While most of us suspected that Congressional members have an “in” to some easy money, it appears those ties between Congress and Wall Street run deeper and more intimate than most of us feared. A new study, “Abnormal Returns From the Common Stock Investments of Members of the U.S. House of Representatives”, released this week in the Business and Politics journal, (part of the Berkeley Electronic Press) focused on the higher percentages of stock earnings by 300 House members as compared to private investors with no access to non public information. The jaw dropping results revealed abnormally consistent stock successes that, over a period of decades with even a modest market, could net the elite Congressional members millions in portfolio earnings.
“We find strong evidence that members of the House have some type of non-public information which they use for personal gain,” according to four academics who authored the study, “Abnormal Returns From the Common Stock Investments of Members of the U.S. House of Representatives.”~~~
The professors reviewed more than 16,000 common stock transactions carried out by about 300 House members as revealed in the members’ financial-disclosure forms from 1985 to 2001.
In a 2004 study, the same professors found that U.S. senators also enjoy a “substantial information advantage” over the average investor — and even corporate bigwigs — when it comes to picking stocks. The latest study shows that members of the Senate outperform their House colleagues by an average of 30 points per month.
Considering the BAP's “mother ship” electronic publisher, the four authors – Alan J. Ziobrowski, Georgia State University; James W. Boyd, Lindenwood University; Ping Cheng, Florida Atlantic University; and Brigitte J. Ziobrowski, Augusta State University – must have found it even more quizzical that the gains between party lines of the House members also showed a notable percentage difference in profits. And it wasn't the GOP, most traditionally characterized as being in the pocket of Wall Street, who was coming out on top.
The Democratic subsample of lawmakers beat the market by 73 basis points per month, or 9 percent annually, versus 18 basis points per month, or 2 percent annually, for the Republican sample.
“Given the almost folkloric belief that Wall Street invariably favors Republicans, the superior performance of trades made by Democratic representatives may seem surprising,” the study authors said.
Also blogging with the same bipartisan foul taste in the mouth is Townhall's Finance columnist, John Ransom. Ransom runs some calculations to put a figure on that percentage of basis points.
Actually 12 times .55 percent comes out to 6.6 percent annually. That .6 percent return accounts for an additional $130,000 over a 17 year period.
So how lucrative can the 6.6 percent advantage be for Senators and Representatives?
A portfolio of $100,000 getting average stock market returns of 11 percent over a 17 year period would have grown to $589,000. If you were a member of the United States House of Representatives, though, enjoying the advantage that inside government information can bring you, your portfolio would have reached $1,573,000, according to an investment calculation I did using the finding from the study.
Assuming only average market returns for the next 20 years, a Representative would grow their portfolio to close to $13 million.
Under the same circumstances US Senator would have grown the portfolio to $18 million.
No doubt about it… we're all in the wrong business. How good can the elected elite get it? Paid by the taxpayer and their payroll backed by fed reserve printing presses that run 24/7, cadillac health care and pension plans also on the taxpayers' dime, and the inside skinny on stock tips PLUS the power to vote for favorable legislation. That doesn't include book deals, saps that go and hear them speak, and the green gathered at fundraisers for their campaign coffers.
Call me nauseous here….
What is the most surprising for me to learn is that Congressional members are immune from insider trading laws, in addition to being able to vote on legislation that would benefit their particular stock holdings. Evidently we, the public, are last to learn of the more than suspicious ties to the prolific trading of our elected officials. A bill was introduced in 2006 – the Stop Trading on Congressional Knowledge (STOCK) Act – by Dem House members, Brian Baird (WA) as HR 5015 and 14 co-sponsors, only two of which were Republican. He tried again for the next two sessions of Congress but all lead to a dead end.
Why does that not surprise me?
It's been reintroduced again this year by Dem Rep Timothy J. Walz of MN as HR 1148. Co sponsors include Louise McIntosh Slaughter (NY), and two other Democrat co sponsors. Interestingly, only Rep Slaughter has been in Congress long enough to have possibly been a subsample of the BAP study. Baird came close, coming into office in 1999. The rest on the latest bill are all post the study period of years involved.
So why, if it's Democrats who seem to be faring better than their Republican colleagues, is it the Democrats who are furiously introducing the bills? Oddly enough, the theory floated in the Washington Times article suggests that since the Democrats were in majority power for the longest duration of the study's scrutiny, they had greater access to their minority peers, and that's why they profited more than the GOP. And evidently, they considered the GOP a bit slow on the up “take”, so to speak. Certainly their naivety is viable since the Democrats have traditionally held both chambers for a sinful majority of sessions since the 1930s.
So did the GOP shun the legislation, hoping to catch up to the earnings of their Democrat colleagues? Well, they sure didn't attempt to promote the legislation. Then again, neither did the bulk of the Democrats.
The moral of the story here is, the corruption still runs amok, and is probably about the only genuine bipartisan trait in our Congress. Perhaps we should be viewing our own “joe blow” world as less Democrat vs Republican, and more us vs elected officials and their above the law mentality.