Taking advantage of the revolving door between the public and private sectors may be old hat. Recent controversies have revealed that US government officials have personally benefited from trading stocks and securities. The feeling that elected representatives, central bankers or judges may have used their privileged positions to enrich themselves will accumulate a constituency that rightly expects better behavior from these officials.
This week, Richard Clarida, the Federal Reserve’s deputy chairman, said he would like to thank following a supplementary disclosure he recently submitted, revealed surprisingly active mutual fund trading. This happened just as the pandemic began in 2020, when the Fed was preparing its stimulus response. It comes as one U.S. senator prepares legislation to prevent members of Congress trade individual shares. Compulsory disclosures have shown that some politicians are already actively buying and selling shares.
Policymakers have always had some influence over the well-being of the economy as well as individual industries, or companies. But in the pandemic era when monetary and fiscal stimulus plans seem to influence asset pricing behavior more than any other factor, those charged with the public interest must guard against putting their own finances first.
The US government, for better or worse, does have a few independently rich elected and appointed officials. For example, Nancy Pelosi, Speaker of the U.S. House, who opposes any ban on individual stock trading, comes from a household worth ten million dollars.
Existing disclosure requirements – Members of Congress must report their trades within 45 days – should theoretically discourage self-serving behavior. The Fed recently went even further after two senior resignations last year, now to ban senior staff of buying shares and bonds of individual companies.
Civil servants earn relatively modest salaries. Savings and investment are essential for all workers. But so far, simply using a disclosure-based regime has not worked. Strict attention must be paid to what security officers can own, along with when they can buy and sell. A patchwork system encourages cynicism and erodes confidence in its leaders.
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