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One more time: Do as I say, not as I do

There's been a lot of discussion in the last week-and-a-half or so about insider trading in Congress.  A couple of thoughts:

1) While 60 Minutes may have only just now gotten around to covering the story, it's described in a recently published book by Peter Schweizer called Throw Them All Out (Schweizer would necessarily have had to research the topic long before the publication of the book) as well as here in mid-July in a post entitled "Don't They Work for Us?", consisting of a video and table from Government Gone Wild's Blaise Ingoglia. One thing we can take away from this is that it pays to stubbornly keep putting actual facts out there—eventually, truth will out. Sunshine is the best disinfectant.

2) Just because something can be done doesn't necessarily mean it should be done. Should MC's or their staffs be able to profit from the same activities that would land stockbrokers in jail? Walter Olson at Cato had this to say:

...Studies have found that lawmakers as a group reap far above-average returns on their investments—suggesting either that these politicians are among the world’s cleverest investors, or else that they are profiting from inside information. All this has been turned into a front-page issue thanks to Throw Them All Out, a book by Hoover fellow Peter Schweizer, whose findings were showcased the other night on 60 Minutes.

So the question is: is all this legal? While there’s some difference of opinion on the issue among law professors, the proper answer to that question is most likely going to be, “Yes, it’s legal.” As UCLA’s Stephen Bainbridge points out, existing insider trading law, developed by way of a long series of contested cases under the Securities and Exchange Commission’s Rule 10b-5, assigns liability to persons who are not corporate insiders if they are violating a recognized duty of loyalty to those for whom they work. As applied to the investment whizzes of the Hill, this implies that trading on inside information might be a violation if done by Congressional staffers (since they owe a duty of loyalty to higher-ups) but not when done by members of Congress themselves.

It is tempting to approach the new revelations the way an ambitious prosecutor might, trying to stitch together a test-case indictment from, say, the penumbra of the mail and wire fraud statutes bulked up with a bit of newly hypothesized fiduciary duty here and a little “honest services” there. But that’s not how criminal law is supposed to work: for the sake of all of our liberties, prohibited behavior needs to be clearly marked out as prohibited in advance, not afterward once we realize it doesn’t pass a smell test. But we are still free to deplore the hypocrisy of a Congress that has long been content to criminalize for the private sector—often with stiff jail sentences—behavior not much different from what lawmakers are happy to engage in themselves.

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