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Fed to ban policymakers from owning individual stocks
- wanderingmind 5y agoNo problem. The policymakers will let their trust fund or family members do all the trading with *information that they might have. Are they going to also stop anyone related to the policymakers from not trading? That will be a violation of their constitutional right to own property. There is always a way out for the rich. This is what happens when we have too many regulations.
- octodog 5y agoI am following you until your last sentence. How does having less regulation help here?
- wanderingmind 5y agoThere is a term called regulatory capture where large corporations lobby governments to write regulations that stifle competition. When hundreds of millions or billions ride on such regulations that is created by a few individuals, they have enormous power that is susceptible to corruption. And its very difficult to remove this corruption. The long term stable approach is to have as few regulations as possible that removes such absolute power from a few unelected individuals. An example of thriving with few regulations is the tech industry. It was able to boom and dominate because it had few regulations.
- 58x14 5y agoWhile I certainly agree that tech has been able to 'dominate,' your use as an example of a 'stable approach' with 'as few regulations as possible' that 'removes such absolute power from a few unelected individuals' feels ironic, considering the... absolute power that unelected individuals like Zuck have. Alas, I don't think it's likely any legislative body will pass meaningful tech regulation anytime soon.
- robotburrito 5y agoI have long felt that once you get elected to Congress or higher office that you should be stripped of all of your assets like real estate, stocks, etc. After you are done serving the people you would be given a reasonable salary, a free home, and would live the rest of your life like some sort of monk barred from ever participating in the capitalist system again.
- mancerayder 5y agoNot members of Congress?
- brodouevencode 5y agoDoes anyone think the SEC will take similar actions against elected officials? Given there have been plenty of stories about this happening it seems like it should be up for consideration.
- flyingfences 5y agoI don't think they will, but I do think they should.
- slowmovintarget 5y agoI don't think they can. Current law in that respect does not apply to members of Congress, IIRC. Instead, Congress has decided that its members should: 1. Self-report on themselves, their spouses, their dependent children (why dependent children would be trading securities is beyond me, but OK.) 2. Be subject to a $200 fine for conflicts of interest or failure to report "in a timely manner" 3. Have the fine waived at the discretion of the House or Senate ethics committees In other words, the rules they've applied to themselves are toothless.
- gnopgnip 5y agoThe SEC can still pursue criminal charges
- zrail 5y agoThe SEC is not a law enforcement agency. They can and do partner with the FBI but there's a separation of powers problem with that.
- bcrosby95 5y agoCriminal charges for what exactly? The SEC exists by authority of Congress, and their purview is defined by Congress, just like every other regulatory body.
- sgent 5y ago
- dogman144 5y agoHave to ask how this wasn't instituted in the first place, excluding the "well it's corruption, obviously" answers. Every single financial job in the private sector has extreme guidelines around this, the Fed is like a buyside firm with ultimate private information access.
- zzleeper 5y agoIt is instituted. I work at the Fed in a relatively junior role. I can't buy bank stock, or for any practical purposes any financial firm stock (or bonds). I can't buy funds finance-focused mutual funds or any kind. I can't buy stocks of any firm where I have any sort of insider trading, such as contractors. Lastly, there's a window around FOMC meetings where anyone with any sort of insider knowledge is prohibited to trade at all. But last I checked on my Robinhood account, I do own some GitLab, Cloudflare, etc. firms that I think are doing quite well compared to their current market prices. And that's mostly based on what I read (HN, etc). The question is, should employees be disallowed to own stocks at all? (Right now this rule is aimed at officers, but officers are like 20% of the number of employees of my division, so it's still a lot). I would say doing so makes it quite more difficult for economists to take jobs at the Fed, where the salary is not as competitive as in other places such as the private sector (and already all the friends in my PhD Finance cohort earn more than I do..). To make a parallel, imagine that working at Google prohibits you from owning stocks at any firm that trades/buys/sells/interacts with Google or its competitors.
- huitzitziltzin 5y agoFellow economist here… I would have thought this rule would be irrelevant to us! I don’t think most of us think we can beat the market. I hold index funds only. (To be clear: I think this rule is a good idea and should apply to anyone with any serious role there. I’m just a little surprised it’s binding on anyone.) Edit: clicked on your profile. Thanks for writing reghdfe. I use it with some coauthors on a project on healthcare now.
- landemva 5y ago
- trident5000 5y agoHow about their relatives and more important the head of their trusts who they can just instruct or pass information to under the table. This is a great first step but I'd encourage looking behind the headline. Also the last time there was any rule about congress insider trading they just waited until nobody was looking anymore and revoked it.
- lastofthemojito 5y agoAs I understand it the STOCK Act hasn't been revoked, but members of Congress regularly ignore it and have never been punished for doing so: https://www.npr.org/2021/09/22/1039287987/outside-ethics-group-says-7-house-lawmakers-didnt-disclose-stock-trades https://www.npr.org/2021/09/22/1039287987/outside-ethics-gro...
- trident5000 5y agoIt wasnt technically revoked (my fault) but it was conveniently modified: https://thehill.com/policy/finance/293919-obama-signs-stock-act-step-back https://thehill.com/policy/finance/293919-obama-signs-stock-...
- lastofthemojito 5y agoYou say "conveniently" as if it were modified to make the rules less onerous for members of Congress but that wasn't the case. From your link: "Under the new law, the beefed-up reporting requirements will still apply to the president, vice president, members of Congress and candidates for Congress."
- trident5000 5y agoYeah I just ran with the first paragraph in that article. But further reading shows the rules stuck for congress. Regardless theres still an issue in my opinion when Nancy Pelosis husband is buying Microsoft calls one month before they are awarded a large government contract and several other suspiciously timed trades.
- awb 5y agoThe relatively low salaries compared to the huge amounts of power is almost begging for insider trading, influence peddling, etc. > The salary of a Congress member varies based on the job title of the congressman or senator. Most senators, representatives, delegates and the resident commissioner from Puerto Rico make a salary of $174,000 per year. https://www.indeed.com/career-advice/pay-salary/congressman-salary https://www.indeed.com/career-advice/pay-salary/congressman-... Then again, some people have near insatiable greed and even at a $1M/year salary, some would be looking for ways to further boost their income at the boundaries of ethics, or beyond.
- fdgsdfogijq 5y agoNot really, most people very high up in the FED are already independently wealthy
- toomuchtodo 5y agoYour last sentence is really the key thesis. This isn't an argument to pay representatives (whether that be Congressional or at monetary policy orgs) more, but to have robust controls to better detect and action corruption. Greed knows no bounds (see: corrupt billionaires and Dark Triad personality traits [1]) and humans will be humans, so strong systems must be designed and implemented to defend against improper behavior. [1] https://en.wikipedia.org/wiki/Dark_triad https://en.wikipedia.org/wiki/Dark_triad
- onlyrealcuzzo 5y agoAlternatively - maybe it's not so great that government is so big and central and has so much power. Politicians are gonna find ways to corrupt that power no matter what. The same could be said for megacorps. Unfortunately, we don't live in an ideal world. China and Chinese SOEs are going to be big and powerful and centralized for the foreseeable future no matter what - and if we don't have anything to oppose them - that doesn't seem great either.
- deleted 5y ago[deleted]
- unbalancedevh 5y agoDoes this just mean that stock will now all be held in their spouse's name? I didn't see any provision for that in the article.
- dhosek 5y agoOne would hope so. When I worked for Bank of America, as a lowly computer programmer I was required to make all of my investment information available to the compliance office as well as all of my wife's. In practical terms it meant moving my IRAs from Schwab to Fidelity, but it was still inconvenient (and cost me about $100 in fees for which I wasn't reimbursed). I would expect much stricter controls on people with this level of influence.
- B-Con 5y agoDisclosure responsibilities for Federal judges extend to spouses and any family living in the home IIRC, I would imagine this restriction would have similar coverage.
- onenightnine 5y agofinally. this is huge. hopefully there isn't some other angle we are not seeing
- N0tAThr0wAway 5y agoSomeone once told me that a stipulation for public service should involve converting all your holdings into index funds only. Thought that was an interesting proposal.
- jrockway 5y agoNot sure that's necessarily fair. If you're 75, you probably don't want your retirement nest egg in 100% stocks. There isn't a policy congress could institute that guarantees stocks will retain their value in a 4 year window.
- neogodless 5y agoIndex funds can hold other assets than equities, including bonds.
- jonas21 5y agoThere are bond index funds too.
- dhosek 5y agoExactly. My retirement funds have exactly two securities in them: A stock index fund and a bond index fund.
- sideshowb 5y agoYou could add the option of federal bonds then
- officeplant 5y agoIf they're 75 they should focus on retirement.
- googlryas 5y agoOr - run for President!
- 5y ago
- adolph 5y agoFed says trading activity by top officials under independent review Fed leaders have said the trading activities of its top leaders complied with existing, albeit insufficient guidelines. But the Fed’s latest statement reflected a more concerted focus on the trades themselves. https://www.washingtonpost.com/us-policy/2021/10/04/fed-ethics-powell-warren/ https://www.washingtonpost.com/us-policy/2021/10/04/fed-ethi...
- google234123 5y agoLet’s make this the rule for all politicians
- 908B64B197 5y agoI joked in the past that politicians should only be allowed to buy index funds. In their local currency and from their country of course. Basically, do a good job for the economy overall and then your net worth will increase.
- bee_rider 5y agoIt would be kinda interesting if each town/county/state/country had an associated index fund (maybe one for Earth as a whole, too) and elected officials were only allowed to invest in one "up" from their elected seat. I mean this would involve a ton of bookkeeping but it would be interesting to see * how behavior changes when elected officials are required to have their interest in line with their constituents. * what mixes people choose.
- Moodles 5y agoWhy's that a joke? Sounds like a good idea on the face of it.
- xyzzy123 5y agoI like this. A few thoughts: First (as usual) it incentivises short term-ism. Some penalty to initiatives where we take a hit now but benefit in 40 years, e.g. climate action. It incentivises our entire political class to keep broad asset bubbles going and "not stop the party" while they're in control. It increases incentives to misrepresent or obfuscate the state of the entire economy (money supply, inflation and other macro things that influence the market as a whole). To be fair all these incentives exist right now, so it might not make things worse.
- 908B64B197 5y agoThat's very true. CEO compensation might be another thing to look at when designing these policies: Often it's paid out only if the company reaches certain goals or paid as options that can only be exercised in the future at a certain price, ie, they are completely worthless otherwise. "You only get your pension if the carbon emissions are down by X% in 10 years", or something like that.
- 5y ago
- honksillet 5y agoThis needs to happen for congressmen also.
- yelnatz 5y agoSenators? https://fortune.com/2020/03/20/senators-burr-loeffler-sold-stock-coronavirus-threat-briefings-in-january/ https://fortune.com/2020/03/20/senators-burr-loeffler-sold-s...
- CountDrewku 5y agoToo many comments on here about Congress. Congress isn't affected by this: >The ban includes top policymakers such as those who sit on the Federal Open Market Committee, along with senior staff.
- pmorici 5y agoI'm not sure banning is the answer. I think a better solution in general would be for officials to have to report all trades in real time.
- rufus_foreman 5y agoI would like to see them required to give 24 hours notice of any trades. If a few members of the armed services committee want to sell Boeing stock tomorrow, fine, but the market can decide what that means first.
- jefflombardjr 5y agoYes report the transactions real-time and make them available via publicly accessible api.
- robbmorganf 5y agoFor the Fed, this doesn't seem enough. Their policy has a predictable effect on the whole market, so I think they should not be trading in the couple of weeks leading up to a Fed announcement.
- whimsicalism 5y agoOr just require them to plan their trade and publicly disclose like at least a week in advance. If you become known for being uh.. "corrupt", the market will price out your gains.
- jquery 5y agobest solution in the entire thread
- robbmorganf 5y agoThis is a much better idea than the one I had.
- tomohawk 5y agoBut thank goodness Nancy Pelosi still can.
- booleandilemma 5y agoI’m curious why all the heat is on Pelosi for trading? I see people on twitter making similar remarks. Is she more corrupt than the other politicians or are people just parroting each other and it’s become a meme to be negative towards Pelosi in particular?
- easton 5y agoPart of the problem is that she is the rep for Silicon Valley and the Speaker of the House, allowing her to wield a lot of power over a big chunk of the market.
- m0zg 5y agoBan insider trading in Congress as well. Double their salaries, ban all speculative activity, and monitor their inflows/outflows and large property purchases so that no shenanigans occur under the table. It's blindingly obvious corruption when Nancy Pelosi is able to do better in the stock market than Warren Buffett, and all hedge funds save for RenTech: https://twitter.com/nancytracker https://twitter.com/nancytracker It's nuts when congresspeople pretend to "grill" Big Tech and Big Pharma execs while holding multmillion dollar positions in their companies' stocks. If there is a real "threat to our democracy", this is it. This is the threat. Of course this would deprive congresspeople of billions of dollars in stock gains, so you can be 100% sure no laws abridging any such activity will ever pass, but one can dream.
- hikerclimber1 5y agoHow about ai which is our government?
- PHGamer 5y agoexcuse me but what the hell. the federal reserve is not congress they should have no power over this. hell this isnt even the sec.
- deleted 5y ago[deleted]
- jsploit 5y agoThese rules only apply to Federal Reserve staff. Were you confused by the title?
- jrochkind1 5y agoIf you read past the headline to just the first bullet point, you don't even have to go past there: > The Federal Reserve announced sweeping new rules for its top officials Thursday, banning trading in individual stocks and bonds. The top officials of the Fed. not congress people. The comments thread here is making me wonder if all HN comment threads are made up mostly of posters who haven't read beyond the headline.
- gigatexal 5y agoThe Fed is setting the example here that congress should follow but won’t cuz it’s already too corrupted by representatives with conflicts of interest.
- matheusmoreira 5y agoI certainly don't read the article most of the time. The comments here are more interesting than the post. They're what I come here for. Besides, it's nearly certain that any important information will be directly quoted here in a comment.
- MatmaRex 5y agoYou should assume that no one read the article. I certainly did not before coming to read the comments (although I have enough restraint to not comment myself on the substance of it when I do that). For better or worse, the title and the link is just a discussion prompt. The guidelines all but state that you're not expected to read it before commenting: > https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html > Please don't comment on whether someone read an article. "Did you even read the article? It mentions that" can be shortened to "The article mentions that." In this case, someone should probably edit the title.
- dragonwriter 5y ago> The guidelines all but state that you're not expected to read it before commenting: No, noting that accusations of not reading the article are never positive contributions to the discussion is not even in the neighborhood of advocating not reading the article. You can even point out that the article addresses a concern, as that is a useful contribution to the discussion.
- enterthematrix 5y agoPolicymakers but not legislators lol
- efitz 5y agoNext we need this for Congresspeople and their families.
- naveen99 5y agoMaybe they’ll just start issuing their own stocks instead, like Trump / truth social / DWAC !
- mark_l_watson 5y agoNow, if only the same rules could be applied to Congress. Congress critters giving themselves immunity from insider trading laws was a real sleeve move. I have friends who still believe that we have a fair and democratic government, but I just keep my mouth shut. Let them have their ignorance is bliss.
- squallgmn 5y agoNow do congress
- cwkoss 5y agoI would expect mutual funds are much more correlated than individual stocks to the effects of monetary policy. Requiring them to trade slowly so they can't game short-term market effects from their day job makes a lot of sense. I don't fully understand the ban on individual stocks vs mutual funds though. Is that just for ease of oversight? Is ex. tesla more responsive to monetary policy than mutual funds?
- deleted 5y ago[deleted]
- joelbondurant 5y agoNancy Pelosi went too far with insider trading, like Bill Clinton raping little girls.
- neycoda 5y agoIt's a start.
- bufferoverflow 5y agoThey will do it through friends / shell corporations.