[otctrader]

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do many of the major investment banks or hedge funds run Washington offices where they monitor government actions for potential impact on investments?

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Not necessarily Washington-domiciled offices, but most have significant research staffs exclusively devoted to government actions and procuring superior information for their own benefit and/or sale to third parties. Some of these guys are brilliant, others are hacks who provide no more insight than the evening news; depends on the firm.

If you cross the line to more insidious matters, there has always been some degree of malfeasance on the part of officials in divulging non-public government information to sources who can trade on it for significant profit (leaking labor reports, crop reports, etc...) As long as its not overt, it's pretty hard to trace, and in many cases the act of profiting from it isn't covered by insider trading laws, so it becomes more of an ethical issue immune to prosecution.