Peter Schweizer, a Hoover Institution fellow, explores in his new book, “Throw Them All Out” how Capitol Hill lawmakers financially benefit from their own legislation and manage to sidestep insider information laws. House Minority Leader Nancy Pelosi is under fire for allegedly buying $1 million to $5 million of Visa stock during the credit card company’s initial public offering (IPO) phase and later blocked credit card legislation reform two years later. As a result, her investment took off 203 percent. Big Government’s Wynton Hall writes:
Despite Pelosi’s consistent railing against credit card companies, on March 18, 2008, the Pelosis bought between $1 million and $5 million (politicians do not have to report the exact amounts, only ranges) worth of Visa stock at the IPO price of $44 per share. Two days later, the stock price rocketed to $65 per share, yielding a 50% profit. The Pelosis then bought Visa twice more. By their third purchase on June 4, 2008, Visa was worth $85 per share.
How did Nancy Pelosi snag one of the most coveted initial public offerings in history? The facts are still emerging. Yet according to Schweizer, corporations that wish to build congressional allies will sometimes hand-pick members of Congress to receive IPOs. Pelosi received her Visa IPO almost two weeks after a potentially damaging piece of legislation for Visa, the Credit Card Fair Fee Act, had been introduced in the House.
If passed, the bill would have cut into Visa’s profits substantially by lowering so-called “interchange fees,” the 1% to 3% charge retailers pay Visa when customers use Visa cards for purchases. Interchange fees are a critical source of revenue for the four credit card companies–$48 billion in 2008, to be exact.If the Credit Card Fair Fee Act had been passed into effect, it would have amended antitrust laws to require credit card companies to enter negotiations with merchants over interchange fees, and it would have given the Justice Department and the Federal Trade Commission the power to arbitrate if the two sides failed to come to an agreement. For that reason, Visa and the other credit card companies strongly opposed the bill.
It is not just the lawmakers on Capitol Hill who can make a killing. Their rich and powerful cronies can also financially benefit from intel they receive from Washington D.C. politicians. According to Schweizer’s book, George Soros made his way into the Obama White House by becoming one of candidate Obama’s “first big catches.”
Mr. Soros donated more than $60,000 to Obama’s 2004 Senate campaign and helped build the Obama 2008 war chest substantially. Soros gained amazing access to the president and the president’s economic agenda immediately after the 2008 election, according to Schweizer, who writes in his book:
“Days after President Obama was elected, Soros was helping to set the agenda. Soros had regular meetings with senior White House officials. He met with Obama’s top economist, Larry Summers,on February 25, 2009. He also had meetings in the Old Executive Office Building with senior officials on March 24 and 25 asthe stimulus was being forged. He was later involved in private discussions concerning widespread financial reform.”
“Soros was also a financial backer of the Center for American Progress, which functioned as Obama’s think tank. John Podesta,who headed CAP, was Obama’s transition director. Several CAP policy ideas became part of Obama’s agenda. Soros said at the time, ‘I think we need a large stimulus package, which will provide funds for state and local government to maintain their budgets, because they are not allowed by the constitution to run a deficit. For such a program to be successful, the federal government would need to provide hundreds of billions of dollars. In addition, another infrastructure program is necessary. In total, the cost would be in the 300 to 600 billion dollar range.’”
Schweizer found that after “tens of billions” of tax payer dollars were invested in the Democrat backed 2009 stimulus package, in the first quarter of 2009, Soros made a financial windfall by investing in stimulus winners like: Hologic, a maker of diagnostic equipment, which gained from federal funding of medical systems, Emulex, a government contractor that designs fiber channels and software products, and EMC, a data storage company.
I spoke with Schweizer on Sunday night about his book and asked about how the rich and powerful can legally obtain insider information from insider Capitol Hill activity and financially benefit.
Schweizer calls the scheme that Steve Eisman, Warren Buffett, and Soros use the “Baptist and bootlegger strategy.”
“What a lot of these guys do like Buffett and Soros or Eisman, in the case of for-profit education, is present themselves as reformers. They present these grand ideas and they’re sort of statesman who are just interested in improving the situation in our country, but the reality is, as I point out in the book, at the same time, they’re often aggressively trading stocks,” Schweizer said.
As I have covered in previous Water Cooler posts, Steve Eisman, a New York hedge fund manager, was brought forth to Capitol Hill to testify before Senator Tom Harkin’s Health, Education, Labor, and Pensions (HELP) Committee to support the Department of Education’s Gainful Employment (GOE) rule.
Supporters of the GOE rule and of Eisman will say he was needed at the hearings, because Eisman provided valuable warnings and insight about the mortgage crisis. Many said Mr. Eisman was only trying to help the country stave off another financial crisis that would stem from the student loan defaults in the for profit school industry.
His participation in the hearings have been severely questioned, though, as the education regulation would financially cripple for profit schools. Evidence that the D.C. based organization CREW found showed that Mr. Eisman was short-selling for-profit schools.
If these schools failed he would financially profit. Congressman Darrell Issa, California Republican, and Senator Mike Enzi, Wyoming Republican, urged the Securities Exchange Commission (SEC) to probe into whether or not there were any laws broken, but the SEC has yet to act.
“The Senate confirms the SEC commissioner and they set the budgets for the SEC,” says Schweizer who thinks the model of having the SEC investigate such matters is unworkable.
“Warren Buffett, for example during the financial crisis, helped establish the public-private partnership and at the same time, that was going to bail out banks and he helped design it. As he was doing it, he was buying billions of shares in bank stocks,” Schweizer added.
Schweizer also explained that Buffett financially profited off the bank stock investments, and it was completely legal, “because for some reason if you do this with government money or with government institutions it’s okay. But were he to do that in a scenario with a merger taking place, he would face insider trading laws.”