As GameStop’s share price seized the internet’s attention this week, another set of news stories about the stock market went all but unnoticed. Senator Dianne Feinstein, according to a report published by Business Insider, acknowledged that she had failed to disclose a major stock purchase that her husband had made, as she is required to do by law. And either Nancy Pelosi (or her husband) spent at least half a million dollars investing in the electric vehicle manufacturer Tesla in late December—weeks before President Joe Biden would pledge to convert the entire federal government fleet to electric vehicles.
In isolation, these revelations are small potatoes. Even without inside information, anyone could have predicted that an incoming Democratic government would be good news for electric car manufacturers. But these stories shouldn’t be looked at in isolation. They are part of a pattern of wealthy politicians being too greedy to stop themselves from playing in the markets, even though it’s terrible politics and almost inherently unethical.
Members of Congress, because of the nature of their jobs, have more inside information about markets than almost anyone else in America, except perhaps the executives of publicly traded corporations. And yet our elected officials trade hundreds of millions of dollars worth of stock every year. As a result, congressional insider trading scandals bubble up regularly—more regularly, probably, since the passage of the 2012 law that forces members to disclose large stock trades. It is impossible to avoid the appearance of corrupt self-dealing if the people responsible for oversight of the economy, and for creating the laws that govern how the economy operates, are also allowed to personally trade individual stocks.
The only defense of this practice is that it would be unfair to members of Congress to bar them (or their spouses) from doing what they please with their own money, and that we should simply trust them not to behave unethically. This answer might persuade people who admire Nancy Pelosi and Dianne Feinstein. (Pelosi, at least, discloses her transactions, and Feinstein offered to pay a fine for neglecting to disclose hers.) But I can’t imagine many of those people would give Kelly Loeffler or Richard Burr or any of the Republicans caught up in insider trading scandals over the last few years the same benefit of the doubt. That knee-jerk partisan response should be enough to convince anyone that Democrats should voluntarily stop trading stocks: No one, other than dedicated partisans, will grant them the benefit of the doubt as to their intentions and ethics.
Feinstein’s husband’s trades have already repeatedly gotten her in trouble. As Business Insider notes, in 2018 she also neglected to disclose a purchase of between $100,000 and $250,000 in Facebook stock until after Facebook CEO Mark Zuckerberg testified before the Judiciary Committee on which she served as the ranking member. Last year, she was among the members of Congress investigated for potential insider trading related to the Covid-19 pandemic—you might remember that scandal as the one that plausibly contributed to two senators losing elections in Georgia this month.
Her hands may have remained clean throughout those scandals. But whether or not she engaged in wrongdoing or unethical behavior, these stories do untold damage to the Democratic Party among an electorate that is increasingly primed to see all politicians as crooked.
Prior to the GameStop madness, when the subreddit Wall Street Bets was a quieter community of degenerate gamblers, members tracked Paul Pelosi’s market moves, often treating them as a joke about their own compulsive trading. (“So Paul reads /wsb,” one of them joked after seeing him make some bets on Netflix and Amazon that could have cost him a small fortune.) Most of the people in that crowd also took it for granted that Paul Pelosi is engaged in regular insider trading.
This is not a belief exclusive to one subset of Reddit users. Most ordinary people think official Washington is awash in corruption and that effectively everyone takes part in it. Some Democrats don’t seem to think this is worth directly addressing, because the far-right version of this belief quickly leads to conspiratorial and deranged explanations, culminating in theories like Pizzagate or QAnon. But most people who believe Washington is corrupt don’t have those ideological commitments; they just think the system is rigged and most politicians are engaged in self-dealing.
The Democrats should be able to take advantage of that attitude. The Republican Party is full of extraordinarily corrupt people, and it’s good politics to expose the misdeeds of the other side. But to do so convincingly, you have to stamp out any plausible hint of self-dealing on your own side. That requires understanding how many people are disgusted with our political system, not just because the conservative media machine amplifies phony grievances. It is not conspiratorial to wonder what leads the incredibly wealthy banker spouses of high-ranking members of Congress to make the specific individual bets their partners periodically disclose to us, when they remember to.
Over the last few years, the idea of banning members of Congress from trading stock—by forcing them to put their holdings in truly blind trusts or even only allowing them to hold mutual funds and exchange traded funds—has gained support from the populist wing of the Democratic Party. Senators Jeff Merkley and Elizabeth Warren have both endorsed the idea. In the wake of the Kelly Loeffler scandal, even Republicans like Representative Chip Roy got on board. The proposal is as close to a political slam dunk as an anti-corruption policy gets. It would be both enormously popular and completely uncontroversial among everyone except perhaps a hypothetical trade group representing the financial advisers of congressional spouses.
The only reason I still have my doubts that the proposal will ever be implemented is that certain high-status Democrats truly do not believe members of Congress trading stock is a problem; or, rather, they think that the real “problem” is people complaining about this kind of behavior. There is a very powerful and seductive belief, among elite politicians, that because they know, deep in their bones, that they themselves and their colleagues are honorable, wise, and ethical people, just about any way they make money is also honorable, wise, and ethical. The character of the person matters more than the act. This is the attitude the White House press secretary adopted when she dismissed out of hand a question about whether it was appropriate for the secretary of the treasury to accept $810,000 in “speaking fees” from the financial firm at the center of this week’s GameStop stupidity, by saying Janet Yellen is “an expert and deserves that money.”
Many Democrats believe that about themselves, and their colleagues, and that is why they think they are fundamentally incapable of corrupt self-dealing. They need to understand that almost no one else in this large country shares that belief, and those are the people they need to win over.