Tuesday, November 15, 2011

How to Make Money from Insider Trading Without Spending a Day in Jail

The answer, as an article in The Atlantic implies, is to get elected to Congress.

Megan McArdle - Megan McArdle is a senior editor for The Atlantic who writes about business and economics. She has worked at three start-ups, a consulting firm, an investment bank, a disaster recovery firm at Ground Zero, and The Economist.

Is Your Congressman Trading on Inside Information?
By Megan McArdle

Nov 14 2011, 10:27 AM ET 155

"It could probably be shown by facts and figures that there is no distinctly native American criminal class except Congress" ~Mark Twain

CBS aired a report last night about congressional insider trading, based on a new book by Peter Schweizer of the Hoover Institution. The allegations are pretty lurid:

After seeing similar accusations floating around the web for years, I finally wrote a story about this phenomenon a few months ago. While I have not yet read Schweizer's book, the academic evidence on congressional insider trading is mixed: an older study found a huge effect (Senators outperform the market by 12%, while house members outperform by a still impressive 6%); but a newer study, as yet unpublished, showed that as a group, congressmen slightly under-perform index funds.

How to reconcile this with the eye-popping trades described in the 60 Minutes piece? Spencer Bachus betting that the economy would tank right after he was briefed on the financial crisis in 2008; John Boehner buying health insurance stocks shortly before the public option was finally killed; Nancy Pelosi getting preferential IPO shares in Visa right around the time a bill that would have hurt credit card processors was defeated....

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