Jim Cramer, the flamboyant host of CNBC’s Mad Money, makes dozens of stock recommendations every weeknight. His advice could make you rich, or poor, but either way you can be certain he isn’t taking it himself. That’s because Cramer, who made millions on the trading floor, no longer trades stocks from his own funds. The reason is simple: When Cramer screams “Buy, Buy, Buy!” or “Sell, Sell, Sell!” it could move a stock’s price, at least temporarily. In order to avoid even the appearance of impropriety in any of Cramer’s trades, his network forbids him from trading. (As he always reminds viewers, he still has a charitable trust that continues to buy and sell stocks.)
If Cramer’s potential effect on stock prices justifies a voluntary and total ban on his trading, what about members of Congress, whose intervention in the economy seems to grow with every passing year? Congress has become so discouragingly influential that many companies now have business strategies that hinge upon lobbying for special favors — pork, anti-competitive laws and regulations, contracts, regulatory approvals, et cetera — that can make or break share prices.
Members of Congress, should they so desire, are often in a position to trade based on private legislative knowledge that can be every bit as decisive as corporate “insider information.” Last month, thanks in large part to the publication of Peter Schweizer’s “Throw Them All Out” and a 60 Minutes segment on CBS, several members of Congress have come under fire for making possibly inappropriate stock trades. A university study earlier this year found that congressmen beat the market, on average, by 6 percent, and senators by 10 percent.
House Financial Services Chairman Spencer Bachus, R-Ala., has been singled out for making lucrative trades at the height of the financial crisis. Bachus maintains he did nothing wrong — which appears to be true. The question is, why should anyone even have to ask? There is no reason members of the House or Senate need to engage in day-trading. They receive excellent benefits and the second-highest salary of any legislators in the world. Instead of passing a toothless CYA measure like the “insider trading” bill now under consideration, members of Congress should adopt something like the rules that govern Cramer’s personal investing.
Membership in Congress is a choice. It carries obligations private citizens do not share. Members must divulge private financial information and follow ethics rules that proscribe some activities, which are otherwise perfectly legal. They should content themselves with simple investments in mutual funds, blind trusts or some other area where their savings can grow without the potential for an instant jackpot. If they cannot, then perhaps they should look for another line of work.
