Yves here. As readers may know, Republican vice presidential nominee Paul Ryan engaged stock trades in September 2008 that look to be based on inside information, specifically, discussions Treasury Secretary Hank Paulson had with Congress about the increasingly desperate condition of the financial system. This post explains why the Republican rebuttals are not very persuasive. What is intriguing is that a Twitterstorm emerged over this article as some writers who are not part of the Republican messaging apparatus joined in attacking the scrutiny of Ryan’s trades.
Folks, this isn’t that hard to understand. Even if Ryan only unloaded some bank stocks he had and bought some Goldman shares, and it was indeed in response to the word he got from privileged channels, guess what, it’s likely that it would be considered to be insider trading. When I was a kid, “insider trading” was more narrowly defined, as in information coming from an “insider,” meaning someone who has a duty of care to the company, like a board member, executive, or agent. The SEC has taken a much more expansive of what it considers inside information to be over the years (including some that are overreaching, for instance, its recent failed case against traders who used information that was broadcast over the “squawk box” system of other firms). One might surmise that the overly zealous debunkers are embarrassed because they got it wrong or unsure which way the wind is blowing and waiting to see if the story gets traction.
By Lynn Parramore, a contributing editor at Alternet. Cross posted from Alternet.
Team Romney wants you to believe Ryan didn’t really profit from privileged information. Don’t buy it.
Over the weekend, the Richmonder blog broke what looked like a whopper of a story: that Republican vice-presidential hopeful Paul Ryan had lined his pockets from information he had obtained from a now-legendary meeting that took place on September 18, 2008. On that day, Fed Chairman Ben Bernanke and then-Treasury Secretary Hank Paulson broke the news to congressional leaders that they would have to approve a bailout to avert a complete meltdown of the financial system.
America was lurching toward catastrophe. But some folks were apparently thinking about their stock portfolios.
Checking through Ryan’s financial disclosure reports, the Richmonder discovered that Ryan had sold the stocks of several major banks that day, while purchasing – surprise! – stock in Paulson’s old firm Goldman Sachs. The story quickly circulated through the media.
The Romney campaign rapidly issued denials, based on three separate — and clearly false — claims: 1) the trades were not individual stock trades, but trades made as part of an index that trades big blocs of stocks according to preset formulas; 2) the meeting took place in the evening, after markets were closed, so the meeting could not have played a role in Ryan’s trading decisions; and 3) the stocks traded within a trust over which Ryan had no direct authority.
In many quarters, acceptance of the denials came almost as fast as the news of the original report. Benjy Sarlin of Talking Points Memo issued a report “debunking” the Richmonder story, stating that “the rumor, which spread rapidly across the Internet, doesn’t hold up to scrutiny.” Matt Yglesias over at Slate, who had first credited the story, backtracked, apologizing that he had been too “credulous” in accepting the Richmonder report.
First of all, the Romney campaign’s claim that the transactions were index trades is not consistent with what’s in the original disclosure reports. AlterNet discussed the controversy with money and politics expert Thomas Ferguson, who has written extensively on the bailout. He explained, “Ryan did own some index-based securities, but they stand out in the summaries. They are different from the many trades Ryan was making in individual stocks. It is perfectly obvious that he sold shares in Wachovia, Citigroup and J. P. Morgan on September 18 and he bought shares in Paulson’s old firm, Goldman Sachs, on the same day. If these were index trades, what’s on the form is nonsense.”
While it’s not possible to pinpoint exactly what Ryan knew and when he knew it, the whole episode becomes more disturbing the deeper you look into it.
Citing accounts from congressional circles, Ferguson explains that Paulson had been told by the White House not to discuss the darkening situation with Congress. But sometime between 2:30 and 3pm on September 18, Paulson finally spoke with then-Speaker of the House Nancy Pelosi. He told her that a very bad situation had developed, and that it could involve something much worse than the failure of a giant bank, possibly even a broad collapse of the whole economy. Pelosi immediately demanded that Paulson come over and brief congressional leaders. He agreed. Ferguson reports that his sources say the meeting did indeed begin after markets closed. But he also notes that word of the meeting circulated to the leaders well before markets closed at 4pm.
Since Ryan is a Republican, he may well have gotten word from the White House about the gravity of the situation even earlier. If you knew that Hank Paulson and Ben Bernanke were coming to brief you as stock markets fell around the world, that’s really all you needed to know to do the trades in Ryan’s portfolio.
If you swallow the idea that Ryan just happened to buy Goldman stock that day — a day he just happened to have a meeting with Hank Paulson, the firm’s former CEO, well, then I have some unicorns I’d like to introduce you to.
Ferguson scoffs at the notion: “There’s a lot we don’t know about the famous waiver that Paulson is said eventually to have gotten to talk to his old firm. When I asked about it under a Freedom of Information request, virtually everything I got back was blacked out. But I’ll tell you this. It was not exactly an Einsteinian inspiration to guess that Paulson’s old firm might be a good bet if things were so bad that Hank Paulson was coming to the Hill.”
Sometimes you win, sometimes you lose. But if you’re a member of Congress, the odds are curiously in your favor. As I reported on AlterNet several months ago, in-depth research undertaken in 2004 considered to be the baseline work in the field revealed that from 1993-1998, US senators were beating the market by 12 percentage points a year on average. Corporate insiders only beat the market by a measly 5 percent. Typical households, in contrast, underperformed by 1.4 percent.
And as to the Romney campaign’s claim that Ryan was not legally in control of his investments, let’s just say that this idea gives the notion of the “Invisible Hand” new meaning.
What’s most disturbing is the notion of a man like Paul Ryan focusing so heavily on his portfolio while his country was in peril. Ryan’s surely a guy who would answer the phone at 3am – provided it’s his stockbroker calling.