When I saw the headline “Congressional Insider Trading” at Stephen Bainbridge‘s place, I thought he was being metaphorical. As he explains in his TCS piece “Insiders on the Hill,” he is not.
Imagine you’re a United States senator. You own a lot of stock in a big defense contractor. In a confidential briefing from the Pentagon, you learn that a major weapon system being built by that contractor is about to be cancelled. When the decision is made public, the contractor’s stock will drop significantly. You’re tempted to pick up your phone, call your broker, and sell the stock so as to avoid the loss. Would you?
A study of stock trading by senators found that many of them routinely succumb to that temptation.
I had, quite naturally, just operated under the assumption that this practice was illegal. One can hardly imagine a more obvious ethical conflict than allowing those who legislate and oversee interstate commerce to have a profit motive.
