Washington
has been buzzing for the past 48 hours over revelations that some of
Capitol Hill's best-known lawmakers have been making fortunes
speculating in the stocks of companies affected by official actions,
typically while in possession of market-moving inside information. Rep.
John Boehner (R-OH), Senatorial wife Teresa Kerry and others made
bundles trading in health companies' stocks shortly before Congressional
or executive-branch action affecting the companies' fortunes. After
closed-door 2008 meetings in which Fed chairman Ben Bernanke briefed
Congress on the gravity of the financial collapse, some lawmakers dumped
their own stockholdings or even placed bets that the market would fall .
. .
So the question is: is all this legal?
While there's some difference of opinion on the issue among law
professors, the proper answer to that question is most likely going to
be, "Yes, it's legal." As UCLA's Stephen Bainbridge points out, existing
insider trading law, developed by way of a long series of contested
cases under the Securities and Exchange Commission's Rule 10b-5, assigns
liability to persons who are not corporate insiders if they are
violating a recognized duty of loyalty to those for whom they work. As
applied to the investment whizzes of the Hill, this implies that trading
on inside information might be a violation if done by Congressional
staffers (since they owe a duty of loyalty to higher-ups) but not when
done by members of Congress themselves.
It is
tempting to approach the new revelations the way an ambitious
prosecutor might, trying to stitch together a test-case indictment from,
say, the penumbra of the mail and wire fraud statutes bulked up with a
bit of newly hypothesized fiduciary duty here and a little "honest
services" there. But that's not how criminal law is supposed to work:
for the sake of all of our liberties, prohibited behavior needs to be
clearly marked out as prohibited in advance, not afterward once we
realize it doesn't pass a smell test. But we are still free to deplore
the hypocrisy of a Congress that has long been content to criminalize
for the private sector -- often with stiff jail sentences -- behavior
not much different from what lawmakers are happy to engage in
themselves. -- Walter Olson blogging at
cato-at-liberty.org on Nov. 15.
Those
wondering how Newt Gingrich's presidential campaign is gaining steam
despite the candidate's heavy baggage ought to check out the rhetorical
gymnastics he's displayed in responding to recent reports that he earned
$1.5 million as a consultant to Freddie Mac.
The
Gingrich campaign claimed yesterday that "Speaker Gingrich did no
lobbying of any kind, nor did his firm," but that may very well depend
upon the former House speaker's definition of lobbying. Mr. Gingrich
says he was hired as a "consultant" to Freddie Mac in 1999 to give
"strategic advice." During last week's debate, Mr. Gingrich described
his role as an "historian" who told the government-sponsored enterprise
that "we are now making loans to people who have no credit history and
have no record of paying back anything, but that's what the government
wants us to do . . . This is a bubble. This is insane."
Former
Freddie Mac executives tell a less-flattering story of Mr. Gingrich's
work muting Republican opposition to the housing giant. They describe
his role as sidling up to House Republicans who were weighing
regulations to downsize Freddie Mac and its big sister, Fannie Mae.
Mr.
Gingrich has dismissed these reports as sludge from an "elite media"
and tried to turn lemons into lemonade. He said that his consulting work
"reminds people that I know a great deal about Washington. We just
tried four years of amateur ignorance and it didn't work very well. So,
having someone who actually knows Washington might be a really good
thing."
But Mr. Gingrich's insider knowledge
may not sit well with the tea party crowd, who blame Washington insiders
for the country's housing meltdown and economic fix. Neither will his
inconsistency on what role the government should play in the housing
market. As speaker, Mr. Gingrich supported the GSE's and called Fannie
Mae an "excellent example of a former government institution fulfilling
its mandate while functioning in the market economy." Later, during the
2008 presidential campaign, he made hay out of Barack Obama receiving
donations from Fannie Mae and Freddie Mac executives.
And you thought Mitt Romney lacked convictions.
-- Allysia Finley
Online Journal E-Mail Center
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