Today’s buzz is that President Obama and Republican leaders
are huddling to cut a deal that will avoid “the fiscal cliff,” the very cliff
that members of Congress built a few years ago to create an incentive to do the
right thing. My own view is that the dreaded
fiscal cliff sounds like a reasonable palliative, an austerity program to match
that being urged on certain European countries. But my point here is a quite
different threat.
When and if Obama and the Congress make a deal, a lot of
people will know about it before you and I do, and those people “inside the
Beltway” will have the opportunity to make a fortune by buying stocks or
options, because the announcement of the deal will almost certainly cause an
enormous spike in the market. No
Congressman will actually call his or her broker, of course; that would be
foolish. Spouses or other relatives will be the buyers. And there will be no
whistle-blowers. Insider trading is something hedge-fund managers do, not
politicians.
Of course, it is possible that no member of Congress or
White House staffer ever uses advance knowledge of a news bombshell for his or
her financial advantage. It is also
possible that the moon is made of green cheese.
But when we expand our view to include the staffers at the regulatory
agencies and other government workers in a position to know market-moving
information early, we have to conclude that this is the biggest story that
never gets told – possibly because investigative journalists are in on the
take.
Wonder why so many people spend so much money to keep their
seats in Congress, or why so many live a life more comfortable than their
salary would seem to justify? (That salary, for the House and Senate leaders,
incidentally, tops out at $193,400 – just below the $200,000 single-payer mark
that Obama targets for a tax increase.)
The answer: Washington is a money machine, whether you’re a Democrat or
Republican.
Oh yes – what if the President and Congress fail to make a
deal? When that news breaks, the markets
will dive. Anyone with advance knowledge
of that news can make money selling short.
