Spencer Bachus, Rogue Trader

Reporting on Politics and Policy.
Nov. 14 2011 10:30 AM

Spencer Bachus, Rogue Trader

Last night, 60 Minutes ran a report on the shocking normalcy of stock trades by members of Congress. The world's greatest deliberative bodies are exempt from insider trading laws, even though its members get quicker access to market-moving information than almost anyone else. If you're one of those 9 percent of Americans who still trust Congress, well, avert your eyes.

David Weigel David Weigel

David Weigel is a Slate political reporter. 

Steve Kroft's report was based largely on a new book, Throw Them All Out, written by the conservative scholar/sometime Palin speechwriter Peter Schweizer. I'm working my way through it now, and one of the ugliest revelations so far -- prodded in the Kroft story -- is the degree to which Rep. Spencer Bachus, then ranking member of the House Financial Services Committee, bet against the market as it collapsed in 2008. Schweizer finds "no less than forty options trades" in Bachus's records from July 2008 to November 2008. The trades made him wealthier; almost nobody else had the information he had, and could have made them. Take this example, from the bottom of the collapse.

On the evening of September 18, at 7 p.m., Bachus received [a] private briefing for congressional leaders by Hank Paulson and Federal Reserve Bank Chairman Ben Bernanke about the current state of the economy. They sat around a long table in the office of Nancy Pelosi, then the Speaker of the House. These briefings were secretive. Often, cell phones and Blackberrys had to be surrendered outside the room to avoid leaks.
What Bachus and his colleagues heard behind closed doors was stunning. As Paulson recounts, “Ben [Bernanke] emphasized how the financial crisis could spill into the real economy. As stocks dropped perhaps a further 20 percent, General Motors would go bankrupt, and unemployment would rise . . . if we did nothing.” The members of Congress around the table were, in Paulson’s words, “ashen-faced.”
Bernanke continued, “It is a matter of days before there is a meltdown in the global financial system.” Bachus was among those who spoke. According to Paulson, he suggested recapitalizing the banks by buying shares.
The meeting broke up. The next day, September 19, Congressman Bachus bought contract options on Proshares Ultra-Short QQQ, an index fund that seeks results that are 200% of the inverse of the Nasdaq 100 index. In other words, he was shorting the market. It was an inexpensive way to bet that the market would fall. He bought options for $7,846 on a day when the Dow Jones Industrial Average opened at 8,604. A few days later, on September 23, after the market had indeed fallen, he sold the options for over $13,000 and nearly doubled his money.
Advertisement

There are dozens of examples like this. On September 8, Hank Paulson gets a tip from GE about the company's sluggish bond sales, on September 10, Bachus shorts GE options four times. It's all legal, and Bachus is now the chairman of House Financial Services.

David Weigel is a Slate political reporter. 

TODAY IN SLATE

Politics

Don’t Worry, Obama Isn’t Sending U.S. Troops to Fight ISIS

But the next president might. 

The Extraordinary Amicus Brief That Attempts to Explain the Wu-Tang Clan to the Supreme Court Justices

Amazon Is Officially a Gadget Company. Here Are Its Six New Devices.

The Human Need to Find Connections in Everything

It’s the source of creativity and delusions. It can harm us more than it helps us.

How Much Should You Loathe NFL Commissioner Roger Goodell?

Here are the facts.

Altered State

The Plight of the Pre-Legalization Marijuana Offender

What should happen to weed users and dealers busted before the stuff was legal?

Surprise! The Women Hired to Fix the NFL Think the NFL Is Just Great.

You Shouldn’t Spank Anyone but Your Consensual Sex Partner

Moneybox
Sept. 17 2014 5:10 PM The Most Awkward Scenario in Which a Man Can Hold a Door for a Woman
  News & Politics
Altered State
Sept. 17 2014 11:51 PM The Plight of the Pre-Legalization Marijuana Offender What should happen to weed users and dealers busted before the stuff was legal?
  Business
Business Insider
Sept. 17 2014 1:36 PM Nate Silver Versus Princeton Professor: Who Has the Right Models?
  Life
Outward
Sept. 17 2014 6:53 PM LGBTQ Luminaries Honored With MacArthur “Genius” Fellowships
  Double X
The XX Factor
Sept. 17 2014 6:14 PM Today in Gender Gaps: Biking
  Slate Plus
Slate Fare
Sept. 17 2014 9:37 AM Is Slate Too Liberal?  A members-only open thread.
  Arts
Brow Beat
Sept. 17 2014 8:25 PM A New Song and Music Video From Angel Olsen, Indie’s Next Big Thing
  Technology
Future Tense
Sept. 17 2014 9:00 PM Amazon Is Now a Gadget Company
  Health & Science
Medical Examiner
Sept. 17 2014 11:48 PM Spanking Is Great for Sex Which is why it’s grotesque for parenting.
  Sports
Sports Nut
Sept. 17 2014 3:51 PM NFL Jerk Watch: Roger Goodell How much should you loathe the pro football commissioner?