Free Throw Them All Out by Peter Schweizer

nonpublic information, the kind that hedge funds pay a lot of money for, and then let the trustee make his own decision about how to react. As law professor Megan Ballard puts it, "The rules for these trusts do not include sufficient incentives to maintain blindness." Indeed, "blind trusts can mislead the public into believing that policymakers are avoiding conflicts, when they may not be doing so." As Ballard points out, the first elected U.S. official to use a blind trust was Lyndon Johnson, who was notorious for using his position to benefit his businesses. LBJ named two business associates and a family friend as his trustees. And he continued on as usual, with his trustees handling specific details. 2
    The simple fact is that politicians often select close colleagues, friends, and acolytes to run their blind trusts. Furthermore, once you establish a blind trust, according to the rules of the Senate, you are no longer required to disclose your assets annually, so it creates less transparency than before. Things that politicians are allowed to do in the dark are not always good.
    Back in 1995, when legislators were arguing over the Congressional Accountability Act, which would subject Congress to federal antidiscrimination and other workforce protection laws, Senator Charles Grassley of Iowa said: "I hold the strong belief that we, in Congress, are merely representatives of the people. We are not better than the people we represent and we are not, by definition and determination, different from the people we represent. We are, as representative government intends, the people themselves." 3 It's time for Grassley's argument to be applied to crony capitalism on both Capitol Hill and in the White House.
    Â 
Insider Trading
    Henry Manne recognized in 1966 that "the federal government is the largest producer of information capable of having a substantial effect on stock-market prices." 4 The author of the standard text on insider trading knew Congress was a rich source of privileged information. What do our laws say on the matter?
    When it comes to current SEC insider trading laws, there is a spirited debate going on among legal scholars as to whether current laws actually apply to Congress. Many contend that they don't, because our legislators are not fiduciaries (that is, client representatives) and are therefore not obligated to keep secret information secret. Other scholars argue that SEC laws on insider trading do apply to members of Congress. They claim it is illegal under Rule 10b-5 of the Securities Exchange Act, which is a general antifraud provision that prohibits deceptive conduct "in connection with" the purchase or sale of securities. 5
    But even if current laws do apply, the political reality is that the SEC is not going to enforce them against Congress. Remember, the SEC is funded by Congress. And SEC commissioners require Senate confirmation. Congress has oversight over the whole operation. Remember what happened when the FBI raided Congressman Jefferson's office? His colleagues threatened to cut funding for the Justice Department. And recall from the introduction how everything from IRS enforcement rates to listings under the Endangered Species Act are directly influenced by congressional power.
    In Great Britain and throughout the European Union, it is already a crime to use insider government information for stock trades. Britain's Financial Services Act of 1986 extended the scope of the so-called Insider Dealing Act to explicitly cover all public servants. This included political or government information received "by all royal and civil servants and by all outside individuals receiving information from these servants." In other words, you better not pass the information and you better not trade on that information. This standard, if applied to the United States, would make clear to hedge funds that if they receive information from government employees and trade on it, they too may be liable. 6
    In 1989, the