Why politicians should not be stock traders

Restoring trust will be complicated in a politically polarized time, but you would think that members of the House and Senate would want to do some basic things to give the public more confidence that its elected representatives are acting to serve the people, rather than to line their own pockets. This is why we should cheer a new push among mostly younger members of Congress across party lines for a ban on stock trading by representatives and senators.

I say this, by the way, as someone who emphatically rejects the idea that our elected officials are a bunch of crooks. My opinion of politicians is, I suspect, more positive than that of most citizens. But I also have few illusions about the frailty of human nature, and, especially at a time of skepticism about our institutions, those in charge of them need to go out of their way to show they’re in it for the common good.

Earlier this month, nine members of the House — representing a much larger group that has endorsed the idea — wrote leaders of both parties laying out principles for how such a ban on stock trading should work.

The basics: All members of Congress, their spouses, and dependents under 18 would be barred “from owning or trading securities, commodities, futures, derivatives, options, or other similar financial assets.” They would have to divest the “prohibited investments within 120 days of the effective date” of a new law and place them in “a Qualified Blind Trust” or “widely held, diversified mutual or exchange-traded funds, or U.S. Treasury bills.”

The signatories crossed partisan and ideological lines, reflecting the philosophical diversity of advocates for the trading ban.

Within the Democratic majority, supporters of the idea include such staunch progressives as Alexandria Ocasio-Cortez of New York and Katie Porter of California as well as moderates such as Abigail Spanberger of Virginia and Jared Golden of Maine. The top two names on the letter were those of Reps. Raja Krishnamoorthi (D-Ill.) and Brian Fitzpatrick (R-Pa.).

In interviews, supporters of the idea made the essential point: That in their routine work, members of Congress run across all sorts of information — from intelligence, government oversight and conversations with business leaders — that gives them an edge over other market investors.

“What we’re saying is when we’re in a briefing where someone is telling us Russia will invade Ukraine — it’s not a matter of if, it’s a matter of when — you shouldn’t then call your broker and say, ‘I want more stock in Lockheed,’ ” Spanberger told me. When voters decide that “everybody’s corrupt and everything’s corrupt … that hurts our representative democracy.”

When he was elected, Krishnamoorthi said, he and his wife sold “all of our individual securities” and put the money into mutual funds. He wanted to avoid being “caught in a situation where I’d have to be voting on something that would affect the value of those securities,” not to mention the need “to deal with all the disclosure requirements.

“In the intervening time,” he added, “I started to see exactly what happens when you don’t do that and people are trading left and right and then they’re either intentionally or unintentionally forgetting to follow disclosure rules. It creates a tremendous erosion of trust in the institution.”

And, he said, members of Congress could still participate in the stock market through mutual funds or blind trusts, and accommodations would be made for members with “privately held stock in a small business.”

Sen. Jeff Merkley (D-Ore.) has worked with a politically diverse group of colleagues to iron out such issues, but the bottom line, he said, is that all members should have to “divest or diversify.” This includes making sure that if members put their holdings in a blind trust, it is “truly a blind trust.”

So what are the chances of any of this getting passed into law? House leaders and older members have been resistant in the past, but many 2022 candidates are running on pledges to fight for the trading ban. This month’s letter reflected the degree to which sponsors of various approaches have now harmonized their efforts.

Members of the House and Senate reluctant to act would do well to ponder this: While 56 percent of Americans are invested in the market, only 15 percent of U.S. families directly own stock. The rest own mutual funds or the like. Calling on members of Congress to participate in American capitalism the same way most of their constituents do is not too much to ask. Their voters certainly don’t think so.