Jason Zweig, my former office neighbor at MONEY and one of the best journalists I have ever worked with, uncovered a great tidbit about one of the major players in Washington’s financial reform debate: Republican Congressman Spencer Bachus is actually the E-Trade Baby, or at the very least a close relative.
Besides the striking resemblance here’s what also gave it away to Zweig:
In 2008, as the financial crisis deepened, Rep. Bachus made more than 200 trades in stocks and options, holding his average position for roughly 15 days at a time and often executing several trades in a single day. On Sept. 10, 2008, as Lehman Brothers teetered on the brink, Rep. Bachus made 12 trades in or out of General Electric, Burlington Northern Santa Fe, Sony and an exchange-traded energy fund.
And this wasn’t a stock market crisis aberration. According to the article Bachus is boffo about trading. He loves it. Most politician hire a money manager or have a blind trust. But Bachus does all his trading himself. This is concerning. Here’s why:
Bachus is a ranking member of the House Financial Services Committee, and therefore has a major say in the financial reform effort. In order to craft financial regulation that protects individuals and preserves our banking system, you have to start with some basic tenants about what is wise for most people and their money. Nearly every study shows that rapid trading, unless of course you have a supercomputer hooked up to the NYSE, is bad for your portfolio. Long-term buy and holders of index funds generally do better than active traders. I would put 30-year fixed mortgages on that list of best outcomes for most people as well.
So generally we want reforms that push, but not force, people toward index investing and fixed home loans. But being a rapid trader himself, Bachus is probably not going to settle for rules like that. In fact, he is more likely to go for rules that give people access to all types of markets, and take on all types of risk. And the fact that Bachus seems at least somewhat talented at trading (he made $30,000 in 2008’s bad market) bodes worse for the rest of us. he can beat the market. Why not the rest of us? If Bachus believes there is money to be made for individuals, he is going to do little to restrict rules that limit trading in such things as hedge funds. The probably holds true in his mind for housing. Why not give people access to option arm mortgages. Some flippers can make tons of money with them. Of course option arms are also disastrous for anyone who tries to hold onto a house during a downturn. Indeed, before the financial crisis, Bachus routinely voted against financial regulation.
But the biggest problem with Bachus’ trading frenzy is this: Where does the guy find the time? I mean isn’t he supposed to be focused on figuring out how to prevent the next financial crisis. Instead he is out playing the Dow. Bachus says he trades on nights and weekends. But with that much trading it’s hard to believe that he doesn’t spend a good portion of his day watching his account, even if he’s not slipping in a few buy and sell orders between House committee meetings. As the article says, Bachus trades more than even some professional options traders.
Not all of Rep. Bachus’s trades were as profitable. His 2008 financial disclosure shows that he earned a total of $30,473.85 in short-term gains across his entire trading account. Given the high trading volume, that isn’t much, says Gary L. Gastineau, author of “The Options Manual,” who analyzed the activity for the Journal without knowing who the accountholder was.
“This person traded more [options] contracts in a single year than I’ve traded for my own account in my entire lifetime,” says Mr. Gastineau, who spent 20 years as a Wall Street options strategist.
My only hope is Barney Frank can organize some kind of intervention for Bachus and fast. Barney, if Bachus is in denial, you can hit him with these sobering questions (ht motleyfool.com):
Does your heart race at the sound of Maria Bartiromo’s voice? Do you set your alarm clock to the Hang Seng’s opening bell? Is your dog named “Nasdaq”? You may be suffering from the debilitating, addictive effects of stockaholism.
The first step in financial reform might be to get Bachus off the stock market juice.