The dumb war on political intelligence
For as long as legislative and regulatory acts have moved financial markets, investors and their operatives have scrummed like Komodo dragons for first bites of the fresh laws and orders dispensed by government. The stampede for the timeliest legal and regulatory information has given rise to the “political intelligence” business, which converts Capitol Hill whispers into stock market gains, and which has now attracted the full scrutiny of Congress and the regulatory apparatus.
Although legislators and regulators previously sought to hobble political-intelligence operatives, their efforts were stoked by a Capitol Hill leak about Medicare policy on April 1 that reached Height Securities — a political intelligence outfit — which in turned relayed the information to its clients in a 75-word note about 35 minutes prior to the official announcement. Clients acted on the tip, goosing skyward the price of such health insurance company stocks as Aetna, Health Net and Humana.
The Securities and Exchange Commission has issued subpoenas about the Height Securities leak, the Government Accountability Office has white-papered the political-intelligence topic, and Senator Charles Grassley (R-Iowa) — a legislator who puts the grand into grandstanding — has started his own investigation of Height Securities and aims to introduce a bill to police the political intelligencers. (Grassley’s interest must be amplified by the fact that a former staffer turned lobbyist appears to have ferried the controversial leak to Height Securities. It’s like that horror movie cliché, in which the call is coming from inside your house. Or something like that.)
The press corps has pursued the political intelligence story with zeal. The Wall Street Journal, which broke the story, is still on it, the Washington Post series has put it on page one and Bloomberg News, Reuters, Roll Call, Legal Times and others have contributed coverage, as well.
But as is the case with other Washington “scandals,” no laws appear to have been broken by the Capitol Hill leaker, the individuals who forwarded the leak, Height Securities or its clients who placed stock market bets based on the alert. This incident is miles removed from insider trading, in which material, non-public information is used for profit and which is strictly prohibited by U.S. law.
The apparent lawfulness of political intelligence gathering didn’t prevent Grassley from flapping his wings with an April 4 press release.
“When a political intelligence professional is paid to gather inside information from congressional or agency sources that can be used to make investment decisions, that professional should have to register and disclose his or her activities to the public,” Grassley stated.
“It’s difficult to trace,” Grassley told Roll Call this week. “Obscure people are talking to people they know, or maybe people they don’t know, and they ask questions that may appear innocent to the guy being questioned, but then it ends up being valuable economic espionage information.”
Obscure, untraceable people talking to people they know or don’t know, gathering information from congressional or agency sources, asking questions that appear to be innocent but turn out to be valuable to businessmen. Say, doesn’t that sound a lot like what the financial press does every nanosecond of every minute of every hour around the world? Isn’t this what we call … journalism, as practiced by the reporters at the Wall Street Journal, Reuters, Bloomberg, the Financial Times, CQ, financial newsletters, CNBC, Fortune, Businessweek, business news sites and elsewhere? Not to mention the pricey financial information vended through the Bloomberg terminal or from my mother company, Thomson Reuters.
Bloomberg View columnist Jonathan Weil arrived at a similar conclusion in early April as the “scandal” was just revealing itself, describing the 75-word note Height Securities analyst Justin Simon sent to his company’s clients as an “amazing scoop.”
“Maybe someone told Simon something without permission, but that wouldn’t be the analyst’s problem,” wrote Weil. “Journalists get stories all the time by sweet-talking people into blabbing things they shouldn’t. There’s nothing wrong with that.”
There’s been nothing wrong with it for five or six centuries, as Chris Roush’s 2006 history of business journalism, Profits and Losses: Business Journalism and Its Role in Society, informs us. The earliest business journalism from the 15th and 16th centuries pushed both financial data and political intelligence to readers, Roush writes. Acting quickly on government news has always been lucrative, he points out in an interview, citing a favorite historical example: Treasury Secretary Alexander Hamilton’s January 1790 decision to reorganize the young country’s debt and “refund the existing debt at face value,” as he words it in his book. Informed investors boarded ships bound for Southern states to beat the news trickling down by land. Once they arrived in Georgia, South Carolina and North Carolina, they reaped windfall profits by purchasing debt at 10 percent to 20 percent of face value from the unsuspecting. Roush shrugs his shoulders at the Height Securities story. “This is nothing new, this is using information to make money in the market,” he told me.
The microscopic interest of businessmen and investors on Washington laws, regulations and policies has paralleled the growth of government and the expansion of the state’s economic interventions. Journalists and other specialized Washington classes such as lawyers and lobbyists benefited from the establishment and expansion of the New Deal, which put Capitol Hill on par with Wall Street. The Great Society and its many codicils deposit new regulations and rules in the Federal Register as fast as the pages can be printed, making an early-warning system essential for capitalists. One historical marker of the demand for Washington arcana comes from my friend Michael Dolan, who spent 25 years covering regulatory issues for newsletters. Dolan recalls a 1970s newsletter covering the Pennsylvania Railroad bankruptcy that commanded a yearly subscription price of $3,500 and went to just 50 subscribers. Bloomberg’s recent launch of Bloomberg Government and its acquisition of BNA posits that very tapped-in company’s sense that the market for transactional government news will continue to grow.
Grassley told Roll Call this week that he wants the law changed to force upon political intelligence operatives disclosure and “transparency” rules similar to the clients-and-fees data lobbyists must submit to the government. His legislative ally, Representative Louise Slaughter (D-N.Y.), says her bill would exclude conventional reporters. But how practical is that? The primary difference between Bloomberg, Reuters, Wall Street Journal and all the other collectors of conventional business-and-government news and the myriad political-intelligence outfits and research firms collecting fine-grain business-and-government information is 1) the price they charge for information and 2) how many clients (or readers) they have.
The First Amendment can’t mean much if the reporters (and can you think of a better way to describe them?) serving the hedge fund crowd through companies like Height Securities are forced to disclose lobbyist-type information to the federal government. You might as well force the editorial staff of the Robb Report to register.
If Grassley wants to stop government leakers, he knows where the faucet is — even if he might not know which way to turn the handle.
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PHOTO: Book specialist Charlotte Riordan holds a magnifying glass over a 450-year-old letter written by Mary Queen of Scots during a photocall at Lyon and Turnbull auctioneers in Edinburgh, Scotland March 8, 2012. REUTERS/David Moir