Congress recessed Friday until after Election Day with several major Democratic goals unmet. Some won’t be met in this Congress (voting rights reform), while others remain up in the air (codifying same-sex marriage). But no unfulfilled priority is more baffling — both for its common sense and its broad public support — than the proposed ban on trading of individual stocks by members of Congress.
Not so long ago, insider trading laws didn’t even apply to members of Congress. But after investigations showed senators and representatives profited off the 2008 recession and the 2010 health care debate, Capitol Hill overwhelmingly heeded President Barack Obama’s call to pass the STOCK Act in 2012. That bill affirmed insider trading laws did apply to Congress and their staffs and required timely disclosure of trades to facilitate enforcement.
Ethically righteous and politically effective — sounds like a no-brainer, right? Not so for Democratic leaders.
But in the 10 years since the STOCK Act’s passage, the law has been only modestly effective at transparency and entirely ineffective at stopping sketchy trades. An Insider investigation found that “dozens of federal lawmakers and at least 182 top staffers” violated the STOCK Act. The New York Times similarly determined that “97 lawmakers or their family members bought or sold financial assets over a three-year span in industries that could be affected by their legislative committee work.” Even when caught, those lawmakers and staffers faced “minimal and inconsistently applied penalties,” Insider reported. “A significant number of late or missing filings has defeated the purpose of real-time notice of potentially improper conduct,” writes Danielle Caputo of the Campaign Legal Center.
And even when lawmakers comply with the act, it’s not always a good look. Ask House Speaker Nancy Pelosi, D-Calif., who gets plenty of attention whenever she discloses lucrative trades by her husband, Paul. Amateur investors have even developed strategies based on Paul Pelosi’s portfolio.
The easiest way to fix the problems that persist under the STOCK Act is to ban individual stock trading. Beyond solving a major ethical problem, there are good political reasons to pass such a ban. It polls incredibly well with voters, with two-thirds to three-quarters of voters in favor. It has the coveted stamp of bipartisan approval, with Republicans like Rep. Chip Roy of Texas, Sen. Steve Daines of Montana and Sen. Marsha Blackburn of Tennessee among those in favor. And it has proven an effective issue in elections: Democrats won control of the Senate in the 2021 Georgia runoffs, for example, in part thanks to attacks on Republicans Kelly Loeffler’s and David Perdue’s stock trades as senators.
Ethically righteous and politically effective — sounds like a no-brainer, right? Not so for Democratic leaders. As recently as December, Pelosi still opposed a trading ban altogether. “We’re a free-market economy,” she said, Representatives “should be able to participate in that.” A month later, when asked whether he supported a stock trading ban, Senate Majority Leader Chuck Schumer, D-N.Y., ducked. “I don’t own any stocks, and I think that’s the right thing to do,” he told reporters — a laudable position, but hardly a committal one.
Pelosi and Schumer quickly reversed course, but their handling of the issue has been curious, to say the least. Usually in Washington, when there’s a choice between a bill with just Democratic support and a bill supported by members of both parties, Democratic leaders will opt for the latter. On this issue, Pelosi and Schumer could have thrown their weight behind several bipartisan bills, such as one from Roy and Rep. Abigail Spanberger, D-Va., or another from Sens. Elizabeth Warren, D-Mass., and Steve Daines, R-Mont.
Pelosi and Schumer quickly reversed course, but their handling of the issue has been curious, to say the least.
Instead, in February, Pelosi asked her close ally Rep. Zoe Lofgren, D-Calif., to draft her own bill. At the time, the speaker predicted the bill’s text would be released “pretty soon,” but Lofgren released her proposal only last week. Pelosi’s move angered Republicans like Roy and even miffed Democrats, with Spanberger saying she was “ghosted” by Democratic leadership.
Schumer, meanwhile, tapped Sen. Jeff Merkley, D-Ore., to lead a working group to reach a consensus on a new plan from several being floated in the Senate. Though Merkley and many other members support a ban, the working group has moved as speedily as any working group does — which is to say we still don’t have its proposal. So, unlike in 2012, when Obama signed the STOCK Act less than three months after he called for its passage, Democrats have wasted almost a year dawdling.
Worse, Lofgren’s bill has its flaws. For example, Walter Shaub, a former director of the U.S. Office of Government Ethics, writes that the bill would create a category of blind trusts that is less strictly controlled than current regulations — “fake blind trusts, like the one former President Donald Trump invented for himself in 2017.”
Even if a ban ends up making it through Congress by the end of the year, the lost time is a missed chance for Democrats. Had both houses passed a bipartisan bill before Election Day, champions of the ban like Spanberger and Sen. Raphael Warnock, D-Ga., could have highlighted that accomplishment in close races. And any Democratic backer could use the bill as a flashlight on their foes’ conflicts of interest. Sen. Catherine Cortez Masto of Nevada, for example, could have contrasted her vote with her opponent Adam Laxalt’s holding over $67,000 in pharmaceutical stocks while opposing lowering drug prices.
More broadly, passing such a ban could only help public trust in government, which isn’t a bad thing for the party that supports a bigger government. Perhaps Democrats will still pass a robust stock trading ban before January and rescue themselves from a problem of their own making. If they don’t, serious questions should be asked of the party’s leadership. A stock trading ban is good policy and good politics. If Democrats can’t use majority power for that, then what’s the point of having it?
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