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Why Congress Can't Stop Stealing: A Picture Is Worth 1,000 Shares

Salary of members of the United States Congress: $174,000.

Average annual Civil Service Retirement System benefits for retired members as of 2007: $63,696.

But the profits they can make by trading on inside information?


Think you're a clever investor? Well I have news for you, Fool -- you have nothing on the stock market wizards who work for the United States Congress.

Don't feel bad. According to research published by economist Alan Ziobrowski, most individual investors underperform the S&P 500 by about 1.4% per year. In contrast, sitting U.S. senators beat the market by an average of 12 percentage points per year.

That's better than the (still impressive) 6% outperformance recorded by members of the U.S. House of Representatives, which in turn matches the surprising prescience of corporate insiders trading their own company's stock (also 6%.) Fact is, members of the U.S. Senate, on average, often beat even the venerable Oracle of Omaha. Warren Buffett's record at the helm of Berkshire Hathaway (NYSE: BRK-B  ) has amounted to a mere 10.8% annual outperformance of the S&P.

How do they do it? It could be that the U.S. Congress is the greatest amalgamation of investing minds ever assembled since the creation of Wall Street. That could be the answer. But recent investigations by The Wall Street Journal and 60 Minutes suggest another possibility: that members of Congress are getting rich quick on the backs of their own constituents, using their positions to wrangle allotments of IPO shares in Visa (NYSE: V  ) , trading in and out of financial powerhouses like General Electric (NYSE: GE  ) and Citigroup (NYSE: C  ) , and snapping up shares of solar companies such as SunPower (Nasdaq: SPWRA  ) ahead of votes to subsidize renewable energy.

We've detailed this story in multiple columns over the years. (Read a few of them here, here, and here.) But a picture's worth a thousand shares of insider-traded stock. So we thought we'd sketch out for you a few facts about what's rotten in the District of Columbia, and about what investors like you and I are doing to clean up this mess. Take a look.

Why you should care
In the words of Motley Fool co-founder Tom Gardner: "Our elected officials owe it to their constituents, and our country owes it to the world, to demonstrate that insider dealing is not what American capitalism and democracy is all about. The mere appearance of cronyism can create a major taint on our reputation."

I second that emotion. Do you? Then join the Foolish fight for passage of House Resolution 1148, the "Stop Trading on Congressional Knowledge (STOCK) Act." Email us at and tell us you want to see Congress clean up its act. We'll keep you updated on all the Fool's efforts to get this law passed.

Fool contributor Rich Smith does not own (or short) shares of any company named above, but The Motley Fool owns shares of Citigroup, and Motley Fool newsletter services have recommended buying shares of Visa and Berkshire Hathaway as well.

We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (9) | Recommend This Article (37)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 24, 2011, at 11:11 PM, koolkrissy wrote:

    This is a national disgrace. Congress is so corrupt. They should also be required to have no other retirement program than social security and be required to pay into it. All of the pension funds set aside for them should be immediately transferred into the social security fund. It would not take long for them to figure out a way to fix social security if that would happen. Any laws made by Congress must be obeyed by them. They should not be allowed to be "above" the law.

  • Report this Comment On November 25, 2011, at 12:33 AM, Gyre07 wrote:

    Whoa! Is my pal Ron Paul on that list? I expect the majority of the rest of them to be thieves. But I'd be surprised if Congressman Paul was part of the rot.

  • Report this Comment On November 25, 2011, at 11:37 AM, RobMonaco wrote:

    Legalized corruption! For that reason I hate paying tax, in Europe we have a lot of similar nonsense going on. We pay a lot of tax during our live and when the fun is over (at least in the Netherlands where I'm from) they take 40%.

  • Report this Comment On November 25, 2011, at 11:40 AM, TMFDitty wrote:

    Congressman Paul has not signed on as a co-sponsor. Yet.


  • Report this Comment On November 25, 2011, at 12:51 PM, DJDynamicNC wrote:

    Louise Slaughter is my representative. I'm not at all surprised to find her bringing this bill to the floor, she's been excellent all around. Good on her!

    I suppose that means I don't need to call and show my support for the bill, since she obviously supports it already, but I still will.

  • Report this Comment On November 25, 2011, at 12:58 PM, medicalquack wrote:

    I'm happy you keep promoting the STOCK law as you have run a few posts on this before, so keep at it as it is only fair.

    The digital illiterates of Congress keep benefiting due to the fact that big business feeds and protects them, that part they know. It took flawed math and deceptive marketing and data to get to where the line became the 99% and the 1%. It will take a new set of algos to fix it. Congress can't even come to terms with the word algorithm so stuck we are.

    I said the next move should be to Occupy Algorithms and perhaps give some thought to changing the word "regulation" to "audit" as that's what we are really talking about today with IT infrastructure running on servers making life changing decisions that affect all of us today.

    You can't see touch or talk to those algos running on health insurer and other big business servers so what do you do, you occupy. I don't even believe that the folks who are protesting may fully understand the entire deep root of their demonstrations, but this is the ticket and how does one fight such a battle I ask? Lawmakers have no clue as they are pretty much what I call the "non participants" when it comes to just consumer IT knowledge.

    So in my opinion, it's the "Attack of the Killer Algorithms" here and I keep writing about it, up to chapter 5 now. Nothing will change until we fix the math and the steroid marketing. By the way in the link I'll put below, be sure to check out the post on the "anal algorithm" too. I could not believe this was a press release put out and is just one more way marketing is telling you that doctors can't rank up to the power of math.

    The feedback I had from tech and doctors was pretty much a bundle of laughter and one tech said that was SNL material, but when stop and look at how you are being marketed, it does tend to make one angry if you see if for what it is.

    The press fills the wires with nonsense as such to disrupt and distract and in the meantime, more algorithms are built to move even more money to the side of the 1%. If you open your eyes to this new paradigm it becomes very visible.

    So keep the campaign alive and let's maybe start some type of movement here for some clean math without the politics that are hurting the rest of us with algorithms that create an atmosphere of unfairness.

  • Report this Comment On November 25, 2011, at 1:18 PM, deltafox2 wrote:

    Insider trading is illegeal in all parts of the world with a reasonably balanced legal system. That the US tolerates open fraud of this type, worthy only of banana republics, is surprising and dissapointing at the same time. That this is practiced openly by elected representatives is revolting.

  • Report this Comment On November 26, 2011, at 1:23 PM, scookstlmo1 wrote:

    Ron Paul is just as clueless as his colleagues. In interviews (found on You Tube) he doesn't feel the Stock Act is necessary because he (incorrectly) believes that it's already illegal for Congress to trade on insider information (he uses the analogy that It's illegal for someone in Congress to shoot somebody just as it is for a civilian as his justification that Congress is subject to the same laws it passes). What a DOLT! Check it out for yourself! And this guy wants to be president?

  • Report this Comment On November 28, 2011, at 2:34 PM, JeffSong wrote:

    It seems it may be a bad idea to support the Stock Act,

    it looks like it may actually legalize certain aspects that would normally be considered legal. All this bill should say is that congress is subject to the same laws as everyone else and should be applied retroactively.

    It needs to be looked into more carefully, and if I'm right then it should be spread quickly before congress gets to protect themselves with yet another bogus "helpful" law.

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