A recent survey in the US showed that seven out of ten people think there should be more restrictions on members of Congress’s ability to trade stocks.
yep. This is one area where the U.S. isn't at all in first-world territory. I often criticize my own country (DE) for seeming to be quite satisfied with a third-rate status in many areas. But allowing your lawmakers to profit from the laws they make is beyond the pale; it's closer to shxthole rank.
Best damn democracy money can buy! Yet more evidence of what we already know-insider capitalism, where those on the inside get privileged access. It’s like being at a casino and finding that the roulette wheel is tilted towards the house always winning.
Back in the '80s and early '90s, I remember being scandalized at Europe's attitudes on insider trading, which wasn’t seen as theft from investors but as a perk of office ("our pay scales are generally lower than in the US, so you gotta do what you gotta do"), and a feature of relationship-based capitalism (cue Gallic shrugs).
By contrast, the US treated insider trading far more aggressively, with real criminal enforcement, while many European countries had weaker laws and little appetite to prosecute. US insider-trading law grew out of common law with prosecutorial creativity; Europe relied on statutes, which lagged reality badly. I remember feeling a very real sense of American moral superiority on this issue.
That started to flip in the 2010s when the EU imposed the Market Abuse Directive, https://en.wikipedia.org/wiki/Market_Abuse_Directive and tightened it through the Market Abuse Regulation https://de.wikipedia.org/wiki/Marktmissbrauchsverordnung , harmonizing rules and pushing serious enforcement across member states, often with added sensitivity to politicians and senior officials because of corruption risks. Europe now sees market abuse as a legitimacy problem, whilst the US increasingly treats elite political trading as a political problem, not a legal one.
At the same time, the US remained tough on private actors but carved out a de facto safe zone for elected officials: Members of Congress were long exempt from insider-trading norms tied to fiduciary duty. In 2012, the STOCK Act https://en.wikipedia.org/wiki/STOCK_Act nominally banned congressional insider trading, but enforcement is weak, reporting is slow, incomplete, and often ignored, and penalties are trivial. The courts have also narrowed insider-trading doctrine, making prosecutions harder. Politically, there’s very little appetite to prosecute sitting officials. In the 14 years it's been in place, no US Congress member has ever been criminally convicted under the STOCK Act, possibly because aggressively prosecuting legislators risks being framed as executive intimidation.
So you ended up with a paradox: Wall Street analysts are wiretapped and hedge fund managers go to prison, but politicians trade suspiciously well and face at worst disclosure fines or nothing.
Corporate insiders are seen as owing clear fiduciary duties, and controlling firm-specific information. Politicians are seen as generating information as part of public governance, but they're trading on policy direction, not firm secrets. This is a gray zone between “inside info” and “public power”. Europe chose to collapse that distinction for legitimacy reasons. The US chose to preserve it for constitutional and political ones.
In short, the US built the modern insider-trading regime, and then carved out some of its most powerful people. Europe copied the rules late, but then applied them more evenly, at least at the level of formal coverage and political accountability, once it finally did.
The STOCK Act of 2012 says that Congress members and staff "are not exempt from insider trading prohibitions" and owe a duty of trust regarding material non-public information from their positions. But "not exempt" does not mean that they are insiders... especially if the non-public information relates to the industry or the economy in general (e.g. taxation), as opposed to the company itself.
Insider stock trading does not capture all of the ethical issue however. Nancy Pelosi's husband Paul famously bought up real estate in the path of a major government project then sold it to the government at a substantial mark up.
A perfect solution would be to let them trade to their hearts content provided there is real time (within 24 hours) disclosure in a readily available electronic data base open to all for free. My own experience of "piggy backing" on congressional trades is that they are good places to find opportunities, but after applying the usual screening methodology, I only use about one trade out of 20. Often the congressman had the right idea but was too impatient to wait for the right price.
A more fundamental question is why are Congressional Representatives and Senators spending time trading individual stocks at all? Don't they have more important work to do? (Of course... stock trading is where the money is.) If they want/need to invest in the market, we ought to restrict them to index funds and other broad-based funds, and to limit trading frequency, or at least to using blind trusts.
yep. This is one area where the U.S. isn't at all in first-world territory. I often criticize my own country (DE) for seeming to be quite satisfied with a third-rate status in many areas. But allowing your lawmakers to profit from the laws they make is beyond the pale; it's closer to shxthole rank.
This is the epitome of capitalism and market efficiency at its best
(friday irony mode on)
Best damn democracy money can buy! Yet more evidence of what we already know-insider capitalism, where those on the inside get privileged access. It’s like being at a casino and finding that the roulette wheel is tilted towards the house always winning.
Back in the '80s and early '90s, I remember being scandalized at Europe's attitudes on insider trading, which wasn’t seen as theft from investors but as a perk of office ("our pay scales are generally lower than in the US, so you gotta do what you gotta do"), and a feature of relationship-based capitalism (cue Gallic shrugs).
By contrast, the US treated insider trading far more aggressively, with real criminal enforcement, while many European countries had weaker laws and little appetite to prosecute. US insider-trading law grew out of common law with prosecutorial creativity; Europe relied on statutes, which lagged reality badly. I remember feeling a very real sense of American moral superiority on this issue.
That started to flip in the 2010s when the EU imposed the Market Abuse Directive, https://en.wikipedia.org/wiki/Market_Abuse_Directive and tightened it through the Market Abuse Regulation https://de.wikipedia.org/wiki/Marktmissbrauchsverordnung , harmonizing rules and pushing serious enforcement across member states, often with added sensitivity to politicians and senior officials because of corruption risks. Europe now sees market abuse as a legitimacy problem, whilst the US increasingly treats elite political trading as a political problem, not a legal one.
At the same time, the US remained tough on private actors but carved out a de facto safe zone for elected officials: Members of Congress were long exempt from insider-trading norms tied to fiduciary duty. In 2012, the STOCK Act https://en.wikipedia.org/wiki/STOCK_Act nominally banned congressional insider trading, but enforcement is weak, reporting is slow, incomplete, and often ignored, and penalties are trivial. The courts have also narrowed insider-trading doctrine, making prosecutions harder. Politically, there’s very little appetite to prosecute sitting officials. In the 14 years it's been in place, no US Congress member has ever been criminally convicted under the STOCK Act, possibly because aggressively prosecuting legislators risks being framed as executive intimidation.
So you ended up with a paradox: Wall Street analysts are wiretapped and hedge fund managers go to prison, but politicians trade suspiciously well and face at worst disclosure fines or nothing.
Corporate insiders are seen as owing clear fiduciary duties, and controlling firm-specific information. Politicians are seen as generating information as part of public governance, but they're trading on policy direction, not firm secrets. This is a gray zone between “inside info” and “public power”. Europe chose to collapse that distinction for legitimacy reasons. The US chose to preserve it for constitutional and political ones.
In short, the US built the modern insider-trading regime, and then carved out some of its most powerful people. Europe copied the rules late, but then applied them more evenly, at least at the level of formal coverage and political accountability, once it finally did.
The STOCK Act of 2012 says that Congress members and staff "are not exempt from insider trading prohibitions" and owe a duty of trust regarding material non-public information from their positions. But "not exempt" does not mean that they are insiders... especially if the non-public information relates to the industry or the economy in general (e.g. taxation), as opposed to the company itself.
Nancy Pelosi > Warren Buffett 😂
Insider stock trading does not capture all of the ethical issue however. Nancy Pelosi's husband Paul famously bought up real estate in the path of a major government project then sold it to the government at a substantial mark up.
Yup. And the current American federal government administration is certainly taking advantage of these loopholes.
It is Bi-partisan and has been going on a long long time. This is nothing new.
A perfect solution would be to let them trade to their hearts content provided there is real time (within 24 hours) disclosure in a readily available electronic data base open to all for free. My own experience of "piggy backing" on congressional trades is that they are good places to find opportunities, but after applying the usual screening methodology, I only use about one trade out of 20. Often the congressman had the right idea but was too impatient to wait for the right price.
In Europe you can be sentenced to life in prison based on statistical evidence beyond any reasonable doubt.
https://substack.com/home/post/p-186098913
A more fundamental question is why are Congressional Representatives and Senators spending time trading individual stocks at all? Don't they have more important work to do? (Of course... stock trading is where the money is.) If they want/need to invest in the market, we ought to restrict them to index funds and other broad-based funds, and to limit trading frequency, or at least to using blind trusts.