OPINION:
In the late 1800s, Tammany Hall’s political machine dominated New York City, using political patronage and “honest graft” to control the levers of power while lining their pockets. While corruption fueled its influence, mounting public outrage, investigative journalists and reform movements ultimately led to its downfall.
Today, a different form of “honest graft” is thriving in Washington as politicians continue exploiting privileged insider information to trade stocks, generating returns that would shame even the savviest Wall Street traders. While the faces have changed, the game of self-enrichment at the public’s expense continues.
One of the most prominent members of Congress whose family engages in significant stock trades is former House Speaker Nancy Pelosi, California Democrat. Her husband’s ability to make profitable stock trades from what appears to be information supplied by his wife has created a cottage industry of traders who track and mimic his buys and sells.
In September, for example, Mrs. Pelosi’s husband sold 2,000 shares of Visa for $500,000 just weeks before the Department of Justice filed a lawsuit against the company’s debit card operations.
Never mind that this suit (like many DOJ suits under the Biden-Harris administration) is wholly misguided. It ignores the extreme competitiveness of the payment processing industry, where consumers and merchants are spoiled for choice with not only a host of debit card brands but also emerging digital payment solutions such as Apple Pay, Venmo and Cash App. Yet DOJ decided to challenge Visa anyway.
That’s the problem. Government decision-makers have every interest in proposing new actions against companies, even when the actions make no sense, because anything that moves the stock price of a company (even temporarily) can make members of Congress, regulators and their families significant sums.
This is far from an isolated occurrence.
In another exchange reported by Investing.com, the Pelosis made $4 million, 20 times Mrs. Pelosi’s annual congressional salary.
Unusual Whales, a website that tracks Mrs. Pelosi’s trades, estimates that her family has made 27% year-to-date on her public stock trades profit, outperforming the S&P.
When pressed about her family’s trading, Mrs. Pelosi signaled her opposition to legislation that would outlaw stock trading by members of Congress.
“We are a free-market economy,” she said. “They should be able to participate in that.”
She’s right, but the problem is that members of Congress regulate the same companies they trade.
What can be done to stop this cronyism?
It has been a decade since Congress passed the STOCK Act, which prohibits lawmakers, their staff and other federal officials from trading on confidential information, requiring them to report securities transactions within 45 days. It also mandates increased financial disclosure and transparency by making this information available online.
But the law does not cover the lawmakers’ family members.
In response, reform members of Congress are pressing for a total ban on the trading of individual stocks. In July, a bill to ban such trading even passed a key Senate committee, but most congressional analysts believe the bill won’t become law.
To Mrs. Pelosi’s point, America is indeed a free-market economy, so I’m not sure an outright stock ban is appropriate. At a minimum, however, Congress should expand the STOCK Act to cover lawmakers’ family members.
There’s nothing inherently wrong with members and their families trading stocks, but there is everything wrong with them using their insider information and ability to propose new market manipulating regulations to milk the system in their favor. Expanding the STOCK Act to cover members’ entire households could put a stop to that.
Like Tammany Hall in the 1800s, the current system allows those in power to profit from their insider knowledge, eroding public confidence in the integrity of our democratic institutions. If Congress is serious about restoring that trust, it must go beyond performative gestures and pass comprehensive reforms that end the self-enrichment of public servants.
If members of Congress can regulate industries while profiting from them, the perception of corruption will remain. The American people deserve better.
• Brett M. Decker, a former senior vice president at the Export-Import Bank, is an assistant professor of business at Defiance College in Ohio and a fellow of the Royal Society for the Encouragement of Arts, Manufactures and Commerce in London.
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