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Comment by giantg2 | Hacker News Reader

It's the most blatant example of insider trading. Company insiders might have inside access to a single company. Lawmakers have access to inside information that can affect the entire industry or market.

It's a perfect example of how we do have class stratification in society and that rule of law and equality are laughably distant ideas in a sea of hypocrisy.

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I think the cleanest law here is to change the law to clarify that non-public information gained by public servants and representatives that can have an affect on a stock's price should be treated as "material non-public information." Then the SEC can do their jobs like they do with other insider traders.

Remember that ONLY elected congresspeople are exempt from rules like that. Other public servants are not. This is one of the biggest signals that the US is an oligarchy and not a democracy.

I'd go a step further and restrict them to index funds. Even just holding a stock could affect their judgement. So they might not trade it to their benefit, but they might make the wrong policy decision for the country.

The NPR article says "pushing a bill that would require members to divest individual stocks within six months of taking office and limit their investments to mutual funds." This new distinction (investment opportunities for members of Congress are different than investment opportunities for other Americans) creates a new conflict of interest for lawmakers who then must choose whether to invest in mutual funds instead of non-stock-related asset classes. https://www.cnbc.com/2021/09/16/democratic-plan-would-close-... suggests that the Senate may soon consider a less favorable tax treatment of the use of in-kind redemptions by mutual funds. If senators perceive that their own stock investments will be limited to mutual funds or other funds (i.e., not individual stocks), then they may have a greater incentive to vote against this tax-law change, regardless of whether the change is good public policy.

You can do a lot more with index funds than you think. For example, you can buy sector index funds to get exposure to more limited stocks, and going further, you can actually construct linear combinations of index funds to gain exposure to single stocks. Maybe if you restrict them to only S&P 500 index funds then you could stop them from trading like this. I would rather they just be barred from trading on insider information regardless of the trading vehicle.

> I'd go a step further and restrict them to index funds.

Or alternatively, restrict them to govt debt only. Make sure they have direct skin-in-the-game for the debt they're responsible for managing.

Hahaha that's awesome. I bet they would abuse that too though

True, there would have to be some requirement that they keep, say, at least 30% of their net worth invested in govt debt for 10yrs after they leave office. To better incentivize them to manage it for the long term rather than short term.

> "This is one of the biggest signals that the US is an oligarchy and not a democracy."

The constitutional doctrine of separation of powers generally limits regulatory law enforcement by the executive against the legislative branch. This is actually a signal of constitutionally limited government-- this is a design feature.

This feels like a stretch. I really doubt anyone who designed the constitution intended to give lawmakers the ability to trade on insider information obtained through their position legally.

No, but they intended to limit the Presidents ability to create new regulations that could put legislators in jail.

Except the legislature gave the executive branch the power to create and enforce those regulations. Not to mention the type of abuse the restriction is aimed at preventing would still be allowed to take place against regular citizens (classic examples are ATF definitions changing randomly and even conflicting with statute or other regulations).

Yes, it gave the executive branch those powers but exempted itself.

And with good reason - can you imagine if a sitting president created a new regulation that conveniently put his congressional opponents in prison?

Do you have a link to that?

Can you imagine a world where the president can do the same to ordinary people? On the whole, regulatory agencies lack the checks and balances that our system is supposedly built on.

https://www.heritage.org/courts/report/who-will-regulate-the...

Yeah, and this means the regulation of shady activity on the part of the legislature falls to the legislative body itself. And I get the philosophy behind it, but it's the figurative fox guarding the henhouse here. This is why any legislature proposed by the few principled figures in Congress that proposes to curb corrupt practices like this in the legislature is usually dead on arrival.

You're going to have to reference some court decisions to clarify your point. We're not talking about the executive regulating the legislature itself, but rather enforcing general laws against individuals in their personal capacity while those individuals happen to be part of the legislature.

Your argument is akin to saying that members of congress cannot be prosecuted for murder through the usual channels, because that would be the executive interfering with the legislature.

Furthermore, how is the legislature not able to bind itself to have its members be subject to law enforcement by the executive branch?

Other countries have no problem prosecuting lawmakers for insider trading.

Judges also have strict rules about what they can and can't trade. So do congressional aides, and the capitol police (both part of the legislative branch). It's only members of congress who don't.

Insider information is notoriously difficult to identify and prosecute, so while this is an important aspect, I dont think it is a complete solution. We would have to understand what the SEC baseline is for catching insider trades.

The easiest and most robust solution is a blind trust.

I'd be more concerned that if a law maker had a million of Tesla stock and Tesla lobbied them, it would take someone with concrete morals to not factor in their potential gains. Humans are not great at making decisions without considering their own incentives - you can trick yourself and your subconscious can sway you.

Morals, or a different risk/reward ratio

The people with the best morals/ethics understand the subconscious part and remove themself from the situation by not holding individual stocks in that capacity. As a society, I would hope we could do a similar thing and legislate it as a requirement.

It gets even more complicated than that..

When they bought that Tesla stock, was it just because they thought Tesla was a great investment opportunity or was it because they believe in a renewable energy economy? If it was an ideological investment too, then they may make decisions to support the industry (and therefore their investments) naturally without any nudging. The lobbying/campaign contributions are just gravy at that point.

I lean towards NPR saying "mutual funds or nothing" but it doesn't address the fact that they could still leak sensitive information and/or help out a family member, friend, etc, etc

Ohh, you mean like the current Democratic leader of the House of Representatives?

https://finance.yahoo.com/news/nancy-pelosi-buys-tesla-calls...

it’s orders of magnitude worse than mere profiting from inside knowledge. these people make policy for the entire country and they have conflicts of interest.

Good point. Maybe all that’s needed is for better prosecution of insider trading for these guys?

Of course the problem is the power they have to resist or meddle in any prosecution efforts… that’s always the problem with holding the powerful to account, I guess.

The biggest issue in enforcement efforts is not that they can meddle, it's that they are "one of us". They are insiders of the system and other insiders don't want to arrest or prosecute them because there are ulterior motives. One is that if they start arresting and prosecuting insiders for something like this, that may remove the longstanding customs that protect themselves from similar things. There's also the idea of upholding the offices they hold. For example, complaints against judges are so secret that they will not disclose information related to them even if they contain exculpatory information and you subpoena them. Why? Because secrecy is necessary to preserve the public's trust in the system. If anything, that secrecy and reasoning should make any rational person question the integrity of the system. There are also plenty of stories of high profile politicians blatantly ignoring any number of laws and putting people in danger (driving violations are extremely common).

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