Rigging Markets

Washington DC Seems To Be Pretty Good At It

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Over the years I have written a lot about how people in Washington DC take advantage of inside information and trade the market. If you were a corporate executive you would go to jail for the same actions.

This is not a new issue. It’s a recurring issue.

I have written about it at my old site, Points and Figures, and have written about it on the Substack site. Feel free to search the old posts. There are some good stories about Hillary Clinton and Alphonse D’Amato there.

Misguided and wrongheaded government policy on finance is what initially got me blogging. I wrote about Treasury Secretary Hank Paulson’s response to the financial crisis back in 2008. If you can find the article on Pajamas Media you are better at search than I, Essentially I said that TARP would do nothing but bail out Paulson’s cronies on Wall Street. I think I was proven right about that though it was unpopular at the time to let the banks drown in the risk they themselves assumed, albeit with an implicit government backstop.

The WSJ has investigated all the trading in Washington DC and more importantly, they were transparent about how they tracked the trading. This is important in this day and age. Transparency is everything. It’s one thing to follow Nancy Pelosi’s Stock Trades on Twitter and very different than some objective journalism doing a full audit.

It’s sickening to me as a person that traded the market for their career.

Think of the thousands like me that went into the exchanges around the US and put their own money on the line going against the likes of Goldman, Morgan, and all the big boys. We didn’t have inside information. We only had our wits and intellects, and we grappled daily with our fear.

There will be no high crimes and misdemeanor Congressional hearings on this since they often are in on the game. I will tell you that if I was in office, I would put a stop to it once and for all.

Rigging markets is one of the worst things that can happen in a capitalistic society.

Markets underpin decision-making by people and businesses. We trust that they are competitive. We trust they are on the level and transparent. To say this the actions of DC people are egregious is to understate the impact by several powers of ten.

Here is an example from the Wall Street Journal expose:

“The husband of a Commodity Futures Trading Commission economist in a single year shorted nearly 3,000 stocks, betting on a drop in their price. Such trading is contrary to CFTC rules, but the agency waived them, fearing it could be sued.”

Assume that nothing nefarious was happening and the husband was a person working for a hedge fund. Well, then one of the two people in the relationship has to make a choice. Work for the hedge fund or quit while your partner takes a gig with the CFTC.

The integrity of the US capitalistic market system is more important that this couple’s freedom to choose their career. There is no free lunch.

I had a very wealthy friend that wanted to work for a Presidential administration. They couldn’t get through the “conflicts” part of assessing their background because they had a lot of investments. The committee taking a look was afraid that person could make a decision that would unfairly advantage one of the investments, even if it wasn’t intentional.

Yet, “More than five dozen officials at five agencies reported trading stocks of companies shortly before their departments announced enforcement actions against those companies, such as charges or settlements.”

Prior to the Covid information hitting the market, Washington DC people made incredible trades with incredible timing.

Disgusting. Actually, beyond disgusting. Especially given the government response. Think there was an extra incentive to make a policy decision or public announcement one way or another with money on the line?

Back in 2009, a Department of Justice official released an internal memorandum that said the CME was going to lose its captive clearinghouse. I think the date was March 24th. CME lost $150/share. It wiped out millions in wealth for lots of people and institutional funds needlessly since the CME was never going to lose its clearinghouse. Think anyone in DC was short or long puts, or short calls, or long straddles/strangles? Think any of them bought the dip? For what it’s worth, the gentleman that leaked the memo was given a job as CEO of a North Carolina bank, which then was bought by another bank.

Senator Mitch McConnell’s wife Elaine Chao is quite the trader too. She must commiserate with Paul Pelosi, Speaker Pelosi’s husband. Is there anything more disgusting to hear than “Washington DC power couple”? Maggots are a higher-evolved species.

#Winning. So much winning.

There not only is a revolving door between Wall St and DC but a revolving door between most major corporates in US industries and DC. I work for Corporation X, then go work for the Corporation X regulator, then go work for Corporation Y which is in the same oligopoly/monopsony as Corporation X.

We have identified the problem. What’s the answer?

Own indexes. If you want to invest in the stock market, by all means, do it. We want government officials long the S+P 500. But, no single stocks. Indexes only. If you own single stocks prior to taking the job, cool but they go into a blind trust that you have no control over or access to. You also can’t communicate with the wealth manager who manages it-but you do get quarterly reports.

Buy all the government treasuries you want. But, there should be a minimum holding period. Maybe three to six months. No scalping bonds ahead of Fed meetings like the Fed governor recently did.

If you are invested in a lot of private companies, you resign from the board and you resign from any entity that has an interest in that company. You get a yearly financial report but no reports on strategy. All communications between you and anyone associated with the company are transcribed and searchable.

The Big 4 accounting firms do it. The government can too. It is not like the employees aren’t making a decent buck along with getting a guaranteed defined benefit pension. No one is starving. Heck, six or seven families could survive if they split up Fauci’s pension, even adjusted for inflation.

Want to work for the government after or during a career? Fine, you get to pay a higher tax rate with no write-offs than anyone else post-government work if you lobby the government or work in the same industry you just regulated. Glenn Reynolds has written extensively about this.

In 2011 Glenn wrote,

In short, I propose putting a 50% surtax -- or maybe it should be 75%, I'm open to discussion -- on the post-government earnings of government officials. So if you work at a cabinet level job and make $196,700 a year, and you leave for a job that pays a million a year, you'll pay 50% of the difference -- just over $400,000 -- to the Treasury right off the top. So as not to be greedy, we'll limit it to your first five years of post-government earnings; after that, you'll just pay whatever standard income tax applies.

I think this should extend to many other government employees.

Working for the government is working for the taxpaying citizens of the United States. It’s not for making money off their backs, although it is becoming more and more evident that we are the chumbalones and they are the grifters.