Don’t throw them all out

My copy of Peter Schweizer’s Throw Them All Out arrived yesterday morning with the publisher’s promotional material courtesy of the author, whom I’ve gotten to know a little and like a lot over the past few years. Among his previous books that I have enjoyed and learned from are Reagan’s War and Do As I Say (Not As I Do): Profiles in Liberal Hypocrisy.

Peter’s new book is officially published today, preceded by a public relations blitz most authors can only dream of. 60 Minutes led off its show on Sunday with a segment based on the book, featuring Steve Kroft’s dramatic confrontation with Nancy Pelosi. Peter Boyer summarizes the book’s findings in a good Newsweek article that extols Peter and the book, as does Marc Thiessen in a Washington Post column.

Based mostly on publicly filed documents, Peter has uncovered an interesting phenomenon hiding in plain sight. Readers of Do As I Say will be familiar with the method of his research, in which publicly filed documents are given starring roles.

In the new book’s introduction, Peter calls the phenomenon that is the subject of Throw Them All Out The Government Rich. Many politicians arrive in Washington as people of relatively modest means and become rich in an office whose pay, while generous, is not exorbitant. How do they do it? “For the Government Rich,” Peter writes, insider deals, insider trading, and taxpayer money have become a pathway to wealth. They get to walk this exclusive pathway because they get to operate by a different set of rules from the rest of us.” Peter calls the means by which these politicians achieve wealth, imprecisely, “honest graft” — i.e., abuse of their office for personal gain that is not illegal — or “crony capitalism.”

The book makes a timely appeal to the populist mood in the country. I am afraid that some necessary distinctions may get lost in the process, abetted by those who want to blur culpability for abuses involving the Obama administration and then House Speaker Nancy Pelosi in order to cast the net sufficiently wide to catch, say, current House Speaker John Boehner. But I don’t think they all do it or that they all should be thrown out. Some distinctions are in order.

In its segment 60 Minutes posed an equivalence between then Speaker of the House Pelosi — the lucky purchaser of stock in VISA’s initial public offering while legislation (most prominently, the Credit Card Fair Fee Acts of 2008 and 2009) directed at card interchange fees was bottled up in the House — with then Minority Leader John Boehner’s purchase of the stock of blue chip insurance companies days before the “public option” was rejected in health care reform legislation. Peter’s implication is that VISA somehow helped Pelosi gain access to the oversubscribed IPO in order to secure her good favor with respect to the credit card bills.

Peter himself takes no position on the legislation, though he describes it in favorable terms. (I would say they were atrocious bills.) “One would think that this piece of legislation would appeal to Pelosi,” Peter observes. I would say that Pelosi’s opposition to the bills represented a rare lapse into good public policy. Peter, perhaps correctly, doesn’t even give her that much credit.

Having helped prevent the credit card bills from becoming law, Pelosi enhanced the value of her VISA stock. Peter writes: “Speaker Pelosi and her husband saw their VISA stock climb in value. The IPO shares they had purchased soared by 203% from where they began, while the stock market as a whole was down 15% during the same period. Isn’t crony capitalism beautiful?”

Pelosi’s response to Steve Kroft’s question on this point in the 60 Minutes segment is pathetic, and the defense she has subsequently mounted is obfuscatory in nature. With respect to Pelosi, Peter appears to be on to something corrupt, or something that looks a lot like it.

The response meant to be evoked is that it should be illegal. The question, however, takes us into Clintonian metaphysics. What is “it”? “It” has something to do with “insider trading,” and Rick Perry has quickly gotten the message (video below).

“Insider trading” is a concept borrowed from securities law under which corporate insiders with knowledge of material nonpublic information are prohibited from purchasing or selling the securities of their companies. Extending the concept to Washington politicians, Peter suggests that the politicians are taking advantage of something — material nonpublic government information, or their knowledge of the likely outcome of legislation under their jurisdiction — for their personal gain. Here he calls John Kerry, the Senate Democrat, and Spencer Bachus, the House Republican, to account for their trading, respectively, in health plans/pharmaceutical stocks and an index fund that seeks results 200% the inverse of the Nasdaq 100 index.

Again, the facts and circumstances adduced by Peter make a compelling case that the politicians have taken advantage of their positions for personal gain. I don’t see any comment in the book from Kerry explaining the stock trading Peter discusses. Were he and Mrs. Kerry actually doing the trading, or communicating with someone acting on their behalf? The book doesn’t say directly, but the implication is that they were. Senator Kerry, however, denies it (as Boyer’s favorable Newsweek article makes clear).

Bachus in any event has something to answer for. Peter discovers Bachus seeking to profit from the coming stock market decline after receiving a private briefing from Ben Bernanke on the financial crisis of 2008. Peter quotes Bachus’s spokesman stating that the congressman’s trades were cleared with the Ethics Committee. There oughta be a law indeed. But either Bachus oughta have something better to say or he oughta be outta here.

Having watched the 60 Minutes segment based on the book this past Sunday, I turned to Peter’s passage on Boehner. Here it is:

Congressman John Boehner, who was leading the opposition to Obamacare in the House of Representatives, may have been fighting John Kerry on policy matters, but he was entirely allied with him when it came to investment decisions. On December 10, 2009, Boehner bought numerous health insurance company stocks, including tens of thousands of dollars in Cardinal Health, Cigna, and Wellpoint. On the same day, Boehner, purchased shares in the Big Pharma companies Amgen, Johnson & Johnson, Forest Labs, Covidien, and Pfizer. He also bought shares in CareFusion, which provides systems for countering infections. Just days later, on December 15, the Washington Post declared the “public option” was officially dead.

Health insurers breathed a sigh of relief. So too did pharmaceutical companies. When Boehner bought Wellpoint stock on December 10, the price was $56 a share. Within a month it was trading at $66 a share. Cardinal Health was up approximately 10% by the time President Obama signed the health care bill. In early 2010, Boehner bought yet more shares in Cardinal Health and Pfizer, before President Obama signed the health care bill.

Even putting aside Boehner’s response to the implication that he did something wrong here that appears in the 60 Minutes segment (but not in the book), it doesn’t fit with the thesis that Boehner took advantage of his position. He was not only against the “public option,” he was against the Obamacare bill that subsequently emerged. He was against the “public option” before he bought the stocks and after he bought the stocks. He did not purchase the stocks based on any privileged information. He didn’t remotely engage in “insider trading,” even in the broadened sense that Peter uses the term. He didn’t do anything wrong.

Assuming Pelosi doesn’t have anything better to say than what she has said so far, the equivalence between Pelosi and Boehner drawn by 60 Minutes is false. None of the reforms that Peter advocates in the final chapter of his book would touch Boehner’s (I think altogether innocent) investments. Boehner’s inclusion in the roster of miscreants is, it seems to me, an injustice.

I think the intelligent reader will want to exercise caution in sorting these matters out and carefully articulating the “it” against which there oughta be a law, as Peter does in his concluding chapter. (I should add that he rejects the use of blind trusts to mitigate the behavior he describes in the book, probably too hastily.) I have written well over a thousand words about the book without getting to any of the other bombshells that detonate in it. This morning I wanted only to address the issues that were of most concern to me based on the 60 Minutes segment and related publicity.