House Republicans, in the wake of JP Morgan’s now $3 billion trading mess, have temporarily backed off their zeal to repeal the Dodd-Frank financial reform law. However, House Financial Services Committee Chairman Spencer Bachus (R-AL) — who believes Washington’s role is to “serve the banks” — has JP Morgan’s back, excusing its actions and attacking Congressional Democrats for wanting to tighten regulations governing risky bank trading:

“Even with this loss, I believe they’re one of the most profitable financial institutions in the country, and unless the facts are diametrically different from what we’ve heard, there is no risk from this loss to depositors or to taxpayers,” Bachus said during a House hearing. “They remain a very profitable, viable institution.”

Bachus, an Alabama Republican, noted that JPMorgan Chase’s net worth is $189 billion, and its pre-tax profits last year were $25 billion.

“So a $2 billion loss would represent one month of earnings,” he said.

Bachus accused some fellow members of Congress — clearly a reference to Democrats — of advocating for laws that would essentially prevent businesses from losing money or taking risks.

“And no law can do that, nor should a law attempt to prohibit a company from taking risks,” he said.

But Bachus, like other Republicans, completely misses the point. The goal of financial regulations like the Volcker Rule — which the White House is attempting to strengthen following JP Morgan’s debacle — is not to prevent companies from taking on risk, but to prevent them from doing it while backed by taxpayers. JP Morgan carries deposits backed by the federal government, has access to the Federal Reserve’s emergency lending window, and is big enough to pull down the whole economy should it fail. It is, for all intents and purposes, entirely backed by taxpayers.

Therefore, it is entirely appropriate to say that JP Morgan either shed its federal backing — which would require it to shrink — or not take on risks that cost it billions of dollars. But many in the GOP have ignored the lesson.

The Office of Rep. Spencer Bachus (R-AL) gleefully announced yesterday that the outside Office of Congressional Ethics (OCE) board voted 6-0 against recommending an Ethics Committee investigation into allegations that Bachus engaged in insider trading. But the unanimous vote may say more about the permissive House rules than about Bachus’s ethical compass.

Last November, CBS’s 60 Minutes aired a report — based on Peter Schweizer’s book Throw Them All Out — accusing several members of Congress of profiting from stock trades made after receiving private briefings. In that report, the news program said that in 2008, one day after receiving a private briefing from the nation’s chief economic officials on the extent of the financial crisis, Bachus bet that the stock market would tank:

While Congressman Bachus was publicly trying to keep the economy from cratering, he was privately betting that it would, buying option funds that would go up in value if the market went down. He would make a variety of trades and profited at a time when most Americans were losing their shirts.

Bachus, now chairman of the powerful House Financial Services committee that oversees Wall Street, apparently made a $30,000 profit. But, as the report noted, members of Congress have long been considered exempt from anti-insider trading laws. Despite the exemption, the OCE opened an investigation into whether the Bachus trades violated any rule.

While the investigation was in progress, Congress passed the Stop Trading on Congressional Knowledge (STOCK) Act. The bill tightened some of the rules, but thanks to significant Wall Street lobbying, House Republicans successfully watered down the stronger Senate version. The final product left significant loopholes. Members of Congress can still own stocks in the industries they regulate and can still sell secret “political intelligence” to investors.

Friday, the OCE ended the inquiry. In a press release Bachus celebratedthe end of what he called a “destructive and disruptive, media generated assault,” saying:

It has been a long, painful, and frustrating experience to have a reputation built over many years sullied by untrue accusations. I also appreciate former SEC Chairmen Harvey Pitt and Roderick Hills and Federal Judge Stanley Sporkin for reviewing the allegations, determining they were false and meritless, and publicly coming to my defense. Perhaps the most gratifying aspect is that my constituents who know me best recently reaffirmed their faith in my character and my ability to serve their interests, and my personal commitment to them is to continue to serve with the highest level of effectiveness and accountability. Finally, I want to thank the OCE staff for their professionalism and the OCE Board for unanimously coming to the right conclusion. While their review and report should never have been necessary, I am pleased that they have helped clear my name.

Given that the rules in 2008 were not even the slightly tougher STOCK Act provisions, it is little surprise that the OCE found there was “not substantial reason to believe that a violation of House Rules and Standards of Conduct occurred.” Even if it did not violate the House’s permissive rules — and even if, as he claims, his behavior was not technically insider trading — the OCE’s action hardly has cleared his name. Significant questions remain about whether his dealings were ethical.

This ruling serves as a reminder of the gaping holes in Congressional ethics rules. And with unseemly — but unpunished — trading practices all too common, it is little wonder that Congress currently sports an approval rating in the low teens.

House Financial Services Chairman Spencer Bachus (R-AL) — who said in an interview that he believes Washington’s role is to “serve the banks” — is facing one of the stiffest primary challenges of his long career. State Sen. Scott Beason (R) has been chasing Bachus ahead of today’s Alabama elections, helped by some hefty spending from a political action committee and ill-sentiment towards Bachus as a result of a 60 Minutes report showing that Bachus profited from information he received in private briefings during the 2008 economic crisis.

But Bachus has received a little last minute help, courtesy of the financial firms he thinks its his duty to assist:

Bachus’s coffers have been filled by a long list of financial firms whose interests are affected by the congressman’s committee. Over the past several days alone, he’s received donations from the likes of Citigroup, Barclays and RBS.

Bachus has relied on the financial industry for nearly half of his fundraising during this election cycle, receiving hundreds of thousands of dollars from commercial banks and securities firms. Over his career, the financial industry has been far and away Bachus’ biggest donor.

And it’s really no mystery why the financial industry is so keen on keeping Bachus around. As chairman, he has sought to water down and weaken the Dodd-Frank financial reform law, gut the budgets of financial markets regulators, and undermine foreclosure prevention programs.

Since a 60 Minutes report showed that Rep. Spencer Bachus (R-AL) profited from information he obtained in private economic briefings in 2008, Congress has moved quickly to pass a bill to ban insider trading by its members. The Senate passed its version by a vote of 96-3 on February 2nd. President Obama praised the vote and promised to sign the bill — he had called for insider trading legislation in his State of the Union address in January.

Before any of that can happen, however, the House needs to vote on its version, which could happen as early as this week. The House’s version of the bill, however, is shaping up to be considerably different than the Senate’s.

House Majority Leader Eric Cantor (R-VA) has made several changes to the legislation which appear intended to at least weaken the final product, if not to kill it outright. The government watchdog group Citizens for Responsibility and Ethics in Washington (CREW) laid out some of those changes:

CREW strongly supported the Senate approved version of the STOCK Act (S. 2038) passed by an overwhelming bipartisan vote of 96 to 3. S. 2038 goes well beyond merely prohibiting insider trading by, among other things, requiring registration by political intelligence consultants, stripping pension benefits from corrupt members of Congress and closing serious loopholes in the nation’s anti-corruption laws.

The bill Rep. Cantor is bringing to the floor removes several of these provisions. Although the House Judiciary Committee passed nearly identical legislation late last year, the new bill drops the Leahy-Cornyn amendment, which responds to court decisions that have undermined prosecutors’ efforts to target public corruption. It also excludes the Grassley Amendment, which would require political intelligence consultants to register with Congress.

Cantor had also tried to expand the legislation to ban other transactions, such as land deals. As UCLA law professor Stephen Bainbridge noted, “Cantor obviously hopes that including a vast array of economic activity within the bill, exposing members of Congress to disclosure obligations and other restrictions, as well as increasing their liability exposure, will make the bill sufficiently unpopular so as to prevent its passage.”

Despite Cantor’s public protestations that “it is unacceptable for anybody in this body to profit personally from non-public information,” his changes to the STOCK Act have unnecessarily made it weaker. As Rep. Louise Slaughter (D-NY), a chief sponsor of the bill, put it, “I think strengthening here is a euphemism for weakening.” It is also worth noting that, when Bachus proposed an insider trading bill to help repair his image, Cantor blocked it from going forward.

If the House passes a different piece of legislation than the Senate, they will need to be reconciled before they can be signed into law. As the statement from CREW notes, the sections which Cantor removed could still be added back to the final bill in conference, which is why they are still calling for members to vote for passage.

– Zachary Bernstein

During his State of the Union address, President Obama said “send me a bill that bans insider trading by members of Congress; I will sign it tomorrow. Let’s limit any elected official from owning stocks in industries they impact.” The remark stemmed from a 60 Minutes investigation showing that House Financial Services Chairman Spencer Bachus (R-AL) profited from information he received in private briefings during the economic crisis of 2008.

The Senate, in a rare display of bipartisanship, opened debate on an insider trading ban by a vote of 93-2. However, the bill has since become bogged down under a sea of unrelated amendments.

Over in the House, meanwhile, House Majority Leader Eric Cantor (R-VA) — who reportedly blocked Bachus from bringing up a ban on congressional insider trading in committee — wants to expand the legislation to include bans on other sorts of transactions, such as land deals. UCLA Law Prof. Stephen Bainbridge notes that this is likely an attempt by Cantor to kill the bill by making it so overly broad that no one will vote for it:

[Cantor's] now trying to extend the STOCK Act “so it includes land deals and other types of transactions and not just stock trades.” Classic taking a good idea too far. The problem is insider trading in stocks, not insider trading in land deals. Cantor obviously hopes that including a vast array of economic activity within the bill, exposing members of Congress to disclosure obligations and other restrictions, as well as increasing their liability exposure, will make the bill sufficiently unpopular so as to prevent its passage.

The Stop Trading on Congressional Knowledge (STOCK) Act has picked up 273 co-sponsors, after languishing for months with nearly no interest.

In the fourth quarter of 2011, Rep. Spencer Bachus (R-AL) reported raising $388,895.26 in campaign contributions. According to a ThinkProgress analysis, at least 44 percent of that came from political action committees and individuals connected to real estate, insurance, banking, and finance industries — areas overseen by the House Financial Services committee Bachus chairs.

According to his latest disclosure, more than $173,000 of Bachus’ total haul came from the financial sector. Over the past quarter Bachus received at least:

– $144,805 from employees of and PACs for banks, financial services firms, and venture capitalists. This includes $7,500 from Wells Fargo’s corporate PAC, $5,000 from U.S. Bancorp’s PAC, $5,000 from UBS Americas’ PAC, and $5,000 from payday lender Advance America’s PAC.
– $15,810 from insurance industry political action committees and from insurance agents for State Farm Insurance Co.
– $12,500 from real estate PACs and individual real estate agents and realty investors.

In 2010, Bachus candidly admitted that he believes Washington’s role is “to serve the banks.” As chairman, he has sought to cut foreclosure prevention programs and to repeal many of the the key reforms in the Dodd-Frank financial reform law.

Bachus, now in his tenth term in Congress, has also been in hot water for his financial investments. In November, CBS News’ 60 Minutes reported that one day after receiving a private briefing from the nation’s chief economic officials on the extent of the financial crisis in 2008, Bachus bet that the stock market would tank, “buying option funds that would go up in value if the market went down” and netting about $28,000. After the report broke, Bachus attempted to seize the high ground by moving a bill to ban the sort of insider trading he was accused of, but Republican leaders blocked his effort. One colleague reportedly said at the time that House Republicans were “not going to cover Spencer’s ass by passing a half-baked bill.”

Bachus is term limited as chairman of the Financial Services Committee, and has said that he won’t seek a waiver to keep the seat in the next Congress.

Last month, a 60 Minutes investigation revealed that House Financial Services Chairman Spencer Bachus (R-AL) made stock trades based on information that he received in private briefings during the financial crisis of 2008. Bachus’ trades reportedly netted him around $30,000.

Following the story, Congress suddenly found an interest in blocking its members from trading on information they receive in their official capacity. The Stop Trading on Congressional Knowledge (STOCK) Act, which would ban this sort of activity, picked up dozens of co-sponsors, after it had languished for months with nearly no interest. Bachus was evidently ready and willing to move the bill forward, in an attempt to clean up his own image, but several other Republicans, including House Majority Leader Eric Cantor (R-VA), put the kibosh on that plan, according to Politico:

A day after Financial Services Committee Chairman Spencer Bachus said he would move forward on an insider-trading bill, Majority Leader Eric Cantor stopped him dead in his tracks.

In a Wednesday meeting described by one source as “extremely direct” and by another as “very blunt,” Cantor (R-Va.) ripped into Bachus, explaining in no uncertain terms that it was unacceptable for Bachus to mark up the bill without having run it by GOP leaders and other chairmen with jurisdiction over its provisions. The Alabama Republican abruptly canceled the vote, which was scheduled for next week. [...]

“We’re not going to cover Spencer’s ass by passing a half-baked bill,” one Republican member of the panel told POLITICO. “Even Barney Frank didn’t pass it in his two terms as chairman and Dem[ocrats] are the lead sponsors. It’s all about Spencer’s bad political position, not the contents of the policy.”

“The public has an absolute right to demand that the people they elect to represent them in Congress conduct themselves according to the highest ethical standards and do not seek to profit from their positions,” Bachus said while announcing his intention to move the legislation forward. However, it seems that his leadership doesn’t quite see things that way.

CBS News’ 60 Minutes aired a report last night alleging that several members of Congress have traded stock using information they received during private briefings or meetings, enabling them to profit from inside information. By far the most damning story was about House Financial Services Chairman Spencer Bachus (R-AL), who in 2008, the day after receiving a private briefing from the nation’s chief economic officials on the extent of the financial crisis, proceeded to bet that the stock market would tank:

In mid September 2008 with the Dow Jones Industrial average still above ten thousand, Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke were holding closed door briefings with congressional leaders, and privately warning them that a global financial meltdown could occur within a few days. One of those attending was Alabama Representative Spencer Bachus, then the ranking Republican member on the House Financial Services Committee and now its chairman. [...]

While Congressman Bachus was publicly trying to keep the economy from cratering, he was privately betting that it would, buying option funds that would go up in value if the market went down. He would make a variety of trades and profited at a time when most Americans were losing their shirts.

Watch the report:

Bachus, who was the ranking member of the Financial Services committee at the time (since the Democrats held the house) made about 200 trades as the financial crisis peaked, netting about $28,000. “What we know is that those meetings were held one day and literally the next day Congressman Bachus would engage in buying stock options based on apocalyptic briefings he had the day before from the Fed chairman and Treasury Secretary,” said Peter Schweitzer, a fellow at the conservative Hoover Institution, whose work was the basis for CBS’ report. “I mean, talk about a stock tip.”

CBS also criticized House Speaker John Boehner (R-OH) for trading health stocks right before the public option was officially killed and noted that former Rep. Dennis Hastert (R) and former Sen. Judd Gregg (R) profited from steering federal earmarks towards projects in which they had a financial stake.

In an attempt to balance its piece, 60 Minutes then found a Democrat to attack — House Minority Leader Nancy Pelosi (D-CA), whose husband participated in a special stock offering from Visa while legislation affecting the credit card industry was pending in the House. Unlike 60 Minutes’ allegations against Republicans, there was no evidence provided that Pelosi used her congressional position to unethically enrich herself or that she sought to protect the credit card industry in any way.

Like House Majority Leader Eric Cantor (R-VA), Bachus was betting that the country would fail economically, giving him a financial upside in an outcome that would be worse for the rest of the country. Previously, Bachus said that Washington’s role is to “serve the banks,” but in this instance, he seemed to believe that Washington’s role is to serve his own bank account.