The Paul Ryan Insider Trading Story Won’t Die Because It’s Legitimate
Photo Credit: AFP
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Editor's note: This is a followup to an article published August 15 on AlterNet titled "Revealed: Romney Campaign's Attempts to Deny Paul Ryan's Insider Trading Don't Add Up."
Ever since the Richmonder blog posted a story last weekend pointing to suspicious-looking stock trades made by Paul Ryan on September 18, 2008 – the day Ben Bernanke and Hank Paulson met with Congressional leaders to warn of an economic collapse and the need for a giant bailout – the press has been at sixes and sevens. Was it insider trading? Wasn't it? First the story circulated rapidly. Then, when the Romney/Ryan campaign quickly issued denials, some journalists, most notably Benjy Sarlin of Talking Points Memo, leapt to “debunk” the story. Matt Yglesias of Slate, who first credited the story, apologized and backed off.
Earlier this week, I posted an article challenging the denials made by the Romney/Ryan campaign.
John Carney, a senior editor at CNBC.com has responded to my piece on Paul Ryan’s insider stock trades in September 2008. Unlike the Romney campaign, he does not try to claim that Congressman Ryan did not have time to do the trades before markets closed at 4pm. (There is, of course, the possibility that Ryan traded afterhours; that was no part of my story.) Nor does he take refuge in the pathetic argument that some anonymous trustee did it. His objection is that Congressman Ryan’s trading that day followed a larger pattern evident in other transactions that year.
He did trade in and out of two financial names in 2008: Goldman Sachs and Citigroup. He sold shares in Citi in January, March, June, August, September and December. He bought Citi in February, April, July and October. In other words, Ryan was following a pattern of alternating between buying and selling shares of Citi throughout the year...
Ryan sold shares in Goldman in February, August, October, November and December. He bought shares in Goldman in January, March, June and September.
Notice a pattern here? Each of Ryan’s purchases of Goldman shares coincides with the sale of a share of Citi.
Ryan follows this pattern of going long Goldman when he sold Citi on September 18. That day, Ryan also took part in a meeting where Hank Paulson and Ben Bernanke met with Congressional leaders to make their case that the situation in the financial sector had turned so dire as to threaten the entire economy.
Teasing out meaningful patterns from stock market data is a tricky business. It has a tendency to turn researchers into numerologists – they are constantly tempted to find all kinds of significance in some selection of numbers. But look closely at the qualification with which Carney introduced his discussion of the Goldman purchases:
“The only breaks in this pattern were (a) when he neither bought nor sold any stocks in his portfolio in May, (b) skipping November’s sale of Citi and selling in December instead, and (c)selling shares in Citi in both August and September.” [emphasis added]
In other words, Congressman Ryan followed a pattern, except when he didn’t. And in what month does Ryan depart from the pattern? Why, by marvelous coincidence, September, of course.
Perhaps half a loaf is better than none, but Carney began his piece suggesting that those who credit the Ryan insider trading story have fallen under the influence of “liberal fantasies.” Yes, he bought Goldman while selling Citi, but the quick second Citi sale was anomalous. Congressman Ryan, by Carney’s own admission, plainly broke from his routine on September 18, 2008. You could perhaps try to save appearances by hoking up some tale about more complex price movements that could justify what Carney concedes is a departure from the pattern. Good luck with that.
The story of Ryan’s insider trading is not going to die, whatever the hopes of the Romney campaign, because, quite simply, what he did on that day looks very much like insider trading.
Let me say for the record that I find insider trading on the part of a trusted public official to be a repellent ethical breach no matter who does it, Democrat or Republican. In 2004, researchers including Alan Ziobrowski of Georgia State University published a famous study revealing that from 1993-1998, members of the United States Senate doing trades beat the stock market by 12 percent a year on average, while corporate insiders only beat the market by 5 percent. Ordinary citizens underperformed during that period by 1.4 percent.
The problem has been widespread. The Stock Act, signed by Barack Obama last spring, makes such activity definitively illegal, but the law is too weak to represent an end to the practice.
In the case of Paul Ryan, we are now talking about a person who has the potential to become president of the United States. His actions deserve the closest scrutiny.