60 Minutes Misfire
This past Sunday, CBS’ 60 Minutes had a golden opportunity to expose the egregious practice of insider trading by members of Congress. Perhaps to add more punch, the program curiously aimed its sights on House Speaker John Boehner (R-OH) and Minority Leader Nancy Pelosi (D-CA). Upon further inspection, however, it’s clear 60 Minutes should have focused elsewhere.
It has long been known members of Congress considerably outperform the general public in receiving abnormally high returns from their stocks. As public officials are often privy to advance knowledge based on proposed legislation or regulatory acts, these high returns suggest – and the evidence bears out – members are cashing in on inside information. To date such actions are legal, as Congress has failed to act on legislation that would bar members from trading on this sort of inside information. Under current law, “insider trading” is defined as the buying or selling of securities or commodities based on non-public information in violation of confidentiality either to the issuing company or the source of information. Congressional officials and employees, however, have no duty of confidentiality to these companies and thus are not liable for insider trading.
The transaction in question for Pelosi dates back to her time as Speaker of the House in 2008. In March of that year, her husband purchased 5,000 shares of Visa stock as part of an initial public offering. This purchase, 60 Minutes contends, came “just as a troublesome piece of legislation that would have hurt credit card companies began making its way through the House …[t]he credit card legislation never made it to the floor of the House.” The implication is clear: Pelosi and her husband purchased the stock, and in order to profit financially from the purchase Speaker Pelosi killed legislation the credit card industry opposed. If true, CREW would be the first to sound the alarm. But the facts simply don’t add up.
The legislation at issue (pertaining to swipe fees) was reported out of the Judiciary Committee on October 3, 2008, the last day of the regular legislative session and on the same day the House was consumed with responding to the financial collapse and bailout. Thereafter, the House had merely four days of lame duck session in November and December and there was no chance the president would sign the swipe fees legislation into law. But it was under Speaker Pelosi that the House of Representatives passed not only the Credit Cardholders Bill Rights in 2008 (legislation fiercely opposed to by the credit card industry), but also the Dodd-Frank legislation in 2010, which incorporated a more robust version of the swipe fees legislation. Anyone who watches Congress knows that just because a bill is reported out of committee doesn’t mean it is set for passage by the full chamber. There are always political considerations involved, and in this case the swipe fees legislation zeroed in on by 60 Minutes was not slowed down by Rep. Pelosi, but rather the political realities of the day. The fact is, Rep. Pelosi has been out front pushing to protect consumers from predatory fees and the idea she was protecting the credit card companies is preposterous.
Similarly, Rep. Boehner received no better treatment. 60 Minutes suggests Rep. Boehner’s opposition to the “public option” as part of the health care overhaul stemmed from health insurance stocks he purchased shortly before the public option was killed. This is laughable on its face. Not a single Republican supported the public option – nor did the majority of Blue Dog Democrats and the White House – and as Minority Leader in the House, Boehner had little power to “kill” it. Boehner’s spokesman sums it up nicely: “The idea that the Republican Leader in the House opposed the ‘public option’ … for personal profit is, frankly, stupid.”
60 Minutes did a disservice to Pelosi and Boehner, and undermined the case for the “Stop Trading on Congressional Knowledge Act” (STOCK Act). The program should have kept its focus on real examples of congressional insider trading such as Rep. Spencer Bachus, who was sitting in meetings with Fed Chairman Ben Bernanke and Treasury Secretary Hank Paulson during the early stirrings of the financial crisis and then making big bets the stock market would tank. Similarly, Majority Leader Eric Cantor (R-VA) made several questionable trades in 2005 that have come under heavy scrutiny.
If there is a silver lining to this episode of 60 Minutes, on Tuesday Senators Scott Brown (R-MA) and Kirsten Gillibrand (D-NY) introduced the STOCK Act in the Senate, perhaps in response to the program. Companion legislation has long been dormant in the House, but since Sunday’s 60 Minutes the bill has gained nearly 20 new cosponsors.