Gallery:Step 3|Step 3: Stock Pickers

Taking Stock of the STOCK Act

Gallery:Step 3|Step 3: Stock Pickers

     In November of 2011, 60 Minutes did an eye-opening expose’ of members of Congress who profited from stock trading based on information.  The truly stunning aspect of this story was that all of it was perfectly legal since, as the authors of the laws governing insider trading, Congress conveniently exempted themselves from its provisions. The scope of the problem goes beyond possession of information and includes privileged access to initial public offerings, which are usually quite lucrative for those lucky enough to obtain shares at the initial offering price, but for investors who buy shares after they have hit the market, the results are often disappointing.

     In the aftermath of outrage that followed this story, congress almost unanimously passed the Stop Trading on Congressional Knowledge (STOCK) Act. Not only did it prohibit the exploitation of non-public information, it required public disclosure of financial information by members of Congress, their staff, and other federal employees with access to privileged information. A review by the National Academy of Public Administration found that this disclosure requirement could potentially harm both federal agency missions and employees, particularly via identity theft. In response, Congress repealed the disclosure provision of the STOCK Act by unanimous consent.

     In my opinion, a better approach at the outset would have been for members of Congress to have all of their financial assets in either a blind trust or something like the Thrift Savings Plan (TSP) for federal employees. TSP utilizes five index funds that are managed by BlackRock at an extremely low cost. Having all their financial assets in broad market index funds would more closely align the personal interests of our legislators with the overall economic well-being of the country. As for the capital gains taxes resulting from the liquidation of their existing individual stocks, I would be more than happy to waive them, but perhaps our political betters should be willing to voluntarily pay them to help out with the enormous debt they have foisted upon us.