Throw Them All Out: How Politicians and Their Friends Get Rich Off Insider Stock Tips, Land Deals, and Cronyism That Would Send the Rest of Us to Prison [Hardcover]

It's good to be a Congressman. Prove it's possible to get rich trading options without knowing about technical analysis. Always get out of the market just before TSHTF (that's a standard survival preparedness expression). Life is fair - for some people.

If I weren't already a Declinist, this book would make me so. When I go to the election booth, I don't see the option, "None of the above," below the candidate names. If Peter Schweizer's research is correct, I never stood a chance.

How do our nation's top politicians exit office with millions more than credible based on their salaries and perhaps some patient investing? Nobody has directly and fully answered that question until Throw Them All Out was published.

(Recommended reading: Declare Independence from Party Affiliation)

The club Schweizer calls the 'Permanent Political Class' makes rules for itself. Members with no time to meet small business constituents do not spare any trouble to legally enrich themselves through earmarks, real estate deals, securities violations, trading on inside information, self-dealing with stimulus funds and literally every budget item.

This gets into the purpose of the nation's Capital from the perspective of elected officials. DC is a profit center for them and all that support them in various capacities. They use government to enforce sophisticated pay-to-play and don't-make-no-waves rules. There is little incentive for them to leave Washington, which is one reason they became the permanent political class.

Schweizer cites popular officials that play the IPO (Initial Public Offering) game. For example, he shows how Nancy Pelosi, the 60th Speaker of the United States House of Representatives with an estimated net worth of $58 million, bought 5,000 shares of V (Visa) at the privileged IPO price $44. This trade showed a profit immediately. The shares reached about $88 in a matter of days. However, Pelosi worked on major related legislation that was killed in the body she led. This helped avoid a strong negative affect on the price of the stock, and she benefited. The rest of us can't do it because we're subject to conflict of interest rules, unlike lawmakers. Plus without political favors to offer, we're not invited to participate in IPOs until after the price is run up.

Schweizer points out that if you're an elected official and you sit on an important committee, you are allowed to trade on information that comes your way. These officials can even help shape decisions that have economic consequences and then participate in the winnings. It stands to reason that if you're on the banking committee, you probably trade bank stocks, playing it both long and short. If you're a staffer, you may accumulate sensitive non-public information and sell it to hedge funds.

This book is a manual on ways to give money legally to elected officials. The Pay-to-Play regime and the flow of insider information can be used by even the most novice traders using an online brokerage account. One big story is how Congressman Spensor Bauchus used a private meeting with Fed Chair Bernanke and Treasury Secretary Paulson. Bauchus was in the role of Ranking Member on the House Financial Services Committee. He used the dire information presented to him in this meeting to bet heavily that the market would go down, using leveraged trades. Bauchus, working with Bernanke and Paulson from July 2008 to November 2008, scalped $50K out of the falling market after first having moved his funds to safety. The book has lots of war stories like that.

Here are some politicians cited without their titles for brevity in Part One in this book (Part Two gets into their cronies):
Chapter 1 - John Kerry; Tom Carper; Melissa Bean; Jared Polis; James Oberstar; Jeb Bradley; John Boehner; Jim McDermott; Amo Houghton; Johnny Isakson; Sheldon Whitehouse.
Chapter 2 - Max Baucus; Jim Moran; Dick Durbin; Rahm Emanuel.
Chapter 3 - Nancy Pelosi; Gary Ackerman.
Chapter 4 - Dennis Hastert; Carolyn Maloney; Judd Gregg; Ken Calvert; David Hobson; Heath Shuler; Bennie Thompson; Maurice Hinchey; Jerry Lewis; Harry Reid.

Congressmen are big winners in the stock market. They cultivate companies in their loyalty structure from whom they get insider information often at the committee level. There are many ways they get rich while serving constituents, especially if you know what big deal Warren Buffett will do and when. Many names are given in this book of successful inside information operators within Congress.

While Throw Them All Out is our wake up call, it is also a potential training guide for future politicians. After all, Congress is unlikely to change the substance of rules that allow them to make a killing year on year. We should not aspire to do what they do. This would land the rest of us in prison and earn their contempt for us.

With the big expose on 60 Minutes and interviews all over, this book promises to provide one of the great muckraking stories of our generation, and perhaps of American history. The premise is straightforward and scary: Congressmen and women are exempt from a lot of the laws that restrict the rest of us from financial misdealings such as insider trading. The result, as one could imagine, is that many, perhaps most of the privileged class of senators and congressmen have invested in and then benefited from deals that would have landed the rest of us in jail. Everyone remembers Martha Stewart and how she had to go to prison for her insider trading. What the congressmen and women are doing is pretty much the same thing, and worse since they are actually sometimes involved in the actual deals that send federal grants and loans to the companies they invest in.

To take some examples, the book examines many of the most recent deals that congressmen and women have gotten away with. For instance, About $16 billion of the $20 billion that the Obama administration has doled out has gone to financial backers of the Obama administration. Former Speaker of the House, Nancy Pelosi received 5,000 shares of an almost impossible-to-get credit card stock. And 10 members of the national finance committee received Solyndra-type loans.

Perhaps the scariest is when the bureaucrats are also involved in the actual company's success, what is called "pump-and-dump." The book goes into such trades that Al Gore made in which he and a Silicon Valley investor put in $16 million into a company before a $25 million grant was issued by the federal government, after which Gore's initial investment turned into $89 million.

The real unfortunate thing is that this is just the tip of the iceberg and the kinds of deals that these public officials get away with are so pervasive that it affects almost all that regular citizens do. Everyone knows that the government plays a huge role in the economy and that if a group of government officials wants to make a company succeed, it will do so. And the people who know where that money is going will benefit from it. The problem is that public officials can get away with it, and the rest of us would go to jail for the same action.

In the immortal words of George Orwell, "All animals are equal, but some animals are more equal than others."

This whole process is explained in the similarly excellent Juggernaut: Why the System Crushes the Only People Who Can Save It by Eric Robert Morse, which also outlines a fantastic history and solution for this problem, which seems to only be getting worse.

Here is my review of this outstanding book from the Washington Post:

[...]

Crony Capitalism Exposed

Insider trading is illegal -- except for members of Congress. A Wall Street executive who buys or sells stock based on insider information would face a Securities and Exchange Commission investigation and quite possibly a federal prosecutor. But senators and congressmen are free to legally trade stock based on nonpublic information they have obtained through their official positions as elected officials -- and they do so on a regular basis.

On Sunday night, CBS News' "60 Minutes" looked into this form of "lawful graft." The "60 Minutes" story exposed, among others, then-House Speaker Nancy Pelosi for participating in a lucrative initial public offering from Visa in 2008 that was not available to the general public, just as a troublesome piece of legislation that would have hurt credit card companies began making its way through the House (the bill never made it to the floor). And it showed how during the 2008 financial crisis, Rep. Spencer Bachus (R-Ala.) -- then-ranking Republican on the House Financial Services Committee -- aggressively bought stock options based on apocalyptic briefings he had received the day before from Federal Reserve Chairman Ben Bernanke and Treasury Secretary Hank Paulson.

The report was based on an explosive new book by Peter Schweizer that will hit stores on Tuesday. It's called "Throw Them All Out: How Politicians and Their Friends Get Rich off Insider Stock Tips, Land Deals, and Cronyism That Would Send the Rest of Us to Prison." (Full disclosure: Schweizer is a close friend, a former White House colleague and my business partner in a speechwriting firm, Oval Office Writers.

The "60 Minutes" story only scratches the surface of what Schweizer has uncovered. For example, Bachus was not the only member of Congress trading on nonpublic information during the financial crisis. On Sept. 16, 2008, Schweizer writes, Paulson and Bernanke held a "terrifying" closed-door meeting with congressional leaders. "The next day Congressman Jim Moran, Democrat of Virginia, a member of the Appropriations Committee, dumped his shares in ninety different companies .'.'. [his] most active trading day of the year."

Rep. Shelley Capito (R-W.Va.) and her husband "dumped between $100,000 and $250,000 in Citigroup stock the day after the briefing," Schweizer writes, and "at least ten U.S. senators, including John Kerry, Sheldon Whitehouse, and Dick Durbin, traded stock or mutual funds related to the financial industry the following day." Durbin, Schweizer says, "attended that September 16 briefing with Paulson and Bernanke. He sold off $73,715 in stock funds the next day. Following the next terrifying closed-door briefing, on September 18, he dumped another $42,000 in stock. By doing so, Durbin joined some colleagues in saving themselves from the sizable losses that less-connected investors would experience." Some members even made gains on their trades, at a time when ordinary Americans without insider knowledge were seeing their life savings evaporate.

Schweizer also documents numerous examples of how members of Congress of both parties -- including Pelosi, Senate Majority Leader Harry Reid and former House speaker Dennis Hastert -- have used federal earmarks to enhance the value of their own real estate holdings. They have done so, Schweizer shows, by extending a light-rail mass transit line near their property, expanding an airport, cleaning up a nearby shoreline, building roads and bridges, and beautifying land and neighborhoods nearby -- in each case "substantially increasing values and the net worth of our elected officials, courtesy of taxpayer money."

Perhaps the most disturbing revelations come from Schweizer's investigation into the Obama Energy Department and its infamous "green energy" loan guarantee and grant programs, a program Schweizer calls "the greatest -- and most expensive -- example of crony capitalism in American history." The scandal surrounding Solyndra -- the now-bankrupt, Obama-connected solar power company that received a federally guaranteed loan of $573 million -- is well known. But Solyndra, Schweizer says, is only the tip of the iceberg.

According to his research, at least 10 members of President Obama's campaign finance committee and more than a dozen of his campaign bundlers were big winners in getting tax dollars from these programs. One chart in the book details how the 10 finance committee members collectively raised $457,834, and were in turn approved for grants or loans of nearly $11.4 billion -- quite a return on their investment.

In the loan-guarantee program alone, Schweizer writes, "$16.4 billion of the $20.5 billion in loans granted went to companies either run by or primarily owned by Obama financial backers -- individuals who were bundlers, members of Obama's National Finance Committee, or large donors to the Democratic Party." That is a staggering 71 percent of the loan money.

Schweizer cites example after example of companies that received grants or loans and documents their financial connections to the Obama campaign and the Democratic Party. And he shows how "the [Energy] department's loan and grant programs are run by partisans who were responsible for raising money during the Obama campaign from the same people who later came to seek government loans and grants."

There is much, much more, which means that when Schweizer's book hits stores Tuesday, heads in Washington are going to explode.