Congress Is Day-Trading While the World Burns
It was a hell of a year for the professional day traders who moonlight as members of Congress. Collectively they traded hundreds of millions of dollars worth of stocks and related securities — usually from industries that are closely regulated by Congress.
House Speaker Nancy Pelosi (D-CA) continues to lead the field in options trading, having bought $12.75 million worth of options contracts in 2021. (Chip Somodevilla / Getty Images)
The way US politicians talk about their country, you’d be forgiven for thinking that American society is a business. And the way they buy and sell shares, you’d be forgiven for thinking Congress is less a deliberative body for crafting laws than an extension of the stock market.
In spite of a pair of insider trading scandals that cost Georgia’s Republican senators their seats at the start of last year, Congressional gambling on the share market actually increased in 2021, according to a year-end report issued this week by investment watchdog Unusual Whales, comprising more than $400 million worth of transactions. What’s more, members of both parties in each chamber of Congress averaged higher-than-market returns for the year, other than Senate Republicans, who performed just below the market average.
The biggest jump came from stock options, devices that give investors the right to later buy or sell a stock before a particular date, an investment vehicle that reached record popularity in 2021, but tends to favor more experienced and wealthier investors. Members of Congress traded a total of $140 million worth of options last year, more than five times the amount in 2020, according to the report, which is based on all the financial disclosure forms between December 1, 2020 and December 22 of last year.
House Speaker Nancy Pelosi (D-CA), who just recently defended Congressional stock trading by arguing the United States is a free market economy, continues to lead the field in options trading, having bought $12.75 million worth of options contracts in 2021. It’s well more than the next highest trader, Senator Tommy Tuberville (R-AL), who sold $2 million worth of options.
But they were both blown out of the water in 2021 by Representative Josh Gottheimer (D-NJ), who both bought and sold more than $60 million worth of contracts, all of whose call options — meaning, those contracts giving him the right to later buy a company’s stocks at a certain price — were in Microsoft stock. Gottheimer is maybe best known as the corporate-funded obstructionist who led a short-lived effort to torpedo the Build Back Better bill, which included a modest corporate tax hike.
While the volume of stock trading fell by nearly $200 million since 2020, Congress still bought and sold nearly $290 million in stocks over the course of the year. The report points out that much of this drop is due to the exit from Congress of Republicans David Perdue and Kelly Loeffler, the Georgia stock traders who moonlit as senators through 2020, a year in which they carried out roughly $200 million worth of stock trades. “When we exclude these two Senators, stock trading in both years were comparable,” states the report.
The busiest periods of trading came at the beginning and closing months of the year. GOP senators made a large amount of stock purchases in January, the start of Biden’s term, and in March, the month Biden signed his $1.9 trillion stimulus, which Republicans in the Senate opposed lockstep.
Building Back the Same
Meanwhile, House Democrats sold tens of millions of dollars worth of stocks in September and October, as negotiations over Biden’s infrastructure agenda was reaching a critical point, while senators sold nearly $8 million worth of stock in November, most of it by Republicans. This was the same month Biden signed his physical infrastructure package and effectively shelved his plans for funding human infrastructure like education and child care. Both bills were opposed in near lockstep by Republicans.
The report singles out several fortuitously timed transactions by congresspeople that suggest illegal insider trading. Representatives Kevin Hern (R-OK) and Kathy Manning (D-NC), for instance, both bought Lockheed Martin stocks shortly before the company won a nearly $11 billion Air Force contract, while Representative Blake Moore (R-UT) bought $60,000 of Raytheon shares while on a subcommittee reviewing defense contracts.
Similarly, Tuberville and Representative Pat Fallon (R-TX), both of whom also sit on committees that oversee defense contracts, sold considerable amounts of Microsoft stock two weeks before a $10 billion Pentagon contract with the company was canceled. Representative Brian Mast (R-FL) bought shares in Tilray, a marijuana producer, shortly before voting for a marijuana de-scheduling bill in 2020, then sold them for a 564 percent return in February 2021, one of the biggest returns in the House all year.
More generally, tech and fossil fuel were the top-traded stocks among congresspeople, with shares in certain individual mineral and mining companies being particularly popular among Senate Republicans specifically. It points to one of the difficulties of the failing US attempt to transition away from fossil fuels, when the politicians meant to be steering this effort are financially invested in their continued exploitation. It also suggests that Republican senators were maneuvering to get rich off the flurry of construction Biden’s infrastructure bill was set to put into motion, at the same time they overwhelmingly opposed the bill and falsely blamed its spending for the rise in inflation.
The list of members of Congress who beat the market in 2021 includes every one of the names already mentioned, excluding Hern, Manning, and Fallon, as well as a variety of other prominent lawmakers. That includes Democrats Thomas Carper, Elaine Luria, and Ron Wyden, and Republicans Shelley Capito, Mitch McConnell, and Dan Crenshaw, who had a particularly successful year in playing the share market. Even progressive representative Peter Welch (D-VT) is on there, years after being embroiled in a scandal that found him trading stocks in pharmaceutical companies that supported a bill he voted for — a bill that ended up limiting authorities’ power to stop prescription drugs from ending up on the black market.
All of this was made possible by a 2012 law that set some limits on members of Congress and their staff trading off information they received in briefings, and mandated the public disclosure of trades. But even this has been limited, with a recent Insider investigation finding that as many as fifty-four federal lawmakers failed to report their stock trades.
More importantly, as the Unusual Whales report shows, the 2012 law merely placed this corruption out in the open without actually curbing it, and a bipartisan push to ban congressional stock trading entirely now seems to be in its early stages.
Jon Ossoff, the Georgia senator who owes his seat in large part to his predecessor’s insider trading, has introduced a bill banning stock trading by members of Congress and their families, with Senator Josh Hawley (D-MO) introducing his own, less strict bill to do the same. House GOP leader Kevin McCarthy has also said he might try for a ban if Republicans win back the House in 2022, but some leading Democrats, following Pelosi’s lead, have been noncommittal so far.
Should the push for a full ban be actually serious and successful, it will only be one small step in ending the open corruption of the US political system. Members of Congress will still continue to be bribed with campaign contributions and corporate jobs, while US politics continues, logistically, to be almost exclusively limited to the wealthiest strata of society — the very people most likely to trade in stocks and otherwise invest on the side as they set public policy.
Still a law banning the practice is long-since needed, and would be more than welcome. Until then, the political elite will day-trade while Rome burns.