Rick Quinn is an Orange County native with his finger on the pulse of the Washington aristocrats. In here, he exposes how members of congress have gotten rich on their own watch.
Many recent print and television news stories have claimed that members of the U.S. Congress have “exempted” themselves from laws against “insider trading.” This is not true, but it doesn’t matter: congress consistently violates the public trust because it enriches its members and their interests at the expense of the American public.
At the heart of popular disdain for ‘insider trading’ is the sense that in such acts, the playing field isn’t level. That people ‘in the know,’ shouldn’t commit a kind of ‘fraud on the market’ by profiting—sometimes, it seems, at the expense of ordinary investors—because these ‘insiders’ know facts that aren’t available to the rest of us.
Congress hasn’t exempted itself from a “law” against insider trading because there is no such law. Section 10b of the Securities Act of 1934 prohibits selling securities (stocks, bonds, warrants, etc) using a “manipulative or deceptive device or contrivance”: basically, using fraud. Based on this law, the Securities and Exchange Commission promulgated “Rule 10b-5” which is the basis for insider trading cases. Typically, “insider trading” is when a company “insider” (officer or director, generally) trades in a company’s securities (stocks, bonds, warrants, etc) based on “material, non-public information,” or…stuff that matters when deciding to trade a security, that the people outside the company don’t know.
Some say that cases against congress-members are rare, in part because they’re hard to prove: viz., that material information was ‘non-public’ for example. But by now, it’s well known that members who—at the height of the financial crisis in late 2008—had secret meetings with Fed Chairman Ben Bernanke or then-Treasury Secretary Hank Paulson, after which they hurriedly dumped stock to avoid market losses the rest of us suffered. The academic research, by now, is well-known demonstrating that congressional members’ portfolios routinely beat market averages, by as much as 50%. Insider trading? Nah…
Even without insider trading, it’s certainly common knowledge that members lobby for earmarks that substantially benefit their personal interests: typical is the member who buys land, lobbies for public works projects in the vicinity of the projects, receives those earmarks, and then sells the land at an otherwise improbable profit. Not surprising then, that the average net worth of the member of congress is about $4 million (members are exempt from including personal residences), while the average net worth of the American household is about $500,000 (typical calculations include personal residences).
As these disparities suggest, the vagaries of insider trading law are less important than the justified sense that members of Congress come to the Hill and get rich. Let’s take a few examples. In 1815, a member of the House or Senate made an annual salary of $1,500; an inflation-adjusted $17,337. In 2009, that same member earned $174,000, or roughly ten-times the inflation adjusted rate of his 19th century colleagues. Or, to put it another way, more than four times the 2010 mean annual salary in the U.S. of $44,410. And this isn’t surprising since, in 1990, Congress passed a law (Federal Employees Pay Comparability Act of 1990 (PL 101-509)) that automatically raises the members’ pay, unless they vote to suspend increases (which it elected to do in 8 of 21 years since the law). Not surprising then, that rank-and-file members’ pay increased from $98,400 (1990) to $174,000 (2009) where it stands today: a 43% percent increase, with regard to merit, economic realities (National Debt? 1990: $3.2 TRILLION; 2011: $15 TRILLION). So obviously, it pays to serve, doesn’t it?
I’m not sure that the American people yet possess the political will to affect the radical change necessary to uproot the corruption that passes as “legal” in Washington. To “Throw Them All Out,” as Peter Schweitzer has recently written. Until we become so possessed, I’ll be inclined to agree with H.L. Mencken when he reminded us that ‘Government is a broker in pillage, and every election is a sort of advance auction sale of stolen goods.’
Rick grew up in Orange County and now practices FDA and Customs law outside Washington, DC. He hold’s his BAR licence in both California and the District of Columbia.