By Rodney Anderson
One of the biggest scandals in American politics is blowing up as you read this: The inside game in Washington demonstrates, thanks to the book “Throw Them All Out,’’ that the political class enriches itself in ways we cannot, via a sort of “insider trading.’’ I visit with the author of the book, Stanford scholar Peter Schweizer, to get to the bottom of the scandal:
RODNEY: Give us the overview, here, Peter. We’re talking “legal graft’’ and “pay to play’’ and “soft corruption.’’ What is “soft corruption’’?

SCHWEIZER: “Soft corruption is basically the ability for Congress to engage in activities that are legal — but shoudn’t be. So for example, if you are a member of Congress and someone gives you $10,000 cash, that’s a bribe and one or both of you are going to jail. But if you give somebody access to IPO shares of stock, give them $100,000 worth of it in a day, that is completely legal, and my argument is that just wrong and the law needs to be changed.

RODNEY: So “insider trading’’ is illegal — unless you are a Senator or a Congressman?

SCHWEIZER: That’s exactly right. IPO shares are an example. Another is you can be sitting on a committee, you can hear from regulators, you can know from legislation that’s about to happen, you can know by a variety of means, the decisions coming down the pike that are going to affect companies. And you can trade on that information and it’s completely legal. But if you were a corporate executive trading on that information, you’d have serious problems.

RODNEY: There are so many cases in the book. People getting IPO shares. “Bundlers’’ who are involved in the Obama Administration. You trace John Kerry’s activities Politicians somehow making all the right choices on the stock market. People on Capitol Hill simultaneously making laws that influence the financial winners and losers and then winning themselves. Peter, would you find it funny that there is a North Texas Congressman who in 2008 has a personal worth of $24 million and suddenly in 2010 his financial statement shows him to be worth $49 million?

SCHWEIZER: It’s amazing when you look at the ability of Congressmen to accumulate wealth. They do outstrip the rest of us. In the last few years as the economy has teetered and tottered for everybody else, their net worth continues to rise. It’s a huge problem. Let’s face it: If they are outperforming the rest us on the stock market, which they do — they even outperformed hedge funds – and they are able to engage in land deals, whereby they buy a piece of land, secure an earmark to build a highway by it, and then turn around and sell it at twice the price, it’s little surprise they’re doing while when the rest of us are struggling.

RODNEY: Is there anybody on Capitol Hill who speaks out against this and don’t engage in this sort of financial cheating? Can’t they all be in a blind trust with their investments?

SCHWEIZER: There are some. There are some who choose not to trade stocks. But the reality is this is a non-issue for a lot of people, a go-along-to-get-along situation, just the way the business works. It goes in year after year after year. It’s legal graft so they are not breaking the law. There was something called STOCK Act, introduced before, which would make it illegal to trade on Capitol Hill. For years it had six sponsors, that was it. Since the book came out it’s now got 38 co-sponsors and it’s been introduced in the Senate for first time by Senator Scott Brown. That’s a very encouraging sign for me but only the beginning of what needs to be a very broad reform effort.

RODNEY: Peter, I’ve got an inside approach on this because I’ve been working on a bill myself in the U.S. Congress, The Medical Dept Responsibility Act. So the other night when you came on “60 Minutes,’’ it didn’t surprise me, but I know the public is outraged.

SCHWEIZER: The response has been tremendous, from the media, emails from people, and a lot of response on Capitol Hill. Some of the names I mention in the book, dozens of names, have fired back. Some of them have fired back and then suddenly joined the reform effort. We need to keep pounding away on this. The only way to get them to deal with any urgency is to make sure they can’t profit from their positions, to make sure they can’t exploit their positions.

RODNEY: Peter, I hold in my hand a document I assume you have seen. I have obtained a copy of the letter Congressman Spencer Bachus sent to your publisher, vehemently denying your charges. Others, Pelosi and the like, once they’ve come up for air, have also managed to respond. How you react to their charges against the book? Take Spencer Bachus. Is his criticism fair, or is he just trying to cover himself?

SCHWEIZER: He’s trying to cover himself. There are 40 options trades he conducted during the financial crisis of 2008. What he has challenged me on is that on four or five of those trades I have him shorting the market rather than going along on the market. In other words, betting it was going down rather than going up. I may be wrong on (those) but he’s not challenging me on the other 36 or so in which he took out positions that were highly-leveraged option trades, betting America would go down. He was making those bets when he was getting high-level briefings from the Fed chairman Ben Bernanke and Hank Paulson, the Treasury Secretary at the time.

RODNEY: Peter, the corruption is stunning. The cronyism is so disturbing. The book is incredibly important. Any bright ideas on how to solve this? Maybe along with, of course, to Throw Them All Out?

SCHWEIZER: The things I think we need to do:
No. 1, if you are on the Senate Banking Committee, you should not be trading bank stock. Period. There is too much conflict of interest. You have access to too much information. You will know more about the direction of the company than the CEO might.
The second thing is, members of Congress should not be getting access for so-called “friends-and-family’’ to IPO shares. It’s just another form of bribery.
And finally, we need to limit the ability of politicians to use their positions to sort of “shake down’’ businesses and other people. I suggest when Congress in session they should not be allowed to receive or solicit campaign contributions. Period. That would make it very difficult for them to seek favors from businesses, like IPO shares or campaign contributions or jobs for members of their family while they’re important legislation on the hill.
This needs to be about public service, not self-service. We need to limit their ability to turn politics into a business model to make money.