If you had asked me if members of Congress were exempt from insider trading before today, I would have said yes, of course. I would have argued that, with the kinds of information that our congressmen and -woman are privy to, they especially should not be allowed to use non-public information to trade stock for financial gain. Knowing when to buy or sell a stock when a company is about to have a contract terminated, or is about to come under congressional investigation, for example, is privileged, sometimes even classified information.

I would have been wrong.

I caught footage from a 60 Minutes reporter grilling Nancy Pelosi over her questionable access to Visa’s IPO. Joe Lieberman, who I have a mixed reaction to, wants to pass an explicit ban on the act. There’s more than a bunch of congresspeople using inside knowledge to their financial gain. There’s a trickle-down effect, mentioned briefly in the footage I saw but something I can explain in better detail.

In the late 90’s, I worked as a software consultant for an Investor Relations (IR) firm. I wrote what was essentially a big tracking system. These IR firms are able to get bank account numbers and balance information from major banks. This information is updated on a regular basis. They also have a steady stream of data on stock trades — who’s buying and who’s selling, and how much.

As part of their intelligence process, they are able to figure out the names of the people who own these bank accounts. This is meta-information, acquired any number of ways. There were very strict rules I had to follow about keeping this specially acquired information separate from the rest. It allows them to figure out if Company A has just bought a lot of stock or if Hedge Fund Manager X has just dumped half of his portfolio. They sell this data to their clients, investors and/or competitors of Company A or Hedge Fund Manager X.

Now, circle the wagon. Target your data scraping tools at the people who are exempt from insider trading, i.e., members of Congress. As they profit from non-public information, you glean the trades they are making and package that information up and sell it to your clients, who include hedge funds and other investors who can act on that second-hand knowledge.

If I was writing this clunky software a decade ago, there’s no doubt it’s grown more sophisticated and the above kind of tracking was being routinely done then. I can only presume, backed up by the comments from the 60 Minute reporter, that not only is it still in operation, but now it’s targeting those with an unfair advantage, spreading that advantage into the private sector. It’s the worst kind of trickle-down effect, rot spreading from the core. My fingers are crossed that this ban passes quickly, with strong support from both sides of the idle, as a sign that this congress is serious about plugging the holes in the economy, even if it’s themselves that are leaking the bathwater.