May 10-Dems Go After Isakson For Short Selling During Financial Crisis

By Ray Steele
SBJ Editor

May 10 - Some democrats say he profited by betting on the U.S. economy to decline, but Senator Johnny Isakson (R-GA) says there was nothing inappropriate about his investment account’s use of a type of short-selling to make money during the stock market’s precipitous drop in 2008.

A May 3 story in the Wall Street Journal said that an account held by Sen. Isakson invested more than $30,000 in a pair of “leveraged short” exchange-traded funds designed to gain $2 for every $1 drop in the daily value of U.S. Treasury bonds.  The money was invested Oct. 8 and 9, 2008 around the same time of the Federal Reserve’s bailout of American International Group Inc. (AIG). 

Attempts by the Savannah Business Journal to contact Sen. Isakson or his representatives were unsuccessful.  Isakson told the Wall Street Journal that he has no control over specific investments in his account since Morgan Stanley Smith Barney manages it.  “They make those decisions and I report what they do," Mr. Isakson said. "I put money away in my career so I can hopefully retire one day."

Georgia Democratic Party Chair Jane Kidd accused Sen. Isakson of showing a lack of leadership during the financial meltdown. "Isakson bet against the American economy during its darkest hour since the Great Depression," said Kidd. "Shortly after Isakson voted to bailout Wall Street, he cynically invested in a Wall Street scheme that would pay him personally if the economy continued to decline."

The Wall Street Journal identified 13 Members of Congress from both political parties or their spouses who made short-sale-type investments in 2008.  Among them, in addition to Sen. Isakson, were Rep. Spencer Bachus (R., Ala.), Jonathan Gillibrand, the husband of Sen. Kirsten Gillibrand (D., New York), and Lawrence Lehrner, the husband of Rep. Shelley Berkley (D., Nev.).  Many of those who profited from the short-sales have in the past publicly criticized at least some forms of short-selling, including Sen. Isakson.  Isakson told WSJ that while short-selling “has a role to play in the market”, he supports legislation to limit it, though he would not support an outright ban on short-selling.