Since its October 2007 peak, the Standard & Poor's 500-stock index has dropped nearly 50%, severely damaging millions of pension and 401(k) retirement accounts. Market turmoil is also being felt in Washington, where many of the lawmakers advocating or opposing various government fixes also have a personal stake in Wall Street.
Many politicians have fallen victim to the same portfolio performance as their constituents. Blue chip companies such as Procter & Gamble (PG), Exxon Mobil (XOM), Johnson & Johnson (JNJ), and Coca-Cola (KO) made up the most popular stocks held on Capitol Hill, according to the Center for Responsible Politics (CRP), which compiles members' financial disclosure data from the Senate Office of Public Records and the Office of the Clerk of the House. Details of the politicians' gains and losses in 2008 will be more fully illustrated in May, when the annual financial filings are made public.
Also Popular: GE, Cisco, Pfizer
In 2007, those in Congress invested $600,000 to $1.3 million in shares of General Electric (GE). The Connecticut conglomerate attracted 92 congressional investors, making it the most commonly held company. GE was followed by Cisco Systems (CSCO), with 72 investors; Microsoft (MSFT), with 68; Intel (INTC), with 61; and Pfizer (PFE), with 58.
Two deeply troubled financial firms, Bank of America (BAC) and Citigroup (C), were in seventh and 13th place, respectively, on the list of most popular stock investments. Fifty-five members held stakes totaling $8.8 million in BofA, while 48 had a total of more than $7.7 million in Citi assets. Senator Dianne Feinstein (D-Calif.) had the largest Bank of America investment in Congress, valued at more than $1.3 million. Representative Shelley Moore Capito (R-W. Va.) had the largest Citigroup investment, totaling more than $1.1 million.
Since the banking crisis began, Bank of America and Citi have gotten about $90 billion combined in financial aid from U.S. taxpayers. Citi shares have plunged more than 90%, to under 2, while Bank of America stock is now below 6, from a year-ago high of 43.
Winners and Losers
From 2004 to 2007, the net worth of Washington politicians rose by 61%, along with the market, bringing the median net worth of representatives to $684,000 and senators to $1.7 million, according to the center. During that period, 41 of 535 congressional lawmakers lost more than half of their wealth, while 89 doubled their net worth or better, according to the center.
Senators and representatives earn $169,300 yearly, and many have assembled substantial assets in the private sector or through marriage.
Senator John Kerry (D-Mass.), listed by Roll Call as the wealthiest member of Congress, owing to his wife's stake in the Heinz (HNZ) fortune, bought between $565,001 and $1.05 million in stocks. Conversely, at least 25 members of Congress have an estimated net worth of $0 or less, according to CRP.
Broadly Conservative Investing
Investment strategies differ, but tempered approaches and blind trusts have proven popular among lawmakers. Senator Ben Cardin (D-Md.) said in an e-mail that he maintains a "diversified, primarily American" portfolio that his financial adviser manages conservatively. In 2007 the reports showed that Cardin, an attorney, moved out of a stock-heavy lineup and into a mix of tax-free bond funds, dividend income funds, and a Dreyfus Premier Emerging Markets Fund focused on long-term growth. Cardin's Calamos (CLMS) Growth and Income Fund fell with the S&P 500, dropping 31%, while the index fell 37%. (S&P, like BusinessWeek, is a unit of The McGraw-Hill Cos. (MHP)).
Sen. Mark Warner (D-Va.), one of the richer members of Congress, has a "unique" portfolio, given that affluence, notes Warner spokesman Kevin Hall. The center estimates that the former Virginia governor's net worth is as high as $415 million. Warner is also an experienced investor: He once managed venture capital firm Columbia Capital. Still, Hall describes Warner's strategy as broadly conservative.
Senate Majority Leader Harry Reid (D-Nev.) had almost 80% of his assets in real estate, including various school district building bonds. On the other side of the aisle, Senator Sam Brownback (R-Kan.) held large chunks in agribusiness and telecommunications companies. In November 2007, Brownback purchased between $15,001 and $50,000 of Google (GOOG) stock for roughly $650 per share. The shares now trade at 324. He also owned $1,001 to $15,001 of Sirius XM Radio (SIRI), which finished at 19¢ on Mar. 13. Brownback's stake in iShares DJ US Telecom Sector Index, a fund comprising global technology stocks, also tracked the market closely, losing 36% over the past year.
Supporting the Home State
Representative Barney Frank, chairman of the House Financial Services Committee, recently noted that his "major investments" are in municipal bonds from his home state of Massachusetts. "Not even you guys could accuse me of anything illegitimate if I'm trying to help Massachusetts do well," he told reporters at a February press conference. "And so I figure that's the best investment: for me not to have conflicts of interest." Frank also discussed the attractive interest rates—and extolled the safety—of the general obligation bonds he has invested in. "I guarantee you there is zero chance of their defaulting. And I'm getting 4.6%, which is double tax-free." He says his school bonds are yielding 5.1%. "And I know the Massachusetts Legislature would never allow those to default," added Frank, a former state representative.