Were Congressional lawmakers hypocritical by using a form of short-selling in their personal investments during the financial crisis?
The Wall Street Journal has an interesting piece this morning that details the short fund positions of 13 Washington D.C. lawmakers during the financial crisis. And, the Journal notes, some of those lawmakers even castigated Wall Street's short sellers.
The lawmakers, according to WSJ, bought shares of exchange-traded funds, which can be freely traded but are tied to an index, not individual stocks. ETFs are all the rage right now, with the U.S. market set to hit $1 trillion in the coming months. Some ETFs let buyers borrow money to add risk to their investment. ETFs are, essentially, derivatives bets.
Though the WSJ focuses, in part, on the trading behavior of the spouses of certain lawmakers, it also highlights the investments of a few Senators themselves. During a February Senate proceeding, Sen. Johnny Isakson (R., Ga.) blasted short-sellers who "take unfair advantage of the values of equities that are owned by Americans all over this country for the sake of making a buck," the WSJ notes.
But, while the bailout of AIG was underway in 2008, Isakson invested more than $30,000 in leveraged short funds designed to increase in value when the price of U.S. Treasury Bonds drops. Isakson told the WSJ that his account was controlled entirely by Morgan Stanley Smith Barney.
It's worth reading the entire WSJ story for a deeper dive into the issue. But should Congressional employees -- or even their spouses -- be able to buy into 'short' funds? Does that create a conflict of interest?
What do you think?