It’ll take a year for the financial disclosure forms of Congress members and 2,900 of their highest paid aides to become public but there won’t be any information about with whom they might have shared that privileged information.  Determining who might have profited will have to wait for some ‘Potomac River rat’ to give up that information in exchange for leniency for some other wrongdoing.

Members of Congress and their aides, for unknown reasons, are not subject to the same rules and regulations regarding insider trading and market sensitive information as are all other investors.  And if they didn’t violate any laws, then that same ‘carve-out’ (or exemption) would apply to their friends and family or anyone else who received that information.  That same exemption does not apply to federal agency officials however it does extend to staff members.

The Securities and Exchange Commission and the Justice Department are making headlines investigating and prosecuting hedge funds, and other stock market investors for violating new and old interpretations of insider trading rules.   The latest roundup of traders and money managers is based on their use of ‘expert networks’ where non public information flows from industry analysts and some company insiders to investors. Similar behavior is commonplace in Washington and it’s called ‘political intelligence.’  When it comes to market sensitive information and informational advantages, the law does not apply equally to all.

 Insider trading laws usually concerns stocks and options but profits could be made on the oil price decline in other markets.  Just short the oil futures if you know there is a high probability of a drop in the price of oil.  Of course you could also buy the stock of companies that would benefit from a oil price drop such as the airlines, truckers, Federal Express, etc.   Or sell short those companies that sell oil.  And again feel free to call your friends and family.

 In addition, certain real estate markets can also be affected by congressional actions.  Construction of bridges and tunnels, recognition of Indian tribes and granting of gaming licenses can all result in higher real estate prices.  Changes in legislation such as relief from asbestos lawsuits has helped several companies and any future change in ethanol subsidies will affect corn prices.

 There is a slow but steadily rising outrage at normally illegal stock trading by members of Congress.  Especially after a study by four university professors found that House members beat the average investment portfolio by 6 percent and Senators bested the market by 10 percent (see “Abnormal Returns From the Common Investment of Members of the U.S. House of Representatives.” ¹)

Two members of Congress (Louise Slaughter, D-N.Y., and Tim Walz, D-Minn.) have re-introduced legislation called the STOCK Act — or Stop Trading on Congressional Knowledge Act — that would prohibit such political speculation but it is limited to stocks, bonds and commodities but not real estate, currencies, futures, etc. and they failed in previous attempts to get the bill passed.

So for now members of Congress must feel smug as they watch the ‘perp’ walks on TV of those hedge fund managers accused of insider trading knowing what they did is exactly the same but they are immune from prosecution.  The skinny ones probably also enjoy ‘pigging out’ on junk food while watching TV Reality shows like “The Biggest Loser”  (where obese people struggle to lose weight.)

The unfettered use of ‘political intelligence’ and the ‘Washington whisper networks’ further reinforces the public’s dim view of members of Congress and their privileged status.

Reprinting or republication of this article on websites is authorized by prominently displaying the following sentence at the beginning or end of the report, including the hyperlink to www.weepinginvestor.com:

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¹ Journal of Financial and Quantitative Analysis, Vol. 39, No. 4, December 2004

School of Business Administration, University, Seattle WA 98195

Alan J. Ziobrowski, Ping Cheng, James W. Boyd and Brigitte J. Ziobrowski