Congress & their staff are permitted by law to trade on insider information!!!!

"Insider trading" by members of Congress seems to cause similar reactions in most. "Isn't that already illegal?" is the common refrain. And why wouldn't it be, as insider trading lands everyone else in the U.S. -- and most industrialized countries -- in jail and slaps them with huge fines. The fact that a little-known loophole permits members of Congress and their staffs to buy and sell stocks using insider information they might obtain through their official work rightly strikes most citizens as outrageous.

The now infamous 60 Minutes documentary from earlier this month shone a bright light on the obvious opportunities members of Congress and their staffs have to use information gleaned in day-to-day business for personal gain in the stock and commodities markets. The increasing scrutiny seems to be providing the necessary energy to finally spur action on the STOCK Act, introduced in the House of Representatives by Reps. Louise Slaughter (D-N.Y.) and Tim Walz (D-Minn.). This legislation would increase disclosure and highlight conflicts of interests for lawmakers and ensure that they do not benefit from their insider knowledge.


The bill has languished since 2006 due to a lack of attention. However in just the few weeks since this issue was so publicly flagged, the number of co-sponsors in the House on the STOCK Act has grown from nine to 99, and both Sens. Scott Brown (R-Mass.) and Kristen Gillabrand (D-N.Y.) have introduced companion legislation in the Senate that would change Senate rules to ban insider trading. "When members of Congress personally benefit from the legislation that they shape and vote on, there is a clear conflict of interest, and its effect on legislation can be corrosive," Brown wrote in a letter to his colleagues.


With Sen. Joseph Lieberman (I-Conn.) helding a hearing on the measure , and a Dec. 6 hearing in the House scheduled by Rep. Spencer Bachus (R-Ala.) (who chairs the committee and was one of the lawmakers who came under scrutiny from 60 Minutes, though he denied improper trading), the attention on the issue will likely continue to grow.


The attention is warranted, as a report released earlier this year by four universities found that on average, stock portfolios held by House members from 1985 to 2001 beat the market average by approximately 6 percent annually. In 2004, the same group of professors found that the average stock portfolios held by members of the Senate beat the market average by about 10 percent.

We are all amazed at the people society trusts as stewards; they seem to be devode of judgment, ethics and accountability!!!

Treasury Secretary Henry Paulson stepped off the elevator into the Third Avenue offices of hedge fund Eton Park Capital Management LP in Manhattan. It was July 21, 2008, and market fears were mounting. Four months earlier, Bear Stearns Cos. had sold itself for just $10 a share to JPMorgan Chase & Co. (JPM)



Now, amid tumbling home prices and near-record foreclosures, attention was focused on a new source of contagion: Fannie Mae (FNMA) and Freddie Mac, which together had more than $5 trillion in mortgage-backed securities and other debt outstanding, Bloomberg Markets reports in its January issue.

Paulson had been pushing a plan in Congress to open lines of credit to the two struggling firms and to grant authority for the Treasury Department to buy equity in them. Yet he had told reporters on July 13 that the firms must remain shareholder owned and had testified at a Senate hearing two days later that giving the government new power to intervene made actual intervention improbable.


“If you have a bazooka, and people know you have it, you’re not likely to take it out,” he said.

On the morning of July 21, before the Eton Park meeting, Paulson had spoken to New York Times reporters and editors, according to his Treasury Department schedule. A Times article the next day said the Federal Reserve and the Office of the Comptroller of the Currency were inspecting Fannie and Freddie’s books and cited Paulson as saying he expected their examination would give a signal of confidence to the markets.


At the Eton Park meeting, he sent a different message, according to a fund manager who attended. Over sandwiches and pasta salad, he delivered that information to a group of men capable of profiting from any disclosure.


Around the conference room table were a dozen or so hedge- fund managers and other Wall Street executives -- at least five of them alumni of Goldman Sachs Group Inc. (GS), of which Paulson was chief executive officer and chairman from 1999 to 2006. In addition to Eton Park founder Eric Mindich, they included such boldface names as Lone Pine Capital LLC founder Stephen Mandel, Dinakar Singh of TPG-Axon Capital Management LP and Daniel Och of Och-Ziff Capital Management Group LLC.


After a perfunctory discussion of the market turmoil, the fund manager says, the discussion turned to Fannie Mae and Freddie Mac. Paulson said he had erred by not punishing Bear Stearns shareholders more severely. The secretary, then 62, went on to describe a possible scenario for placing Fannie and Freddie into “conservatorship” -- a government seizure designed to allow the firms to continue operations despite heavy losses in the mortgage markets.


Paulson explained that under this scenario, the common stock of the two government-sponsored enterprises, or GSEs, would be effectively wiped out. So too would the various classes of preferred stock, he said.


The fund manager says he was shocked that Paulson would furnish such specific information -- to his mind, leaving little doubt that the Treasury Department would carry out the plan. The managers attending the meeting were thus given a choice opportunity to trade on that information.