The Watch

The Watch is concerned about the increasing pressure towards feudalism in the United States from corporations, social regressives, warmongers, and the media. We also are concerned with future history concerning our current times, as non-truths which are “widely reported” become the basis for completely false narratives.

Thursday, January 19, 2006

Congress says: insider trading laws are for thee, not for me

If you've ever owned stock in a company that you worked for, and have had to endure one of those insider trading training seminars, you know how intimidating they can be. Consulting companies are paid big bucks to come in, and with a few short powerpoint presentationgs, scare the bejeezus out of you. Essentially, the message is, if you work at a company, don't buy or sell the company's stock at any time. If you buy some, and the price goes up, the FEC will investigate you for insider trading. If you sell some, and then the price goes down, same thing. It doesn't matter how small the potatoes are. And they can throw you in jail or fine you huge amounts of money, and, according to the consultants, the burden of proof is on the employee to prove that they _didn't_ know something unknown to the general public. Those tough, tough guys at the SEC were really protecting the integrity of the market, I tell you.

My conclusion at the end of the last one of these sessions that I had to go to was that you are better off not owning any stock in your own company, than having to deal with the restrictions they recommend.

Now, here's something pretty outrageous. It turns out that people in Congress have no such restrictions whatsoever. If they know that a particular company is going to get a huge windfall in government contracts, they are free to run out and buy up big hunks of it before the public is aware of the situation. Likewise, they can short a company at any time, and then be a part of the legislation which would end their government contract. Wow, isn't that special? Gee, it kind of makes it seem like someone could get rich from working in Congress; and that our markets are being heavily gamed.

Most really succesful fund managers only manage to beat the market by about 3% or so. But studies have shown that US Senators do much better than that. See "Enter senators, and returns go sky-high":

They are US senators who, when they are not doing their day job running the country, are rather talented at investing. Senators beat the stock market annually by 12 percent on average, the first comprehensive study of share trading by members of the US's upper house has found.

That is an impressive performance, as fund managers are thought to have the Midas touch if they regularly outperform by about 3 percent, and even hedge funds - which charge steep fees for performance - are now on average only 6 percent better than the market.

"Capitol gains":

That the senators have done this without a hint of censure shouldn’t come as a surprise. Corporate insider trading is illegal, in theory, but prosecutions are rare. Economists have known for a long time that corporate insiders outperform the market by something like six or seven per cent a year. The only way they could pull that off is by trading on privileged information.

and "Senators' Stocks Beat the Market by 12 Percent"

First-time Senators did especially well, with their stocks outperforming by 20 per cent a year on average - a result that very few professional fund managers would be able to achieve.

So, though this behavior appears not to be illegal (amazing!), it does reek of poor ethical behavior. I realize that will not stop anyone. But it also appears that the offices of Delay and Frist were also passing this information on to favored brokers. And that may in fact be illegal. So, it isn't enough for these GOP congresscritters to enrich themselves unfairly at the expense of average investors. They also had to use this information to reward others in on the big scam. Nice.


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