Politics A proposal to tackle congressional inside trading: Invest in the US

00:05  17 april  2021
00:05  17 april  2021 Source:   thehill.com

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The 2020 congressional insider trading scandal was a political scandal in the United States involving members of the United States Senate due to multiple Senators allegedly violating the STOCK Act by selling stock at the start of COVID-19 pandemic in the

Insider trading is a deep-seated problem on Capitol Hill, where easy profits are made by members of both the Republican and Democratic parties. The issue has once again grabbed the limelight after Diane Dewhirst, Nancy Pelosi’s deputy chief of staff, was exposed over her husband’s purchase of stock in pharmaceutical I think the people in Congress should know better than ordinary Americans. It is a privilege to invest in the stock market. If they want to have an investment in our American stock market – they don’t have to pick individual companies, they can buy indices. It is a gross miscarriage of justice.

Reps. Raja Krishnamoorthi (D-Ill.), Alexandria Ocasio-Cortez (D-N.Y.) and Joe Neguse (D-Colo.), and Sen. Jeff Merkley (D-Ore.), among others, have introduced legislation that would prohibit members of Congress and their staffs from trading individual stocks. The Ban Conflicted Trading Act, which has also been floated in past years, was prompted by reports that members of Congress may have traded advantageously based on information obtained in confidential hearings and knowledge of pending actions that could affect corporate future prospects.

Raja Krishnamoorthi wearing a suit and tie: A proposal to tackle congressional inside trading: Invest in the US © Greg Nash A proposal to tackle congressional inside trading: Invest in the US

The spirit of the proposed legislation - a desire to limit conflicts of interest - may be on the side of angels, but the remedy is flawed. That being the case, I have another idea which, in addition to addressing this issue, may also give politicians a better and more personal sense for the ramifications of their sometimes-less-than-noble legislating and budgeting. More on this later.

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The Stop Trading on Congressional Knowledge, or the STOCK Act, for short, was passed in 2012. Before this law, it was surprisingly legal for lawmakers to use such info for gain. Congress created the STOCK Act to prevent the kind of activity from public servants alleged in the Senate’s coronavirus trading scandal and Insider trading laws exist to prevent the insiders of a company – its officers and directors – from buying or selling the company’s stock based on their material, non-public information about the business. The idea is that insiders are supposed to serve the owners of the business, the investors .

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Controversies involving conflicted activity have arisen for Sens. Richard Burr (R-N.C.), Kelly Loeffler (R-Ga.), Dianne Feinstein (D-Calif.) and Jim Inhofe (R-Okla.), who allegedly sold stocks advantageously after attending specialized briefings on COVID-19 and other matters. In 2017, then-Congressman Tom Price, at the time Donald Trump's nominee to run the Department of Health and Human Services, got into trouble for investing in medical and health care stocks prior to moving to his new assignment.

As Ocasio-Cortez puts it in a 2020 press release about the same act: "Members of Congress should not be allowed to buy and sell individual stock ... We are here to serve the public, not to profiteer."

But there's a problem with the remedy. Reflecting the mistaken belief that mutual funds are less conducive to making or salvaging money through congressionally gained inside information, the proposed law does not prohibit this type of investing. But the number of mutual funds is about as large as the number of stocks listed on the exchanges. Those funds can be so highly specialized that they can perform almost in lockstep with the stock of firms that might benefit from congressional action. I think the mutual fund escape valve should be closed.

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Insider Trading and the Stock Market Crash. Just 12 days before the 2008 economic meltdown, several members of Congress pulled their money out of the stock market. Congress had been forewarned about the impending economic bombshell in secret meetings with the Treasury Department and the Fed, and they used that information to Trading stock based on classified government information isn’t the only way our elected officials have made it big in the stock market. Companies give members of Congress special access to IPO stock before it’s available to the public. Just ask Nancy Pelosi.

The SEC said the congressional panel and Sutter had as a result agreed to dismiss an appeal of a November 2015 ruling by U . S . District Paul Gardephe that had required them to comply with subpoenas issued in the probe. "The parties are hopeful that their agreement, although presently only a partial resolution Other measures include encouraging mutual funds to invest in Hong Kong stocks, which led to record flows into the city in January, and asking financial institutions to limit the amount of offshore financing. Hong Kong in December said it was discussing plans to allow mainland investors to trade bonds in the

But I have another suggestion - one that I learned about in 1942 when the United States was struggling to fund World War II. Why not require all federal office holders - elected and appointed - to avoid investing in individual stocks, but leave open the option of United States Treasury notes and bonds? Why not allow leading public servants who must reshape their personal portfolios to invest in America?

The idea came to me as I recalled how we World War II children headed off to school every Friday with dimes and quarters we had saved or fenagled from our parents to purchase U.S. Savings Stamps. A full book of stamps worth $18.75 could lead to the ownership of a $25 U.S. Savings Bond set to mature 10 years later. The effort taught us that saving money was a good idea, and we wanted to do our part to win the war.

Part of our patriotism was kindled by a wonderful 1941 Irving Berlin song, "Any Bonds Today?" written at the request of Treasury Sec. Henry Morgenthau. The song's key verse for children said, "Any stamps today? / We'll be blest / If we all invest / In the U.S.A."

So instead of getting bent out of shape about politicians succumbing to the temptation to make quick bucks in the stock market using inside information, maybe we should simply require them to invest in America's debt, of which there is plenty. Then, as an added benefit, our elected officials would become far more sensitive to what inflation-induced higher interest rates can do to depreciate the value of government bonds.

We'll be blest if we all invest in the U.S.A.

Bruce Yandle is a distinguished adjunct fellow with the Mercatus Center at George Mason University and dean emeritus of the Clemson College of Business and Behavioral Sciences.

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This is interesting!