Peter Schweizer’s book, “Throw Them All Out” hits shelves tomorrow, but it is already rocking Washington. In the book, Schweizer details what can only be described as insider trading by many members of Congress during the financial crisis.
Specifically, Schweizer tells how on September 16, Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke held a private meeting with legislators in which they reported that the economy was in deep trouble and predicted near-term disaster in the markets.
Congressmen privy to this information reacted–not by dropping everything and drawing up a plan to save the economy, but by dumping stock and avoiding the losses everyone else would take in the coming month. Others bought stocks in financial firms that would later be saved by the federal government.
If this behaviour had happened in the private sector, Congress would be outraged. The fact that it happened in Congress should have the public outraged.
The Play: A day after attending the private September 16 meeting in which Paulson and Bernanke warned of the coming economic cataclysm, Democratic Whip Dick Durbin sold off $74,715 from his portfolio. He sold another $42,000 on the 18th.
Durbin also bought tens of thousands in Berkshire Hathaway stock in the days before the Warren Buffett-run holding company bought a big chunk of Goldman Sachs, which included a 10 per cent guaranteed divided for Berkshire Hathaway investors.
Durbin is chairman of the Senate Appropriations Subcommittee on Financial Services and General Government.
Here's how Berkshire Hathaway (the top blue line) performed in comparison to the stocks Durbin dumped in the following weeks:
The Play: On September 17, the day after Paulson and Bernanke had a private doomsday-meeting with Congress, Jim Moran dumped shares in 90 companies, including Goldman Sachs, DirecTV, Cisco, General Dynamics, Ecolabs, AT&T, Electronic Arts, and Franklin Resources.
Moran thus avoided the massive losses that hit the portfolios of the public days later.
To take one example. AT&T's stock price was hovering around $30.43 when Moran sold it. Within a month of his sale, the price had tanked to 22.42
Here are what some of the stocks Jim Moran dumped did in the month after he sold them. These are losses that he avoided:
The Play: Kerry, a member of the Senate Committee on Finance, bought as much as $550,000 in Citigroup stock in October and November of 2008, as the Fed and the Treasury Department debated how much each bank would receive from TARP and the other bailout programs.
He also bought as much as $350,000 in Bank of America stock:
The Play: Shelley Capito of West Virginia also sits on the House Financial Services Committee.
Capito and her husband dumped between $100,000 and $250,000 in Citigroup Stock the day after Hank Paulson and Ben Bernanke had their private Apocalypse Now meeting with legislators.
She continued to trade Citigroup throughout the crisis and managed to make a capital gain of about $50,000.
Here are her Citigroup transactions on her disclosure sheet:
And here is what Citigroup did the month after she dumped it.
The Play: Senator Sheldon Whitehouse of Rhode Island also made a flurry of trades in the days after the Paulson-Bernanke meeting with legislators.
At minimum, Whitehouse sold $250,000 in the stocks below between September 18-24, 2008. He may have sold as much as $600,000 in the stock below according to disclosures. Here are the losses he avoided in the next month:
The Play: After a private meeting with Fed Chairman Ben Bernanke and Treasury Secretary John Paulson on the impending financial crisis on September 16, 2008, Bachus -- then the Ranking Member on the House Financial Services Committee -- bet against the stock market, netting himself tens of thousands of dollars.
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