Quiz: Why should members of Congress be able to make money on inside information?

Answer: They shouldn't. And shouldn't be trading individual stocks. Period.

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It infuriates me when members of Congress — whether Republican or Democrat — squander the public’s trust. There’s so little of it left to squander. So when I find a conflict of interest by members of Congress for which there’s an easy remedy, I’m ready to shout it from the rooftops. And when I discover Congress won’t take action, I’m ready to scream.

Today I want to talk about a very big conflict, with a very easy remedy. And I’d like your help getting the word out and putting pressure on Congress to adopt it.

First, some background. Unless you have special insider information about what’s going to happen to the economy or to certain companies — information that very few other investors have — the buying and selling of individual shares of stock is a terrible investment strategy. This is why the vast majority of Americans who invest in the stock market invest in index funds that are tied to the performance of the stock market as a whole. 

So why do many members of Congress continue to invest in individual stocks? Could it possibly be that they learn useful things about what’s going to happen to the economy or individual companies before the rest of us do?

It certainly seems so.

In January 2020, a handful of senators — including Richard Burr, Dianne Feinstein, and Kelly Loeffler — made significant stock trades after receiving a classified briefing on COVID-19. This was January 2020, mind you — well before the public knew the full extent of the threat. 

Then in the early weeks of the pandemic, nearly 75 federal lawmakers bought stocks in COVID-19 vaccine makers Moderna, Johnson & Johnson, or Pfizer.

I could give you a lot more examples, but you get the point. Even if these were innocent investments that weren’t based on inside knowledge, they certainly smell like insider trades. At the least, they create the appearance of self-dealing. They undermine public trust.

A huge amount of information about the economy and individual companies courses through Congress every day. Much of it is not available to the public. Some of it indicates what’s likely to happen to a particular company’s share prices. There is no possible way to guard against the misuse of this information for personal profit. So why allow individual stock trades? There is simply no legitimate reason why members of Congress (or their families) should be trading individual shares of stock.

(By the way, “Insider” has just published the most complete and detailed public accounting to date of the stock transactions of individual members of Congress — one for the Senate and one for the House. It’s eye-opening. But disclosure alone won’t solve the conflict-of-interest problem because it’s impossible to tell whether the transactions were based on inside information.)

There’s an obvious solution: Bar members of Congress from trading individual stocks.

The proposed Ban Conflicted Trading Act does just this. Lawmakers would have six months after being elected to sell their individual stock holdings, transfer them to a blind trust over which they have no control, or hold onto them until they leave office without trading them. (Senator Jon Ossoff of Georgia just introduced legislation that would also bar family members of our representatives and senators from trading stocks.)

This is an easy and appropriate fix. It doesn’t penalize members of Congress or their families. They can still invest in index funds, like most other stock market investors. They just can’t trade individual stocks.

But Congress has yet to hold a vote on this bill. Why?

Last April, Ron Lieber of the New York Times asked newly elected members of Congress if they would pledge not to trade individual stocks while in office. Few were willing. Most didn’t even respond.

It gets worse. Last month, House Speaker Nancy Pelosi rejected the idea of banning politicians and their families from trading stocks while in office. (She was asked about it by a reporter from “Insider,” which recently published an investigation about lawmakers’ trades.)

I’m a big admirer of Nancy Pelosi. But, with due respect, she’s dead wrong on this one.

With distrust in government near an all-time high, even the appearance of a conflict of interest hurts our democracy. Members of Congress are elected to represent the interests of the people, not the money in their brokerage accounts. Banning members of Congress from trading individual stocks should be a no-brainer.

Congress should pass the Ban Conflicted Trading Act. Now. You might suggest this to your own members of Congress.

What do you think?

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