Elected officials should not be able to own or trade shares. Period.


It may already seem like an eternity, but just a week ago, several senators got into hot water when it looked like they might have sold shares on insider knowledge about the coronavirus outbreak. While they weren’t the only ones, Sense. Richard Burr (RN.C.) and Kelly Loeffler (R-Ga.) Looked the worst: they apparently sold each other for $ 1.9 to $ 4.8 million in shares, in late January and early February – before the markets collapsed due to the coronavirus outbreak, but after the entire Senate was made aware by the White House of the threat.

On Monday, it was announced that the Department of Justice and the Securities and Exchange Commission (SEC) investigate what happened, and the FBI has already contacted Burr’s office. Both Burr and Loeffler insist that everything was perfectly legal and flawless, which is pretty hard to buy at first glance in some cases. But even if this statement is true, it highlights the deeper problem here: the current law is far from sufficient.

There is a very simple way to solve this problem and ensure that our elected lawmakers always act with the utmost propriety: we should just categorically prohibit them from owning or trading individual stocks while they are in office.

I imagine a lot of readers will be shocked that we don’t do this already. In fact, not only are elected politicians legally allowed to own and trade individual stocks, they are also allowed to own and trade individual stocks in the industries they regulate and oversee from their committee positions. The STOCK law prohibits transactions on the basis of inside information which is not publicly available, but it was only passed in 2012. It is also a difficult charge to prove, as prosecutors must show that they carried out the operation on the basis of information privileged (as opposed to published information) and Congress as an institution is not always cooperative with the SEC. So far, only Rep. Chris Collins (RN.Y.) was charged under the law, for insider trading in pharmaceutical stocks in 2018.

These gray area difficulties of what crosses and what does not cross the line desperately infect the whole problem. smudge complaints he and his wife sold their shares based solely on public information – although he wrote publicly that America is “better positioned than any other country to respond to a public health threat, such as the coronavirus,” while privately warning business people of the potential consequences of the virus. Loeffler insists the transactions that she and her husband – the chairman of the New York Stock Exchange – carried out were carried out “by multiple third-party advisers without the knowledge or knowledge of my or my husband’s.” But Loeffler then turned around and bought shares in companies that support telecommuting, of all things.

The third party claim here is also important to analyze. Politicians often use blind trusts, in which they entrust their investments to another person to manage them without their knowledge, in order to eliminate the appearance of conflicts of interest. But of course, who this third party is, whether he knows the politician personally, what he knows about his interests, and what email or phone or other contact he has with the politician, that’s what determines what. point of view, trust is really “blind”. Senator Diane Feinstein (D-California), for example, has her investments in a blind trust controlled by her husband, who hardly appears as a sufficiently disinterested third party. And he also sold $ 1.5 million to $ 6 million in biotech stocks during that time. (Granted, the trade has caused them to lose money ever since.)

The advantage of a ban is that it is a clear line. It is clear to see which actions fall on which side, and therefore whether the elected officials to whom we have entrusted the public good are doing the good of the citizens. “The mere perception that officials could have prioritized their own financial well-being over the well-being of American households is damaging enough, even if the transactions were harmless,” as Annie Lowery recently wrote to The Atlantic. It’s also not just about the possibility that they get a better deal than the public; we also need to be concerned that officials design regulations and policies around which also maximize their own returns. “We really need to build public trust in behavior,” said Sen. Jeff Merkley (D-Ore.) said in 2018, when he tried to ban the trading of shares by members of Congress. “As public servants, there are a lot of taxes on our lives. This is not one of them.”

What should happen is that all elected officials (along with their families and staff) sell all their stock when they take office. Then that money could be put into simple index funds that track things like the S&P 500 i.e. investments automatically adjust based on the market capitalization of each company in the index to at some point. Basically, their money should be in a vehicle that does not involve any individual strategic decision-making by any human being, and that has been cleared by federal regulators to avoid conflicts of interest. Federal Savings savings plan – essentially a government-run version of a 401 (k) – is a good example of an investment vehicle that uses exactly what kind of index funds. Once officials are out of office for a period of time, they can liquidate those funds and reinvest the money as they see fit.

In fact, Senator Elizabeth Warren (D-Mass.) Has a radical anti-corruption proposal which, among many other provisions, requires all members of Congress and senior government officials to replace their shares with investments in the savings plan, or in special mutual funds designed for this purpose by the government. “They can put their savings into conflict-free investments like mutual funds or they can choose another line of work,” Warren said of the proposal.

In 2018, Sens. Merkley and Sherrod Brown (D-Ohio), presented another bill it would do something similar, forcing politicians to get out of their stock and put the money in an independent blind trust – although, as I mentioned, the way such a blind trust is set up and actually works matters a lot.

Either way, the insider trading scandals of members of Congress and senior officials go back years, involving politicians from both parties.

Do you remember the STOCK law, passed in 2012? An analysis of stock market transactions by senators by watchdog group Public Citizen found a 66% drop in the dollar value of business activity from 2009 to 2015, and a 50% drop in the number of transactions from 2012 to 2015 – which says nothing about good about what senators were doing before the law was enacted. Perversely, Public Citizen figures even show a sudden explosion of Following business activity in the year or two before it passes, as if everyone is trying to close a few final deals under the wire. Other research over 60,000 stock transactions that politicians made between 2004 and 2010 showed they beat the market a remarkable 20 percent of the time.

In other words, the rot runs much deeper and dates back much further than the last incident with Burr and Loeffler. It is high time that we cut it off, root and branch.

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