Thursday, November 17, 2011



The Wall Street Journal Online - Political Diary
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November 17, 2011
In today's Political Diary


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 on Nov. 15.
Fannie, Freddie and Newt
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

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