In September 2008, the U.S. financial system was teetering on collapse and the stock market was shaky. But Alabama Republican Rep. Spencer Bachus saw opportunity in the crisis. According to an investigation by the CBS news program "60 Minutes," Mr. Bachus attended a closed-door meeting that month with then-Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke at which lawmakers were briefed on the probable course of events. A day later, Mr. Bachus bought two types of highly leveraged options, essentially betting that share prices would fall — which they did. A week later, the congressman pocketed a tidy $5,000 profit when he sold his options.
In a town where access to information is power, Washington lawmakers are particularly well positioned to benefit from market information not available to the public. In the corporate world, insider trading is strictly prohibited, and executives caught enriching themselves on the basis of nonpublic information face stiff criminal and civil penalties. But no such rules apply to information members of Congress get while supposedly doing the public's business, and as "60 Minutes" documented, members of both parties appear to have profited from knowledge gained on the job. The temptation for lawmakers to line their pockets through trades that would be illegal for anyone else is an invitation to abuse.
But while one can criticize the ethics of Mr. Bachus, who denies that he benefited from insider knowledge, the fact is that what he did was perfectly legal. That would change if lawmakers passed one of several bills now before Congress that would prohibit members from trading stocks based on nonpublic information they get while performing their official duties. Since the "60 Minutes" report aired, dozens of legislators have gotten behind an effort to revive long-ignored legislation called the STOCK Act, which would also require lawmakers to report purchases and sales of shares worth more than $1,000 within 90 days. (So far, only two Maryland lawmakers, Reps. Donna Edwards and Chris Van Hollen, both Democrats, have signed on as cosponsors.)
The legislation would at least be a start in bringing the rules governing congressional disclosure more in line with those of the private sector, where fund managers must report transactions within 48 hours. Currently, it can take a year or longer before information about a member of Congress' trades comes out. In the meantime, the public just has to take the lawmaker's word that his or her stock profits were based on information available to anyone.
With public distrust of the Congress at an all-time high, lawmakers should at least abide by the same standard they impose on everyone else. That's especially true for the rules against insider trading, where lawmakers, because of their unique access to information, potentially are in a position to benefit more than the people they're regulating. Lawmakers can hardly complain if Congress' reputation for trustworthiness is tanking when they hold others to a standard they refuse to hold themselves to.
The STOCK Act is not perfect. It would certainly be better if all lawmakers had to put their holdings in blind trusts, or at least in instruments indexed to broad movements of the stock market rather than in individual companies that might receive government funds or have their fortunes affected by government regulations. But the proposed law is a start toward making Congress more accountable. Lawmakers have no business using the inside information they get all the time to line their pockets at others' expense.