THIS WAS IN THE ONLINE NEW YORK TIMES ON SUNDAY, JULY 16, 2000. MAYBE IT EXPLAINS WHY SOME OF THE POLITICIANS IN WASHINGTON ARE SO ANXIOUS TO REPEAL THE ESTATE TAX. THEY SEEM TO BE GETTING RICHER EVERYDAY. WITH THEIR WEALTH INCREASING THEY CERTAINLY DON’T WANT TO SEE HALF OF THEIR HARD EARNED WEALTH GOING BACK TO THE FEDERAL GOVERNMENT. AFTER ALL, IT WAS ALL EARNED BY THE SWEAT OF THEIR BROW......WASN'T IT?
The URL for this story is nytimes.com
July 16, 2000
TAKING STOCK
The Perils and Profits of Lawmakers in the Market
By DON VAN NATTA Jr
WASHINGTON -- It is the new risk for the politician in this new economy: lawmakers who actively invest are discovering that their stock portfolios have become yet another area of their personal lives that is vulnerable to attack.
In years past, scandals were fueled by a public official's indiscretions, either sexual (like adultery) or financial (like bribery), and the consequences were rarely in doubt. Today, a scandal can be set off by vaguer questions about the propriety of a politician's use of complex financial transactions.
The public cannot always agree on what the consequences should be for politicians who used their position to get a taste of a particularly sweet I.P.O. Often, it is almost impossible to determine whether their market moves have crossed an ethical or legal line. Yet on the national stage there is a growing crowd of investor-politicians.
Senator Robert G. Torricelli, behaving at times like a day trader, bought and sold stocks more than 100 times last year. During one frenzied week, Mr. Torricelli, a New Jersey Democrat, dipped in and out of a basketful of high-technology stocks, owning shares of DrKoop.com and Novell for a matter of hours. Critics have accused Mr. Torricelli of parlaying his connections to corporate leaders to make investments that have paid off handsomely.
Representative Rick A. Lazio, the New York Republican now running for the Senate, purchased stock options in the Quick & Reilly brokerage firm in August 1997. Days later, the company announced it was seeking a buyer, its stock price soared and Mr. Lazio's first-ever options investment netted him a 600 percent profit. The Securities and Exchange Commission is investigating whether he violated insider trader laws.
Both Mr. Torricelli and Mr. Lazio say they have done nothing wrong, and there is no evidence either man did anything illegal, or violated any Congressional ethics rules.
Last month, Ralph Nader, who is the Green Party presidential nominee, disclosed that he owns $1.2 million worth of stock in Cisco Systems, one of many technology companies in his portfolio.
Members of Congress -- and even Mr. Nader, an outspoken critic of corporate wealth and power -- are pursuing personal fortunes in the market with as much zeal as many of their constituents. The question is whether those successes are the product of good timing, savvy or something else.
Government scholars and former lawmakers are increasingly questioning whether aggressive investing by elected officials is appropriate behavior since politicians are often privy to corporate secrets. And a politician's own action or inaction on legislation can easily move individual stocks and even whole markets.
Paul Simon, the former Illinois senator, said lawmakers have so much access to inside information that only their own "self-restraint" guards against any urge to use the information when making personal investment decisions.
"I suspected that it was happening while I was in the Senate," said Mr. Simon, who left the Senate in 1997. "I think this is going to be a growing abuse if we don't put up some safeguards."
THE safeguard mentioned most often is a blind trust, in which a professional manages stocks, shielding their identity from the holder.
"I'm a real purist, and I believe that when people move into the Senate or the House, they ought to put everything they own in a blind trust," said Kathleen Hall Jamieson, dean of the Annenberg School for Communication at the University of Pennsylvania.
President Clinton and past presidents have used blind trusts, as have some senators and House members. But in recent years, a greater number of members of Congress have actively bought and sold individual stocks. Some enter the Senate already rich, but scholars wonder how many become millionaires while serving there.
"Our elected officials are in a position to influence stock prices and get special access to information that is potentially useful to their personal interests," said Ms. Jamieson, who wrote "Everything You Think You Know About Politics -- And Why You're Wrong" (Basic Books, 2000). "And you don't want them to make public policy decisions about something they have a self-interest in."
Mr. Torricelli, one of the Senate's most active stock traders, has not been accused of that, but he has taken advantage of opportunities not generally available to the investing public, which has raised issues about whether the favor givers will want something in return. For example, the senator invested $5,000 last year in an Internet startup named e.Volve and the value of his stock skyrocketed to $225,000 within a few months.
In Mr. Lazio's case, he bought stock and options in Quick & Reilly, whose top executives were major contributors to his past campaigns. Some of them also served as executives of the Securities Industry Association, which actively lobbies the House Subcommittee on Finance, on which Mr. Lazio serves; the Congressional group has jurisdiction over many issues directly affecting the brokerage industry.
Self-enrichment is not a new trend in politics. But the recent explosion in stock trading has provided many more opportunities for it.
Pork is an old tradition, with legislators delivering rich contracts to their districts. In rare cases, some make money in the process.
Lawmakers are steeped in inside information. If they don't hear stock tips in the executive session of a committee meeting, they can pick them up after hours at fund-raising events, where wealthy corporate leaders often speak freely about their businesses.
But it is one thing to hear the tips and quite another to act on them.
"We first noticed this during the health care debate in 1994," said Charles Lewis, the executive director of the Center for Public Integrity. "Forty members of the five key committees all had health care stocks, and some were selling and buying stocks during the markup session." The best safeguard to such behavior, Mr. Lewis argued, is public outrage and the vigilance of watchdogs and journalists.
Members of Congress are required to file annual financial disclosure forms listing their assets and debts. The forms, though, provide the haziest of pictures because lawmakers need only list their assets according to very wide ranges, from $2,001 to $15,000, for example. When the information is released each June, journalists write brief reports summarizing the net worths of the wealthiest senators.
"The average American does have a right to know that their lawmaker is basically a day trader," Mr. Lewis said. "Most people who watch the Hill closely believe this happens, and I'm one of those people. I think lawmakers have made money from their inside knowledge of the inner workings of government. But I can't prove it."
Another problem with such matters is their complexity. The Clintons' Whitewater land deal, for example, was so complicated that very few Americans understood it; most Americans' response was probably shaped by the fact that the Clintons lost money. The real estate deal seems quaint when compared with politicians' participation today in highly intricate transactions. Hillary Rodham Clinton's $100,000 profit in the commodities market was easier to grasp, but failed to enrage most Americans.
"Everyone seems to be doing well in the market, and everyone hears stock tips," said Joel Silbey, a professor of history at Cornell University. "In this atmosphere, why should any of the elected officials who are doing it really worry that their actions might affect them adversely on election day?"
James Carville, the Democratic consultant, said there is only way to curb the potential for legislators to use inside information to enhance their investment portfolios. "But the public will never agree with it," Mr. Carville cautioned.
"The answer is to pay them more salary, pay them $300,000 a year," he said. "And make it mandatory that all their investments go in a blind trust. The cheapest thing is to pay them some real money, and take away the temptation to do something wrong."
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