For many aging baby boomers, the stock market has been a disappointing investment over the past decade. This disappointment has forced many to work longer than anticipated, while some may find themselves unable to retire at all, living a lifestyle far less comfortable than they had hoped. Yet, for certain members of Congress, the stock market has proven to be an unexpected source of wealth.
A study published in the Journal of Financial and Quantitative Analysis, titled “Abnormal Returns from the Common Stock Investments of the U.S. Senate,” reveals that Senators have outperformed the stock market by nearly 10 percent. At face value, it might seem that the Senate’s success stems from their collective intelligence and sharp investment strategies.
However, this perspective falters when we consider that the Senate includes its fair share of uninspiring thinkers. One example is Senate Majority Leader Harry Reid, who once suggested that paying income tax in the United States is voluntary. This statement certainly raises questions about his competence.
Given the composition of the Senate, one has to ask: Where do they find their seemingly magical stock-picking abilities? Do they delve into intricate trading strategies? Perhaps they rely on fortune-telling?
The reality is that these methods would not yield the kind of profits they enjoy. Instead, the unusual returns seen by U.S. Senators can largely be attributed to access to non-public information acquired while serving in office.
Congressional Misconduct
Recently, a report from 60 Minutes highlighted that members of Congress can legally engage in stock trading based on non-public information. Many legislators leverage their insider knowledge about upcoming legislation when making investment decisions. According to current law, this practice remains permissible.
Congress argues that the non-public information they access as part of their duties is fundamentally different from typical insider information tied to specific companies. This distinction allows them to circumvent insider trading regulations.
To any rational observer, what Congress engages in is essentially insider trading. While there may be no existing laws that outright prohibit them from trading based on information gathered in the course of their work, legality does not equate to ethicality.
The issue with our law system is its overwhelming complexity. Even the most diligent individuals may find themselves unintentionally violating some obscure regulation. To navigate this maze, most people with good intentions adhere to the Golden Rule.
Conversely, some individuals—like legislators, defense lawyers, and tax consultants—make careers by exploiting loopholes for their gain. Just because their actions are legally sanctioned doesn’t make them ethical. As constituents in a representative democracy, it is our responsibility to call out such unscrupulous behavior from our leaders.
The Controversial Stop Trading on Congressional Knowledge Act
Following the 60 Minutes expose, proposed legislation known as the Stop Trading on Congressional Knowledge Act has garnered attention. This law aims to explicitly prohibit stock trading based on “pending or prospective legislative action.” A hearing on the legislation is scheduled by the Financial Services Committee for December 6. However, its enforceability remains questionable.
As highlighted by Peter Henning from the New York Times, the Constitution’s Speech or Debate Clause shields Congress members from being summoned to court or responding to inquiries regarding their legislative activities.
The enforcement of insider trading provisions typically requires the Securities and Exchange Commission (SEC) to gather specific documentation to ascertain what information a trader had at a specific time. The Speech or Debate Clause complicates this process, limiting the SEC’s ability to investigate members of Congress who trade stocks based on legislative insights. Thus, one must question the practicality of any legislation aiming to protect citizens from legislative misuse.
The underlying inquiries here are rhetorical; however, they still warrant consideration.
Today’s government often displays wastefulness, dishonesty, and profligacy, showcasing incompetence and malevolence. Ironically, this behavior seems to resonate with the populace. While lamentable, it also provides a curious form of entertainment.
“If the people cannot trust their government to do the job for which it exists—to protect them and to promote their common welfare—all else is lost,” stated Senator Obama prior to becoming President. Clearly, his words may not reflect his true intentions.
In defending government misconduct, we find ourselves oddly entertained by the absurdity of it all.
Sincerely,
MN Gordon
for Economic Prism
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