In an academic paper published a few years ago, an economist named Serkan Karadas highlighted a dubious pattern: Members of Congress, including California Senator Dianne Feinstein, got above-average returns on their stock investments.
The results indicated that at least some members of Congress were benefiting from their jobs. By having inside knowledge of upcoming policy changes or economic developments, members can buy shares shortly before prices rise or sell them shortly before they fall.
A bipartisan group of Congressmen is now trying to put an end to these deliberations. They have proposed bills that would require members of Congress to put their property into a blind trust managed by someone else. A separate bill would prevent members and top congressional aides from buying and selling individual stocks
There have been many notable examples in recent years that seem to fit this style. In each case, the members say they didn’t do anything improper
- several senators—including Feinstein, a Democrat; And Kelly Loeffler and Richard Burr, both Republicans, have sold stocks after receiving a private briefing on Covid-19 weeks after the first case was discovered in China.
- Tom Price, a former Georgia congressman (and Secretary of Health and Human Services under Donald Trump), has repeatedly traded health care stocks, including buying discounted through a private offer from an Australian pharmaceutical company.
- Representative John Yarmouth, a Democrat from Kentucky, bought several cannabis stocks while promoting favorable bills for the industry, reported Judd Legum of Popular Information.
- Similarly, Senator David Perdue, a Georgia Republican who was an active trader while in the Senate, bought shares in companies that have benefited from the pandemic, such as Pfizer and Netflix.
- The wife of Senator Rand Paul, a Republican from Kentucky, bought shares in Gilead Sciences, which makes the antiviral drug Covid, in the early weeks of the pandemic.
In all, members of Congress and their immediate families bought more than $260 million in assets and sold more than $360 million last year, DealBook reports. Karadas’ research found that many of the huge stock gains in recent years have flocked to high-ranking Republicans
Sponsors of the bills in Congress include Senators John Osoff, Mark Kelly and Jeff Merkley, Representative Abigail Spanberger, all Democrats, and Senator Josh Hawley and Representative Chip Roy, both Republicans.
“It’s a huge conflict of interest for someone to trade, say, in drug stocks at the same time they’re setting policy for drug companies,” Merkley, who represents Oregon, told NPR.
Spanberger told the Washington Post that she and Roy, who are sponsoring a bill together, were “disgusted” by the current situation. “If putting limits on how shares are bought and sold makes us trust a little more — Congress doesn’t have a great approval rating — I think that’s a sacrifice we should make without a quote,” Spannberger said. Which represents the seesaw area in Virginia.
For now, the bills seem unlikely to become laws, in part because they lack the support of Democratic leaders. House Speaker Nancy Pelosi has argued that members of Congress deserve the same freedom as other Americans to buy and sell stocks. “We are a free market economy,” Pelosi said last month. Members of Congress should be able to participate in this.
Critics reply that members of Congress are different from everyone else, because of their access to sensitive information.
Critics also argue that people with the privilege of serving in Congress have a responsibility to put the public’s trust above their financial interests; If they do not prefer it, they can join the private sector.
New York Times opinion columnist Michelle Cottle wrote that Pelosi’s position seemed “a little further from reality” given the economic frustrations of many Americans. Helen Olin of The Washington Post wrote: “Neither law requires major financial sacrifices. But it still requires too much for some.”
Congress toughened the rules on itself in 2012, through a law known as the Stock Act. Members are prohibited from making trades based on privileged information and are required to disclose any trades within 45 days. But the law failed to prevent problematic trade — as its early critics, such as Senator Elizabeth Warren, had predicted.
why? Proving that a particular trade arose from a particular piece of information is so difficult that prosecutors have not brought any charges based on the law. Dozens of members and their assistants ignored the disclosure requirement, according to the Insider post. The standard fine for first-timers for not reporting a deal on time is only $200
All this suggests that members of Congress will continue to benefit from their access to sensitive information, unless they eventually agree to a new bill restricting circulation.
Three top Federal Reserve officials resigned last year after they came under fire for their trading. “The behavior is not to be blamed,” said Dennis Kelleher, president of Better Markets, a watchdog group. Since then, the Fed has tightened its rules
David Leonhart is a reporter for the New York Times.