Owning and trading stocks by Members of Congress

Certain legislation can very specifically affect certain industries and certain publicly traded companies. Using the power of legislation to enrich oneself is clearly not acting in the nation’s best interests.

I don’t understand why this simple concept has to be explained. Has Donald Trump normalized political corruption to the extent that we now hand wave it away?

Well, fines could work, if they were sufficiently large (and scaled with the size of the offense, so they’d remain sufficiently large). But I take it that the ones in the STOCK act aren’t.

Hell, I worked for a public housing agency and we peons were not allowed to buy bonds that were issued. But the highest lawmakers in the land can do whatever the hell they want. It’s just one of the many things wrong with our government, regardless of party.

It’s a real problem, and the proposed solution is simple, effective, and improves everything. As has been pointed out, active investing is virtually always a losing proposition; index funds are a better alternative for anyone who isn’t trying to game the system – usually via insider trading.

It will make crooks less likely to run for office. It will cut down on enforcement problems. Win, win, win, win.

Averages like $200 per occurrence. Occurences that rely on self reporting. Nancy Pelosi and her hubby are worth about $200 million, much of which was made during her stint in Congress, do you think she can maybe rustle up a couple hunski to pay a slap on the wrist? Nope, the only fine that would make sense would be 150% of all results of the trading activity for the first offense, 200% for the second and a mandatory one year minimum prison sentence for any further offenses. And not in country club prison either, Nancy should go to Pelican Bay like all the rest of the California unregenerates and off to a similar spot for each offending Congresscritter–state prison, in their own jurisdictions. I think that might help move prison reform along a bit more briskly as well. Let them see what their constituency who stray from the straight and narrow get to put up with.

$200!? They’re probably paying more than that in brokerage fees.

But index funds themselves aren’t necessarily a great thing for society writ large:

Short summary: there’s so much money in so few index funds that a few money managers (as in, as few as 12 individuals) have an inordinate amount of power regarding the management of indexed companies, and their common ownership reduces incentives to have these firms compete against one another. Capital in index funds flow only to those corporations in the indexes; other companies not present in those indexes are starved of capital.

To return to the OP: I made my tongue in cheek point above, but that was my way of thinking in terms of giving Congresspeople a way to invest in broad-based prosperity for the entire nation. It’s really easy to get money when you’ve an idea of how a stock or set of stocks will move; we don’t want that to be Congress’s best way to make money fast.

I’m not even sure what should go into this “prosperity index” - some investment that tracks growth of income at e.g. the 20th, 50th and 80th percentiles? - but it would be nice to, as the corporate compensation specialists say, “align incentives with performance” in some meaningful way.

Everything? You mean, GOP senators wouldn’t vote to confirm Garland because of insider trading? No.

I think that working as a lobbyist after leaving office is more of a problem.

As for owning stocks while a candidate, this is already public. Want to base your vote on that, go ahead, but I will not on grounds of unimportance.

Ideally, there should be a law against buying additional stock once in office, other than an extremely broad index fund.

Forcing them to divest what they already have seems to me a complete non-starter, and not very useful. Along the same lines, a ban on lobbying after leaving office might, I’d hope, have a chance of passage because most members of Congress expect to stay there.

As for the current congressional pay being high, it isn’t, because of hidden expenses of being a congress-critter.

Well, I was thinking the Wiltshire 5000, not something limited to high cap companies, which might have different interests than others. But I will read the article.

Right? And to put a little more salt in the wound those miniscule fines sometimes just get waived or never paid because no member of Congress is actually required to prove they paid the fine. It’s a goddamned fucking joke but I for one ain’t laughing.

Is that a joke? No, getting rid of insider traders in congress would not make my dogs’ fleas go away. But, “everything” in the sense of no significant drawbacks, and major potential benefits (fewer people running to enrich themselves unethically).

There’s a chance that other types of congressional corruption would increase (direct and indirect bribery, for example), but those problems can be dealt with separately.

No joke. I don’t think trying to pass bills, that help a company individual congresspersons own, is one of our big problems. Few bills I care about are plausibly failing to pass because lots of members of congress own some particular company.

If your reform increased trust in government, and thus social trust generally, that would probably be good. But publicity concerning inevitable loopholes could renter the proposal useless for that. The fact is that the 2021 Stock Act, a reform along these lines, failed to improve the reputation of members of congress.

The effects of such structural reforms are hard to predict. Just for that reason, I don’t have a strong opinion pro or con.

Good article.

But:

  1. I would have hoped that companies caring less about what stockholders think could lead them to pay more attention to other stakeholders, including customers and employees. Your link seems to say that doesn’t happen, but I wonder if there is another case to be made.

  2. If we do want companies to care more about what non-passive stockholders think, there seems to be an easy fix – ban passive fund managers from voting. See Just Say No:

I am OK with including Just Say No with a bill that forces new congresspersons into the Wiltshire 5000. .

I work for a large financial institution. We are not allowed to purchase any individual stock (but are allowed to invest in mutual funds). We can keep previously owned stock, but not purchase any more, and must go through a complex approval process before selling. Somehow, our institution continues to attract new people to work for us at minimum salary levels, extremely high ones, and everywhere in-between. I see no reason why Congress could not operate on a similar basis. I fully support implementing a ban on stock trading with appropriate guidelines, and don’t think it would in any way compromise the free market. Nancy is my Congresswoman, and I agree with her on almost everything, but I strongly disagree with her position on this issue.

Are the conflicts of interest for a banker the same as for members of congress? I doubt it.

I think it is rare that a bill before congress would help just one company, but common that it affects a sector. For example, a vote on the defense budget would differentially influence a fund weighted toward defense stocks. Same goes if you own one of the ethically concerned weapons-free funds – that would just push the bias the other way.

A vote on the capital gains tax differentially affects owners of stocks, including index funds.

In case anyone then wonders if we should just ban congressional stock ownership: Then you have incentivized congresspersons to decrease inflation by increasing interest rates. Their vote to confirm federal reserve members will likely be affected.

I guess it looks good to have some rules. But the most important rule is that they can get voted out of office.

You know that she and her husband own an investment company in California, right? They own a vineyard as well, and sell the grapes. This site analyses her wealth.

I’m aware of Pelosi’s wealth. Part of being entrusted with lawmaking is making laws for the benefit of the country, without regard to how they might personally impact you. Plenty of people who work for my employer have had to work out issues with their spouse’s employment and other interests. It’s simply a requirement of the job. I think it should be a requirement for the job of being a member of Congress as well.

I’m not saying that the issues that impact people in the financial industry are the same as those that impact members of Congress, which is why I mentioned appropriate guidelines. But I don’t think that just restricting them from investments impacted by specific legislation is enough. My employer had the same issue - we started out with just a restricted stock list, but they quickly realized that they needed to go to no individual stocks.

As for the opportunity to vote them out of office, the problem is that while Pelosi is my representative, and I could vote against her, I agree with her on almost every other issue - certainly far more than I have ever agreed with any of her opponents. However it may be time for a letter from a concerned constituent.

Kelly Loeffler’s husband is Chair of the New York Stock Exchange. Together they sold millions in shares starting the day congress was given a private briefing on Covid-19.

It seems like some smart business people have concluded that it pays to have half the marriage only making 174K a year.

If exactly as described and implied, it sounds like a violation of The Stop Trading on Congressional Knowledge (STOCK) Act.

Knowing that some general disaster is about to befall us would be a reason to sell a broad index fund, so I don’t know what this has to do with the thread proposal to ban individual stock ownership.

It’s not that I think the proposal is extremely harmful. It’s that my opposition to Loeffler’s politics has nothing to do with her selling less than 1 percent of the family fortune.

When Lauren Boebert’s husband can make almost 800K a year as a “consultant”, even though the only thing he is apparently highly skilled at is showing his penis to underage girls, I’m not particularly worried about congresscritters having to hit the breadline.