http://online.wsj.com/article/SB10001424052748703871904575216491495135642.html Some members of Congress made risky bets with their own money that U.S. stocks or bonds would fall during the financial crisis, a Wall Street Journal analysis of congressional disclosures shows. Senators have criticized Goldman Sachs Group Inc. for profiting from the housing collapse. And Congress is considering legislation to curb Wall Street risk-taking, including the use of financial instruments known as derivatives and of leverage, or methods that amplify returns. As previously reported by The Journal, in 2008 Rep. Spencer Bachus (R., Ala.) made roughly four dozen trades in shares of ProShares UltraShort QQQ and its options, according to disclosure records. This fund is designed to go up twice as much as the Nasdaq 100 stock index goes down. Rep. Bachus makes his own trades through a Fidelity account. He is the ranking Republican on the House Financial Services Committee, which has legislative oversight over the capital markets. "I don't trade on margin"âmoney borrowed from a broker to raise potential returnsâRep. Bachus said in an email, "and don't consider my investments leveraged to any risky extent." He added: "Never have I traded on nonpublic information, nor do I trade in financial stocks." Rep. Bachus made roughly $28,000 on his trades in options and leveraged ETFs in 2008, according to a Journal analysis, a figure he called "essentially correct." On July 14, 2008, Rep. Bachus said in a letter to Financial Services Committee Chairman Barney Frank that it was "quite apparent" the challenges facing mortgage companies Fannie Mae and Freddie Mac were caused partly by "short-seller activities." A spokesman for Rep. Bachus didn't respond to requests for comment on the letter.
Jonathan Gillibrand, husband of New York Democratic Sen. Kirsten Gillibrand, made more than 250 transactions in options in his E*Trade account in 2008, when his wife was in the House, according to disclosures. ------------------------------------------ Ya think "follow the herd" mentality may apply? C'mon Gillibrand trades and everyone in the "firm" (brokerage account) takes the same position. This has been one of my peeves with Congress.
For a group often criticized for being out of touch with what's happening on Main Street, some argue Congress seems to be deeply in touch with what will soon happen on Wall Street, especially when compared to the average investor. "If the question is -- are they using information that they're picking up in Congress to beat the market? The answer is absolutely," said Dr. Alan Ziobrowksi, a professor of economics at Georgia State University. This may surprise you, but it's perfectly legal for both members of Congress and their staff to use inside knowledge about upcoming legislation to play the stock market. For example, let's say Congress is quietly preparing to pass a bill that helps the dairy industry. Before the public is aware of Congress's intentions, our elected leaders and their staffer can invest in dairy companies that stand to benefit from the bill. Then, they can pass the bill and watch the stock take off. Critics call it a form of legalized insider trading. For those of you wondering whether scenarios like that really happen, five years ago Dr. Ziobrowksi studied the stock market investments on United States Senators. He discovered they were beating the market averages by 12 percent a year.
Critics of Congressional investment practices point to a recent transaction made by Republican House Minority Leader John Boehner of Ohio. In September of 2008, when the economy was on the brink of collapse, the U.S. Treasury Secretary and Chairman of the Federal Reserve went to Capitol Hill to privately brief Boehner and other congressional leaders. At the time, one of the greatest economic dangers the country was deflation. One day after that meeting, records show Congressman Boehner pulled his money from a fund tied to inflation.
There also are concerns about conflicts of interest. After all, members of Congress could be voting on bills that directly or indirectly affect the companies they're invested in. "I think the worse danger of course is that they're going to be passing and lobbying legislation on the basis of what's good for their portfolio rather than what's good for you and I," Dr. Ziobrowski said. http://www.wgrz.com/news/local/story.aspx?storyid=71906&provider=gnews