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Why National Legislators Shouldn’t Be Allowed to Trade Stocks


No member of the national legislature, and no spouse thereof, should be trading stocks. It’s bad ethics, bad policy, and bad politics. There’s no way to shine this sneaker. This is especially true when it comes to the leadership of the national legislature. From Reuters:

In a periodic transaction report signed last Friday and appearing on the House of Representatives’ website on Monday, the senior Democrat disclosed that her husband, financier Paul Pelosi, on May 13 bought Apple call options for between $500,001 and $1 million. On May 24, he bought more Apple call options, in an amount between $250,001 and $500,000, the disclosure shows. On the same day, Paul Pelosi bought Microsoft call options for as much as $600,000.

If you accept, as I do, that Wall Street is little more than an elaborate carny scam, then no elected politician should go anywhere near it. If you want to try and make money at the casino, get out of professional politics. If your spouse wants to guess under which shell company can be found the pea, tell said spouse to wait until you’re out of office.

Pelosi in January signaled that she might be willing to advance legislation to completely ban stock trading by lawmakers. That was a reversal from her previous position defending lawmakers’ right to trade stocks. Proposals by Democrats in Congress this year to prohibit stock trading by lawmakers have yet to pass. Pelosi’s stock trading performance ranked sixth-best in Congress in 2021, with Republican Congressman Austin Scott leading the way, according to an analysis by Unusual Whales, a service selling financial data.

Senator Professor Warren has been on this case since the beginning of the year. She has joined with Senator Steve Daines, Republican of Montana, and several co-sponsors of both parties, behind a bill that would flatly ban members of Congress from owning or trading stocks. Currently, a loophole-ridden 2012 law anemically regulates such matters. At an April hearing of the Senate Banking Committee, SPW really went to town, calling out congresscritters for what she calls “insider trading.”

Members of Congress are in a unique position to obtain information that they can use to game the stock market. In fact, the risks with government officials are even higher than they are with most CEOs because government officials can sometimes use their public positions to influence private outcomes—and the value of stocks they hold or trade. For example, voting on laws that will protect—or break up—a giant tech company could have a direct impact on the wealth of a Member of Congress who holds stock in giant tech companies.So look, this isn’t a hypothetical problem. Last year alone, Members of Congress and their spouses traded more than half a billion dollars in stocks and other investments. And here’s the most alarming part: on average, Members of Congress came out ahead of the S&P 500. And yet not one single member was criminally charged with insider trading. Now, there’s no doubt in my mind that Members of Congress who break federal law by engaging in insider trading should be criminally prosecuted. But there’s also no doubt, that’s not enough to fix this problem. That’s already the law.

(Of historical note, especially for those “bipartisanship” fetishists among us, is the fact that it was Daines who was presiding over the Senate on the night when Mitch McConnell silenced SPW, leading to the now-famous “She persisted” meme. No grudges held here.)

This strikes me as one of the easiest calls at a time in which there aren’t many of those around. Just while you’re doing the people’s business, avoid going into business for yourself.

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