February 14, 2022

Congressional Stock Trading

“Legislation to tighten controls on U.S. lawmakers' financial transactions, including possibly banning them from buying and selling stocks, could be put on a fast track toward passage, House of Representatives Speaker Nancy Pelosi said [last] Wednesday… Late last year, Pelosi had defended stock market trading by members. But the practice has come under increasing scrutiny, in part as social media users pay growing attention to U.S. lawmakers' investments.” Reuters

Many on both sides agree that members of Congress should be barred from trading stocks while in office:

“A majority of Americans feel that those they send to Washington are in it for themselves, a conclusion that is not without factual grounding. The days of citizen legislators serving their community and then returning home are long gone. Of the retiring members of Congress going to the private sector, nearly two-thirds now go to work for lobbying firms, consulting firms, trade groups or business groups that influence federal government activities. Corporate influence is now a full-blown business sector. Congress is just a stepping stone to the top of this multimillion-dollar business line… The revolving door in Congress is just part of the problem…

“In recent years, there have been an accelerating number of reports of national leaders enriching themselves with potential insider stock trading. Members of the Federal Reserve have the ability to move the financial markets more than perhaps any other government officials. The vice chair of the Fed recently resigned over a stock trading scandal. Many other Fed officials are embroiled in the same. An investigation by The Wall Street Journal identified 131 federal judges who traded in stocks of companies before them in the courtroom… Unlike many national issues, the solution is easy… Senior members of government must place their investments in a blind trust or hold diversified mutual funds. It's that simple.”
Neil Patel, Townhall

“As a frightening new virus began spreading around the world in early 2020, a few lawmakers made some very well-timed stock trades. Republican Sen. Richard M. Burr of North Carolina sold shares in hotel companies that would lose value as travel dropped amid the rising pandemic. Then-Sen. Kelly Loeffler, a Georgia Republican, and her husband bought stock in a company that makes teleworking software, which gained value as millions of people began working from home weeks later. The wife of GOP Sen. Rand Paul of Kentucky bought stock in Gilead Sciences, which went on to develop an antiviral drug used to treat COVID-19…

“All of this was before the coronavirus upended normal life in the U.S., sickened millions of people and caused wild changes in stock prices. But it was after senators were privately briefed in late January on the emerging threat the new virus posed to the nation. The Justice Department closed its insider trading investigations of Loeffler and Burr without filing charges… [But] Perception is reality in politics, the adage goes. Lawmakers must get behind a robust plan to limit their colleagues’ stock trading so that the perception — and the reality — is that they’re doing the people’s business.”
Editorial Board, Los Angeles Times

In one questionable transaction, [Speaker Nancy Pelosi’s husband] Paul Pelosi bought upwards of $1 million worth of Tesla call options in December. Weeks later, Joe Biden announced plans to replace the entire federal automobile fleet with electric vehicles, documents showed. It was not stipulated how many cars in the federal fleet would be Teslas. Nonetheless, Mr. Pelosi can exercise his share options as long as they remain above $500. Piece of cake. At the time of this writing, Tesla stock was trading at $916.30. For those of you keeping score at home, if the Pelosis sold their options at this price, they would realize a gain of $416.30 per share — more than 83 percent, in little more than one month.”
Mike Miller, RedState

“Following several stock-related scandals, Congress passed the Stop Trading On Congressional Knowledge (STOCK) Act in 2012. It was supposed to establish clear disclosure guidelines, curtail perceived conflicts of interest, and prevent lawmakers from trading on nonpublic information acquired during their official duties. It hasn’t worked out as planned. No lawmaker has ever been successfully prosecuted under the act. Over the past year alone, at least 55 House and Senate members (and nearly 200 staffers) have failed to fully comply with its reporting requirements, according to media reports…

“Unlike most issues before Congress, this one isn’t very complicated: No lawmaker should be able to trade individual stocks while in office. The opportunities for abuse are too plentiful, and disclosure requirements alone will never be enough to prevent serious misconduct… At a minimum, lawmakers and their immediate families should be required to place their investment assets into a blind trust for the duration of their terms in office. Even better (and simpler) would be a blanket ban on holding equities, which would be harder to game and easier to enforce.”
The Editors, Bloomberg

Other opinions below.

See past issues

From the Left

We’ve put the fox in charge of the chicken coop: We’re trusting our officials to be careful, non-biased regulators of the very industries that are making them rich. Of course, any one legislator’s true motivations for a given political stance can’t be definitively proved. But the results speak for themselves…

“We’ve consistently failed to pass significant climate legislation — meanwhile, the senator standing in the way got $500,000 in coal stock dividends in 2020. The Senate is struggling to pass popular antitrust legislation aimed at Big Tech; as it happens, tech is the top individual stock category for congressional trading…  

“Is there any reasonable argument to oppose this measure? Well, perhaps it could wind up disincentivizing people with significant stock portfolios from running for Congress. But already, many of our lawmakers are millionaires — and under their watch, corporations have thrived while working people and the planet suffer. Disincentivizing people who would mourn the loss of their stock trades from running for Congress — and allowing more working people to run in their stead — may be exactly what the country needs.”
Katrina vanden Heuvel, Washington Post

From the Right

“U.S. Senators are ‘as feckless as the rest of us at stock picking,’ says a 2020 study by Dartmouth academics, who examined trading data back to 2012. Their analysis found ‘no evidence’ that Senators have ‘industry specific stock picking ability related to their committee assignments.’ The pandemic was no exception: After Congress was briefed about Covid-19, senatorial trades likewise underperformed…

“Say that a woman wants to run for office, but her husband happens to be a professional investor. Is it fair to block her from Congress, more or less, unless her husband gives up his career? A successful businessman who wants to serve only a few years in D.C. might be similarly deterred if it would require handing off his portfolio. Why not let the voters decide?…

“This isn’t an argument against improving the trading disclosures, and maybe bigger penalties are needed to keep the reporting rules from being flouted. But new restrictions won’t end the populist outrage… [Meanwhile] The risk is that onerous rules could stop good business men and women and those who aren’t political lifers from seeking office.”
Editorial Board, Wall Street Journal

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