Insider Trading: John Boehner, Ben Nelson, Barney Frank, and 31 Other Lawmakers Adjusted Financial Portfolios During 2008 Financial Meltdown

By Gary P Jackson

Imagine this: In early 2008, as the financial markets were in free-fall, members of Congress, including John Boehner, Ben Nelson, Mitch McConnell, and Barney Frank, were burning up the phone lines between their offices and Treasury Secretary Hank Paulson’s, Fed Chair Ben Bernanke’s and Tim Geithner’s offices. The results of these calls saw them using the insider information given to them by Paulson in order to make adjustments to their financial portfolios. All in all, 34 members of Congress used insider information to save their own stock portfolios, while the rest America took a bath on their investments, losing big time.

The Washington Post has published an explosive [and lengthy] accounting of the behind the scenes wheeling and dealing that was going on as America teetered on total financial collapse. [emphasis mine]

Lawmakers reworked financial portfolios after talks with Fed, Treasury officials

In January 2008, President George W. Bush was scrambling to bolster the American economy. The subprime mortgage industry was collapsing, and the Dow Jones industrial average had lost more than 2,000 points in less than three months.

House Minority Leader John A. Boehner became the Bush administration’s point person on Capitol Hill to negotiate a $150 billion stimulus package.

In the days that followed, Treasury Secretary Henry M. Paulson Jr. made frequent phone calls and visits to Boehner. Neither Paulson nor Boehner would publicly discuss the progress of their negotiations to shore up the nation’s financial portfolio.

On Jan. 23, Boehner (R-Ohio) met Paulson for breakfast. Boehner would later report the rearrangement of a portion of his own financial portfolio made on that same day. He sold between $50,000 and $100,000 from a more aggressive mutual fund and moved money into a safer investment.

The next day, the White House unveiled the stimulus package.

Boehner is one of 34 members of Congress who took steps to recast their financial portfolios during the financial crisis after phone calls or meetings with Paulson; his successor, Timothy F. Geithner; or Federal Reserve Chairman Ben S. Bernanke, according to a Washington Post examination of appointment calendars and congressional disclosure forms.

The lawmakers, many of whom held leadership positions and committee chairmanships in the House and Senate, changed portions of their portfolios a total of 166 times within two business days of speaking or meeting with the administration officials. The party affiliation of the lawmakers was about evenly divided between Democrats and Republicans, 19 to 15.

The period covered by The Post analysis was a grim one for the U.S. economy, and many people rushed to reconfigure their investment portfolios. The financial moves by the members of Congress are permitted under congressional ethics rules, but some ethics experts said they should refrain from taking actions in their financial portfolios when they might know more than the public.

They shouldn’t be making these trades when they know what they are going to do,” said Richard W. Painter, who was chief ethics lawyer for President George W. Bush. “And what they are going to do is then going to influence the market. If this was going on in the private sector or it was going on in the executive branch, I think the SEC would be investigating.

Boehner, now the speaker of the House, declined to discuss his transactions. His spokesman said they did not pose a conflict because a financial adviser executed them and they were made in diversified mutual funds. Other lawmakers also said their financial advisers handled their trades. They said that the timing of the trades and the conversations was “coincidental and that they did not adjust their portfolios based on what they were told by the administration officials.

Questions about conflicts of interest and possible insider trading on Capitol Hill prompted Congress to pass the Stock Act this year. The act specifically bans lawmakers, their staffs and top executive branch officials from knowingly using confidential information gleaned from their legislative roles to benefit themselves, their family members or friends.

The act does not prohibit lawmakers from trading stocks in companies that appear before them or from reworking their portfolios after briefings with senior administration officials. Top executive branch officials are banned from investing in industries they oversee and can influence — for example, Fed chairmen are prohibited from investing in the financial sector.

The Post analysis did not turn up evidence of insider trading. Instead, the review shows that lawmakers routinely make trades that raise questions about whether members of Congress have an investing advantage over members of the public.

Members of Congress are still loosey-goosey about what they require of themselves,” said Painter, who teaches securities law at the University of Minnesota. I think it’s time for Congress to impose the same rules on themselves that they impose on others. The Stock Act doesn’t do that.

A shift to Treasury securities

In late 2006, Congress started crafting legislation to overhaul Fannie Mae and Freddie Mac, a major effort to stem a rising tide of defaults on risky loans given to home buyers with poor credit.

As Congress worked to rein in the two government-sponsored lenders, Fannie and Freddie pushed back with aggressive lobbying campaigns, stalling the effort in early 2007.

Paulson started working the Hill, trying to break the deadlock and win support for the revisions. He called and met with a number of members of Congress, including Sen. Ben Nelson (D-Neb.), on this and other reform efforts.

Paulson and Nelson spoke on Jan. 10. The next day, Nelson sold between $250,000 and $500,000 in Lehman Brothers certificates of deposit. (Congressional financial disclosure forms list only approximate ranges.) Nelson also purchased between $100,000 and $200,000 in Treasury notes, a safer investment.

On Feb. 12, Paulson met at 4 p.m. with Nelson in the lawmaker’s office in the Hart Senate Office Building. That day, Nelson bought $50,000 to $100,000 in Treasury bills.

That year, Nelson had only one other call with Paulson and no other meetings, records show. He made 103 other trades during the year, eight of which exceeded $100,000.

Nelson declined to be interviewed. A spokesman said that the senator discussed only policy matters related to disabled veterans during the call and meeting with the Treasury secretary and that the senator learned nothing that would have influenced his trades.

Like everyone in Congress, Senator Nelson is bound by the laws, rules and guidelines established for members of Congress,” Nelson spokesman Jake Thompson said in a statement. “He carefully follows both the spirit and intent of them. He has not, and would not, have conversations with Executive Branch officials about matters affecting his personal finances.”

Under congressionally imposed ethics laws that cover Treasury secretaries, Paulson and Geithner would have been prohibited from making the same investments. Congress prohibits Treasury secretaries from investing in financial institutions or Treasury securities.

Nelson “has often sought and had one-on-one conversations with numerous cabinet secretaries under both President Bush and Obama on dozens of issues before Congress,” Thompson said in an e-mail. “That’s what good legislators do, they seek dialogue and understanding at the senior level about local, state and federal policy matters, as well as foreign policy issues.

Read much more, starting here.

The article goes on to lay out more of these trades, and while it doesn’t name all 34 lawmakers, it does expose ranking members from both parties. It seems in Washington, the one thing that is always bi-partisan, is corruption.

Though the post claims then Speaker of the House Nancy Pelosi wasn’t involved in these schemes, as we reported in November of last year, she is up to her ears in corruption.

Though they might not meet the legal definition of insider trading, these actions by trusted lawmakers certainly do in spirit. Members of both parties have bee writing legislation, or in some cases defeating legislation, depending on nothing more than how it effects their personal fortune.

In December of last year, Sarah Palin, who made her bones sending corrupt politicians to prison, wrote:Congress, It’s Time to Stop Lining Your Pockets demanding reform. She championed a much tougher law than what was eventually passed. The law we have now is weak and mostly window dressing. It was passed to make it look like Congress cared what the people want, but doesn’t actually do much.

No one begrudges anyone, even lawmakers, for making money, but it’s quite troubling to see how many come to Washington with little or no money, and become multi-millionaires while in office.

It’s beyond time we stop putting up with this nonsense. We need sudden and relentless reform. Congress must be made to live under the same rules as the rest of us, and that includes going to jail when they break these rules.

Make no mistake about this, corruption exists in both political parties and at the highest levels. The democrat party is unacceptable for so many reasons beyond the corruption, but if the Republican Party doesn’t get it’s act together, it may well be time to start working on a serious, viable third party. Or should I say a strong viable replacement for the Republican Party.

When the new Congress convenes in January, the first order of business will be to elect a Speaker of the House. In my opinion John Boehner must be replaced. The same goes for Minority Leader Mitch McConnell. Surely, out of 535 Senators and Congressmen, there are suitable replacements for both. If not, we have bigger problems than just a few corrupt lawmakers, that’s for sure.

Congress needs to take up sudden and relentless reform and they need to do it now. What Congress is doing now is unacceptable.

4 Comments

Filed under In The News, Politics, sarah palin

4 responses to “Insider Trading: John Boehner, Ben Nelson, Barney Frank, and 31 Other Lawmakers Adjusted Financial Portfolios During 2008 Financial Meltdown

  1. Gary – Excellent analysis and critique of the current, as you rightly say, UNACCEPTABLE situation vis-a-vis the cozy relationship these Congressional leaders have with important – and knowledgeable – Treasury “experts” and insiders! Congress, it seems (and no surprise) can’t be counted on to police itself and clean up its own financial house. And members of Congress who pretend to do so just
    hide behind obfuscating statements and continue to pretend that they’re behaving honorably – when, of course, they’re NOT! I hope WaPo and other leading media outlets (esp. the MSM!) continue to expose these Congressional frauds who besmirch the already tattered reputation of the Corrupt Congress!

    • Gary P Jackson

      Thanks. You know me, nothing gets me up on the tire quicker than corrupt politicians.

      I own stock on both tar and feathers, and am going long on pitch forks and torches. I see a run on all of them in the near future!

  2. Aaron Allen

    Hi Gary: Historically, tavern-keepers and bartenders have learned much by
    chatting with knowlegable patrons…I can see John wiping glasses as guys
    like Hank lean over their drinks and ‘share’ hot tips they know of…Perhaps
    ‘on a break’, John slips into the back office and taps away on the computer
    or calls a broker friend?..This sort of ‘tip-off’ story wud make an interesting
    film or TV episode–perhaps a soap opera with the stars involved in politics
    or the other abuses you decry? Instead of the usual intrigue/unfaithfulness
    etc, how about the evil intentions of political characters based upon known
    persons? The soap wud run in two versions [English and Spanish]. Think
    of the super audience such a program wud attract: Think of the coverage
    it wud attract in ‘soap mags’ sold at checkout counters…Show promos run
    thruout the day/nite on radio and TV…One of the main characters is the
    deep-voiced bartender ‘Juan’? Others MIGHT be modeled on other real
    folks? The ‘show’ cud become an effective ‘whistle blowing’ and wud con-
    found the evil real persons? Produced offshore and distributed by satel-
    lite and/or cable, the show wud be untouchable by most agencies and,
    like ‘America’s Most Wanted’ cud have a call-in number to collect and re-
    fer crime info?..Aaron Allen…

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