Is Paul Ryan a terrible stock trader, is his broker confused, or is there something else going on here?

Paul Ryan Mitt Romney

Young man, hang with me, and I’ll show you the real way to make money…

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Earlier today, it was revealed that vice-presidential candidate Paul Ryan had made some curious stock trades.

Stock trading was done in the depths of the financial crisis.

Many trades were also made in the stocks of the major banks on Wall Street – the same stocks that were crashing, soaring and failing at this time, sometimes as a result of major government intervention.

Berkeley professor Brad DeLong sums up Ryan’s trades here. Here’s a taste:

January:

  • Sold his position at Wells Fargo ($1,000 to $15,000) on January 14, 2008
  • Sold part of his position in Wachovia ($1,000 – $15,000) on January 22, 2008
  • Sold part of his JPMorganChase position ($1,000-$15,000) on January 22, 2008
  • Sold part of his position at Citigroup ($1,000 – $15,000) on January 22, 2008
  • Bought Goldman Sachs ($1,000-$15,000) on Jan 22, 2008

February:

  • Sold part of his position at Goldman Sachs ($1,000 – $15,000) on February 22, 2008
  • Bought Citigroup ($1,000 – $15,000) on Feb 22, 2008

March:

  • Sold part of his position at Citigroup ($1,000 to $15,000) on March 24, 2008

April:

  • Bought Citigroup ($1,000 – $15,000) on April 24, 2008

June:

  • Sold part of his position in Wachovia ($1,000 – $15,000) on June 16, 2008
  • Sold part of his position at Citigroup ($1,000 – $15,000) on June 16, 2008
  • Bought Goldman Sachs ($1,000 to $15,000) on June 16, 2008

July:

  • Sold part of his JPMorganChase position ($1,000 – $15,000) on July 17, 2008
  • Bought Citigroup ($1,000 – $15,000) on July 17, 2008

August:

  • Sold part of his position at Goldman Sachs ($1,000 – $15,000) on August 18, 2008
  • Sold part of his position in Wachovia ($1,000 – $15,000) on August 18, 2008
  • Sold part of his position at Citigroup ($1,000 to $15,000) on August 18, 2008

September:

  • Sold part of his position in Wachovia ($1,000 – $15,000) on September 18, 2008
  • Sold part of his JPMorganChase position ($1,000-$15,000) on September 18, 2008
  • Sold part of his position at Citigroup ($1,000 – $15,000) on September 18, 2008
  • Bought Goldman Sachs ($1,000 – $15,000) on September 18, 2008
  • Sold his position in State Street ($1,000 – $15,000) on September 30, 2008

etc

As Professor DeLong observes, Paul Ryan made 57 trades in 2008, 27 of which were in the shares of major money banks.

Shortly after the dealings came to light, it was suggested that Paul Ryan had engaged in the same type of insider trading that other members of Congress were accused of earlier this year – dumping bank stocks. after receiving a dire prognosis in a private briefing from Ben Bernanke and Hank Paulson (See Spencer Bachus).

Unsurprisingly, Governor Romney’s team dismissed that explanation, and the exact timing doesn’t quite make sense. The Romney campaign also immediately provided another explanation. to Benjy Sarlin of Talking Points Memo:

The Romney campaign said Ryan had nothing to do with the trades in the first place. They were part of a Russell 1000 index fund that automatically traded stocks within a predefined formula. Ryan’s disclosure forms include several similar trading patterns at various times throughout the year.

In a statement provided to TPM as part of the Romney campaign, Larry Gaffney, the partnership’s independent accountant who handled the transactions in question, said the shares were outside of Ryan’s control.

“Transactions are performed automatically based on an algorithm on a regular basis,” said Gaffney, who works as a CPA in Ryan’s hometown of Janesville, Wis. “Furthermore, this index was held at the time in a partnership in which Representative Ryan had and continues to have no trading authority.

Hmm.

It’s possible that something was lost in the phone game between Accountant Gaffney, the Romney campaign and the Talking Points Memo, but that explanation doesn’t make sense.

First, the Russell 1000 is an index of 1000 stocks. Ryan’s trades were primarily in a handful of bank stocks.

And then there’s the question of what exactly this index “algorithm” was designed for.

Here is DeLong again:

There’s no way in hell – if you’re rebalancing to try and keep up with the Russell 1000 index – you’re only making 58 trades a year, you’re making 27 of those 58 at big money banks, and that 10 of these transactions involve moving your money from Citi to Goldman and back five times.

No way to go to hell.

Considering how stupid an investment strategy this fast trading would seem to be, let’s hope Ryan actually had “no trading authority” here. And for the sake of Ryan’s financial health, let’s hope the trading strategy makes more sense than accountant Gaffney’s explanation suggests.

Read Brad DeLong’s article on Paul Ryan jobs >

UPDATE: Twitter reader @richfreed has an explanation that could explain this: Ryan’s accountant appears to have “reaped the losses” – a tax minimization strategy – while maintaining exposure to bank stocks: “Paul Ryan appears to have reaped the losses while avoiding wash sales. Maintain exposure to financial stocks. Note the 31-day intervals.”

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