To what extent should members of Congress be permitted to
adjust their investment portfolios in line with general information on the economy gained as part of their
legislative work? Whereas insider trading refers to information that is not
available to the public on a particular
company, the trades at issue as the U.S. headed toward a possible financial
crisis pertained to diversified portfolios.
To take one example, John Boehner (R-Ohio), who would become
the Speaker of the House after the 2010 Congressional elections, met U.S.
Treasury Secretary Henry Paulson for breakfast on January 23, 2008. According
to the Washington Post, “Boehner would later report the rearrangement of a
portion of his own financial portfolio made on that same day. He sold between
$50,000 and $100,000 from a more aggressive mutual fund and moved money into a
safer investment. Boehner is one of 34 members of Congress who took steps to
recast their financial portfolios . . .
after phone calls or meetings with Paulson; his successor, Timothy F. Geithner;
or Federal Reserve Chairman Ben S. Bernanke, according to a Washington Post
examination of appointment calendars and congressional disclosure forms. The
lawmakers, many of whom held leadership positions and committee chairmanships
in the House and Senate, changed portions of their portfolios a total of 166
times within two business days of speaking or meeting with the administration
officials.”
The paper points out that the financial moves by the members
of Congress were permitted at the time under congressional ethics rules. Some ethics experts suggested that lawmakers
should refrain from taking actions in their financial portfolios when they
might know more than the public. In my view, we can assume that lawmakers will
know more than the general public on matters relevant to investment decisions;
the question is whether those decisions ought to be placed in blind trusts.
Lawmakers are going to know more than the public; merely
sitting through hours of hearings will accomplish that. Indeed, part of the
rationale for having a representative rather than a direct democracy is that
representatives can be in a position to be better informed on the economy
because lawmaking is at least in principle their full-time endeavor while they
are in office. Essentially, the electorate delegates the popular sovereignty to
the representative to focus on the lawmaking role.
Furthermore, human nature being what it is, we cannot but
expect the lawmakers to have protected their investments by reducing the level
of risk after learning that the U.S. economy could go over the cliff on account
of being over-leveraged on subprime mortgages and over-securitized on them plus
the related securitized insurance swaps. Adjusting their portfolios based on
“insider information” on an upcoming stimulus plan is based on more particular
information and thus more problematic even though it is not on a particular
company. Regardless of the specificity of the information, however, any private gain from the public service is rightly generally
regarded not only as unfair, but also inappropriate and unseemly.
At the very least, for lawmakers to use even the inevitable
information they have on the general condition of the economy for private gain
detracts from the notion that public service is a duty rather than an opportunity
to enrich oneself. In this regard, having citizen lawmakers are preferable to
careerists. However, even doing one stint in the U.S. House of Representatives
could be financially lucrative, so even with term limits, the question of
whether lawmakers should be able to adjust their investment portfolios would be
relevant.
Although it is undoubtedly impossible to stop virtually any private benefit from
accruing to members of Congress, their management of their own wealth should be
separated from their public service where possible. The instrument of a blind
trust makes this possible in the case of investments, assuming that direct and
indirect communication with the managers of the trusts is preempted
effectively. The trusts could even be mandated for several years after the
lawmaker vacates public office.
More generally, the opportunistic orientation evinced by
several lawmakers in January 2008 suggests that they may have viewed their
respective offices less as stemming from a sense of a duty oriented to public service than as being an opportunity for personal gain. Rather than electing citizens who yearn for the office, perhaps we
ought to seek out those who have reservations in place of ambition, yet would serve out of a sense of
duty if called. In other words, whoever in the two parties gets people to run
for the offices ought to be suspicious of people whose sense of duty seems all too comfortable
and convenient to come out a sense of obligation. In other words, if it is easy to convince someone to run, then he or she probably is not the best person for public service.
Source:
Kimberly Kindy, “Lawmakers Reworked Financial PortfoliosAfter Talks with Fed, Treasury Officials,” The
Washington Post, June 24, 2012.
