Washington is buzzing about last night’s 60 Minutes report that revealed the startling frequency with which members of Congress financially benefit from inside information they get as legislators.
Most of the focus has been on the ethically questionable trading of House Speaker John Boehner and House Minority Leader Nancy Pelosi, the two highest-ranking and most-visible members of the House.
But the most shocking revelation actually concerns a lesser-known Congressman, Rep. Spencer Bachus, who shorted the market as the economy collapsed in 2008, at the same time that he was the ranking member of the House Financial Services Committee.
The 60 Minutes report just touched on the Bachus trades. Luckily, the new book on which the broadcast was based has more details.
Slate’s Dave Weigel got an early copy of the book, Throw Them All Out by Hoover Institute fellow Peter Schweizer, and the evidence is pretty damning. According to Schweizer, Bachus and Pelosi got secret briefings from Fed Chair Ben Bernanke and Treasury Secretary Hank Paulson, who basically told the legislators that it was “a matter of days before there is a meltdown in the global financial system.”
From the book, via Weigel:
The next day, September 19, Congressman Bachus bought contract options on Proshares Ultra-Short QQQ, an index fund that seeks results that are 200% of the inverse of the Nasdaq 100 index. In other words, he was shorting the market. It was an inexpensive way to bet that the market would fall. He bought options for $7,846 on a day when the Dow Jones Industrial Average opened at 8,604. A few days later, on September 23, after the market had indeed fallen, he sold the options for over $13,000 and nearly doubled his money.
And that’s only the beginning. After Paulson got a tip from General Electric about slow bond sales, Bachus shorted GE four times — in all, Weigel reports that Schweizer found “no less than 40 options trades” in Bachus’s records between July 2008 and November 2008.
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