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Comment by pjc50 | Hacker News Reader

While the impact of this on corruption is likely to be small, it would be interesting to see how much of an edge on the market it would give you...

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The data are old, but from 1993 to 1998, US senators outperformed the market by up to 12.3% [0]

[0] https://insidertrading.procon.org/view.answers.php?questionI...

Who knew our officials were such savvy traders? We must be electing the right people.

Personally, my suggestion is that federal elected officials be required to put all their assets into a blind trust managed by some common third party (e.g., the CBO or a non-for-profit money manager). If public service is truly important to them, that shouldn't be a big barrier. We don't need people with a conflict of interest leading the nation.

Most of them do this. Like in the recent bashing of a bunch of senators for market insider trading a few of them had their money in blind trusts invalidating the criticism. One of them was Feinstein.

How would you deal with illiquid assets? I can't imagine a republican taking the business they spent their whole life building and putting it into a trust managed by government bureaucrats.

If they don't want to do that, they could always not become a politician? Maybe leave some space for people who aren't business owners, who are spectacularly over-represented?

Exactly. With 325 million people, we shouldn't have a problem finding 542 elected officials who are willing to put their full-time focus on the job.

I'm not seeing the bad part here. Every day there are people who sell off their business and go do something else. If an owner isn't ready for that, well, they can keep running the business. I also think it's fine if the trust doesn't really manage the business, but instead just sells it off and puts the money in stock and bond index funds.

And I think it's not just Republicans who would have to do some hard thinking here. Bloomberg is a Democrat, for example. Does he want to be president, or does he want to run Bloomberg? Both of those seem like plenty for one person to do. I think it's reasonable to say that if he wants to be our leading public servant for a number of years, he should sell off his business to people who have time to focus on it.

On the contrary! In some cases, individuals strive for elected/appointed office because there are clauses which allow for penalty-free exits from locked-up equity.

I realize this doesnt help for illiquid assets, but it does help for assets where you are locked into vesting schedules.

> common third party

so you're proposing one unelected entity which basically has full control of all personal assets of the legislature?

seems like a pretty big potential for vulnerability

You realize that one unelected entity has control over all the retirement assets of 40% of America, right? I think if we can handle the Social Security Administration existing, we can handle somebody running a small fund for less than 600 people.

You know that the SSA does not manage any market invested assets, right?

When Social security taxes exceed payout (which they haven't since 2009), the income is used to finance deficit spending and the SSA is given a special federal bond.

Sure. But there's an enormous amount of money flowing there, far more than in a tiny investment fund, so it's still a potential vulnerability. The US Treasury and the US Federal Reserve do manage actual assets, and again at enormous scale.

In that time period is was perfectly legal for members of Congress to engage in insider trading.

You are right, the STOCK act to prevent insider trading was passed in 2012. Since then, it seems studies have shown the advantage has disappeared [0]

[0] https://www.nber.org/papers/w26975?utm_campaign=ntwh&utm_med...

That's a suspicious timeline. 98 was the Russian financial crisis. Do you get the same number if you include the crisis?

There is a substantial delay between the time of the actual trades and their filing, so any edge they might have had is long gone by the time you have access to the data.

Probably not a very good one, somewhat surprisingly. I haven't run any analyses / haven't looked at this dataset in depth but from past forays into congressional datasets I don't really get what a lot of these people are doing. Usually you can throw a dart, check the financial portfolio, and see massive glaring problems immediately. Huge tilts into single / a handful of companies, totally outsized amounts of money in some random local small cap / mid cap, weird biases and tilts into commercial real estate (for example), you name it and you can see it. If anything I might investigate a counter-congress trading plan if you're looking for edge...

Actually, there have been studies done showing their trades beat the market! It is not possible to know their exact return but the studies I've read suggest they have alpha.

I think I’m gonna have to read up a little more, but I’ve seen this in support of the excess returns view:

https://www.nytimes.com/2011/07/10/business/mutfund/congress...

And this in support that avg congressional portfolio is not performing well:

https://www.mit.edu/~jhainm/Paper/Eggmueller_CapitolLosses.p...

https://www.morningstar.com/news/marketwatch/2020041854/sena...

Looks like there might be a historical component around the STOCK act that different studies play with for their data window. In either case — I still say for the poor level of diversification within & around asset classes that I don’t see a lot of shining examples of how to achieve success.

> I still say for the poor level of diversification within & around asset classes that I don’t see a lot of shining examples of how to achieve success.

Wouldn't you expect a poor level of diversification in a stock portfolio based on corruption? They aren't dollar cost averaging and diversifying. They're doing the exact opposite to maximize the trade.

Kinda, I guess for a sophisticated “corruption portfolio” I would expect to see suspiciously timed trading but maybe more coherent core holdings. Just because you have inside info doesn’t mean you have a time machine, you still have to protect against unknowns.

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