Congress bet against the American economy?

posted at 12:15 pm on May 4, 2010 by Ed Morrissey

Let’s start off by defining terms.  Selling short in the market serves a good purpose.  It curbs “irrational exuberance,” and it provides investors with an important hedge to protect themselves from bad business decisions.  It’s easy for demagogues to cast it as “betting against America” only because most people don’t understand the importance of short selling in disciplining the market and keeping bubbles from overexpanding.

With that said, the Wall Street Journal discovers that the demagogues themselves apparently indulged in the practice that they now scorn as unpatriotic (via Instapundit and Henry Blodgett):

According to The Journal’s analysis of congressional disclosures, investment accounts of 13 members of Congress or their spouses show bearish bets made in 2008 via exchange-traded funds—portfolios that trade like stocks and mirror an index. These funds were leveraged; they used derivatives and other techniques to magnify the daily moves of the index they track. …

Some of these legislators have publicly criticized practices such as short-selling, or betting on a security to decline. In February, Sen. Johnny Isakson (R., Ga.) argued on the Senate floor that “we don’t need those speculating in the marketplace to take unfair advantage of the values of equities that are owned by Americans all over this country for the sake of making a buck on a short sale.”

On Oct. 8 and 9, 2008—as the Federal Reserve was bailing out American International GroupInc.—an account Sen. Isakson held invested more than $30,000 in ProShares UltraShort 7-10 Year Treasury and UltraShort 20+ Year Treasury, the records show. These are “leveraged short” funds, designed to gain $2 for each $1 drop in the daily value of U.S. Treasury bonds. …

Jonathan Gillibrand, husband of New York Democratic Sen. Kirsten Gillibrand, made more than 250 transactions in options in his E*Trade account in 2008, when his wife was in the House, according to disclosures.

Almost all the trades were in put options, which convey the right to sell a stock or other instrument at a given price until a given date. At least 34 times, Mr. Gillibrand bought puts on stocks of home builders, including Beazer Homes USA Inc., Hovnanian Enterprises Inc.,Meritage Homes Corp. and Ryland Group Inc. These were bets the builder stocks would fall; if they did, the puts’ value would rise. …

Rep. Shelley Berkley (D., Nev.), a member of the House Ways and Means Committee, has been a critic of Wall Street. In a statement on the House floor Feb. 23, she said: “Representing Las Vegas, let me assure you, no casino on the planet behaves as irresponsibly and recklessly as Wall Street does. Wall Street ought to be ashamed, and take a lesson from the casino industry.”

An account held by her husband, Lawrence Lehrner, shows 57 trades in 2008 in ETFs designed to gain $2 for each $1 drop in the value of a market index, the disclosures show. Between July 25 and July 29, 2008—four months after Bear Stearns Cos. fell—records show four trades in and out of ProShares UltraShort Financial fund.

Color Blodgett shocked, shocked to find these members of Congress profiting through the use of investment options they now demonize:

Remember all that scorn in Congress about evil shortsellers betting against America and bringing the country down?

Well, it turns out Congress-people did it, too.  And they used derivatives to do it, which they now say they abhor. … To use their own tortured, populist logic, they were betting against the country and their 401k-holding constituents!

The Democrat with the biggest political problem regarding short selling isn’t in Congress.  Jeff Greene made hundreds of millions of dollars in the 2007-8 financial collapse by “betting against” the residential market.  Now he wants to use that money to run for the US Senate in Florida against Kendrick Meek in the Democratic primaries.  If he winds up on the ticket, will Democrats continue to demonize investors who went short on the economy?  At least so far, they don’t seem terribly consistent.


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Why do democrats hate America?

Inanemergencydial on May 4, 2010 at 12:17 PM

Why don’t the Democrats want me to be allowed to do the same things that they do?

myrenovations on May 4, 2010 at 12:19 PM

When Demorats makes piles of money it shouldn’t matter because they really really care about their fellow citizens, which is why people such as Boxer and Rangel have poor families living in their various mansions rent-free.

Bishop on May 4, 2010 at 12:20 PM

Why do democrats prefer to prosper at everyone else’s expense?

Inanemergencydial on May 4, 2010 at 12:20 PM

Can you say “insider trading”? I can.

Will E. Holder say it? Not in a million years.

BobMbx on May 4, 2010 at 12:22 PM

I`m quite the financial rube but is`nt there something terribly wrong with this? I mean all of the DC pols know whats coming down the pike…far sooner than any one of us, this smacks of insider trading (or am I out to lunch).

NY Conservative on May 4, 2010 at 12:22 PM

Congress and their families should not be permitted to sell short. Their jobs should depend on success. Even better, their salaries should be tied to economic health.

Daggett on May 4, 2010 at 12:23 PM

Water for the, wine for me…the congressional credo.

If he winds up on the ticket, will Democrats continue to demonize investors who went short on the economy? At least so far, they don’t seem terribly consistent.

Liberals are the biggest hypocritical swine on Earth.

Schadenfreude on May 4, 2010 at 12:30 PM

Why don’t the Democrats want me to be allowed to do the same things that they do?

myrenovations on May 4, 2010 at 12:19 PM

Because when socialists get to be in charge, they no longer want to be socialists. They have made it to the to of the ladder and they have to keep all the other wannabes below them.

In a socialist society all are equal…except some pigs are more equal.

belad on May 4, 2010 at 12:30 PM

Everyone knows and shouldn’t be shocked that Congress is full of hot air(no pun) and bull excrement. The thing about this is that Congress folks would be wise to shut their mouths since these days the whole world is watching an listening all the time. They never seem to figure it out which is kind of a testament to the general stupidity of many of their membership.

jeanie on May 4, 2010 at 12:31 PM

Sen. Isakson held invested more than $30,000 in ProShares UltraShort 7-10 Year Treasury and UltraShort 20+ Year Treasury, the records show.

Well, one of Isakson’s inverse T-bond exchange-traded funds, the 7-10 year, declined a bit in value by the end of 2008, while his 20+ year bond fund declined sharply shortly thereafter–something that you’re supposed to know if you work for The Wall Street Journal.

Isakson was losing money between Oct 1 and Dec 31 of 2008 on those two funds, as Treasury prices went way up and yields went way down. [Click on the 5 yr tab at both charts for a look at the funds in late 2008]

Emperor Norton on May 4, 2010 at 12:31 PM

So does anyone think Congress is serious about 401k’s?

http://www.humanevents.com/article.php?id=36823

Cindy Munford on May 4, 2010 at 12:34 PM

…it provides investors with an important hedge to protect themselves from bad business decisions.

It isn’t just bad business decisions. Speaking as a licensed commmodities broker, there are many legitimate business reasons to sell short,not just to “protect themselves from bad business decisions.”

mwdiver on May 4, 2010 at 12:35 PM

When Demorats makes piles of money it shouldn’t matter because they really really care about their fellow citizens, which is why people such as Boxer and Rangel have poor families living in their various mansions rent-free.

Bishop on May 4, 2010 at 12:20 PM

Last I heard, all those employed at Pelosi’s winery are NON-union. She can get funds from Unions, and preach the virtues of Unions but when it comes to her bottom line….

Yakko77 on May 4, 2010 at 12:35 PM

Can you say “insider trading”? I can.

Will E. Holder say it? Not in a million years.

BobMbx on May 4, 2010 at 12:22 PM

Someone owes Martha Stewart an apology.

jimmy2shoes on May 4, 2010 at 12:39 PM

Stunned!

Denverslim on May 4, 2010 at 12:40 PM

Haven’t these people made enough money? They should share the wealth already.

lonesomecharlie on May 4, 2010 at 12:40 PM

What goes on behind closed doors can really make corrupt politicians luckier than most as shown in this write up. Being able to vote themselves a raise is bad enough, but having the ablitity to shape the dynamics of a financial portfolio through inside information is not a matter of luck at all, it’s rather a matter of timing.

Americannodash on May 4, 2010 at 12:41 PM

Why do democrats hate America?

Inanemergencydial on May 4, 2010 at 12:17 PM

Democrats don’t hate America.
They only care about themselves and use very bad judgment.

Kini on May 4, 2010 at 12:45 PM

“My hypocrisy only goes so far.”

“It seems my hypocrisy knows no bounds.”

Doc Holliday, Tombstone

GnuBreed on May 4, 2010 at 12:47 PM

Even for the smartest short-seller, nothing is a sure thing. They may know that a certain company is over-leveraged and about to fail, but they may not know that it’s over-leveraged because one of their research chemists just came up with an industrial process that will cut the cost of their production in half. Only people like Soros can bet on a sure thing, because only people with Soros money can shape the future that well.

RBMN on May 4, 2010 at 12:48 PM

There might be a difference between Isakson reading the writing on the wall in Oct 08, while realizing that the next president would be Obama and investing accordingly… and Democrats betting on markets to fail while they are actively setting the policies to ensure failure. The second instance is most certainly a crime against Americans and America.

Buddahpundit on May 4, 2010 at 12:49 PM

<

Why do democrats hate America?

Inanemergencydial on May 4, 2010 at 12:17 PM

That is an interesting question. I don’t think is is so much that they hate America as much as it is how much they love what in their mind America can be. With that, how else can you act out your frustration?

It is a symptom of the problem when the problem is the lefties are intellectually foolish in ignoring the reality of the human condition. They hate ambition and call it greed. They hate success and call it exploitation. They see poverty and ignore the fact that many in poverty are in it because of their own actions, but the lefties want to believe they are there from other peoples actions. They want a government utopia when any thinking person realizes it is putting a square peg in a round hole of human reality going back to the beginning of time.

Lefties suffer from an acute reality perception disorder. Ambition, lazyness, and all inbetween are a component of the human race, and they can’t accept that reality. some people are smart, and some are dumb. They can’t accept that either other than to say anyone that doesn’t suffer from their human perception disorder is dumb.

saiga on May 4, 2010 at 1:00 PM

Again I say, in the real world, this would never fly. When I worked in those big fancy-schmancy law firms in NY and LA, we had a committee to whom you had to report 1) when you started working there what companies you owned stock in, and 2) when you wanted to buy or sell any new securities. Reason being, of course, that we were privy to information the general public was not and even if we made a trade without any knowledge of some deal that was going on somewhere else in the firm, the case could be made against us or the firm that something untoward was going on. I distinctly remember a case from my securities law class in which some schmoe working in the copy room at a law firm happened to learn of an IPO coming up and told some relatives and they profited handsomely. Verdict? Guilty of insider trading.

NoLeftTurn on May 4, 2010 at 1:01 PM

NoLeftTurn on May 4, 2010 at 1:01 PM

The securities investment industry is a nest of snakes anyway. I know that but am in the market anyway. Any business owner or CEO knows there is a “myriad of gray at the interface of black and white”, and they live in it.

saiga on May 4, 2010 at 1:06 PM

It isn’t just bad business decisions. Speaking as a licensed commmodities broker, there are many legitimate business reasons to sell short,not just to “protect themselves from bad business decisions.”

mwdiver on May 4, 2010 at 12:35 PM

MW… I think you know trying to educate certain authors on financial terminology and theories is, well… useless.

Encouraged to see “Let’s start off by defining terms. Selling short in the market serves a good purpose” – which is a 180 from the other 20 or so GS/Wall street articles.

Although I do wait with bated breath the next tech-based Ed article… his browser knowledge is… still spooling.

Odie1941 on May 4, 2010 at 1:09 PM

The Puppet Master (George Soros) taught them all very well.

Keemo on May 4, 2010 at 1:10 PM

I love how both Ed’s post and the commenters demonize the Democrats on this issue when the WSJ article actually points to more Republicans (Isakson, Hefley, Bachus) than Democrats (Gillibrand, Berkley). There are hypocrites on both sides.

tneloms on May 4, 2010 at 1:17 PM

it would be nice if Ben Nelson Idiot-NE, were called to lock his millions worth of Berkshire Hathaway shares into a blind trust or something, he is vetoing the finreg bill to help Buffett avoid collateral on his existing derivatives..

Buffett is apparently just another hypocrite, mr I should pay more taxes doesnt way to pony up collateral for the derivatives he called weapons of financial mass destruction a year ago…

frakkers.

ginaswo on May 4, 2010 at 1:18 PM

I`m quite the financial rube but is`nt there something terribly wrong with this? I mean all of the DC pols know whats coming down the pike…far sooner than any one of us, this smacks of insider trading (or am I out to lunch).

NY Conservative on May 4, 2010 at 12:22 PM

There might be a difference between Isakson reading the writing on the wall in Oct 08, while realizing that the next president would be Obama and investing accordingly… and Democrats betting on markets to fail while they are actively setting the policies to ensure failure. The second instance is most certainly a crime against Americans and America.

Buddahpundit on May 4, 2010 at 12:49 PM

This is much worse than ordinary insider trading. It also demonstrates that they do in fact understand the damage their policies will cause.

LarryD on May 4, 2010 at 1:20 PM

How many MILLIONAIRES are in Congress? And how many are Democrats? You know, ‘the party of the poor’.

GarandFan on May 4, 2010 at 1:27 PM

Can’t we find a credible member of the GOP to run against Gillibrand in NY?

BuckeyeSam on May 4, 2010 at 1:29 PM

I love how both Ed’s post and the commenters demonize the Democrats on this issue when the WSJ article actually points to more Republicans (Isakson, Hefley, Bachus) than Democrats (Gillibrand, Berkley). There are hypocrites on both sides.
tneloms on May 4, 2010 at 1:17 PM

The title of Ed’s post is “Congress bet against the American economy?” And I agree with your last point.

Neuron on May 4, 2010 at 1:40 PM

Washington, not Wall Street, is ground zero for insider trading in this country. It’s continuing intrusions into American business gives corrupt statists access to all sorts of proprietary information.

I find it impossible to believe that creeps all over DC aren’t using that info for their own personal gain.

RadClown on May 4, 2010 at 1:42 PM

I saw Jeff Greene’s new house in Florida recently. It is ridiculous.

Conservative in NOVA on May 4, 2010 at 1:59 PM

On Oct. 8 and 9, 2008—as the Federal Reserve was bailing out American International GroupInc.—an account Sen. Isakson held invested more than $30,000 in ProShares UltraShort 7-10 Year Treasury and UltraShort 20+ Year Treasury, the records show. These are “leveraged short” funds, designed to gain $2 for each $1 drop in the daily value of U.S. Treasury bonds. …

This is really weak. These ETFs (PST, TBT) are a “bet” against interest rate increases in Treasuries and has nothing to do with AIG.

I assume the reporter was desperate to put an R in there to get the story past the editors.

r keller on May 4, 2010 at 2:45 PM

I don’t think members of Congress should be allowed to invest in the market at all. Their ability to influence any market they chose is a conflict of interest.

Their pay, per-diem, expense accounts, pension and bribe money is more than sufficient to sustain them for their entire lives.

If they choose to invest, it should be in government bonds only. Perhaps they would not be so cavalier about running up massive debt and lowering the value of those bonds.

reaganaut on May 4, 2010 at 2:59 PM

This is really weak. These ETFs (PST, TBT) are a “bet” against interest rate increases in Treasuries and has nothing to do with AIG.

I assume the reporter was desperate to put an R in there to get the story past the editors.

r keller on May 4, 2010 at 2:45 PM

This is 100% correct. If you’re shorting treasuries, it’s because you expect an interest rate increase will lower the value of the bonds. In other words, you’re expecting an increase in economic activity that will necessitate the Fed raising interest rates. That’s not exactly “betting against America.”

Django on May 4, 2010 at 3:07 PM

For those of you defending Johnny Isackson he and Saxby Chambliss are part of the good ole boy politician establishment and part of the problem. The bring home the pork I know whats better for you than you do arrogance is alive and well. I am really disgusted with both sides of the aisle.

ldbgcoleman on May 4, 2010 at 5:28 PM

If selling short were un-American, we ought to dig Joe McCarthy back up to try George Short–er I mean Soros.

Axeman on May 4, 2010 at 11:00 PM

Blodgett, master of securities fraud, really speaks from the high ground here.

midas79 on May 5, 2010 at 12:11 AM