On the eve of the COVID-19 epidemic spreading across the United States in February 2020, a New Jersey Congressman, Tom Malinowski, hurried to sell shares in Kimco Realty, a company that controlled shopping malls in the United States, and the company’s share price dropped by about 50% a month later. Ironically, in April, Malinowski pledged to the media that he would chastise anyone who profited from the outbreak. In terms of lawmakers’ trading activities, Tom Malinowski’s trading is only a tip of the iceberg. According to Capitol Trades, a publication website that tracks stock transactions by lawmaker public filings, 97 sitting senators or representatives reported their own or immediate family members’ transactions in stocks or other financial assets that intersect with the work of the committees they serve on from 2019 to 2021. Some lawmakers may be able to acquire stocks immediately before they surge in price, or sell them before they fall dramatically, due to their extensive engagement in forthcoming policy changes or economic events.
The following months after COVID-19 in 2020, Congress was at the center of public policy decisions in the United States, with members of Congress passing rescue bills totaling nearly $6 trillion and specifically authorizing more than $10 billion to assist biopharmaceutical companies in developing and distributing vaccines. ‘Coincidentally’, several biopharmaceutical and medical services companies that manufacture vaccines have been added to the stock accounts of some lawmakers during this period. Financial-disclosure filings by lawmakers show that at least 11 Senators and 35 Representatives own shares in Pfize a well-known biopharmaceutical company that manufactures vaccines, and Republican Marjorie Taylor Greene of Georgia is one of them, she is an ardent vaccine opponent who has publicly criticized US vaccination policy and has stated that she would never get vaccinated. But her stock account reveals that she owned three big vaccination businesses (AstraZeneca, Pfizer, and Johnson & Johnson). In early January 2020, AstraZeneca’s shares was trading below $10, as the epidemic spread, the stock’s value skyrocketed, with reaching a high of $61 in 2021.
According to MarketWatch, politicians and their families have amassed $355 million in stock trading in 2021. Notably, some members of Congress have profited greatly from their trades. Jacobin, a financial journal, even awarded Nancy Pelosi the 2021 Wall Street Trader of the Year. As a result, Speaker Pelosi has a unique group of social media followers who follow her stock holdings rather than her political issues, as his husband, venture capitalist Paul Pelosi, has been amply rewarded in the investment markets with a portfolio of high-tech companies such as Apple, Microsoft, and Tesla, which frequently become the subject of congressional and regulatory scrutiny. “Look at her stocks, I mean, she did better than Warren Buffett.” , former President Trump bluntly noted in one of his rallies rally in Arizona. Wall Street smelled a business opportunity in this, with one financial firm called Subversive Capital preparing to issue two ETFs (a type of pooled investment security that operates similarly to a mutual fund) to track the trades of lawmakers, both with simple names: NANC for Democrats after Senator Paul Pelosi and KRUZ for Republicans, after Senator Ted Cruz.
Are legislators becoming the best traders? This might be a serious issue. In fact, Congress passed the Stock Act (Stop Trading on Congressional Knowledge) in 2012, which prohibits members of Congress and staff from trading on non-public information obtained while performing their duties and it also requires congressional staff to submit trade reports to Congress within 45 days. However, the Act has two significant loopholes; few lawmakers have been penalized for this since its passage. On the one hand, establishing whether a member of Congress utilized insider information to trade is extremely difficult. Congress is a massive clearing house where all types of information converge, and a lawmaker may receive the same ‘insider knowledge’ from a hearing, a hallway discussion, or a dinner, and the boundary between what is public and what is not is mostly ineffective.
On the other hand, while members of Congress who violate the STOCK Act face fines, the penalties are very small, usually $200, and in addition they can apply to be waived by the House or Senate ethics officer. Over the last three years, at least 72 members of Congress have failed to record their financial transactions in line with the STOCK Act, according to public disclosures. 70% of these 72 lawmakers failed to record their financial transactions on time, such as Sen. Rand Paul of Kentucky, who revealed until 16 months later that his wife had acquired shares in a biopharmaceutical business that manufactures the antiviral medicine COVID-19. Another 26% of legislators did not disclose or did not properly disclose their financial transactions, such as Tom Malinowski, a Democrat from New Jersey, who did not disclose any of the dozens of stock transactions he made in 2020 and early 2021, which were only revealed after reporters pressed him.
A poll launched by Trafalgar in January, found that 76% of voters believe lawmakers and their spouses have a “unfair advantage” in the stock market and should not be allowed to trade stocks while serving in Congress, the issue of whether a lawmaker could engage in stock trading has managed to gain increasing bipartisan attention, with a cross-party ‘no-trading bill’ on the proposal, which aimed at banning direct trading by lawmakers while in office and place their financial interests into a blind trust. However, several significant elements remain to be discussed, such as whether spouses and family members of members of Congress should be included, and the proposal has also faced criticism, with some lawmakers claiming that the 2012 Act is sufficient and that all that is required is to shorten the time limit for filing and increase the penalty. Of course, there are opposing voices, with House Speaker Nancy Pelosi being the most outspoken in her support: ‘We are a free-market economy and legislators have the power to do this. They should be able to participate in that.’ The speaker told the reporters during a news conference.
Despite some agreement, the prospects of reforms to restrict trade is unclear, but one thing is certain. The disparity between rich and poor in the United States is bigger today than at any other period in history. According to data analyzed by Emmanuel Saez, an economist at the University of California, Berkeley, the wealthiest 10% of Americans make more than nine times what the bottom 90% earn. The richest 0.1% make more than 196 times what the lowest 90% of the population does. Since the COVID-19, the country’s elite’s financial riches have expanded rapidly, while the bottom is under immense strain to live. During the first months of the COVID-19, when tens of millions of people were laid off, homeless, and without food, some lawmakers utilized their informational advantage to buy and sell stocks to preserve their assets, and some even invested in the vaccine and drug distribution industries ahead of time and made huge gains.
In his book Capital in the Twenty-First Century, French economist Thomas Piketty marks out that the return rate on capital is much higher than the return on labor, that the nation’s wealth is being captured by a small group of people, and that the gap between rich and poor is widening, which could lead to turmoil. With racism, high CPI, and a volatile job market, society in the United States is more divided than at any time in history, and any of these social problems require great courage and wisdom from the elated lawmakers, while a significant portion of them is busy figuring out how to use their information advantage to benefit from financial markets.
The Roman Republic fell in 27 BC amid internal and external turmoil, despite the fact that Roman people created a political system that still shines today, in which the plebeians fought against the nobility to gain a plebeian assembly with a range of powers such as access to senior government posts, but as society accumulated wealth, elected officials gradually formed their own interests, and by the end of the Roman Republic, the Senate had become a tool for the nobility to acquire their wealth and access to governance was becoming increasingly confined by the wealthy, when the Republic’s fall was unavoidable, as we’ve witnessed, the Roman elite would rather see the state collapse than give up their own interests. A superior system may result in the state’s strength, but it may also fail to harness his people’s creativity and cohesiveness. As Mark Twain says, “History doesn’t repeat itself, but it often rhymes”，this is a long-standing wake-up call that demands attention.