Short Sellers in Congress: Another Lesson in Financial Hypocrisy
Last week, the Wall Street Journal and Washington Post identified several members of Congress and the Senate who, during the financial crisis, took short positions in the market, betting against the U.S. economy. This behavior is not just hypocritical. It marks yet another breach of the public trust.
Let’s start with the hypocrisy. The timing of the story wasn’t coincidental. Just days before, Senator Carl Levin (D-MI) summoned Goldman Sachs executives to Capitol Hill and delivered an unprofessional and foul-mouthed tirade on how they had pushed bad investments. The hearing was on the heels of a SEC civil suit and did its best to make the firm look like a bunch of crooks.
There were two problems with Carl Levin’s political posturing. The first is that the SEC complaint focused on disclosure issues on one specific investment product, and certainly wasn’t an indictment of the company’s business practices by any stretch of the imagination. It’s a non-issue that will likely be settled for a few million.
The second problem with the senator’s rant is that it’s clueless about how markets work and how companies like Goldman keep them working. It buys into the simplistic tale of short sellers as the market’s villains, driving down share prices and destroying the economy.
When prices fall, short sellers make money. But when prices go up, they lose money, and the people who bought stocks from them get richer. It’s a bet that may or may not pay off.
And a company like Goldman Sachs makes trades, but also matches up the buying and selling activity of other traders. This would be virtually impossible without the ability to borrow and lend securities.
Selling short isn’t unique to Goldman, and any trader can do this — including those who work on Capitol Hill, and the Wall Street Journal and Washington Post articles identified several. Hence the hypocrisy — Sen Levin was accusing Goldman Sachs of financial behavior that members of Congress were also engaged in.
But here’s the important difference. Goldman Sachs traders never took the oath of office. Members of Congress did. For them to be betting against the U.S. economy and profiting from its woes is shameful behavior.
We elected our officials to solve our nation’s problems, the foremost of which is the weak economy. They asked us to give them these responsibilities so that they could exercise their leadership and judgment. In the course of their workday, they meet with government officials, captains of industry, and foreign leaders.
When these same elected officials phone their Wall Street brokers and take a financial position against the very entity which they are charged with preserving and protecting — the United States — how could it be anything other than a breach of the public trust?
I agree that it is hypocritical that the Congressmen engage in the same behavior they excoriate their “inferiors” of engaging in, but I disagree that the Congressmen have some solemn obligation to go broke on an economy they think is going into the crapper. It is not “patriotic” to take a long position on the U.S. economy and it is not “patriotic” to take a short position.
That being said, as long as the American public continue to allow the Congressmen to act sanctimonious and self-righteous we shouldn’t be surprised when Congressmen take cynical positions in regards to regulating the private sector and not themselves. After all, it is we who gives these people their power: how many times have we lambasted “Wall Street” for profligate behavior and not held the Congressmen to account? When we do this we are making a de facto judgment that anyone on “Wall Street” is bad and anyone in government is good, EVEN THOUGH we may know that the people serving in the government are corrupt to the core.
Quis custodiet ipsos custodes? Who cares if we don’t hold them accountable in the first place?
I believe the problem is the fact that congressmen have the ability to affect whether the economy goes up, or goes down.
Beyond that, they can easily target individual companies. Just being criticized by a powerful member of congress is enough to drive down a stock’s value for a few days.
Congressmen, and their extended families should be required to put all of their financial assts into blind trusts.
I’ve decided the state of Michigan and a majority of its people enjoy wallowing in abject poverty and ineptness. You’ve been electing Carl Levin for thirty years, and in return you’ve found many of your cities third world cesspools and burnt out buildings, with an unemployment rate of what 15%? I’ll bet the real rate of unemployment nearer 25-30%.
I hope those people who elect an ass like Carl Levin year after year were proud after watching Levin demean the supposed place of “statesmen”, sounding more like Andrew Dice Clay than Senator. Most Congressional have delusions of grandeur – but Levin mixes megalomania with disgrace better than any of them.
For many years, Levin used his seniority to protect the auto industry from the insanity of the other Democrats. Until last year, when Democrats decided that adherence to the doctrine of Pelosi/Reid was more important than seniority, and bounced Levin from his choice committee asignments.
He didn’t save the auto industry from anyone – he merely delayed some of the more obvious risks coming from DC – he’s wasn’t, and isn’t, smart enough to understand or deal with the core issues that cratered the auto industry.
Not only Levin-Granholm, the communist filth John Conyers, John the DingHo berry(and DingHos daddy before him) Brat Stupid(until now, while the coward runs) they used to elect David Bonoir. I guess they must like being abused or something or are just plain braindead.
I’ve heard a number of these Congressmen say that the trades were ‘made by someone else.” That they were put into some form of trust while they are in office. This is also a half truth. When you put your wealth into such an arrangement, you clearly spell out how you want your wealth handled; what you want to invest in, what kind of trades you want to make. Pehaprs, this also indicates a level of ignorance if they did not specify these things clearly and well.
BBc-that argument reminds me of the “tax the rich” scams. Wonder why Buffett, Soros,Ellison,Bing, etc stay rich? They dont have INCOME. They have NON-TAXABLE TRUST FUNDS. One little example-about 2 years ago Warren Buffett announced at his death his fortune will go the the Bill and Melinda Gates foundation, and that Buffets 7 children will get 100k apiece. Hate to burst Warrens bubble here, but Warren isnt being nice or magnamonius. Hes just trying to avoid the inheritance and death taxes he wants imposed on everyone else. There is an exemption up to 650k on inheritance taxes, so by passing his fortune onto another billionaire Buffett never has to pay tax. Same with INCOME TAX. Since they collect no “income” they dont pay taxes on there trust funds.
I can’t with argue this point at all. I have been saying for years that congress is a criminal cabal, no better than a mafioso crime family. And they prove it time after time, year after year. And Americans just don’t seem to see the pattern, generally speaking. After all, we continue to elect the same kind of people of shallow moral character, vacuous principles, the lowest ethical values and most criminal business behaviors of our societies. Is it any wonder that the most prosperous nation in world history has been destroyed in about 100 years? It would seem that Americans aren’t very good judges of character going back 10 decades or so at least. Now, how can that be? Fact is, it isn’t true. The system is BROKEN from the inside. Like joining a ‘fraternity’ you are indoctrinated and intimidated into a “new set of rules”, even if you do come in with your own principles, you won’t get anything done without ‘scratching’ a few pig backs.
Even worse ruler-at least the mafioso actually did protect those who paid them off. After all, go to any big city and see where the lowest crime rates are. Little Italy-the mafiaoso, like the crypto commies in Congress, dont want the riffraff in there neighberhoods.
Whether its selling short or not I would classify any kind of trading by an elected member, or their families, as insider trading. They have the direct access to the horses mouth as it were.
Perhaps if, for this reason, trading while an elected official and within five years of being so, became a crime, then just maybe there would not be the allure for them to remain in power without this perk.
To have them ‘move on’, after two terms, would be a good thing.
Good piece Tristan. And I’m glad you mention two short sale opportunities for taxpayers. Unfortunately, Congress is forcing taxpayers to go long and longer on them.
http://reason.com/blog/2010/05/10/fannie-mae-now-how-much-would
I don’t think blind trusts while in office and, say, five years after is going to kill anyone.
Funny, the way short sellers are villainized. When someone buys shares of a stock or commodity, they are effectively shorting the dollar (i.e. betting the value of the dollar will fall with respect to the equity). Are people who buy gold actually just villains for shorting the dollar?
Why are not 8 year limits imposed on all congressman and senators. These long term people just get dirtier and dirtier and buy off everyone who donates big. The big companies just count it as a cost of doing business and will play with anyone who they can buy off.
Also why are laws subject to exclusions? If it is a good law, it should affect everyone. Why do they get to exclude their donors and no one objects. This one simple change, no exclusions would eliminate either stupid laws or the bribery for the exclusions. The media will never expose any democrat graft so they are getting the biggest paybacks.
I had been an avid fan of term limits until someone pointed out recently that in California term limits have been in effect since 1990. And what did that change? A congressman who knows that his game’s over in 6 or 12 years will only sell out to special interests that much faster. I don’t know what we can do anymore short of embarking on a enormous, long, and strenuous path of [re]educating the entire voting population.
I’m not a fan of term limits either. In fact, in order to introduce term limits you would need to amend the Constitution. Do you want any of these idiots, whether they be Democrat or Republican, touching the Constitution at this point? The people in Washington D.C. are too self-interested to do what is in the best interests of the country as a whole.
They already have hacked up the Constitution…..lets just vote all the scum out at once!
Time is ripe for a new party too! Time for the libertarian people to stand up and take this country back to it’s real roots.
NAME THEM…MAKE A LIST… DISTRIBUTE THAT LIST
Let me see-if I remember correctly, the scumbag communist lover John Kerry(he served in Vietnam, for the enemy, you know) in 1997 sold off a bunch of shares in Microsoft literally HOURS before the Clinton admin sued Microsoft. Given that Kerry was a member of the Senate committee overlooking this situation, can we say a little insider trading was taking place? Also kinda funny how after 9/11 the market fell off sharply, but yet your AVERAGE congresscritter found there portfolios increasing by 22%. A good reason to remove EVERY LAST STINKIN FAR LEFTIST POS IN CONGRESS, WHETHER DEMONRAT OR REPUB.