Fed to ban policymakers from owning individual stocks
cnbc.com
cnbc.com
> 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.
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
> 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.
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.
That depends on whether you believe that accusations of not reading the article tend to cause people to read the articles.
No, what it is fairly charcsterized as it was upthread does not depend on that.
Whether you agree that it is generally good advice might depend on that, or more generally what the net effect of tolerating such accusations is on the tone and tenor of discussions.
Having experienced online discussions in many fora since the 1980s, I tend to agree that accusations of not reading doing more harm than good, like most collateral attacks on presumed motive, background, or other reasons for a post you disagree with rather than addressing and supporting the substance of the disagreement directly.
In startup parlance the fed is the rising tide.
It’s board of governors are employees of the govt.
Similar to most major corporations the “ownership” is highly nuanced. It’s roughly equivalent to three share classes, the govt has the shares that pay dividends and most of the voting shares. Chartered banks hold some shares that have some voting rights, roughly equivalent to holding shares in a credit union.
In some ways it’s a trust. As the beneficiary is the govt but it appoints a trustee and officially doesn’t own it.
Defacto it’s owned and operated lock stock and barrel by the govt.
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.
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.
Edit: clicked on your profile. Thanks for writing reghdfe. I use it with some coauthors on a project on healthcare now.
We would get more value, and much cheaper, by simply using a formula for money expansion and the resulting interest rate.
About reghdfe, you are welcome! I wrote it because the server for my PhD thesis was a piece of crap, but it kinda found a life on its own!
And it would be perfectly rational for an economist (or someone else) to trade a single stock if they had non-public information and there was no downside. Right now the downsides (it’s unethical / a gray area but depending on one’s position not always illegal) are not fully baking in the costs to society (e.g. a trader with non-public knowledge can get ahead of the broader market, impacting the ability to have a “fair” market and increasing costs for other investors).
I strongly believe that policy makers need to be indexed with broad exposure across, at a minimum, industry sectors but more preferably the US economy (or a state’s economy if they are a state representative). There is too much room for misaligned incentives (buy our depressed stock, pass this bill, make a couple million) that should be removed.
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.
Congress currently is exempt from insider trading that comes about due to executing congressional duties. They would have to pass a law subjecting themselves to it.
The SEC can refer apparent criminal violations to the Department of Justice, which is the only federal agency which can pursue criminal charges.
One of my Senators is pushing for an end to trading of individual stocks: https://www.npr.org/2021/09/22/1039565467/many-believe-its-t...
A better approach, IMHO, is to make their trades available to the public as quickly as possible, and force brokers to mandate trading grace periods for elected officials. At least then, the public has a chance to get in on the action. So if a corrupt-ass senator on the house foreign intelligence committee buys up some pharma companies after a closed door briefing, r/WSB will have a chance to get in on the action first.
No, because the SEC doesn’t have authority to do that.
Congress did that, once, but then delayed it becoming effective until finally they decided to repeal it.
I think transparency is enough, because banning trades is too hard, and probably unfair.
But that can't happen. Because people are more likely to vote for a knowingly corrupt politician as long as they're in the right party, over another politician in the wrong party.
Probably - in part - because of conditioning by our politicians, scaring us that the other "side" is going to do something real bad if they ever "win". Nevermind the other "side" "wins" every 8 years or so.
I don't say this disparagingly. I think I suffer from it to some extent too. I just don't know what to do about it and it makes me sad.
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-ethi...
Basically, do a good job for the economy overall and then your net worth will increase.
* how behavior changes when elected officials are required to have their interest in line with their constituents.
* what mixes people choose.
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.
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.
The economy's health is not necessarily accurately reflected in asset valuations (which is what index funds track).
When it becomes clear the pie will stop growing for a little while, wealthy politicians have the perverse incentive to enact policies increasing asset prices at the expense of overall productivity (in 2021-2022 this manifested in money supply increase combined with lockdowns to delay inflation until after the transfer of wealth).
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.
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?
Also the last time there was any rule about congress insider trading they just waited until nobody was looking anymore and revoked it.
"Under the new law, the beefed-up reporting requirements will still apply to the president, vice president, members of Congress and candidates for Congress."
https://www.npr.org/sections/itsallpolitics/2013/04/16/17749...
There doesn't seem to be any problem with getting the reports that members of Congress are filing. Check out senatestockwatcher.com and housestockwatcher.com or https://sec.report/Senate-Stock-Disclosures.
The problem is that even though there are known violations, there are no punishments.
But more importantly: lawmakers are judged by voters. If media reports that a lawmaker tried to dodge laws or even ethics frameworks then voters should deliver the punishment even if a court can’t.
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
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.
If you become known for being uh.. "corrupt", the market will price out your gains.
Alas, I don't think it's likely any legislative body will pass meaningful tech regulation anytime soon.
> 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-...
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.
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.
If you want any chance of competing on the global stage in the 3rd millennium, the solution is to embrace big government and do it right. It is possible to implement anti-corruption mechanisms. Like any security measure, they will never be infallible, but they will certainly increase the friction required to be corrupt.
Otherwise, your country will be a sickly host to parasitic & transnational megacorps. Like America and many smaller countries today.
The centralised American army, with its huge spend, doesn't have much to show for.
I dislike megacorps as well: I would prefer to have smaller businesses so that the power would be more spread across society.
Incidentally the government and their regulations are often what helps monopolies to solidify and become unbeatable. Maybe if you get rid of all government and not only of "big government" you will have less corruption and mega corporations as well.
Besides, in practice big government rather prefers doing business with a few big companies and national labor unions who will pay for the politicians’ campaigns and talk up their agenda — applying discretionary enforcement to hobble enemies, and big-time regulation can be a major barrier to entry that reduces competition for your friends. Perhaps you don’t believe me? For a trivial example in recent memory about how government is happy to oppress its enemies by “holding them to account”, consider Operation Chokepoint.
It’s a valid concern, mind you! I’m just skeptical of the remedy. You need a hell of a lot of faith in the policies of the next several decades to think this is a good idea. I don’t.
Except if the barbarians talk about Taiwan (see Jon Cena) or Uygars. China has cowed even the NBA and western movie companies from going near those subjects.
Also, this Uighur thing is blown totally out of proportion. [1][2] I'm not suggesting anyone believe Chinese officials or media. I only suggest we view USA officials and media with a modicum of skepticism.
[0] https://en.wikipedia.org/wiki/Indonesian_mass_killings_of_19...
[1] https://foreignpolicy.com/2021/02/19/china-uighurs-genocide-...
[2] https://morningstaronline.co.uk/article/f/xinjiang-staying-a...
China has concentration camps, kill businesses with a whip of the hand and apparently have half of the world (probably including your government) on their payroll.
I have no doubt that many in my government are on China's payroll, especially at the state and local levels. USA government is not a monolith, however, and MIC still pays enough people to keep the whole "security" hoax going.
You are effectively demanding that policy makers be self sufficient, which selects for those policy makers most likely to benefit financially from policy decisions.
That's an absolute ton of money. You can live comfortably (but not luxuriously) anywhere on earth with that salary.
Power. Exposure. Experience and connections that are useful in highly-paid lobbying and other political influence positions. Serving their own direct, or others who will be thankful, financial interests in ways that will generate orders of magnitude more returns than the direct pay of the position. Etc.
And $174k is a solid upper middle class income, even in DC. Many Congressmen live near my parents in Alexandria in lovely homes.
sure hope it remains visible in the comment hierarchy.
“The Speaker has no prior knowledge or subsequent involvement in any transactions," said the spokesperson.
“The Fed” as in the Federal Government: yes.
... If you want to help, you must throw all of your startup equity away.
... No, you may not co-brand with that company (which is not complicit with your agenda).
... Besides, I'm not even eligible for duty: you can't hire me.
... Maybe I could be more helpful from competitive private industry.
... How can a government hire prima donna talent like Iron Man?
... Is it criminal to start a solvent, sustainable business to solve government problems, for that one customer?
... Which operations can a government - operating with or without competition - solve most energy-efficiently and thus cost-effectively? Looks like single-payer healthcare and IDK what else?
(Edit)
US Digital Services Playbook: https://github.com/usds/playbook
From https://www.nist.gov/itl/applied-cybersecurity/nice/nice-fra... :
> "NIST Special Publication 800-181 revision 1, the Workforce Framework for Cybersecurity (NICE Framework), provides a set of building blocks for describing the tasks, knowledge, and skills that are needed to perform cybersecurity work performed by individuals and teams. Through these building blocks, the NICE Framework enables organizations to develop their workforces to perform cybersecurity work, and it helps learners to explore cybersecurity work and to engage in appropriate learning activities to develop their knowledge and skills.
From "NIST Special Publication 800-181 Revision 1: Workforce Framework for Cybersecurity (NICE Framework)" (2020) https://doi.org/10.6028/NIST.SP.800-181r1:
> 3.1 Using Existing Task, Knowledge, and Skill (TKS) Statements
(Edit) FedNOW should - like mCBDC - really consider implementing Interledger Protocol (ILP) for RTGS "Real-Time Gross Settlement" https://interledger.org/developer-tools/get-started/overview...
From https://interledger.org/rfcs/0032-peering-clearing-settlemen... :
> Peering, Clearing and Settling; The Interledger network is a graph of nodes (connectors) that have peered with one another by establishing a means of exchanging ILP packets and a means of paying one another for the successful forwarding and delivery of the packets.
Congress gets paid like 174k a year. Sure, it's a lot of money compared to the US median, but anyone who can get elected to Congress can earn that elsewhere.
For tech, 174k isn't even a big salary; we're talking an industry where a starting SE salary at a FAANG is around there. That's not a huge paycheck for a 24/7 job like federal politics.
The history of unpaid and low-paid legislatures (of which there is quite a lot) does not really support this idea.
You're describing what we already have.
The argument being made is that if you're going to pay people a low wage, they'll just increase it by trading some of the power they yield in exchange for money for themselves, which is the problem we're trying to solve for :)
In fact, that might be the reason that politicians are paid so poorly now: they can just be drawn from the pool of political insiders and parachuted into districts.
Like another poster said, political term limits of 10 years in combination with this seems reasonable.
I don't want people making careers out of politics. Nothing good comes of that.
Also doesn't capture in the the unequalness of gains. Which is better - the fed doing something that has 90% chance of huge gains or a 10% chance of catastrophic economy shattering loss? Or an 80% chance of huge gains and a 20% chance of gains netting 0? The first is much more desirable if maximizing a bonus and could be tempting - but I dont think we want that risk.
Politician + lots of money = golden toilet?
In other words, money works for building a competence hierarchy in business. It doesn't for politics.
What you want is a competence hierarchy in politics. It needs its own separate currency that can only purchase political decisions.
Because it doesn't have that, money is used and that creates a business-in-politics aka corruption problem.
ps. Has this been tried anywhere? This is an idea I thought of on the fly and have not looked into or thought through.
Government is corruptible, so we should have small/weak governments.
But, a small gov. doesn't solve the root problem, it just make it easier to corrupt what little power is left. Isn't the real solution to have some group responsible for providing oversight and enforcement to elected officials?
Most US citizens seem to consider their government to be a "Democracy", that responsibility/authority should therefore naturally fall on the whole of their citizens.
Saying that it is the citizens fault for our politicians corruption is the same flavor as saying it is citizen’s faults for global warming because we use plastic and drive cars.
Those who advocate for small governments tend to remove the best parts first because they are "optional". A lot of tax cuts are financed by cutting government investments which ultimately result in less overall investment in the economy.
The entire intent is to attract very talented people that want to do a good job. Having access to the levers of power is much less of an incentive as a (theoretical) result.
P.S. To be fair, I think part of the reason Japan has this is that a lot of homes lack house-wide heating systems. They have things like kotatsus (heated tables) or space heaters. So it actually gets really cold in the winter. Having a warm toilet seat then seems like more of a necessity. But still...can't we just have warm toilet seats?
https://www.theguardian.com/us-news/2020/apr/14/us-bidet-toi...
I've had one installed in my house for years, and am 100% going to install one wherever I live in the future. The hygiene and comfort improvements are phenomenal.
Singaporean here. Some of us think that there's a fair bit of legalised "corruption" and cronyism in the public system. :)
(For the sake of avoiding any potential defamation suits that Singapore politicians are so famous for, this is entirely my opinion.)
And I would argue that historically you see this. Saudi Arabia modernized with a lot of corruption. The US modernized with a lot of corruption -- the period of American industrialization and modernization was called "The Gilded Age". Now there are huge bureaucratic processes, checks and balances, all sorts of oversight -- and it's extremely hard to get anything done.
Anyone who is capable of getting the job as Fed Chairman will have no problem making a lot, easily and legally.
Believe it or not, some people go into public service with the desire to serve the public. Sometimes there are people who have already achieved tremendous financial success.
If under "public" you mean riches who buy those "public servants" in bulk using legalized bribes and cushy corporate jobs after terms then I would agree.
I am sure there are few good exceptions but they do not paint the whole picture.
Their package include health & life insurance outside the general public market, social security, FERS, CSRS, personnel & office and mail allowances, office space, furniture, office equipment, food, laundry, and much more.
It will definitely not make them millionaires, but will allow them to live an upper echelon life; compared to some of us, even luxurious life.
However, the Fed is distinct from Congress. Not sure if the Fed also participates in FERS.
https://en.wikipedia.org/wiki/Congressional_pension
https://en.wikipedia.org/wiki/Federal_Employees_Retirement_S...
Fully vested, but at 1.0% of the top 3 years salary per year of service. So, sure, at 5 years of service @ 174K per year, they could draw pension at 62 – but that pension would only be $8,700/year.
So I agree wholeheartedly: $160k is a large salary for the vast majority of the world, and I would guess that its large for many of HackerNews' global readers.
Quoting what I wrote about "some of _us_", as I am unclear if you are being tongue in cheek, or seriously think I think they are underpaid.
I don't think a pay raise would impact it at all
>The ban includes top policymakers such as those who sit on the Federal Open Market Committee, along with senior staff.
Like 1B/year for President or something.
Some amount that would attract the best, and make being corrupt seem so very counterproductive.
If they're bad at being a president, then at least they contributed to society.
How many people would compromise their ethics a bit for $1,000,000? how about $10,000,000? $100,000,000?
Most everybody.
It's easy to be virtuous when there's no temptation.
It depends what you mean, but I think you underestimate people. We all contain virtue and greed, and have the free will to choose which we will favor.
Of course, it's more complicated than that anyway: What happens is that some kinds of corruption become normalized and thus people don't feel they are violating ethics, and some corruption, though objectively no worse, is not normalized and is responded to with outrage.
It's still not a good idea to tempt people too much, and any system should be set up to not be too tempting.
It's exactly the same argument as paying for media not to include advertisements.
What we should do is stop filtering for trash by having jobs that pay $174K require multi-million dollar application fees (i.e. a campaign.) That's exactly how you would hire for a job if you wanted to make sure that the primary purpose of having that job was personal enrichment. We talk about being saddled with college debt; we can see the results of being saddled with campaign debt.
How does that happen when your government is run by two tiny private clubs fueled by exactly that sort of personal ambition? It doesn't. Getting a handle on corruption in the US is going to take a lot more than a few tiny adjustments. Especially when the people responsible for making those adjustments would be the corrupt class we would be claiming to fix.
Expecting Congress to fix itself when Congress is composed of the people who were good at this process is bizarre. The best a centrist can do is wait for the courts to fix it.
edit: The court broke it more with Citizens United. It simply doesn't believe that self-enrichment from politics is bad in and of itself. It believes that part of democracy is that the elected person has a mandate to do what they think is best, within the rule of law, and helpfully abolishes any laws or norms that would prevent bribery.
https://www.newyorker.com/news/amy-davidson/the-supreme-cour...
I agree better pay is not the answer. The only reasonable alternative is to reduce their powers (especially reducing the amount of money they can spend and the laws they can impose on people) and spread them to local entities.
Decentralisation is the only antidote to government corruption and waste.
Citation definitely needed on this one.
Not the parent, but Singapore comes to mind as a great example of one party having their fingers everywhere, including the supposedly-apartisan civil service, the trade unions, the political grassroots organisations, and most of the mainstream media organisations.
Singapore's two sovereign wealth funds invest in a massive number of local and foreign companies, and often install people they're grooming (usually ex-military) in fancy positions to boost their resumes [1].
Quite a few Members of Parliament hold quite a few directorships in supposedly private companies [2], but it's all fine and dandy as long as the affiliations are declared.
[1] https://www.reddit.com/r/singapore/comments/i2bnzz/how_does_...
[2] https://singaporearmchaircritic.wordpress.com/2014/07/23/mps...
That is not how corruption is fixed.
(Just a thought experiment, not something I'm seriously proposing.)
Singapore indexes its government pay to that of the private industry for this reason, but they're also ruthlessly meritocratic and some might say, elitist. Yet also very effective. The two seem related to me, but it might not mesh well with American values.
I'm u/mywittyname with Beutsche Dank I run an index fund for senators. How it works is, you give me a call anytime you hear about an opportunity and my team of crack investors will look into it, making the trade if we feel it is a good fit. We currently have 200 congresspeople on board and have been beating the S&P500 benchmark by 500% annually.
It's a $1,000,000 minimum, but we can line up financing if you can't swing that just yet.
Trading options on sure things can easily generate >10,000% returns in a matter of days if the swing is large enough. All it takes is a few of these sure things a year to generate staggering returns.
Imagine what you could do with $100,000 in options contracts if you knew about the next Lehman Brothers collapse. That particular event turned a $0.01 option into $50-75, the on the flip side, the manager could offer OTM puts on existing holdings that would practically nullify any loses. Granted, you don't get a LB-level event every year, but there's always a few pretty good ones each year.
For most elected officials (that have broad scope of potential jurisdiction and thus are almost impossible to avoid conflicts of interests), blind trusts are probably even better.
For most public servants, even those that have decision-making authority that could potentially raise conflict interests, disclosure and recusal rules are probably all that is needed (and, actually, lots of public servants have no decision–making authority that is likely to even require that.)
Appellate and Supreme Court judges could arguably fit in either category; trial court judges seem squarely in the second.
Most elected officials (almost all federally) already employ blind trusts.
>For most public servants, even those that have decision-making authority that could potentially raise conflict interests, disclosure and recusal rules are probably all that is needed (and, actually, lots of public servants have no decision–making authority that is likely to even require that.)
True there are many levels and for lower level (comptrollers and such) that is probably fine. For senators, representatives, judges, etc. the index/bond fund would be even better than the blind trust, since these index funds are publicly inspectable, passively managed, and anyone can buy them.
>The ban includes top policymakers such as those who sit on the Federal Open Market Committee, along with senior staff.