Spencer Bachus: Options Trader Extraordinaire

Over at

, David Weigel posted a shocking excerpt from a new book titled "Throw Them All Out," written by Peter Schweitzer. According to the book, Alabama Republican Representative Spencer Bachus, who was a ranking member of the House Financial Services Committee during the relevant time period, made at least 40 options trades between July 2008 and November 2008 - many of them betting against the U.S. stock market using inside information he gleaned from meetings with Treasury Secretary Timothy Geithner and Fed Chairman Ben Bernanke, among others. It is legal for Congress to trade on inside information by the way, so the legality of what Bachus did isn't up for debate. That doesn't mean that it isn't completely outrageous and a shining example of the rampant cronyism and corruption in our government. Check out this excerpt from Schweitzer's book, first posted at Slate, and see what you think. Are we going to continue to accept this from our so-called leaders?

On the evening of September 18, at 7 p.m., Bachus received [a] private briefing for congressional leaders by Hank Paulson and Federal Reserve Bank Chairman Ben Bernanke about the current state of the economy. They sat around a long table in the office of Nancy Pelosi, then the Speaker of the House. These briefings were secretive. Often, cell phones and Blackberrys had to be surrendered outside the room to avoid leaks.What Bachus and his colleagues heard behind closed doors was stunning. As Paulson recounts, “Ben [Bernanke] emphasized how the financial crisis could spill into the real economy. As stocks dropped perhaps a further 20 percent, General Motors would go bankrupt, and unemployment would rise . . . if we did nothing.” The members of Congress around the table were, in Paulson's words, “ashen-faced.”

Bernanke continued, “It is a matter of days before there is a meltdown in the global financial system.” Bachus was among those who spoke. According to Paulson, he suggested recapitalizing the banks by buying shares.The meeting broke up. The next day, September 19, Congressman Bachus bought contract options on Proshares Ultra-Short QQQ, an index fund that seeks results that are 200% of the inverse of the Nasdaq 100 index. In other words, he was shorting the market. It was an inexpensive way to bet that the market would fall. He bought options for $7,846 on a day when the Dow Jones Industrial Average opened at 8,604. A few days later, on September 23, after the market had indeed fallen, he sold the options for over $13,000 and nearly doubled his money.

According to a

2008 USA Today article,

Bachus also racked up around $160,000 in profits on short-term options trades in 2007. Needless to say, the insider-trading U.S. Representative from Alabama is one person who you don't want taking the other side of your options trades...

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