Archive for February 2nd, 2012

Public outrage can produce results.

With the exceptions of  two Republicans – Tom Coburn (Okla.) and Richard Burr (N.C.) – and one Democrat — Jeff Bingaman (N.M.) — the Senate passed the STOCK Act.

The STOCK Act calls for members of Congress to report stock and other financial transactions within 30 days and require that these filings be available online. It also requires members of Congress, their staff and about 2,000 top policymakers in the executive branch to publicly disclose the terms of home mortgages. And an amendment by Senator Richard Shelby (R-Ala.) was adopted requiring securities trades and financial disclosure statements for about 3,000 executive branch employees to be published online.

Let’s hope that House Majority Leader Eric Cantor doesn’t back out of his pledge to bring the bill to the floor next week. According to Politico, Cantor praised the Senate for passing the STOCK Act and said he believes the law should cover both the legislative and executive branches equally. 

“Insider trading at any level of the federal government is unacceptable. We will quickly review the entire bill and the amendments that were added today to ensure that public servants, whether in the legislative or executive branch, do not personally profit from insider information.”

The STOCK Act is one component of what the Washington Post describes as a “broad reform package.”

In a unanimous voice vote, the Senate approved a prohibition on bonuses to senior executives at mortgage giants Fannie Mae and Freddie Mac, following reports that the two mortgage giants had approved nearly $13 million in bonuses to 10 executives.

In addition, members of the so-called political intelligence industry — insiders who try to learn in advance the outcome of legislation for hedge-fund and investment-house clients, who then place stock bets based on that information — would now be required to disclose their activities, just as lobbyists trying to influence the outcome must do.

As I’ve previously noted, the bill follows a “60 Minutes” report and a series of Washington Post articles about how members of Congress and their staffs often hold financial interests in companies at the same time they are negotiating legislation that could affect the bottom line of those industries. While congressional insiders generally dismissed that report as overheated, a series of stories last year in the Wall Street Journal and other publications had unearthed more damaging information.

Posted by Marc Schulman on February 2, 2012 at 8:18 pm under Congress, Insider Trading, United States.
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From the report:

US corporate profits have grown at an 8% annualized rate over the past two decades.This has pushed profit margins to all-time highs using both S&P 500 and national income and product account (NIPA) data . . . Basic economic intuition suggests that high profit margins should eventually mean-revert, as excess returns are competed away via higher investment or a swing back in the income distribution from capital to labor. But while this may be the right long-term story, the forces of mean-reversion still look weak over the next couple of years, and a modest further NIPA margin expansion seems more likely.

 

Posted by Marc Schulman on February 2, 2012 at 11:14 am under Financial Institutions, Goldman Sachs.
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