When insider trading in Congress was legal

IT’S

sad enough that Republican New York Congressman Chris

Collins was charged on Wednesday with trading stock on inside information. The sadder part is that up to just a few years ago this sort of selfserving behavior was allowed.

Public office paid off very nicely when elected officials were able to learn, or just glean, information that would make a stock go up or down and then pad their bank accounts by trading on that information.

One study found that lawmakers were regularly able to get up to a 25 percent annual rate of return on their investments, which either means they were better than the greatest Wall Street stock picker who ever lived — or they were cheating.

The too-good-to-be-true rate of return was uncovered by an investigation of congressional stock trading in 2004 by Professor Alan J. Zio

browski of Georgia State University and others.

The investigation, presented in the Journal of Financial and Quantitative Analysis of the University of Washington, found that stocks purchased by senators acted normally in the year before the lawmakers bought them — but then gained an average of 25 percent in the year after they were acquired.

“These results suggest that Senators knew appropriate times to both buy and sell their common stocks,” the Ziobrowski report concluded.

That finding came eight years before such actions were made illegal. Eight years! Insider trading by members of Congress was supposed to have stopped in 2012. Imagine how much money was made in that time.

Collins was indicted by federal prosecutors Wednesday on fraud charges in connection with an alleged insider-trading scheme involving investments he made in an Australian biotech firm.

In this case, prosecutors say that Collins in 2017 passed information on Innate Immunotherapeutics drugs to his son and another co-conspirator. The three avoided $768,000 in losses when a drug test didn’t live up to expectations and the company’s stock plummeted.

Everything Collins did, according to a good-government group, would have been OK until 2012, when President Obama signed the Stop Trading on Congressional Knowledge (STOCK) Act.

Congress soon undid part of that law, but there was enough of the new regulations in place to bag Collins, who is 68 years old and represents parts of upstate New York.

Ironically, 2012 was the year that Collins was first elected to Congress. He was re-elected in 2016, but his indictment puts his solidly Republican seat in some jeopardy if he is convicted and kicked out of office.

Collins was undone by sleuthing by the good-government group known as Public Citizen, which was tracking the stock buying of many members of Congress. In a letter to regulators on Jan. 5, 2017, Public Citizen wrote, “we request an investigation into the stock market trading activities of Reps. Tom Price (R.Ga.) and Chris Collins (R. N.Y.) for possible violations of insider trading and conflicts of interest laws and regulations.”

The action against Collins and the others was brought by the Justice Department, not the Securities and Exchange Commission.

I spoke on Wednesday with Craig Holman, a lobbyist for Public Citi- zen and one of two people who signed the letter to the SEC detailing Price’s and Collins’ alleged actions.

Holman said he doesn’t know what is happening to the complaint against Price, who left Congress to join the Trump administration. Price has since quit, under pressure, as President Trump’s secretary of Health and Human Services.

Here are some more disturbing numbers to ponder in the wake of last year’s tax reform.

Through May of this year, the US Treasury paid $233 billion in interest on its debt. The government’s fiscal year ends in September, so that figure will be much larger whenn June, July, August and September are added in.

This year’s figure compares with $198 billion in debt payments last fiscal year through May, $176 billion in payments the prior year and $159 billion through May of fiscal 2015.

So, the amount that the US government has to pay to people that lent it money has been rising steadily. This expense is third only to defense spending and Social Security/Medicare.

And the figure I just quoted is calculated with interest rates that are still very low. The Fed is expected to raise rates again next month, and there’s a good chance of another rate hike in December.

Each quarter percentage point hike in rates costs Uncle Sam billions of dollars. And all of this comes at a time when the Trump administration’s tax reform will cause less revenue to be collect and more debt issuances to be needed.

According to the Congressional Budget Office, Washington will be paying $818 billion a year in interest by 2027. And these interest payments will be the largest expenditure of the US government by 2050. But long before then, this expense will be “crowding out” — as economists call it — other spending needs. To put this into perspective, it would cost a reported $175 billion a year to bring every American above the poverty level. And to express the issue in militaristic terms, that $233 billion Washington paid out in debt service through May of this fiscal year could pay for just about 18 aircraft carriers.