"The 99%" of Us Get Fined and Go to Jail for Insider Trading, But the Exempt "Political 1%" Can Get Rich

Congressional Inside Traders Are Above the Law

(CBS News) -- "Martha Stewart went to jail for it. Hedge fund honcho Raj Rajaratnam was fined $92 million and will go to jail for years for it. But members of Congress can do the same thing -use non-public information to make stock trades -- and there's no law against it. Steve Kroft on "60 Minutes" reports on how America's lawmakers can legally make tidy profits on information only they know, simply because they won't pass a law against themselves. The report will be broadcast on Sunday, Nov. 13 at 7 p.m. (watch preview above).  

If senators and representatives are using non-public information to win in the market, it's all legal says Peter Schweizer, who works for the Hoover Institute, a conservative think tank. He has been examining these issues for some time and has written about them in a book, "Throw them All Out." "Insider trading laws apply to corporate executives, to Americans...If you are a member of Congress, those laws are deemed not to apply," he tells Kroft. "It's really the way the rules have been defined... lawmakers have conveniently written them in such a way as they don't apply to themselves," says Schweizer.

Efforts to make such insider trading off limits to Washington's lawmakers have never been able to get traction."

MP: Maybe the OWS protests should direct some outrage at the greed of the political class "who get rich off insider stock tips, land deals and cronyism that would send the rest of us to prison" (from the front cover of Peter Schweizer's book)?

Update 1:  A 2011 research article in the journal Business and Politics ("Abnormal Returns From the Common Stock Investments of Members of the U.S. House of Representatives") found that the stock portfolios of House of Representative members outperformed the overall stock market by 55 basis points per month, or 6.6% on an annual basis between 1985 and 2001, suggesting that lawmakers have a "substantial informational advantage" over the general public and even over corporate insiders.

Update 2: The chart below illustrates how an additional return of 6.6% per year for House Members would have affected an investment in the stock market between 1985 and 2001. A $1,000 investment in the S&P500 at the beginning of 1985 would have grown to $6,043 by the end of 2001, earning an annual return of 11.16%.  In contrast, adding a 6.6% premium for lawmakers due to their informational advantage would have generated an annual return of 17.76%, and a $1,000 investment in 1985 would have grown to $16,172, or roughly 2.7 times as much as an investment in the S&P500. Not bad.  Insider trading has its advantages.