Brief History of Attempts to Ban U.S. Representatives from Trading
Nancy Pelosi, holding the title of the highest-paid member of Congress with an annual salary of $223,500, boasts a net worth estimated at $120 million by Finity. Delving into the realm of U.S. representatives' trading practices, we aim to offer a succinct overview along with the efforts made to prohibit such activities.
Origins of Trading
In 1789, state-backed revolutionary war bonds had become virtually worthless. Treasury Secretary Alexander Hamilton moved in to shore up the investments. Before word spread, members of Congress secretly scooped up thousands of the bonds from unsuspecting farmers and war veterans, paying pennis on the dollar. What followed set the stage for how Congress would respond to public outrage over such conflicts of interest for the next 200 years. In response to the scandal, lawmakers prohibited Hamilton and future Treasury secretaries from buying or selling government bonds while in office, but members of Congress did not extend the ban to themselves.
View from Congress
In its ethics rules, Congress presents a twofold argument for why it creates different rules for itself than it does for federal judges and the executive branch officials. First, Congress views itself as a 'citizen legislature'. As such, lawmakers think their investment portfolio should mirror those of their constituents. The second argument for the disparate rules is that members of Congress are elected officials, while other federal workers are not. If voter think a lawmaker is too deeply conflicted, they can vote him or her out of office.
Aftermath of the Watergate Scandal
The modern conflict-of-interest laws came in response to the Watergate scandal, prompting Congress to pass the 1978 Ethics in Government Act. Again, the rules were far stricter for the executive branch than for Congress. The act created the public financial disclosure form, requiring members of Congress, their staffs and those in the executive branch to annually disclose most of their assets but reveal the dollar value only in broad ranges. Federal employees, particularly presidential employees, are routinely ordered to divest themselves of holdings that pose a potential conflict. They are also ordered to refrain from making any new investments in industries that they oversee and can influence.
Conflicts of Interest
The reason why U.S. representatives should not be allowed to trade is due to the conflict of interests that exist. Representatives are allowed to pass legislation that can benefit or harm firms, which will ultimately have an effect on the value of these firms. In 2010, reporters reveled that senators on the Armed Services Committee own stock in firms that do business with the Defense Department even though Pentagon officials are forbidden to do so. In 2012, the Stock Act, which makes clear that members of Congress cannot use inside information gleaned from Capital Hill to profit on Wall Street, was signed into law. Notably, the law does not limit elected officials from owning stock in industries they oversee.
Trades During the Great Recession
After phone calls or meetings with then Treasury Secretary, Hank Paulson, 34 members of Congress took steps to recast their investment portfolios. Representative Bachus, who was the ranking member of the House Financial Services Committee at the time, effectively shorted the market the day after getting a private briefing on the collapsing economy and financial system from Ben Bernanke and Hank Paulson. A few days later, after the market tanked, Bachus sold his position and nearly doubled his money.
Public Opinion
A survey that was conducted last year with 2,625 registered voters found that 88% of Democrats, 87% of Republicans, and 81% of Independents were in favor of banning individual stock trading by members of Congress.
Latest Developments
In 2023, Senator Kirsten Gillibrand introduced the Ban Stock Trading for Government Officials Act. As of today, the bill has merely been introduced, and it has not made any further progress.