he was literally having, according to Hank Paulson's memoirs, private briefings with the treasury secretary, and then the next day, trading options on betting what the market would do.
SCHWEIZERI think this surprises a lot of people that members of Congress are able to do this, and they're able to do it with impunity, while at the same time in the executive branch and certainly in the judiciary, this would never be tolerated.
REHMAnd you say this is a bipartisan practice?
SCHWEIZERAbsolutely, yes. I don't think whether you have a D or an R after your name it matters. I think if you give people an opportunity, it's going to be very hard to resist the temptation. And I don't -- I'm not sure how you create sort of a hard wall between the information that you gleam from your job and say I'm not going to use that as it relates to my investment decisions. I think it's very hard to create that wall if not impossible.
REHMPeter Schweizer of the Hoover Institution. He is author of 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." Rob, would the kind of activity that's going on on the Hill be seen as illegal, unethical or both?
MR. ROBERT L. WALKERWell, I have to say the answer to that is it depends. Peter is right that members of the House and Senate may trade stocks and make investments in areas and industries that fall within their jurisdiction. What wouldn't be legal and what has never been legal is insider trading.
MR. ROBERT L. WALKERAnd as you may know, there've been -- following the "60 Minutes'" piece, which was based largely on or significantly on Peter's book, there've been numerous stories that insider trading is legal in Congress, and the fact of the matter is that's not true. It -- members and staff of Congress are subject to the same prohibitions as anyone else with regard to insider trading.
REHMBut I guess it comes down to how you define insider trading.
WALKERRight. I'm using it, you know, in the specific sense in which it is used by the Securities and Exchange Commission, particularly through what's called the misappropriation theory of insider trading. In other ways, the members can certainly trade in securities, and that certainly is the case. It's important to keep in mind that there is public financial disclosure.
WALKERAnd it's also important to keep in mind that one reason for the difference between the way conflicts of interest or potential conflicts of interest are policed in the legislative branch versus the executive branch -- and Peter has noted the difference -- is the notion that members in their legislative duties cover all industry areas, cover all segments of the American economy. So if you made them recuse from every area of themselves, from every area in which they would have some -- could take some official action, that could -- that would mean they would recuse from everything.
WALKERAnd, similarly, if they had to divest from every area in which they might take legislative action, that might require divestment of everything. So for that reason, public financial disclosure of assets and transactions is the principal means by which conflicts of interest are policed in Congress.
REHMRobert Walker. He is former chief counsel and staff director of both the Senate and the House ethics committee. Brody Mullins, what has your reporting shown on this issue?
MR. BRODY MULLINSWell, Robert is exactly right when it comes to the prohibition on insider trading applying to members of Congress. But there's a couple of important distinctions. One is that the traditional rules of an investor or a member of Congress getting money from a publicly traded company, information that's market moving that is non-public and is traded in violation of a duty is clearly illegal insider trading by whoever does it.
REHMYou got to be plainer about that description, Brody.
MULLINSWell, what I'm saying is that the legal SEC definition of insider trading applies to members of Congress, but we're talking about something a little bit separate, which is not information that members of Congress get from publicly traded companies but information that members of Congress get about government activities that could affect publicly traded companies. And that's where you get a little bit of a bank shot so that many people think that the rule -- that traditional rules don't apply. Rob might disagree with that, and he has in testimony before.
MULLINSBut the fact of the matter is that the chairman or the chief enforcement official of the Securities and Exchange Commission came to Capitol Hill to testify in this. And he said, you know what, I think I could probably prosecute a case, but I'm not positive because I think there's a chance that a judge could have a separate opinion on how these rules apply. And, therefore, it could get -- his case could get overturned. And, therefore, he said we should have a bill to make this very clear that members of Congress can't trade on this information.
REHMAnd has such a bill been introduced?
MULLINSThere have been two bills, more than two bills introduced. One is moving through the Senate. It passed the Senate committee last week, so it should come up on the Senate floor sometime next year. Meanwhile, a House bill, introduced by Rep. Louise Slaughter, has more than half -- the support of half of the members of Congress.
REHMBrody Mullins. He is a reporter for The Wall Street Journal. Turning to you, Donna Nagy, whatever happened to the idea of blind trust for every single not only high appointed official but elected official?
PROF. DONNA NAGYI would say that that idea is still there vigorously, and I would assume that the Securities and Exchange Commission or the Justice Department and the appropriate case would predicate their prosecution on precisely that duty. Now, I should say stepping back, the controversy surround the application of existing law to Congress stems from the fact that Congress has never enacted a federal security statute that explicitly prohibits anyone from insider trading.
PROF. DONNA NAGYAnd so in the absence of a specific statutory prohibition, insider trading is generally illegal only insofar as it is fraudulent. Now, in the best majority of insider trading prosecution, what is that issue is a quintessential fiduciary-like relationship where the trader is an employee or an agent that is alleged to have defrauded his employer or principal. But the Supreme Court has never implied, let alone stated, that a relationship has to be strictly a fiduciary one for a duty of disclosure to attach under Rule 10b-5, misappropriation theory.
PROF. DONNA NAGYWhat the Supreme Court has looked to and what lower courts constantly focus on is whether there's a duty of trust and confidence between the person who is trading and the source of the information. And I believe that Securities and Exchange Commission would argue that the federal government, the Congress itself and the American public is ultimately the source of non-public, congressional knowledge.
REHMDonna Nagy. She is professor of law at Indiana University. We'll take a short break and be right back.
REHMAnd in this hour, we are talking about accusations in a new book by Peter Schweizer of the Hoover Institution. He is the author of "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." We also have Donna Nagy on the line -- she is professor of law at Indiana University School of Law -- Brody Mullins, who's a reporter for The Wall Street Journal, and Robert Walker. He is the former chief counsel staff director of both the Senate and the House ethics committees.
REHMWhat I don't understand as an ordinary citizen is why elected officials are not subject to the same regulations that appointed officials in the executive branch or elsewhere are subject to namely the idea that all of their monies are put into a blind trust when you've got officials up there on Capitol Hill who know what's coming because they are working on particular issues. Why shouldn't they be subject to the same kind of regulation, Peter Schweizer?
SCHWEIZERI agree with you completely, Diane, because the issue is, even if you have a law that makes it abundantly clear, that insider trading on congressional information is absolutely illegal in all of these instances. I have very little confidence that the Securities and Exchange Commission would ever take on a powerful member of Congress. And the example that I would use is to look back at the case involving the FBI and the Justice Department and Congressman William Jefferson.
SCHWEIZERYou may recall he was the congressman that had the money in the freezer. In this case, they got a search warrant from a federal judge to search his congressional office, which they did, at which point there was a huge outrage in Congress. Both political parties, Republicans and Democrats, saying that this was an abridgement of congressional authority, and there were literally threats to cut the FBI or Department of Justice budget because of this raid.
SCHWEIZERSo if they got a federal search warrant in this instance in an explicit case of bribery, and there were threats to cut the budget, imagine what would happen to the SEC if they ever started seriously looking into a powerful member of Congress.
REHMDonna Nagy, how do you react to the idea that all members of Congress should be subject to putting their assets into a blind trust because of the fact that they do have access to this information?
NAGYYeah, I think the issue of blind trust is one that deserves very serious consideration. I think that would certainly -- if there were requirement, that would certainly alleviate much of the issues even if Congress legislates and makes it unmistakably clear that there is the duty of trust and confidence that myself and others believe the law already supports. There's also a proposal in Congress that in the House, where it would be a blind trust -- or for those that would choose not to follow the blind trust route would have to disclose any trading within three days.
NAGYAnd that might be a more workable alternative because, for members of Congress that enter office without substantial assets, they might not be in a position to set up a blind trust, and so the alternative of disclosure within a few days might be a good one to explore as well.
WALKERI think Donna makes a good point. There does need to be, in my view, a choice here. Blind trust and the creation of blind trust, that is certainly one mechanism to address these kinds of conflicts. But a couple of things need to be kept in mind about blind trust. First of all, they're not totally blind. They are blind -- they are not blind as to what a member would put into them. In other words, the member knows what securities go in there. So in terms of eliminating...
REHMBut he has no control of...
WALKERHas no control. But in terms of taking legislative action that could be viewed as affecting their holdings, they are not blind to that unless they put in all cash. And I don't think there ought to be a requirement that members need to cash out of their investments to go into a blind trust. Other things to keep in mind is that blind trusts are a very cumbersome mechanism with very, very strict limitations on communications. There are administrative costs. For many members with relatively few assets, it would not be a feasible option.
REHMOK. But we started this conversation by talking about the extent to which members of Congress go in with relatively little money, and yet at the end of their terms, not only do they have retirement funds and the like, but they come out too often as millionaires. How does that happen, Peter?
SCHWEIZERWell, it happens in a variety of ways. One of them that we haven't talked about yet that goes to this issue of conflict of interest is that the earmarking process. We're familiar with earmarks and the practice of inserting a piece of legislation in, say -- a piece into, say, the highway transportation bill to build a certain road in an area. There are members of Congress that have put in earmarks that increase the value of their personal real estate. And these have been a transaction.
REHMGive me an example.
SCHWEIZERWell, there was a -- the most critical example would be -- involved Dennis Hastert, when he was speaker of the House, who would purchase about 333 acres of land in rural Illinois then inserted a $207 million earmark into the federal highway transportation bill to build something called the Prairie Parkway. The Prairie Parkway just happened to run nearby by the property he had purchased. He turned around and sold it less than a year later for, based on the ranges, approximately a $2 million profit.
REHMBut presumably, that would not be illegal.
SCHWEIZERIt's not illegal. And there are other transactions not quite as big and as dramatic that involve earmarks where individuals had a, you know, personal stake in real estate nearby, and those earmarks and those transactions were actually approved by the ethics committees. Now, I understand the difficulties of the conflict of interest provision, but I think, you know, at a minimum, I don't think a member of the Senate banking committee should be trading bank stock. I don't think if you're on services committee you should be trading defense stock.
REHMBrody, in yesterday's Wall Street Journal, you wrote, seeking advance word of government decisions is part of a growing lucrative and legal practice in Washington. Give us a sense of this scope.
MULLINSThis is a real new issue on Capitol Hill now. In the last three years, as Washington has gotten more important and has more influence in the financial markets, and really the economy overall, a lot of folks on Wall Street and hedge funds have figured out that Wall Street or -- I'm sorry, that Capitol Hill can be a gold mine for market-moving information, you know, issues that we've been talking about. A Congressman's going to move a bill on issue, why?
MULLINSThat's going to push down the stocks of companies, you know, A, B and C. So the hedge funds come to D.C., figure out that information and go buy or sell those stocks. We wrote about a group in the paper yesterday that said that they've had 200 meetings directly with members of Congress about legislation that could affect the stock market just in the last three years, and that's just one company.
MULLINSThere are now dozens, as many as 70 or 80 companies or individuals who are sort of in the business of setting up members of Congress, members of the administration, congressional staff members, with hedge funds, with investors to figure out what's coming down the pike on Capitol Hill that Wall Street can make money out of.
REHMWhat kind of reaction have you gotten to that piece?
MULLINSWell, we've got a pretty tremendous reaction. I mean, it was pretty eye-opening for a lot of people, including myself, that Wall Street has direct access to these members of Congress. I think most people feel that members of Congress should be serving the public and not, you know, the richest people in the country.
REHMAnd, Peter, you also write about people outside of Congress who benefited enormously by knowing about new laws and regulations coming up. For example?
SCHWEIZERWell, for example, they don't really know the names, but there was a lot of curious trading this past summer when the Obama administration was making decisions related to the Strategic Petroleum Reserve and the issues of releasing some of that. There was aggressive trading of oil stock before that. There have been meetings in New York City on Wall Street with senior Pentagon officials, who have talked about the fact that the defense budget is going to be going down and that they want to handle this in sort of a way in which it protects the viability of the defense industry. But the...
REHMBut can't it be said that any wise investor working with an informed broker or financial adviser could find out the same kind of information?
SCHWEIZERIn some instances, yes, in others, no. I mean, the example I would give is the health care reform act in 2009 in which many members had not had an opportunity to read that bill. There was, for example, a small provision in there that gave biopharmaceuticals -- that is, biotech companies -- that were developing biopharmaceuticals, it gave them a 12-year exclusive patent protection when other drug manufacturers only get five years.
SCHWEIZERThat's a huge gain for the biotech industry. But who actually knew about it? It's a small provision in a very large bill, a bill that most people hadn't even seen. That would be the kind of information that if you knew it was in the bill and there was a chance of it to pass, you could trade on biotech, and I argue that there were people who did so.
SCHWEIZERWell, Congressman Jared Polis of Colorado bought EFTs (sic) in the biotech sector. His committee was actually involved in the health care reform act provision, and he bought between $750,000 and $1.5 million in biotech EFTs right before that bill passed.
WALKERDiane, if I could interrupt.
WALKERI do think that -- first of all, you make a good point that -- the question is, is this nonpublic information, and are hedge funds and financial institutions getting special access, or is this information that is otherwise being reported? And that has to be looked at. You know, hedge funds and financial institutions have a right to get information from members of Congress, just like anyone else, as long as they're not getting special access and special information.
REHMBut it sure looks special, Rob.
WALKERWell -- but the point is that it is not always -- if it is special, and if it is and members are getting something out of it, that's a problem. And it may look special, but you've got to look beneath the appearances. For example -- and also with respect to individuals, the analysis can't just be here was this bill, here was this trade. Again, just because one thing follows another doesn't mean that it was caused by that. You have to be very careful.
REHMI've been in Washington long enough to have heard that said many, many times. And you're listening to "The Diane Rehm Show." Donna, is what Brody and Peter and Rob have been talking about perfectly legal, or is what's going on today different?
NAGYWell, existing law on issues regarding selective disclosure of nonpublic information is much more complicated than the question can a senator or a representative himself or herself trade on congressional knowledge. So I can see that this area of sharing information to others who trade is far more complex under existing law. If a member of Congress has a legitimate reason to share information, to seek input and to get feedback, then hedge funds have the same -- as Rob said, hedge funds have a similar right to participate in that process of give-and-take of government.
NAGYHowever, if a member of Congress shares information for the specific purpose of aiding the securities trading, if a member of Congress is doing so for a personal benefit and that is a quid pro quo of sorts, then existing law has theories, a tipper-tipper liability under which that, too, can be prosecuted. But key is always going to be: What is the motivation of the member of Congress sharing the information? And if it is a legitimate motivation to inform, then existing law likely would not cover that type of scenario.
REHMBut, of course, individuals do not have the access that perhaps hedge funds have to members of Congress. I can't just walk in to a member of Congress' office and say, well, here's what I'm particularly interested in. What can you tell me about it, Peter?
SCHWEIZERWell, you're exactly right, Diane. And the problem is that when it comes to, you know, these sorts of meetings and discussions, there's not really transparency. I mean, Congress, of course, is exempt from the Freedom of Information Act. There could be good reasons for that. I understand it could be cumbersome, et cetera. But the fact is, is that you can get, you know, through the Freedom of Information Act, information about who the president is meeting, who senior White House staff are meeting with, who senior Treasury officials are meeting with.
SCHWEIZERBut if a member of Congress is having a phone conversation or a meeting with, you know, hedge funds or financiers sharing who knows what information, you can't even discover whether that meeting has taken place.
REHMBrody, I gather that support is apparently growing for the STOCK Act. Tell me what it would entail.
MULLINSYes. The bills really weren't around -- earlier this year, there's only one bill that had been introduced in the House and had roughly a handful of co-sponsors. There are no bills in the Senate. In the last month and a half, the House bill is up to 230 or so co-sponsors, maybe 240. There are two Senate bills. There's multiple proposals. There's ideas of mandatory blind trust of immediate disclosure.
MULLINSSo this is a real topic that's growing in importance on the Hill. We'll see what happens next year because, as we've discussed, a lot of these issues are complicated. It sounds pretty easy to say...
REHMIt sure does.
MULLINSRight. It sounds pretty easy to say a member of Congress should not trade on inside information. You know, we've been talking here for nearly 45 minutes and understood how complicated it really gets with First Amendment rights, with the speech and debate clause in Congress. But when I step back and look at this -- you know, Rob has been a lawyer for a long time, defending or, you know, implementing the rules on -- in the House and Senate.
MULLINSWhat I think is most amazing, which he agrees with, is that the executive branch has very strict rules when it comes to these things. Almost everything we're talking about you could not do if you work for the administration, yet on Capitol Hill you can. I think that's the best way of showing the difference between the rules here and Washington.
REHMBrody Mullins. He's a reporter for The Wall Street Journal. We've been talking about this now for half an hour. And when we come back after a short break, I'd like to hear what you think about the entire issue. Call us on 800-433-8850. Send us your email, your Facebook postings or your tweets.
REHMAnd welcome back. Here's a -- an email from Steven that comes in large caps. Here's how it reads, "There is one very simple solution to the problem of members taking advantage of what they legislate real time: full disclosure of every trade of every member, period, and blind trust, too." What do you say to that?
MULLINSOne interesting thing is in the SEC's testimony in the House a couple of weeks ago, again, the chairman of -- or the head of the enforcement division said that he would prefer faster disclosure. The way the disclosure statements work now is that members of Congress once a year, about May or June, need to put out a lengthy report on all their financial transactions the year before. The problem with that is that if someone makes a trade on information they get from a meeting with a company or a regulatory official in January, that trade is not disclosed for nearly 18 months.
MULLINSAnd what the chairman -- or the enforcement head of the SEC said was sometimes that's too long, that memories fade, that people forget. So when they go back to try to figure out what of them are new, people have forgotten. It was such a long time ago.
SCHWEIZERYeah. That's a great point. And to add to that, the other point that the head of enforcement at the SEC made, which I was sort of astonished by, is that these annual disclosures are made on paper. They're not electronic. So the SEC was saying we don't even really have the capability to search through old trades. Now, there are some nonprofit watchdog groups. You can go to opensecrets.org, the Center for Responsive Politics. They have put them in electronic form, but, you know, I was stunned.
SCHWEIZERI mean, this is the 21st century. They ought to be electronic disclosure, and it ought to be, I think, you know, within, say, three to five business days. So if there is a defense bill or a health care bill that's up and someone's buying or trading pharmaceutical stock or defense stock, we know about it right away.
WALKERI certainly agree that increased disclosure would make sense, whether it's immediate, whether it's within three days or 30 days. The period now is quite long. But you also have to keep in mind the information has to get out there publicly, and I think doing it electronically makes sense as well. But that means the public also has to review it and act upon it.
WALKERMany of the things that Peter has talked about as having occurred with various members, that was public. But what was the public reaction? Those members still stayed in office. So there is a public response component to all of what we're talking about.
MULLINSSo two points here. Technically, that information was public. But if it wasn't for OpenSecrets and it wasn't for this group called LegiStorm...
WALKERAnd your reporting.
MULLINSAnd my reporting, thank you.
SCHWEIZERYes, and Brody's reporting, yes.
MULLINSWhich leads to my second point, but in order to get those forms, you have to literally go -- take the subway up to Capitol Hill, go into one office building in the Senate or one office building in the House and print out these forms for something like 10 cents a page. So, yes, they're public. But the public doesn't really have access to them 'cause they're not on the internet.
MULLINSNow, The Wall Street Journal and other newspapers have written about these reports, but you have to go dig them up. It's a lot of work, and that's how the public finds out about them. But it's not easy to get these reports.
REHMAll right. Let's go to Ray.
SCHWEIZER(unintelligible) online in the House.
REHMLet's go to Ray in Bethany Beach, Del. Good morning.
RAYGood morning, Ms. Rehm. How are you today?
REHMFine, thanks. Go right ahead, sir.
RAYMy initial comment was regarding the language that was being used. It seemed very complicated and very legalist, and I was just concerned about that. But being on the phone and listening to the conversation for the last 15 or 20 minutes, I can't help but reinforce what everybody is thinking about population of this country that we're very, very frustrated with what's going on with our elected officials.
RAYWe're -- we as individuals -- I'm a small business owner. I have five employees at this particular point in time. We're held to a higher standard, I think, legally from the people that actually we vote into office. Well, the other comment I wanted to make was that in conversation a few minutes ago, when somebody sent an email that was in all caps, I heard laughter in the background. To me, that's extremely offensive. Somebody is very passionate about what they're trying to say.
REHMOh, absolutely. I fully agree with you. I was emphasizing the all caps precisely for that reason, that that person was very, very intent on getting his message across. No insult intended. Thanks for calling.
REHMAnd here's an email from Daniel, who says, "Prior to the bank bailout of 2007, Congressman Shelley Moore Capito, who's husband is in the employee of Citicorp in an executive position, benefited by the advance knowledge on both sides: A, the condition of Citicorp at the time, B, the foreknowledge of the bailout bill as to timing, value and its mechanics. Had any of us ever done the same thing, the SEC would have set the jailhouse down on top of us." Donna Nagy.
NAGYWell, there you have two instances. And I know none of the facts, and so I can only opine on the hypothetical. I mean, a member of Congress who receives information from a spouse or a friend or a relative and then uses that information in personal securities trading, I'm not sure there's anyone that would claim that that is not something covered under existing law.
SCHWEIZERYeah. In the specific case that they cite, I don't know if there was insider knowledge that was involved. What we do know is that they sold Citibank stock up to -- before the financial crisis and the bailout. And on the House Financial Services Committee itself, as they were writing TARP legislation, you had at least eight members on that committee who were buying and selling bank stock at the same time they were putting the TARP bill together.
SCHWEIZERThere was an academic study done a couple of years ago, Diane, where they looked at who voted for the bailout and why they voted or their theories. And what they discovered is that the largest determining factor in their estimation was not political party affiliation. It was not whether you were a liberal or conservative. The biggest correlation seemed to be whether you owned shares of banking stock.
SCHWEIZERIf you're a member of Congress and you own shares of banking stock, you are much more likely to vote in favor of the bill. If you didn't, you voted against. Now, is that causation? I don't know. But it's interesting to consider that you have these stock trades going on at the same time you're looking at bailing out this large sector.
WALKERWell, there is no doubt that that happens. There is absolutely no doubt that members may trade in areas and in industries over which their committees have jurisdiction. It is a question -- now, obviously, if they're doing it with inside information, that's a problem both under federal law and under the ethics rules. But if you want to eliminate the possibility of members trading in stocks over which they have jurisdiction, again, we've talked about potential mechanisms and some of the problems. One is blind trust.
WALKERThere are issues there. Increased trade, increase disclosure and electronic disclosure would certainly make this public. But right now, unless a member is going to be benefited by voting on a legislative action that's going to benefit him either personally or as part of what's called a limited class -- and it's more than just two people. It has to be a general class. If -- unless they vote on a limited class and they're in that class and are being affected financially, they may undertake legislative actions. Those are the rules as they're currently structured by Congress.
REHMAnd they need to be changed, Brody.
MULLINSI just want to make one thing clear. I don't think there's any newspaper in the country that's done more work at looking at these financial disclosure forms than The Wall Street Journal. And I can tell you, insider trading on Capitol is not a rampant problem. However, like almost everything in Washington, there's a small degree of people -- there's a small group of people who may be pushing the rules or may be violating the rules. And that's what we're talking about here. But 99 percent of members of Congress are not trading on insider information.
REHMOK. Brody, I want to ask you then, why is it that so many members of Congress come in with very little money and exit as millionaire?
MULLINSYou know, that's a really good question. It's probably not -- I'm probably not the best person to answer it, but, you know, these folks do make $160,000 a year, which is a decent amount of money. They're usually in Congress for a pretty long time. A lot of their travel -- work travel is paid for them. They do have to maintain two residences a lot of times. It's not an easy job.
MULLINSBut certainly any person who's been on Capitol Hill for a while, a member of Congress or a staffer, has the ability to go after Congress and be a lobbyist and double or triple or quadruple the amount of money they're making on the Hill.
REHMYeah, but that's before they leave Congress. Here's an email from David in Alexandria, Va., who says, "Is it any surprise that the body makes the laws would also tilt everything in their own favor? It's not just insider trading. They also get prime health care for life, generous retirement benefits. They're exempt from many labor laws. What can private citizens do to change the balance?" What do you think, Peter?
SCHWEIZERWell, let Robert talk to the specifics. I'm not really up on the, you know, health care benefits, et cetera. But what I would say is I think people are very frustrated and angry, and I think rightfully so. And what I would encourage them to do -- I mean, the reason that I call the book "Throw Them All Out" is not -- to pick up on Brody's point -- not to suggest that everyone in Congress is bad. I just think that we need to have a zero tolerance policy.
SCHWEIZERYou know, in my case, I am politically conservative, but I have to have a zero tolerance policy. If there's somebody I agree with on 95 percent of the issues and they're doing this stuff, I need to vote and be against them. I think we have to have a zero tolerance policy. There's too much, I think, on both political sides of saying, well, you know, they're our guy, so, you know, we're going to kind of let a few things slide. I think we need to change that mentality.
REHMAll right. Let's go to Moore Haven, Fla. Good morning, Jeff.
JEFFGood morning. Thanks for taking my call.
JEFF(unintelligible) old man. I travel a lot. I've had a lot of businesses, but I remember back when it was not profitable for someone to literally steal or do insider trading because they're into a 95 percent tax bracket. If you left the old rules alone and just go back to the original tax structure, back then it wouldn't behoove the CEO of a company or the governor or a senator or a congressman to keep on hoarding.
JEFFThey're not hoarding money. They're hoarding human labor, human rights, and that's enough. So once you get to a certain number, I don't know what number would be, but there's a way the tax structure has to be changed. And also, you people are not recognizing the fact that the average person in this world is trying to pay their rent and buy food. They are not paying, buying taxes or stocks and bonds. We've got a huge problem, and the tax structure has to go back.
REHMAll right. Sir, thanks for calling. The tax structure itself, how would you respond, Peter?
SCHWEIZERWell, I don't know if I would, you know, go into the whole issue of the tax structure. What I would say, though, is that there, very clearly, is a perception outside of Washington. I happen to live in Florida, and I've done recently a lot of -- I mean, there's no question that there is a perception by the American people that things are pretty good for, you know, people in Washington, that, you know, seven of the 10 wealthiest counties...
REHMThat's the perception?
SCHWEIZERYeah. That seven of the 10 wealthiest counties in the United States are counties that border Washington, D.C. D.C. recently passed Silicon Valley as highest per capita income. We can debate whether that's good or bad, but people are very frustrated because the perception is that, while the rest of the country struggles, in Washington, D.C., there doesn't seem to be the same sense of urgency because they they're not feeling the same economic impact that the rest of the states are.
REHMAll right. And here is an email from Maryland, who says, "At the peak of allegations that Halliburton was profiting from the Iraq war, then-Vice President Dick Cheney said over and over that his investment were in a blind trust and that when he left office, his holdings would be sold and the proceeds, given to charity. That was his way of deflecting questions. But, of course, there has been no follow-up to see if he actually did that." Do you know, Rob?
WALKERI don't know.
REHMDoes anybody know? Interesting. I think that's some -- for somebody to follow up on. And I'll take -- let's see -- and you're listening to "The Diane Rehm Show." Let's go to Fort Wayne, Ind. Azariah, you're on the air.
AZARIAHGood morning, Diane.
AZARIAHA few years ago, I was the host of a syndicated Christian TV show, and I was really good friends with a guy named Jay Sekulow, more so his son, but Jay Sekulow heads up an organization called the ACLJ, which is -- which was founded by Pat Robertson, and he's a pretty powerful person in D.C., as far as I know. And his son told me, at one point, that if it was election season, he would be able to get me more money for the show.
AZARIAHAnd I always thought that that was kind of unethical. And I would like to hear what your panel might have to say about that. And, like, how would they go about doing that? Like, how would politicians, you know, be able to give him money? Does that make sense?
REHMI don't think it does to our guests. Rob.
WALKERI don't really understand the question and the situation that he's describing. If he's talking about people legitimately purchasing some form of advertising on the show, it may certainly be that in an election season there might be an increase in legitimate purchasing of advertising. But I really don't have a way to know whether that's what he's talking about.
REHMAll right. Realistically, with everything that is going on in Congress or what's not going on in Congress, do you realistically expect something to be done about this issue in 2012? Rob?
WALKERI don't -- I think it's 50-50. Maybe the odds are a little less than 50-50 that the STOCK Act itself will pass. I do think there will be some action by the House and Senate, with respect to their internal rules. So that's what I think, although, one has to realize the STOCK Act is gaining momentum.
SCHWEIZERI think that if the American people continue to let their elected officials know of their concern of this issue, I think it will. I think they're very sensitive and rightfully so to the perceptions that the American people have on this issue.
NAGYChairman Lieberman's Homeland Security Committee last week voted out 7-2, I believe, a version of the STOCK Act that I think clarify existing law. I think it's a very strong piece of legislation. And I would hope that 2012 sees its passage.
MULLINSCongress will do something. I don't know what it is.
MULLINSSomething. They'll pass some version of this bill, some version of a different bill. Maybe they'll require some disclosure. Maybe they'll require disclosure of political intelligence people. They'll do something. I just don't know how aggressive it'll be.
REHMBrody Mullins of The Wall Street Journal, Donna Nagy, professor of law at Indiana University, Peter Schweizer, author of "Throw Them All Out," and Rob Walker. He's former chief counsel and staff director of both the Senate and the House Ethics committees. If you'd like to see something get done about this, whenever they get back to Washington, call your own elected representative. Thanks for listening. I'm Diane Rehm.
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