Isn't "Insider Trading" supposed to be a bad thing?

There are laws against it after all…

But guess who is exempted from the laws which prevent private persons from trading on information not available to the general public?  Need a hint?  They number 535…

Excellent Guess!

Congress (both the House and the Senate) exempted themselves from the laws prohibiting insider trading.  What’s more, they appear to have been trading on insider information to substantial benefit.

House members in the know score ‘abnormal’ stock profits, study says

By Valerie Richardson The Washington Times

An extensive study released Wednesday in the journal Business and Politics found that the investments of members of the House of Representatives
outperformed those of the average investor by 55 basis points per
month, or 6 percent annually, suggesting that lawmakers are taking
advantage of inside information to fatten their stock portfolios.

“We find strong evidence that members of the House have some type of non-public information which they use for personal gain,” according to four academics who authored the study, “Abnormal Returns From the Common Stock Investments of Members of the U.S. House of Representatives.”

To the frustration of open-government advocates, lawmakers and their staff members largely have immunity from laws barring trading on insider knowledge that have sent many a private corporate chieftain to prison.

Positively Orwellian.  All pigs are equal under the law, but the law does not apply to congress pigs?  And we’re not talking a small percentage of our Congress taking advantage of this exception to the law that the rest of us must abide by.

Unsurprisingly, the Senate enjoys an even greater information advantage than the House:

In a 2004 study, the same professors found that U.S. senators also enjoy
a “substantial information advantage” over the average investor — and
even corporate bigwigs — when it comes to picking stocks. The latest
study shows that members of the Senate outperform their House colleagues by an average of 30 points per month.

The “surprise” lies in which party has benefited most from such insider trading:

Despite the GOP‘s reputation as the party of the rich, House
Republicans fared worse than their Democratic colleagues when it comes
to investing, according to the study. The Democratic subsample of
lawmakers beat the market by 73 basis points per month, or 9 percent
annually, versus 18 basis points per month, or 2 percent annually, for
the Republican sample.

“Given the almost folkloric belief that
Wall Street invariably favors Republicans, the superior performance of
trades made by Democratic representatives may seem surprising,” the
study authors said.

Color me un-surprised.

Hat Tip to Mata Harley at Flopping Aces who has much more on the matter, including attempts to bring forward legislation to end the exemption. 

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