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Pelosi Should Just Retire - and others who committed felonies

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How Members of Congress Get Rich Through 'Honest Graft'


A 60 Minutes report on Sunday examined the ways that members of Congress trade on inside, privileged information to make themselves rich — without breaking any laws. Even though many positions in the federal government are bound by conflict of interest laws, Congresspeople are exempt from insider trading rules and are perfectly free to make business deals based on information they learn through their jobs.


The story is based on the work of Peter Schweizer, a researcher at the Hoover Institution. (Others have been studying the issue. As Bloomberg's Lizzie O'Leary and others have pointed out, The Wall Street Journal has reported on this issue quite recently and Megan McArdle dedicated her column in The Atlantic's November issue to the phenomenon of "congressional insider trading.") Schweizer and his team have looked at financial transactions made by Representatives and Senators and found that many, including the past three House Speakers, have made deals that appear to be based on non-public information that they had access to thanks to their position in Washington. Schweizer calls it "honest graft," since many people would consider it unethical, even though it's not illegal.


Some times it's stock trades (John Boehner reportedly invested in several health care stocks shortly before killing the public option in last year's legislation) and other times it's simply making a well-timed business deal. (Like when former Speaker Dennis Hastert secured an earmark for a federal highway project that just happened to pass by some land he already owned. He later sold the land for $2 million dollars.) Nancy Pelosi has participated in eight IPOs, including some involving companies that had business before her House. Schweizer says that giving a Senator or Congressperson pre-IPO shares in a company is allowed under current rules, even though giving them an equal amount in cash would be considered a illegal bribe.


A Pelosi spokesperson criticized the 60 Mintues report, though he did not actually deny the facts that were presented.


The problem, of course, is that not only are these transactions perfectly legal under existing law, the people who benefit the most are the ones who write the laws. Naturally, most members of Congress don't seem eager to take away these special benefits that can turn humble public servants in the multi-millionaires.



BEYOND INSIDER TRADING: Here's How Members Of Congress Get Rich Off Earmarks


House Minority Leader Nancy Pelosi (D-CA)

For years, Pelosi has pushed for federal transportation earmarks to build and extend a lightrail project in her affluent San Francisco district, securing more than $890 million for the project between 2004 and 2011. Interestingly, Pelosi and her husband own an office building, valued between $1 million and $5 million, located at a prime distance from one of the planned lightrail stops. If the project is completed, the Pelosis could see the property value increase by as much as 150%, according to Schweizer.

In 2006, Pelosi also managed to get a $20 million earmark for waterfront redevelopment just blocks away from the same office building. In another instance, she got $12 million for a beautification project abutting another property owned by the Pelosis.

Pelosi's real estate portfolio has also gotten a boost from her friends in Congress. In 2010, Rep. Bernie Thompson (D-MI) got a $800,000 earmark to upgrade the Napa Valley airport. Pelosi, who helped Thompson get his position as chair of the Homeland Security Committee, owns or has stake in multiple properties that would benefit from the project.



Senate Majority Leader Harry Reid (D-NV)


In 2005, Reid sponsored a $18 million earmark to build a bridge connecting Laughlin, Nev., with Bullhead City, Ariz. — an expenditure Arizona's senators denounced as unnecessary pork. Incidentally, the bridge was located just a few miles from a 160-acre land parcel owned by Reid. According to Schweizer, local authorities predicted the bridge would "undoubtedly" increase surrounding land values.

Schweizer writes that Reid has also leveraged his position in the Senate to persuade local officials. In 1998, for example, Reid bought an undeveloped residential tract for about $400,000, which he later sold to a partner, obtaining a joint stake in the limited liability company that owned the land. The company aggressively petitioned the county to rezone the land as commercial property, at the same time the county was lobbying Reid's office for earmarks.

Needless to say, county commissioners granted the rezoning, and Reid and his partner sold the land to a mall developer for $1.6 million. Reid himself walked away with $1.1 million.



Former House Speaker Dennis Hastert (R-IL)


As Speaker of the House, Hastert increased his net worth by more than $2 million by using a road-building earmark to increase the value of land he purchased in Illinois.

In 2005, Hastert purchased (or had a hand in purchasing) 264 acres near the site of the proposed "Prairie Parkway," and the site of a planned real estate development. Months after the purchases in early 2005, he placed a $207 million earmark into the federal highway bill to fund the parkway. He sold 69 acres months later for $4.9 million — and netted between $2 million and $10 million in a year.

Hastert retired in 2007 after conceding House leadership to the Democrats in 2007.



Sen. Judd Gregg (R-NH)


As former chairman of the powerful Senate Budget Committee, Gregg earmarked around $66 million to turn New Hampshire's Pease Airforce Base into a business park, developed by Gregg's brother. The Senator himself invested between $240,000 and $1 million in the development, and collected between $240,000 and $650,000 on his investment.

Gregg retired from the Senate in 2010 and is now a senior advisor to Goldman Sachs.



Rep. Ken Calvert (R-CA)


Yet another politician who used earmarks to benefit himself financially. Calvert and a business partner paid $550,000 for a parcel of land near March Air Reserve Base in California in 2005, not long before he got a $1.5 million earmark to support commercial development around the base. Less than a year later he was able to sell the land for $985,000.

In another instance, his real estate firm brokered the purchase of a property near a proposed highway interchange. Calvert got an earmark to build the interchange, and his firm brokered the sale of the property at a profit. His company received a commission on both sides of the deal.

The House Ethics Committee signed off on the earmarks, saying the earmarks benefitted others besides for Calvert — but he made hundreds of thousands from the deals.



Rep. Carolyn Maloney (D-NY)


Maloney has been a strong supporter of plans to build the Second Avenue Subway in New York City — securing at least $641 million in federal earmarks for the projects.

But Maloney also stands to gain personally from the project, owning a building at 409 East 92nd Street that is currently priced between $5 million and $25 million. The building is just blocks away from a station a station entrance at 94th street and Second Avenue — which is almost certain to raise the value of her property.



Rep. Maurice Hinchey (D-NY)


According to Schweizer, Hinchey managed to increase his wealth by 800% between 2004 and 2008 — mostly as a result of a land deal in his upstate New York hometown.

Hinchey pushed for a $800,000 earmark for infrastructure improvements in the village of Saugerties, NY. Hinchey owned two properties that made up "a quarter of the land" benefited by the project, Schweitzer writes, and the value of his land increased five-fold — from between $30,000 and $100,000 to between $250,000 and $500,000.

Update 4:39 11/28/11 : Hinchey's contacted us, and disputed Schweizer's claims.

According to Alex Wade, Director of Special Projects for the Village of Saugerties "The fact is, we requested these funds from the state to repair 100 year old sewer lines before the Partition Street Project was even initiated. Furthermore, the developer of that project has always planned to build new lines directly into the existing pump station, which is adjacent to the property. The grant Congressman Hinchey secured was for upgrading 100 year old infrastructure - period, end of story. There isn't even any room for argument here - these reporters and bloggers just got it wrong.



In the book, Schweizer details what can only be described as insider trading by many members of Congress during the financial crisis.

Specifically, Schweizer tells how on September 16, Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke held a private meeting with legislators in which they reported that the economy was in deep trouble and predicted near-term disaster in the markets.

Congressmen privy to this information reacted--not by dropping everything and drawing up a plan to save the economy, but by dumping stock and avoiding the losses everyone else would take in the coming month. Others bought stocks in financial firms that would later be saved by the federal government.

If this behavior had happened in the private sector, Congress would be outraged. The fact that it happened in Congress should have the public outraged.


Yet we allow this, defend them on principled beliefs, and continue to vote them in every election cycle. How dumbed down has America become ?

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