Did members of Congress make securities trades to profit from breach of debt limit?

If you’re trying to understand the intentions of public officials, the most revealing information often is not what they tell their colleagues or the press, but what they tell their brokers.

So it is with members of Congress during the recent political and financial impasse. Here’s a story idea for Washington journalists: Take a look at the securities investments made by key members of Congress in the run-up to the deadline for raising the government’s debt limit.

It would be interesting to know, for example, if Tea Party activists were not only pushing the government to a cliff-edge of default, but were simultaneously making investments that would allow them to profit personally, and handsomely, from the financial crisis that a default would trigger.

This information is available, although not in real-time and you have to be in Washington to find it. A 2012 law (the Stop Trading on Congressional Knowledge, or “STOCK,” Act) extends to members of Congress the prohibitions on “insider trading” and also requires them (and some executive branch officials too) to disclose their trades in stocks, bonds and other securities. The transactions are to be reported within 45 days to a basement office in the Capitol (where they may be reviewed, on a dedicated monitor, one report at a time, on PDF files.)

Would any members of Congress have the audacity and political deafness to “short” the American economy, betting on its collapse in a time of national crisis? I suspect the answer is yes, particularly since many members may be unaware of the STOCK Act’s public disclosure requirement. If found out, they would have to confront angry constituents to explain why they thought it was okay to profit from a disaster that would decimate voters’ retirement accounts. That would be an interesting conversation.

Members of Congress probably would argue that by shorting the U.S. economy (shorting the dollar, equities or certain treasury bonds, for example) they were merely hedging against the markets’ volatility — essentially the same argument made by investment banks about their derivatives-trading at the height of the 2008 financial crisis.

But for Tea Party activists in today’s Congress, the hedging defense will ring hollow because the disaster they claim to have been protecting against is a disaster of their making and under their control. For them, hedging against a financial meltdown is like buying fire insurance on a house and then burning it down.

P.S. This was written before Congress’ 11th hour legislation to raise the debt ceiling (until January!) and reopen the government. Therefore, any members who bet heavily on a debt ceiling breach presumably lost money on that investment. That’s a good thing. And now that the crisis has passed, or been deferred, I certainly hope some journalists will examine the Stock Act filings. The public has a right to know about suspicious securities transactions made by members of Congress in the weeks leading up to the debt  deadline.–PETER SCHEER

Peter Scheer, a lawyer and journalist, is executive director of the First Amendment Coalition. The opinions stated here do not necessarily reflect the views of the Coalition”s directors.

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