MSNBC reports “Pelosi fires back at report on ‘insider trading'”.
A television report that questioned whether members of Congress are making investment decisions based on insider information drew a heated response from former House Speaker Nancy Pelosi, one of those highlighted.
A report on CBS’ “60 minutes” on Sunday said Pelosi was among several lawmakers — including Republicans such as House Speaker John Boehner — who had profited from transactions that raised the possibility of conflicts of interest.
More here, at CBS. A video snippet:
Now, the tricky part when talking about Congresscritters possibly benefiting from legislative knowledge in the stock market is establishing the boundary between “conflict of interest” and just plain good sense. As Jaybird has mentioned a few times in the past, how much someone invests in RandomCorp can be either a signal that they think that RandomCorp is a damn good business… or it can mean that RandomCorp donated $100K to their reelection fund… or it can mean that RandomCorp could get potentially screwed if a bit of legislation passes and the person in question can buy up a bunch of RandomCorp stock, torpedo the legislation, and sell when the stock price jumps. This isn’t easy.
However, as Alan J. Ziobrowski is quoted in that first piece:
A recent study of House members’ stock transactions showed them beating the markets’ return by about 6 percentage points annually from 1985 to 2001. A 2004 study involving the same authors showed senators beating the market by 12 percentage points annually.
Those results “are way outside the boundaries of random luck”
Standard Pat major irritation -> come on, MSNBC, give me the title of the study! I think it refers to this paper, which I’ll be reading later. I’ll follow up on that after I digest the methodology. It seems pretty self-evident (on the basis of the admittedly incomplete evidence) that it is the case that our legislators are gaming the system.
(edited to add): Ziobrowski has a few papers like these. The abstract of that linked paper, in case you’re blocked from it:
The actions of the federal government can have a profound impact on financial markets. As prominent participants in the government decision making process, U.S. Senators are likely to have knowledge of forthcoming government actions before the information becomes public. This could provide them with an informational advantage over other investors. We test for abnormal returns from the common stock investments of members of the U.S. Senate during the period 1993–1998. We document that a portfolio that mimics the purchases of U.S. Senators beats the market by 85 basis points per month, while a portfolio that mimics the sales of Senators lags the market by 12 basis points per month. The large difference in the returns of stocks bought and sold (nearly one percentage point per month) is economically large and reliably positive.
There’s another paper on the House, linked here. Abstract:
This study examines the real estate investments of members of the United States House of Representatives from 1985 to 1995 with a focus on agency theory. The real estate holdings are characterized in terms of the number of properties owned, the reported value of the properties, property types, the property locations and transactions. Representatives are found to hold more real estate when compared to those of other investors in the United States with similar levels of income. Representatives also seem to time the market better, presumably because they understand more about the implications of the changes in tax laws they enacted. Thus, the Tax Reform Act of 1986 caused House members to reduce their real estate holdings much faster than other U.S. investors. This lower level of real estate investment may also have reduced the economic linkages between Representatives and their constituents, which might affect their incentive to fight for the interests of their constituents.
So, a question for the League: given Citizens United, and given this data (assuming you agree with it), what do we do now? I can think of a number of possible scenarios, all of which would make it very improbable that a rich person would run for Congress (which, admittedly, many people would regard as a huge plus). Anyone have any ideas?