The Washington Post reports that many members of Congress have substantial investments in the industries they oversee. Specifically, many members’ investments overlap with their respective committee jurisdctions.
On the House Agriculture Committee, which holds sway over farm policies and subsidies, members had farming and agribusiness investments worth five times on average the amount held by other colleagues in the House. Many of the committee members’ holdings were in family farms. Nothing prevents those members from also receiving farm subsidies, and in the past, some have.
Likewise, House Energy and Commerce Committee members, who routinely hold hearings about telecommunications and computer issues, had heavier than average investments in companies such as Oracle, Nokia, AT&T and Verizon.
House Homeland Security Committee members also had more communications and electronics holdings as a group than the House as a whole, and House Transportation and Infrastructure Committee members as a group owned almost six times more holdings in transportation firms.
In the Senate, the Banking, Housing and Urban Affairs Committee had on average almost twice the value of holdings in finance, insurance and real estate as that chamber as a whole. The Senate Environment and Public Works Committee members had almost three times the value of agribusiness holdings as their colleagues on other committees.
As the story notes, judges must recuse themselves from cases involving any firms in which they hold investments, even if the investments are quite small. No equivalent rule applies to legislative officials.
Tamerlane says:
Who but a farmer, a small business owner, etc., is better qualified to legislate on issues regarding farming, small business, etc. By the Post’s apparent standard no lawyer should be allowed to legislate because any such legislation might eventually impact their law practice.
June 14, 2010, 12:23 pmskyywise says:
My initial not-cynical view of this would be that people are more likely to invest in areas where they believe they have expertise. I think a chemist is more likely to invest in Abbott and a software engineer is more likely to invest in Google, in large part because they have a better grasp of the companies fundamentals. Thus, someone sitting on a committee would probably feel they also understand some industries fundamentals well enough to make informed investing decisions.
My cynical view is that this is the way politics has always been, and besides, how else are these members of Congress supposed to make non-fundraising, non-graft money? It certainly can’t be based on their salaries alone.
June 14, 2010, 12:25 pmJack Marshall says:
It was widely reported in 2004 that U.S. Senators beat the market by 12% over a five year period. I haven’t seen the figures for the last five, but this is pretty clearly insider trading, isn’t it? As Stuart P. Green, JD, Professor of Law and Justice Nathan L. Jacobs Scholar at Rutgers School of Law, wrote in a 2008 email to ProCon.org:
“People in many fields of endeavor are privy to valuable confidential information before it is made public: For example, business executives, investment bankers, and lawyers have access to information about impending corporate mergers and acquisitions; Judges, juries, and court personnel have access to information about the probable outcome of court decisions; and officials at the FDA [Food and Drug Administration], EPA [Environmental Protection Agency], and other administrative agencies have access to information about the likely outcome of regulatory proceedings. All of these individuals are prohibited by law from using such confidential information in the purchase and sale of publicly traded stocks. Likewise, members of Congress and their staffs are also privy to valuable confidential information not yet made public. They have information about the likely outcome of various votes, committee proceedings, and investigations. Such information can be extremely valuable to investors. Those who buy and sell stock on the basis of such non-public information will have an obvious advantage over those who lack such information. This is not the sort of information that even the most savvy and sophisticated investor would be able to obtain legally. From a moral perspective, such informational advantages are indistinguishable from those enjoyed in more familiar forms of insider trading.”
June 14, 2010, 12:34 pmPsychdoc says:
As someone who’s seen colleagues excoriated over perceived conflicts by Senator Grassley and his ilk, I get more worked up over this than I perhaps should. I suppose the hypocrisy bothers me as much as anything else.
June 14, 2010, 12:36 pmAnderson says:
I don’t think recusal is logical in a legislature, but there’s no reason legislators can’t be required to divest themselves before taking office, or put their assets in a blind trust, etc.
All you need is a majority of Congress to enact such a law ….
June 14, 2010, 12:37 pmSteve says:
I don’t think recusal is logical in a legislature, but there’s no reason legislators can’t be required to divest themselves before taking office, or put their assets in a blind trust, etc.
Well, it seems harsh to tell a family farmer that if he gets elected to Congress, he must sell the farm.
It’s unavoidable that legislators’ decisions are going to affect themselves personally to at least some extent. For example, they might vote for a tax cut that benefits themselves. I don’t know that there is a way to fix this and I’m not even positive it’s broken. Generally folks get exercised over the idea of Congress exempting itself from the laws it passes; here the complaint seems to be the exact opposite.
I think the sheer number of legislators in Congress is a check in and of itself. That farmer might think it’s a really great idea to increase farm subsidies, but he still has to persuade an awful lot of non-farmer legislators to go along.
June 14, 2010, 12:55 pmOn Congressional Conflicts of Interest. | Little Miss Attila says:
[...] This is unreal. [...]
June 14, 2010, 12:58 pmJack Marshall says:
It’s still a conflict of interest. Farmers are the best argument for tolerating it, but when a member of Congress is thinking about his or her own interests before the interests of the public, it’s an invitation to corruption and warped priorities. Creating bad policies that you “sell” to the public and derive financial benefits from them down the road—isn’t that awfully similar to what Goldman Sachs did?
June 14, 2010, 1:02 pmSteve says:
It’s still a conflict of interest. Farmers are the best argument for tolerating it, but when a member of Congress is thinking about his or her own interests before the interests of the public, it’s an invitation to corruption and warped priorities.
Who says they’re thinking about their own interests first? When Congress votes on a tax cut, I have no idea whether individual Members are thinking primarily about how it will affect their bottom line. Sure, if they think a tax cut will be bad for the country (as if that could ever be true) but vote for it out of self-interest, that would be bad, but I have no way of proving that such things actually take place.
Congress passes many laws of broad applicability, some of which apply to every human being in the nation. I don’t know of any way to avoid the conflicts that necessarily arise from this fact, other than appointing a legislature of nonhumans.
June 14, 2010, 1:09 pmAngus says:
I, for one, don’t see this as a big deal. If you dug deeper, you’d probably find that many of them had such investments before the entered Congress or made it on to those committees. Congressmen request committee assignments in areas where they have a pre-existing attachment. In other words, I think the complaint is probably putting the cart before the horse.
June 14, 2010, 1:17 pmJack Marshall says:
Steve, that’s true of all conflicts. The existence of the conflict is the problem; it doesn’t vanish because someone with a conflict doesn’t allow his or her judgment to be compromised. It’s the appearance as much as the fact.The issue is, given the conflict can and should we trust theses people? If they are using their power and access to make money for themselves, as the figure suggest, the answer is “No.”
June 14, 2010, 1:20 pmnobody important says:
Steve’s tax-cut example is apt. For a Senator with enough income or assets (and there are many), any change re income taxes, capital gains taxes, estate taxes, etc., may have a greater dollar impact on his/her wallet than a narrow law might have on someone whose whole career invovles the topic at hand.
June 14, 2010, 1:21 pmNick D. says:
I’m confused as to which is worse. Getting on a committee and then utilizing your superior information to gain an undue advantage over the average investor, all the while purporting to be a public servant or attempting to put yourself in a position to maximize the value of preexisting holdings.
Either represents a breach of the public trust.
June 14, 2010, 1:26 pmCJColucci says:
My initial not-cynical view of this would be that people are more likely to invest in areas where they believe they have expertise. I think a chemist is more likely to invest in Abbott and a software engineer is more likely to invest in Google, in large part because they have a better grasp of the companies fundamentals.
Friends of mine in the financial services industry tell me that this — which seems like obvious common sense — is almost entirely backwards. Doctors, they tell me, are notorious for investing in just about anything except medical suppliers, drug companies, and the like. Other folks seem equally prone to investing in precisely that which they don’t know about, as opposed to what they do know.
June 14, 2010, 1:27 pmSteve says:
The issue is, given the conflict can and should we trust theses people? If they are using their power and access to make money for themselves, as the figure suggest, the answer is “No.”
The issue is whether you have a solution to the fact that Congress’ job involves voting on laws of general applicability. Do you think we should exempt Senators and Congressmen from federal taxation, so that they can make an unbiased judgment on whether to raise or lower taxes?
June 14, 2010, 1:36 pmbyomtov says:
Who but a farmer, a small business owner, etc., is better qualified to legislate on issues regarding farming, small business, etc.
Well, it seems harsh to tell a family farmer that if he gets elected to Congress, he must sell the farm.
While there’s something to these sentiments, I for one am tired of hearing the family farmer and small businessman used as cover for all kinds of nonsense. How many members of Congress are actually in these categories? It’s one thing to actually be a farmer. It’s another to own lots of shares in ADM or the like, or even to own a piece of a large farm run by a family member.
Anyway, while legislators with experience in farming or small business will have a good understanding of how legislation will affect those areas, that by no means suggests that they should have special influence.
I understand better than almost anyone how a change in the tax laws will affect me. Does that mean I should write those laws?
June 14, 2010, 1:47 pmAnderson says:
Well, it seems harsh to tell a family farmer that if he gets elected to Congress, he must sell the farm.
“Virtue, virtue in all its harshness” (Danton).
(Actually, Stendhal has him saying “truth” not “virtue,” but since Stendhal made up the quote, I can change it, right?)
June 14, 2010, 2:50 pmPeteP says:
Don’t worry about it – we have the finest politicians money can buy.
June 14, 2010, 2:50 pmSeaDrive says:
I think I’m more troubled by big money contributions to campaign war chests, especially as long term politicians can take the residual home when they retire.
June 14, 2010, 3:10 pmAngus says:
You are assuming that every congressman is doing one of these two things. It’s a variation of the question “Have you stopped beating your wife.” Every answer is negative unless you change the question. I don’t think there is anything inherently corrupt about investing in industries that you have some oversight of. Judge people by their actions instead.
People invest in what they are interested in. Back when I had a lot of money in stocks rather than other investments, I invested a lot in media/entertainment stocks since that was where I had a strong interest. Had I become a Congressman by some chance, I would have wanted to be on a committee that dealt with media/entertainment issues. Not because it could enrich me, but because the issues there are interesting to me — which is why I had money invested in such stocks.
June 14, 2010, 3:37 pmBama 1L says:
How did this become news?
June 14, 2010, 3:42 pmAnderson says:
How did this become news?
Indeed. “Politician Bites Dollar.”
June 14, 2010, 4:10 pmKamal says:
What is the punishment for judges not recusing themselves when there is a clear conflict of interest? Does it just affect the case, or is their a punishment levied against the judge?
June 14, 2010, 4:38 pmMike says:
Had I become a Congressman by some chance, I would have wanted to be on a committee that dealt with media/entertainment issues.
Were you to become a Congressman, you should focus on the public interest rather than your private portfolio.
Congresspersons are top 1% income earners. They receive platinum healthcare. They receive pensions.
They are generously rewarded for their public service enough as it is. They don’t need to be playing the markets or manipulating legislation in order to further enrich themselves.
June 14, 2010, 4:50 pmJack Marshall says:
Thanks, Mike—I thought I was losing my mind. No wonder we have so many crooks in Congress—nobody knows or cares what a conflict of interest is.
A Congressman should recuse himself or herself from any vote on a matter of apparent or actual self-interest, and fully inform the public regarding the nature of the conflict. And yes, Steve, that goes for voting yourself tax breaks. Pass a law exempting members of Congress from tax breaks, just like they exempt themselves from Federal conflicts statutes.
No, it’s not news. It’s been outrageous for years. The news is that the public allows it to continue, and the media refuses to report it.
June 14, 2010, 4:58 pmDKH says:
Count me among the people skeptical that it is possible to reduce this conflict. I would expect that it’s common for anyone with appreciable wealth to be invested in broad stock market mutual funds. What exactly are judges invested in that they can avoid any conflicts of interest? They must be invested very narrowly (and therefore probably aren’t well-diversified). Do Supreme Court Justices have to avoid Treasury bonds?
This sounds naive. Game theoretically, in cases where there are repeated rounds, it makes sense for players to “cooperate,” in this case by voting for each other’s funding requests. This is the whole problem with earmark reform. It doesn’t make any difference to my congressman that a bridge will be built in Alaska, but he’ll vote for it because Ted Stevens will return the favor.
There are two conflicting ideas here. One is that an investor invests in what he or she knows. I think the book The Millionaire Next Door explains this. Knowledge of a sector allows smarter investment choices and can lead to success. The other idea is that basic financial theory suggests that diversification is important in any investment strategy. Thus, if your human capital (i.e. labor) is tied up in the medical services industry, it makes sense to invest outside that industry. Doctors are probably intelligent and understand this implication of diversification.
June 14, 2010, 5:02 pmSteve says:
And yes, Steve, that goes for voting yourself tax breaks. Pass a law exempting members of Congress from tax breaks, just like they exempt themselves from Federal conflicts statutes.
But you evaded my question. I didn’t ask if Congressmen should be exempt from “tax breaks,” however you want to define that, I asked if they should be exempt from federal taxation. When a Congressman votes to raise or lower the income tax, for example, it may impact their personal income to the tune of many thousands of dollars. One could easily imagine a wealthy Congressman voting to cut taxes for the top bracket solely to enrich himself. So how do you propose to fix that blatant conflict of interest, other than to exempt legislators from federal taxation altogether so they can make a pure and unbiased decision about what’s best for the country?
The reality is that most people want their legislators to be people who understand the daily reality of Americans, not people who are exempt from that reality because the laws don’t touch them. I think you would find that a majority of Americans would like to see a Congress that is more affected, rather than less, by the laws they pass, even at the cost of some theoretical conflicts of interest.
June 14, 2010, 6:09 pmSteve says:
This sounds naive. Game theoretically, in cases where there are repeated rounds, it makes sense for players to “cooperate,” in this case by voting for each other’s funding requests. This is the whole problem with earmark reform. It doesn’t make any difference to my congressman that a bridge will be built in Alaska, but he’ll vote for it because Ted Stevens will return the favor.
Sure, I wasn’t talking about earmarks, which may well be corrupt in some cases. I was talking about broader legislation like farm subsidies. Even if a Congressman wants to increase farm subsidies solely to enrich himself as a family farmer, I think he is unlikely to be able to round up support for a broad-based piece of legislation merely through horse trading, unless it’s actually a good idea on the merits. If it were really that simple, everyone’s proposed legislation would get passed.
June 14, 2010, 6:11 pmRPT says:
Dick Cheney—Halliburton—Secret oil company meetings to set oil policy at home and abroad—Wyoming insiders at MMS and Interior to deregulate—Predictable and preventable Deepwater Horizon diaster. Pete, you have nailed it.
June 14, 2010, 6:19 pmKen Arromdee says:
Nobody’s demanding that Congress stop breathing or else be considered to have a conflict of interest when it comes to the Clean Air Act.
But there’s a difference between being affected by a law that affects most people, and being affected because of a special interest. Just because a Congresscritter pays taxes, and therefore is affected by Congressional actions related to taxes, doesn’t mean that he should also give big breaks to the rubber chicken industry when he owns a rubber chicken plant. Many people pay taxes, and few people own rubber chicken plants; only the latter is a special interest.
June 14, 2010, 7:44 pmjustanaccountant says:
Should a gay legislator be permitted to vote on gay marriage? Should a black legislator be permitted to vote on civil rights? Should a legislator dieing of cancer be permitted to vote on a research funding bill, or any bill relating to health care? Should a doctor vote about health care? Should a homeowner vote on any type of housing policy? Should a renter? This is within 5 minutes of reading the post.
I see this as being very difficult to implement.
June 14, 2010, 10:04 pmLogicalUS says:
A zero-sum term for Congressmen and Presidents is the solution.
A serving Congressmen leaves with only the wealth upon which they enter the office. It would rid us of 50 year politicians and it would clear us of the unAmerican prospect of people like Joe Biden and Lindsey Graham who have never done anything but serve as Congressmen yet have acquired millions upon millions in assets thru their connections and pay-for-play politics.
Nancy Pelosi is another example who has used her position to enrich herself and her husband thru government contracts and special exemptions to laws for her companies and holdings.
Republicans and Democratic politicians are both guilty of leeching off the people of the United States to enrich themselves and their supporters.
June 14, 2010, 10:07 pmtriplesec says:
One answer is that all securities assets — including spousal assets — either go into a blind trust or be subject to mid-year annual disclosure with details of changes from the prior year’s report. These requirements should also extend to “top” staff aides of both the members themselves and the Senate/House committees.
June 14, 2010, 10:37 pmVikingLaw57 says:
@CJColucci : “Doctors, they tell me, are notorious for investing in just about anything except medical suppliers, drug companies, and the like.” …
With good reason however… Docs who accept funds from Medicare are subject to rigid self dealing federal laws and must qualify for safeharbor to invest. Congress had no trouble writing these laws, Stark and Anti-Kickback, which are designed to prevent doctors from having a financial interest in entities that may provide care for that doctor’s patients.
I’m sure a few physicians I know would have no trouble drafting similar legislation that would certainly prevent congressional self dealing.
June 14, 2010, 11:03 pmMDC says:
I seem to recall there being a little bit of… concern, if you will, over Cheney’s involvement in Haliburton and their fortunes being linked to decisions made by the administration.
While farmers would have to convince non-farmers, since it is not a zero-sum game there is no reason for non-farmers to stand in the way of farmer-legislator desires… along with an understanding that when industrial stuff (say) comes up, the farmer bloc won’t put up too much of a fight.
Bottom line: an appearance of impropriety. Not terribly surprising that they do it or that the press gives ‘em a pass.
June 14, 2010, 11:04 pmDavid M. Nieporent says:
If there was “concern,” it was from people who believed that Cheney had invented time travel, because Cheney’s “involvement in Halliburton” ended before he took office.
June 14, 2010, 11:38 pmMartin L. Shoemaker says:
There are a lot of reasons that companies offer shares or stock options to employees; but one reason is that it gives employees an incentive to see the company grow.
I haven’t decided if this would be a good idea or not, but I could see a certain justice if every legislator was expected to liquidate his or her assets (other than a single residence back in the home district) and invest the proceeds in T bills. When they leave office, they can cash out. Give them an incentive to look after the health and credit of the USA.
June 14, 2010, 11:44 pmKevin R.C. O'Brien says:
It’s probably an oversimplification to say, “they’re all crooks.” It may even be wrong in one or two cases (out of 535). But it still provides the best model to explain the day-to-day doings of Congress, and to explain how middle-class people go in and extreme wealth comes out — sometimes after only a couple of terms.
So, repeat after me: “They’re all crooks.”
June 14, 2010, 11:47 pmRhoda R says:
Triplesec says:
This is actually what every GS-12 and above, whose job has them interfacing with industry, has to do.
June 15, 2010, 12:21 amJ.T. Wenting says:
True, and that was my first thought as well.
June 15, 2010, 1:39 amBut there’s a very real danger of corruption here as well. If these people aren’t very careful they’ll be seen (and probably correctly so, but then I inherently distrust all politicians) to create laws and regulations whose main (if not sole) purpose it is to further their own interests.
Someone on a commitee creating building codes for example who’s also a major shareholder in a company that has a patent on some insulation material could include a clause that requires all homes to use that material, a person on some planning commitee for agriculture who has major holdings in orange groves could get a clause banning any new orange groves from being planted, thus eliminating future competition.
Whether this happens (and I believe it does happen, in fact in this country there was a major scandal like that a few years ago when the ministry of transportation suddenly came up with a requirement for new roadsigns which happened to be a new product created by the husband of the then-minister which had been launched just days earlier) or not is irrelevant. The very idea that it can happen is enough to cast doubt on the impartiality and good intentions of these people.
J.T. Wenting says:
Well, those same people believe Halliburton has a machine that causes huricanes and earthquakes, so anything is possible :)
June 15, 2010, 1:41 amThey also blamed Bush for thing that happened before he was even born.
triplesec says:
Rhoda R says:
This is actually what every GS-12 and above, whose job has them interfacing with industry, has to do.
As I understand it, those are Civil Service disclosure requirements. As I understand it, Congress and Congressional employees are not “Civil Service employees”.
June 15, 2010, 4:09 amThe Insider Traders At The Head Of The Show « Tai-Chi Policy says:
[...] 2010 Posted by taoist in Corruption. Tags: Congress, Insider Trading trackback Not surprisingly, our Congressmen show a strong trend of investing in companies that they’re writing legislation to [...]
June 15, 2010, 9:05 amCountrylawyer says:
Folks, none of this is newly-learned behavior. No less a personage than Daniel Webster was actively representing as a lawyer clients engaged in businesses the affairs of which came within the scope of his activities as a senator. Cash in hand paid. I still recall the dismay I felt reading about it (in The Great Triumvirate, a triple bio of Clay, Calhoun, and Webster).
June 15, 2010, 9:42 amKen Arromdee says:
It also means that no Congressman would be allowed to buy a house unless he entered Congress with enough assets to pay for a house outright. It would also mean he couldn’t save for his kids’ or grandkids’ college education if there’s a chance he’d retire before then. And woe betide a Congressman who owns something, gets elected, leaves, and finds that what he owned has appreciated in value. You could require someone to sell off half his farm or a piece of his personal stamp collection just because it happened to go up in value.
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June 17, 2010, 8:13 am