Buddy-buddy Photo: Jeff Fusco/2003 Getty Images

I’m surprised this Wall Street Journal story, detailing how hedge funds manage to obtain profitable inside information, hasn’t gotten more attention. The whole story seems pretty explosive. I’d like to pull out a bit at the end, about how some hedge-fund players learned that key Democratic moderates in the Senate would jettison the public option in the health care bill in 2009:

The weekend before the Dec. 8, 2009 session, Senate Majority Leader Harry Reid (D., Nev.) held Senate sessions on Saturday and Sunday, seeking a deal. Another senator, Tom Carper (D., Del.), also was trying to help. The central issue: Would the bill call for the government to create a public health insurance plan, the position supported by President Barack Obama? To counter Republican opposition, Democrats needed votes from Messrs. Lieberman and Nelson, who said they had major concerns with a robust government-insurance plan. As negotiations neared a resolution, JNK Securities and its hedge-fund clients met a half-dozen lawmakers in the U.S. Capitol. Among those who spoke to the hedge funds were Mr. Lieberman and Mr. Carper on Dec. 8, according to their offices. The roster included Viking Global’s Scott Zinober and Karsch Capital’s Eric Potoker. The broad outlines of an agreement had been circulating for days, but the lawmakers confirmed they were close to a deal that discarded the public insurance plan, a boost to private insurers. Viking, a hedge fund that manages $13.8 billion, bought six million shares of Aetna in that fourth quarter of 2009, according to regulatory filings. Karsch, which manages $2.4 billion, bought half a million Aetna shares during the same period, according to regulatory records. Shares of Aetna rose 14% in the fourth quarter.

There was always a slightly puzzling dynamic at work in the fight over the public option. It polled extremely well, but key Democrats in the Senate opposed it. Now, you could envision a justification for Democrats from red states opposing the measure on political grounds – even if the measure itself was popular, perhaps they saw more value in breaking from the liberal wing and demonstrating “moderation,” regardless of the specifics of the issue. But then you had, among the public option skeptics, blue state Democrats like Lieberman and Carper. It’s … interesting to learn that they were meeting with hedge-fund executives and telling them about their efforts to subvert the public option.

There’s a broader problem here for the liberal economic agenda. Democrats live in a milieu that is far richer, and more attuned to the needs of business, than their broader constituencies. Republicans in Congress basically never need to pay attention to labor unions or poverty advocates. But Democrats in Congress are surrounded by rich people, and are usually rich themselves. Even putting aside their need for campaign donations, Democrats have a social support network that strongly incentivizes them to adopt “moderate” pro-business stances. Even if absolutely nothing untoward occurred between the hedge funds and the senators, the corruption inherent in the relationship is profound.

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