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Here is an interesting article by Dan Froomkin of the Huffington Post.

Orginal article here

Members of Congress Get Abnormally High Returns From Their Stocks

Members of the House of Representatives considerably outperform the stock market in their personal investments, according to a new academic study.

Four university researchers examined 16,000 common stock transactions made by approximately 300 House representatives from 1985 to 2001, and found what they call “significant positive abnormal returns,” with portfolios based on congressional trades beating the market by about 6 percent annually.

What’s their secret? The report speculates, but does not conclude, it could have something to do with the ability members of Congress have to trade on non-public information or to vote their own pocketbooks — or both.

A study of senators by the same team of researchers five years ago found members of the higher chamber even better at beating the market — outperforming it by about 10 percent, an amount the academics said was “both economically large and statistically significant.”

“Being one of 435, as opposed to one of 100, is likely to result in a significant dilution of power relative to members of the Senate,” the researchers wrote.

The researchers, Alan J. Ziobrowski of Georgia State University, James W. Boyd of Lindenwood University, Ping Cheng of Florida Atlantic University and Brigitte J. Ziobrowski of Augusta State University, noted that the circumstances are ripe for abuse.

“In the course of performing their normal duties, members of Congress have access to non-public information that could have a substantial impact on certain businesses, industries or the economy as a whole. If used as the basis for common stock transactions, such information could yield significant personal trading profits,” they wrote.

At the same time, House rules don’t require them to divest themselves of common stocks when they assume office, don’t prevent them from trading freely while in office — and don’t require them to recuse themselves from votes that could affect their own interests.

The House ethics manual clearly states that “all Members, officers, and employees are prohibited from improperly using their official positions for personal gain” and members must disclose their holdings annually.

But the House’s official position is that demanding that members either divest themselves of potential conflicts or recuse themselves when there is a conflict is “impractical or unreasonable” because it “could result in the disenfranchisement of a Member‘s entire constituency on particular issues.”

Ever since 2006, a small coterie of Democrats has been trying to officially prohibit members of Congress and their staffs from using non-public information to enrich their personal portfolios.

The Stop Trading on Congressional Knowledge (STOCK) Act was most recently re-introduced in March by Reps. Louise Slaughter (N.Y.) and Tim Walz (Minn.). It has not been heard from since.

The study found some significant difference based on party membership and seniority, with the Democratic sample beating the market by nearly 9% annually, versus only about 2% annually for the Republican sample.

And representatives with the least seniority considerably outperformed those with more seniority.

Why would that be? The researchers suspect need had something to do with it. “The financial condition of a freshman Congressman is far more precarious” than a senior member’s, they wrote. “House Members with the least seniority may have fewer opportunities to trade on privileged information, but they may be the most highly motivated to do so when the opportunities arise.”

The report does not make any firm conclusions on causality, although the researchers explain that their kind of “event analysis” has become a common “method for analyzing whether actors have profited from confidential information in their possession.”



I say, throw the bumbs out. I for one am sick of these people screwing the country for the sake of reelection. Everyone knows the system is broken, but the power to fix the system rests in the hands of those that benefit most from it. Even when we elect new people to Congress they get corrupted in short order. I am not Democrat, Republican, or Revolutionary. I am just SICK.

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  1. Jeff on May 27, 2011 at 5:26 am

    Are you pompous? — calling yourself a “genius”.

    Please use spell check Mr. Genius. “Bumb” is not a word.

  2. GaryC on July 18, 2011 at 8:47 am

    This kind of information just adds to my frustration. The same people who are passing laws prohibiting the use of insider information are using it freely. How broken does our system have to be before we really get so made that something is done?

  3. david swett on July 18, 2011 at 1:58 pm

    Ye Gad, Allen, I hate seeing nit-picking comments that deviate from your core message–should we continue the spell check lesson by telling Jeff that the quote mark on “genius” should be outside the period.

  4. merrill on July 21, 2011 at 9:10 am

    All should remmber that when we vote we only vote for those that are going to screw us the lest. We are going to be had which ever way we go. Oh by the way Gary C mad is spelled mad.

  5. merrill on July 21, 2011 at 9:12 am

    As you can see we all make mistakes in spelling.

  6. Jeff the Genius on August 11, 2011 at 4:56 am

    Results of great predictions that make money make great stock pickers famous.

    The Genius

  7. Keith Harrison on May 25, 2012 at 2:20 pm

    This last statement by Jeff is quite indecipherable. I think there might be a meaning in there somewhere but I’m hanged if I can unravel it. It might be a tautology – or a parody of a tautology. Can you help us out, Jeff -or can one of your readers? Thanks. On Allen’s main point. The fact that members of Congress are in close touch with many of the main players in the all but totally corrupt system we live under, could very well be related to their higher market performances, compared with that of ‘homo bubis’. Allen hints at this connection. Of course the academic study has to be neutral on this matter, just as it is on Israeli politics, the summary murder of Osama bin Laden( without trial) in a foreign country invaded by our courageous Seals, the question of whether Iran should have an atomic bomb when we have thousands of them, and on and on. But we, after all, are the good guys. Academia has to be neutral on such connections. Therefore, whether politicians are corrupt in their fiscal dealings is a question not to be asked. That’s why it’s important to ask it. We know their high performances in the market cannot be explained by their higher intelligence. The evidence against that is voluminous, as the recent study on the grade-level of congressional discourse shows. The average congressional speech, according to that study, is at grade 8 level.

    If, then, it’s not intelligence that makes them richer, what is it? Go figure.

    (Incidentally, I am not, for the record, anti-semitic. I am, however, sharply opposed to the Israeli Government and its present foreign and domestic policies – which have our very explicit connivance. I know, this kind of thought must not be uttered. That’s, again, why it’s important to utter it. Free country, and so on.)

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