Political intelligence industry

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Reform Party of California Commentary

Summary and conclusions

In April of 2012, President Obama signed the Stop Trading on Congressional Knowledge ("STOCK") Act into law (http://en.wikipedia.org/wiki/STOCK_Act). The law prohibited insider trading by members of Congress and other government employees, which had been legal since the time when inside trading on securities was even possible in the U.S. The STOCK Act exempted lobbyists and non-federal people dealing with congress from the ban on insider trading, so there some people could still trade on inside information that arose from congressional activities that could affect stock and securities prices. Some member of congress had been trying for years to pass a law to make such inside trading illegal. However, some powerful members of congress liked being able to exploit their inside information to make money on the stock market, so the reformer's efforts were simply ignored for years.[1]

On April 11, 2013 President Obama signed an new bipartisan bill into law, a rare event. The White House announced the law in an obscure 1-sentence press release. One commentator described the new law like this: "The STOCK Act passage was on the front page. When it got de-fanged, the announcement was so buried that only the most hardcore of wonks could find the news." (http://finance.yahoo.com/blogs/breakout/stock-act-gets-gutted-why-care-173159298.html)


According to the Congressional Research Service (CRS) (https://www.govtrack.us/congress/bills/113/s716), the new law eliminated the requirement for "mandatory public, on-line financial disclosure reporting by congressional staff (except Members of Congress and congressional candidates) and executive branch officers and employees (except the President, the Vice President, and officers at levels I and II of the Executive Schedule who require nomination by the President and confirmation by the Senate)." The CRS also stated that the law applies "the financial disclosure reporting requirements and restrictions of the STOCK Act only to Members of Congress, congressional candidates, the President, the Vice President, and executive branch officers at levels I and II of the Executive Schedule who require nomination by the President and confirmation by the Senate." In other words congressional and executive branch staffers, lobbyists, aides and almost anyone who works for or is close to a serving politician can trade on inside information once they become aware of it.


Because laws that congress plans to pass or not pass can profoundly affect the price of individual stocks or securities or prices of stocks in an industry or an entire market, fortunes can be made trading based on the information that only insiders have. Average Americans are simply out in the cold and kept ignorant, except maybe to occasionally trade against the elites who have the inside information. It is fair to say that it looks and smells bad, to say the least. Given the great value of some inside information, it is no surprise that enterprising entrepreneurs, all stalwart pillars of the community no doubt, have established an industry called the political intelligence industry (PII). The PII collects and sells inside information obtained from congressional activities to select, wealthy, elite clients.

According to one source, the PII collected $402 million in 2009 from clients, who in turn made unknown millions or billions by trading on the precious information (http://www.motherjones.com/politics/2013/11/political-intelligence-industry-jellyfish?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:%20TimMurphy%20%28Tim%20Murphy%29). Because clients pay millions of dollars to obtain it, there is real value in the information the PII collects for its them (http://online.wsj.com/news/articles/SB10001424127887324660404578202072713156116; https://blogs.law.harvard.edu/corpgov/2013/07/20/the-stock-act-and-the-political-intelligence-industry/). Also no surprise, clients who buy information from PII sources fight proposed rules to disclose their identities and republicans in the House protect that desire for anonymity PII clients (http://www.reuters.com/article/2013/05/08/us-usa-congress-politicalintelligence-idUSBRE94718C20130508). That has been going on since 2012 (http://online.wsj.com/news/articles/SB10001424052970204059804577225572815851652?mod=googlenews_wsj).

It is fair to characterize the situation or facts like this. Congress had no qualms about engaging in inside trading until it was embarrassed into passing the STOCK Act, in part because its public approval rating had dropped to abysmally low levels. The STOCK Act left the PII intact and it never was a blanket prohibition against insider trading based on information arising from congressional activities. A year later, congress and the President repeal some of the disclosure requirements to for some federal staffers and aides. The House continues to protect the identity of PII clients from disclosure.

It is fair to draw the following conclusions from the situation. There is no compelling rationale for allowing congressional staffers, lobbyists or anyone else in possession of inside information arising from congressional activities to be allowed to make inside trades. Because is there no other obvious logic behind Republicans in the House protecting the identities of clients who profit from trading on PII information, it is fair to conclude that members of the PII industry and/or their clients maintain their privileges in return for campaign contributions. If there was another rationale, congress would have articulated it loud and clear. Finally, it is reasonable to conclude that congress and President Obama are incapable of resisting irrational and self-serving demands by federal employees and political donors.

This in just one small issue in a greater scheme of things, but it exemplifies what can pass for acceptable business as usual in the two-party system. There are good reasons that millions of Americans have lost faith in the two parties and in the federal government as they now operate it. Despite continuing low public approval, congress and the President obviously believe that they can simply continue this kind of business as usual without even deigning to offer an explanation to the public. Obviously they think the public does not deserve an explanation.

Footnotes:1. Apparently, what caused congress to finally pass the STOCK Act was a combination of (i) dismal new lows in congressional approval ratings in 2012 and (ii) President's Obama's mysterious decision to actually lead on something for a change and make this into an issue. In passing the law, congress congratulated itself on its high ethical standards and all the usual self-serving propaganda. The fact that congress was, in essence, embarrassed into acting on this was ignored. It was just two-party politics as usual.

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Pros & cons of inside trading: http://www.econlib.org/library/Enc/InsiderTrading.html
Obama guts the stock act: http://finance.yahoo.com/blogs/breakout/stock-act-gets-gutted-why-care-173159298.html
White house's 1-sentence announcement of the new law: http://www.whitehouse.gov/the-press-office/2013/04/15/statement-press-secretary-s-716
librabry of congress summary details of the new law: https://www.govtrack.us/congress/bills/113/s716

Footnotes:
1.  
x

Harvard summary of the STOCK Act: https://blogs.law.harvard.edu/corpgov/2013/07/20/the-stock-act-and-the-political-intelligence-industry/
Reuters article: http://www.reuters.com/article/2013/05/08/us-usa-congress-politicalintelligence-idUSBRE94718C20130508
Mother Jones article: http://www.motherjones.com/politics/2013/11/political-intelligence-industry-jellyfish?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:%20TimMurphy%20%28Tim%20Murphy%29
WSJ research: http://online.wsj.com/news/articles/SB10001424127887324660404578202072713156116

Hot Air's conservative pol int industry viewpoint: http://hotair.com/archives/2013/01/18/wsj-the-burgeoning-political-intelligence-industry/

original post
Sometimes politics is just so much better than fiction. On Thurs., Feb. 16, 2012 (pages C1, C2; online article) the Wall Street Journal ran an article with the title "New Bill Clouds Legality of Tips." As it turns out, Congress is drafting a new law that would ban insider trading by the president, members of congress, congressional staffers and maybe some others. The article had nothing to do with tipping the waiter or bartender.

 Stardust launch 1999

The WSJ article was about information gatherers who work with people in congress and/or their staff and in the course of their work get inside information about impending laws, i.e., "tips". The WSJ noted the existence of a "political intelligence" industry dedicated to making money from this unique source of information. The people involved sell their inside information or "tips" to whoever has the cash and money to capitalize on the information. Those folks then make stock trades and money. According to an attorney familiar with this industry, the "legal risks may well outweigh the financial benefits" if the proposed bill becomes law.

This whole thing started up two or three months ago when the WSJ ran an article and 60 Minutes news show aired a piece at about the same time about people in congress, their staffers and lobbyists doing inside trades based on what congress was or was not going to do. Insider trading by congress, their staffers and lobbyists who do business with them is legal and thus a good way to make money.

People in congress and their friends have been doing inside trades for a long time. Occasional stories about this have come up over the years, but the topic apparently didn't penetrate public consciousness until (i) the two high profile WSJ and 60 Minutes stories and (ii) the public approval rating of congress dropped to below about 17% last year, an all time low until more recently when it it hit 10%. Profound public disapproval coupled with growing awareness that people in congress and their cronies were inside traders may have finally prompted a reluctant congress to fix the "problem".

If those things are not the reason for congress' attention to this topic, then who knows what is. Regardless, there is a reason. Congress partly feeds its massive ego on being above the law. They won't mess with that exhaulted status unless something very serious forces a change.

The congressional effort to deal with this public relations issue may cause the political intelligence industry massive potential collateral damage (or maybe not, if Republicans get their way). That was the focus of the WSJ article. The trouble with the pending legislation is that it may require people who gather tradable information to file disclosure reports. The horror of that is that the firms who work in this industry and the people who buy that inside information would likely lose their anonymity and the fees paid for such information might be made public. That awful scenario would ruin the whole political intelligence industry and cause massive job losses among the very wealthy and well-connected. Economic chaos would ensue. Or would it?

A plethora of questions from the bemused/irate

taxpayer outside the beltway

Why would the political intelligence industry be damaged at all if they had to disclose the people, fees and profits involved? After all, what they do is perfectly legal. Perfectly legal. What's wrong with making money? What's wrong with screwing the party (admittedly, usually anonymous) without inside information on the opposite side of an insider's trade? Its legal in this context. This is just a matter of winners and losers in a deadly serious capitalist game of making money. Some economists defend insider trading and some Republicans (Eric Cantor) are trying to defend the fine, job-creating, mom & apple pie, all-American political intelligence industry, so there must be merit to it, right?

Or, is it just that the people involved in this profitable industry don't want the rest of us idiots to know just how much money they make and how they make it, i.e., by cheating? But why? Are they embarrassed? Come to think if it, just what do inside trades do for the U.S. economy as a whole? It punishes fools without inside information and dumb enough to think they trade in a clean and fair marketplace. So, is inside trading good for the economy in some other way? Does it create confidence in our economy among those with inside access, wealth and power and that more than trumps any downside among the idiot masses or in the overall economy?

Allowing legal inside trading arguably undermines public trust in the federal government and financial markets by showing the reality of just how corrupt our government and "respectable" business people can be. It undermines public trust in congress. It is hypocritical, e.g., a few in congress complain about people in congress doing it but say nothing about people outside congress. If its bad for people in congress to do insider trades why isn't bad for those on the outside? Does the inside trade industry create jobs in the wider economy? If so, how many jobs and what are they - a few butlers and yacht and private jet salesmen?

The WSJ article quoted a political intelligence industry insider who said the new law will mean that some information providers "will simply quit doing it as the compliance creates burdens and costs." Huh? They will quit because they don't want to be outed and their information will likely become worthless or people will risk Martha Stewart's mildly adverse fate. That's probably not that big a risk, given the SEC's usual inability to police the markets, hedge funds and Bernie Madoff, but that's a different topic. Nonetheless getting caught by the SEC is a probably enough of a deterrent to cause the inside information to lose significant value to political intelligence operatives and their stalwart customers.

Fair and balanced

All that one can reasonably and fairly say about the people in congress, their staff and the fine "entrepreneurs" involved in the political intelligence industry is that they are sleazy cheats. Like Honey Badger, they just don't care. They are not criminals because what they do is legal. What Martha Stewart did and went to jail for, they do with impunity. This sleaze or variations of it has been going on in federal, state and local governments for decades, if not centuries.

Even Newt's failed fantasy called the 1994 Contract With America had a provision that laws applicable to us would also apply to people in congress. We all know how far that got. If insider trading like this was even marginally good for the country, then why doesn't congress just tell the public that and do nothing? On the other hand, if it was bad all along, then why didn't congress fix this in 1994 or decades or centuries ago? Either way, congress is far beyond being just ethically challenged. The institution is inherently corrupt. The people outside government who make money from this cheating scheme could not care less about the sleaze or the people they rip off so long as they (i) remain anonymous (look good via plausible deniability), (ii) make money and (iii) pay taxes, if any, at the 15% capital gains rate. Is that a sweet deal or what?

Now, how can a political story get any better than that? It is easy to see why congress' approval rating is 10%. They earned it.
 

Governing only by finding common ground is irrational and disserves the public interest

Reform Party of California Commentary

Sometime in 2006-2010 the Republican party apparently decided that for congress at least, compromise was no longer an acceptable way to arrive at legislation or to govern. With the relatively complete ideological polarization and separation of the two parties, the concept of compromise was seen as capitulation with evil (the comments on good and evil are at 7:00-8:30 of the 47-minute taped segment). Because of that, compromise was not an acceptable way to govern. House Speaker John Boehner (R-OH) made that very clear in a December 2010 interview on 60 Minutes (his comments on compromise are at 8:16-8:50 of the 14-minute taped segment; a transcript of Boehner's comments is here).

It is now common for republicans and the press to describe legislation as resulting from finding common ground, but not from compromise. The recently passed budget bill, the first in several years, is an example of how politics is now being conducted. The "common ground" that the new budget is partly (mostly?) based on comes from slowed military pension growth, which is apparently something that both sides were willing to accept as the price for increased spending elsewhere in the legislation.

The new governing profile as presented to the American people by the two parties and the press raises profound questions. This new way to govern is irrational and it does not serve the public interest particularly well. In the context of American history, compromise has always been a key factor. Without it, congress' already feeble capacity to govern is further weakened because, as Mr. Boehner put it "I made clear I am not going to compromise on -- on my principles..." Since there many principles out there, there are many things that cannot be compromised.

Not compromising on principles means not compromising on ideology and that means rejecting out of hand policy compromise-based policy options that just happen to be the best. The Founding Fathers had to make many compromises on various principles to create the U.S. constitution. The Constitution is sometimes referred to as "a bundle of compromises." If there had been no compromise among the founding Fathers, there would have been no Constitution and probably no single country as we now know it. There likely would be two or more smaller countries that may or may not include America's current land mass.

From the Reform Party of California's (RPCA) non-ideological, pragmatic point of view, what the republicans have unilaterally declared and the democrats have accepted is a new form of governance that elevates principle or ideology to a sacred, inviolate status. Since democrats in congress generally refuse to compromise on reductions in entitlement spending, their ideology on at least this point is basically the same as the republican's stance. In essence, the American congress has transitioned to a governance style that takes compromise off the table as a tool and relies instead on the much less flexible and nuanced exercise of "finding common ground".[1] That change has occurred in the face of a U.S. history of compromise, with compromise having been universally accepted and employed in governance right from the start.[2]

This transition represents major changes, unfortunately they are all for the worse. It puts ideology in politics on the same plane as ideology in religion. With that mindset, it is pointless to argue for policy options that require compromise, even if it is obvious that the best option for a given issue requires compromise. That is irrational. It sacrifices and subordinates service the public interest at the alter of service to sacred ideology.[3]

The arrogance of it all is impressive. Today's towering self-righteous ideologues feel so highly about their ideology that they shield it from the evil of compromise. By contrast, those ancient fumblers and fuddy duddys, the Founding Fathers, never took that step. Think about that. Ideological differences between various Founding Fathers were just as deep and sincere as today's differences but they compromised nonetheless.

Other questions about congress' new operating system leap out and scream for answers. If this kind of governance does not serve the public interest well, then what interests are being served? In the RPCA's opinion, this new way serves the status quo first and foremost, particularly including the two parties grip on power. People in congress know full well that most Americans want political compromise if that is what it takes to get things done. Again, there is more than just a hint of arrogance here. What the American people appear to want is secondary to what ideologues in congress demand. This is just another example of how and why ideology in politics is undesirable and generally ineffective, which is a point the RPCA continually makes and will continue to raise.

The only way to inflict meaningful change on an intransigent and arrogant two-party system is to simply walk away from it and work within a new political framework that offers meaningful, common sense options focused on service to the public interest. The non-ideological pragmatism the RPCA offers is an example of that kind of politics. Without that kind of a shift away from the status quo, we will continue to get weak, constrained governance from common ground instead of creatively and flexibly using all tools at our disposal.[4] Put another way how do you want your politics served, your way or theirs?

Footnotes:
1. The distinction between finding common ground and compromising is arguably unclear. Common ground can be described as a foundation of common interest or comprehension, as in a social relationship or a discussion. A compromise can be defined as a settlement of differences in which each side makes concessions. Although the recent budget deal is characterized in the press as resulting from finding common ground, it looks an awful lot like there was more compromising that common ground finding. Specifically, democrats compromised on their larger goal of increasing spending to protect the narrower priority of protecting entitlement spending, while (ii) republicans compromised on their larger goal of reducing spending to protect their sacred no new taxes ideology. Those compromises are why some on both sides complained about the budget deal. Regardless of the mix of factors involved, the budget bill arguably is weak because it is largely grounded in a mind set that rejects compromise. In other words, we got second or third best, not the best that could be attained from a mind set more open to all governance tools, including compromise.
2. Edmund Burke said this in 1775: "All government, indeed every human benefit and enjoyment, every virtue, and every prudent act, is founded on compromise." There are at least two viewpoints from which compromise can be viewed, forward to what compromise will create and backward to what was conceded to get it. Despite that, the RPCA is not aware of an earlier widespread rejection of compromise as a valuable tool in intelligent governance.
3. Sacrifice in service to ideology might not be so bad if (i) the ideology happened to coincide with service to the public interest, which it sometimes does but usually does not and/or (ii) ideology did not have such a poor track record of performance. We have had decades of ideology-dominated politics and that has not yielded impressive results, to say the least. If ideology had been so great then why are we in the messes we are in?
4. The budget deal is an example of the weakness and constraint that finding common ground imposes. Since neither side was willing to compromise on their key ideological positions (entitlements for democrats and taxes for republicans), the budget bill puts us in a holding pattern. It does essentially nothing to get at the long-term fiscal problems we now face. That is another example of the two-party system's failure to efficiently govern in service to the public interest.

Nuclear option senate rule change

Reform Party of California Commentary

On November 21, 2013, democrats in the U.S. senate voted 52-48 to prevent filibusters of most presidential federal court and other presidential nominees. The rule change does not apply to supreme court nominees. The prior rule had been in effect for over 200 years and was a means the senate used to prevent the majority party from simply ignoring the minority party, as the House of Representatives routinely does.

Senate majority leader Harry Reid (D-NV) said the rule change was to eliminate the routine republican practice of "deny and obstruct" of judicial and executive branch nominees and return constitutional "advise and consent" to its proper place. The rule change is referred to as the "nuclear option" because it will fully poison the already hostile relations between senate democrats and republicans. The projected upshot is that nothing will get done because enraged republicans will, from now on, simply block everything they possibly can as retaliation for the loss of their power to block presidential nominees. Senate bipartisanship, which is nearly nonexistent will likely become fully extinct.

Although the republican leadership urged its members to not talk about retaliation, it is obvious that retaliation against democrats is exactly what is in store. Senator  John McCain (R-AZ) stated that Democrats would "pay a heavy, heavy price" for changing the Senate rules for judicial and executive nominees. Senator Richard C. Shelby (R-AL) said: “This is a mistake — a big one for the long run. Maybe not for the short run. Short-term gains, but I think it changes the Senate tremendously in a bad way.”

In the recent past, republicans tried to institute this same rule change, arguing that senate democrats were obstructing republican presidential nominees. In 2005, republican Senator Mitch McConnell (R-KY) had this to say in support of the nuclear option and the practice of democratic blocking of republican nominees “It’s time to move away from … advise and obstruct and get back to advise and consent.”

What planet are we on here?

What goes around, comes around. Good grief, what is this two-party nonsense?
When the minority party in the senate blocks (filibusters) nominees of a president in the opposite party, the majority party tends to want to impose the new rule to eliminate the 60 vote super majority needed to override the filibuster. At the same time the minority party tends to oppose it. The party opposing it always calls this rule change bad. Outside observers generally agree that the senate's capacity to legislate will drop from feeble to essentially nonexistent. One bit of fallout is that the second round of the universally despised sequester is presumably more likely to take effect in January of 2104, although it probably was going into effect anyway.[1]

From the Reform Party of California's (RPCA) point of view, it is easy to see what the fuss is about. However, there is absolutely no possible justification for any adverse consequence to the public interest or to governing. When republicans retaliate, they aim their poison at the democrats. The question is how does that help the public interest? Are the republicans saying that the people who voted democrats into power deserve punishment? If so, how does one punish that group without hurting the entire public interest, including republicans? The whole uproar makes no sense at all. None.

As far as the RPCA can tell, there is nothing wrong with the rule change, particularly in light of the fact that (i) republicans had been blocking essentially all presidential nominees (that impairs governance) and (ii) the arguments used by each side to support or oppose the rule change flipped depending on who was in power and who was trying to block whom. Simple logic says that neither side has any compelling reason to oppose or support the new rule. Given that, the RPCA is comfortable with the new rule and justifies that by arguing that (i) the new rule simply reflects the consequences of who wins and loses elections, i.e., its just the will of the people, and (ii) neither party will do anything differently when they are in power in the senate than they otherwise would have with the rule in place, i.e., are the republicans really going to consent to bad or unqualified nominees when their turn at "revenge" comes? It sounds like kids fighting on the playground over not much of anything.

If anyone would argue differently, they need to first think very, very carefully about what they are saying and what it means.[2]

What this sorry mess shows is the profound, blinding hold that the two-party system and its bitter, constipated thinking has on its partisans and politicians.[3] Both sides honestly believe what they argue today, while completely ignoring the fact that they argued the opposite side's points when the shoe was on the other foot. The whole thing is sheer nonsense.[4] No wonder many or most Americans no longer trust the two-party system. There is no solid basis for trust.

Footnotes:
1. Democrats and republicans in congress universally despise the sequester as inefficient and stupid. Although that is true, the sequester is probably the only way to to begin to address spending given the profound hatred the two parties hold for each other. Even before the new rule went into effect, there was no basis to expect that the two sides in the senate could intelligently legislate any longer. The new rule may put another nail in that coffin, but the lid already was pretty much pounded into place. It is therefore not clear how much worse the new rule makes things.
2. The best argument to leave the old rule in place is that without it, the president in power and his party controlling the senate will nominate and approve nominees that are even more ideologically extreme than the ideologues that dominate now. Most or all democratic and republican ideologues strive for ideological purity in themselves and view for reality. However, if that is a bad thing, why? This is why: Ideology doesn't solve problems, it obscures facts and issues and distorts thinking. That might serve ideology but its effect on problem solving is a crap shoot. Pragmatic non-ideological problem solving solves problems. That potential problem is counterbalanced by the actual problem of too many nominees being held up for political reasons. The U.S. senate itself characterizes the advice and consent requirement as largely political in practice: President George Washington "had asserted that he would consider political loyalty as a factor in selecting key officeholders, but he vowed that subordinate posts would be filled only on merit." In other words, nominating federal judges and office holders always was and still is is based as much or on more on party or ideological loyalty than merit. In RPCA opinion that is unacceptable. It doesn't have to be that way. However, basing nominees on merit instead of politics requires political action to be public interest focused instead of focused on self-interest, i.e., political. That will not happen in our self-centered two-party political system because loyalty and ideology trump everything else.
3. This situation is just like the old General Motors vs. labor union fights of the 1960s and 1970s. Both side were so intent on strangling each other to death that they failed to see what they were doing to the business as a whole. It all ended a few decades later with bankruptcy and a public bailout. Management and the unions blindly went right over the cliff with their hands wrapped around each others' throat. The situation for congressional democrats and republicans today is basically the same.
4. Republicans complain that the new rule will cause the senate to be a worse institution and/or less-fettered majority rule will be a bad thing. If that happens, the RPCA and reasonable people would assume that once republicans gain control of the senate, they would correct the error and restore the prior rule by a simple majority vote. If they didn't do that, then whose interests would the republicans be serving: The public interest or their own emotional needs? Based on the rhetoric, it sounds like the republicans want revenge but that doesn't sound anything like service to the public interest. Once again, the two-party system displays one of its fundamental traits - self-service before service to the pubic interest.