Capitol Flight: How Dems Dropped the Stock Ban

Capitol Flight: How Dems Dropped the Stock Ban

Capitol Flight: How Dems Dropped the Stock Ban

Congressional leaders turn their backs on a popular issue that helped Democrats win a Senate majority in 2020. 


Congress gaveled out last Friday to begin a recess for all of October, so that members can campaign for reelection. As this legislative session winds down, lawmakers will be leaving behind plenty of unfinished business, but one item in particular stands out: a policy with stronger public support than the Inflation Reduction Act, the Bipartisan Infrastructure Law, the CARES Act, the CHIPS and Science Act, student debt cancellation, and gun control.

Those laws and policies, which form the core of the Democratic Party’s pitch to voters in this November’s midterm elections, all poll between the high 50s and low 70s in aggregate public approval. But 75 percent of Americans, including majorities of both parties, support a total ban on members of Congress trading stocks, bonds, and other investment products. It’s about as winning as political issues get—and it’s almost certainly dead on Capitol Hill.

The story of how congressional leadership allowed this issue to stall out is as predictable as it is infuriating. Democrats owe their tenuous Senate majority in part to bipartisan public anger at how easy it is for members of Congress to trade on privileged information. In January and February 2020, before the public knew that Covid-19 would likely spread until it became a pandemic, Georgia’s then-Senators David Perdue and Kelly Loeffler, both Republicans, received a confidential briefing on the disease. They immediately offloaded their personal stock portfolios.

Democratic Senate candidates in Georgia Jon Ossoff and the Rev. Raphael Warnock hammered Perdue and Loeffler nonstop on the skeevy trades that fall. Improbably, both Ossoff and Warnock barely eked out wins in the traditionally ruby-red state, delivering Democrats the party-line votes they needed to pass all those other pieces of legislation.

But Loeffler and Burr weren’t the only ones arousing suspicion. That December, the first in a series of investigative reports by Business Insider revealed that 49 members of Congress had violated the 2012 STOCK Act, which requires them to swiftly disclose their trades to the public. Since then, the site has reported that a total of 72 members violated the law.

The time seemed ripe for big new congressional ethics legislation. But when reporters asked House Speaker Nancy Pelosi (D-Calif.) late last year if members should be banned from stock trading, Pelosi demurred: “We’re a free market economy. They should be allowed to participate in that.” Government ethics experts seethed, and minority leader Kevin McCarthy (R-Calif.) claimed that he was open to banning congressional trades.

Pelosi’s opposition to stock restrictions was unsurprising. She’s one of the highest net-worth members of Congress, thanks to her husband, Paul, a professional investor who has conspicuously beaten the S&P 500 for years. In one of the great ironies of ethics law, STOCK Act disclosures have fueled a cottage industry of social media accounts and meme pages that urge investors to pursue the same trades members of Congress conduct. Pelosi is one of these accounts’ model investors—they call her “the Queen of Stonks.”

Despite Pelosi’s comments, Ossoff and Senator Mark Kelly (D-Ariz.) introduced a bill in January 2022 banning trades by members of Congress and their immediate family. In February, Senator Elizabeth Warren (D-Mass.) and Representative Pramila Jayapal (D-Wash.) introduced a similar bill with some Republican cosponsors.

One week later, Representative Alexandria Ocasio-Cortez (D-N.Y.) played hardball with Pelosi on the proposed restrictions. She used a procedural move to pressure Pelosi’s office to develop its own version of a congressional trading ban; the alternative would have been a potential floor vote on a much more restrictive set of policies if Ocasio-Cortez led a successful petition from her colleagues, which seemed at least possible given Democratic frustration on the issue and Republican desire to embarrass Pelosi. The speaker would net a great deal of adverse press coverage and appear to be losing control of her caucus in the process. So Pelosi promptly directed the House Administration Committee—which oversees House members’ conduct—to start drafting a bill on congressional stock trades.

Republicans proved hostile to the idea—also not surprisingly. At an Administration Committee hearing on trading bans in April, Representative Barry Loudermilk (R-Ga.) fumed, “Everybody on this committee is a free American citizen that has rights.” Ranking member Representative Rodney Davis (R-Ill.) called it “untenable” to force “middle-class members to divest their ownership portion of a family farm or to divest ownership in a business that their spouse may be a part of or their dependent children be a part of.” For his part, McCarthy reiterated that he was mulling a trading ban should Republicans win in November, but didn’t give any specifics.

On the Senate side, Republican Senator Roger Wicker (R-Miss.) griped that his wife shouldn’t have to divest from her bank stock because “Gayle and I have got to be among the 5 percent lowest net-worth members of the Senate.” This is likely due to Wicker’s real estate debt: Disclosure forms saved by the Center for Public Integrity indicate that in 2018, the most recent year for which forms are readily available, Wicker had four mortgages for personal and rental properties in Virginia and Mississippi.

Despite Wicker’s poor-mouthing, if anyone in Congress is qualified to speak for poorer members, it’s Ocasio-Cortez, who’s long been a champion of banning congressional stock trades. She owned less than $46,000 worth of assets in 2021, according to financial disclosures reviewed by Reuters. She’d stand to benefit more than most of her colleagues from some well-timed trades, but doesn’t play the markets at all.

After Pelosi directed the Administration Committee to draft its bill, the issue died down for months, drowned out by the final death throes of the Build Back Better Act and its subsequent resurrection as the Inflation Reduction Act. But the stock proposal rocketed back into the headlines on September 13, when The New York Times reported that 97 members of Congress—about a fifth of the Hill—had traded securities in industries relevant to their committee assignments between 2019 and 2021.

The next day, Pelosi teased that her long-awaited bill was just about ready. “We believe we have a product that we can bring to the floor this month,” Pelosi claimed. “It’s very strong.”

But every second counts in Congress. Pelosi is well aware that the public is focused on a must-pass bill to continue funding the government this month. That bill is just a stopgap; the real fight over next year’s government funding begins during the lame-duck session in November. Most reporters and activists will rightly be focused on the billions of dollars’ worth of federal spending on the line–and most likely, members of Congress justifiably won’t want to trade their limited political leverage for a fight over one ethics law, instead of on spending priorities that could help millions.

If the bill’s path already seemed narrow, it was all but killed last Tuesday, before Representative Zoe Lofgren (D-Calif.), the chair of the House Administration Committee, even introduced it. House majority whip Steny Hoyer (D-Md.), Pelosi’s right-hand man, announced that he’d vote against it on the House floor—a position he’s since equivocated on somewhat. House leadership later confirmed that the bill wouldn’t get a vote that week, saying members needed more time to review the text they’d slow-walked on for seven months. Moreover, the Project On Government Oversight has identified a massive loophole in the bill.

Hoyer’s office didn’t explain his opposition, but provided a statement saying that “insider trading must continue to be illegal and substantially penalized; he [Hoyer] would like to see increased penalties for Members of Congress who violate these laws.” In other words, the plan is evidently to continue the status quo under the 2012 STOCK Act, but do it better somehow.

But the STOCK Act exemplifies why disclosure-based ethics regimes aren’t enough. If they were, Business Insider and the Times wouldn’t have stories to publish, Burr and Loeffler might still be the senators from Georgia, and online traders wouldn’t be reading congressional disclosures for hot stock tips.

Even if Congress bulked up the Justice Department’s white-collar crime division to crack down on these trades, prosecutors would still almost never have the ammunition they need.

Take one telling example from 2008: Visa was worried that the newly Democratic House would limit credit-card swipe fees, so the company offered Paul Pelosi exclusive rights to bid on the company’s initial public offering that year. Over a few months, he bought $5 million of Visa stock. Meanwhile, the swipe fee proposals never made it to the House floor. This sounds plenty suspicious, but there’s no known records indicating that Nancy Pelosi blocked the bills because of her husband’s investments.

That’s why a blanket ban on trading by members and their family would be both good policy and good politics. It’s a preventive measure that cuts paper trails out of the equation, to say nothing of redirecting congressional incentives, at least incrementally, back toward the public good.

Socialist Ryan Cooper and centrist Steven Teles have both argued that America tends to regulate best when it regulates with big, dumb rules: blanket bans on certain economic activities, with no ifs, ands, or buts. Compare the 37-page Glass-Steagall Act—which simply banned the same business from engaging in both consumer and investment banking—with the 849-page Dodd-Frank Act, whose thousands of minute tweaks to banking law led to years of fights over implementation. It took Wall Street 66 years to fully kill Glass-Steagall, but Dodd-Frank arguably never even got out of the gate.

It might be nice if members of Congress who don’t insider-trade still got to play the markets, but implementing this kind of trading regime has proven nearly impossible and bred public hostility. If there’s a trade-off between faith in democracy on one hand and a few of the most powerful people in America not becoming that much richer on the other, the obvious winner should be faith in democracy. Giving up day-trading is not much of a sacrifice for getting to make the laws of the most powerful nation on Earth.

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