Did you know that members of Congress are allowed to trade on insider information? Insider trading may get non-legislators tossed in jail, but according to 60 Minutes, our representatives prove “particularly adept at buying and selling stocks.” Democrats consistently beat the market by as much as 9%, and Republicans do pretty well, too. In fact, the Senate as a whole beats the market by 12%!
That 60 Minutes segment—and the resulting public outrage—finally got Congress moving, and 93 members quickly signed on to the Stock Act, which makes it clear that insider trading rules apply to Congress. The Stock Act was just approved by a Senate panel, but not everyone agrees that the bill will clean up Congressional stock trading. The Wall Street Journal’s Jonathan Macey says “If the law passes in its current form, insider trading by Congress will not become illegal. I predict such trading will increase because the rules of the game will be clearer.”
The underlying problem, of course, is that nearly everything Congress does will have repercussions in the market. Many bills—and even many procedural mechanisms—will influence the value of stock. In fact, it is hard to imagine what actions of Congress would not have an effect in the market. Does that mean the Stock Act will be practically impossible to enforce, or that senators and representatives will be effectively precluded from investing?