What should lawmakers do about personal stock holdings?


USA Today had a couple of dueling editorials yesterday about stocks held by lawmakers. Should they recuse themselves from votes if they hold stock in company that could be affected by legislation or oversight hearings? Or should the disclosures be made more accurate and accessible?

The first editorial poses that stock holdings create an appearance of conflict:

Lawmakers, of course, uniformly deny any connection between votes and holdings. There’s no direct proof to the contrary. But, when a vote can significantly affect a stock’s price, there’s at least the appearance of a conflict of interest. And weak disclosure rules make it hard for voters to judge for themselves.

The rebuttal editorial states:

In the Internet age, personal financial disclosure reports should be filed electronically and be publicly available in searchable and downloadable format. The public has a right to conveniently access this information whether from judges, administrators or legislators. Online public disclosure will promote ethical behavior and educate voters when they next vote for their representative.

Both views are absolutely correct and there are ways that lawmakers could eliminate this appearance of conflict through individual and legislative action. First, as the initial editorial states, lawmakers could follow the example of Rep. Barney Frank and “confine their equity holdings to diverse mutual funds.” I don’t personally think that lawmakers should be suspended from trading stock, but if they do care about reducing public distrust they could move their equity holdings into something that does not create public suspicion.

Secondly, Congress needs to pass reforms to their personal financial disclosure rules. These rules do not provide timely disclosure and do not provide accurate information. When the resulting disclosure documents are released it is like finding an incomplete artifact at an archaeological dig. If anything, these incomplete rules create more suspicion about lawmakers, not less, as they were intended to do.

An initial step to fix this would be to pass the financial disclosure reforms in the Transparency in Government Act. These include simplifying the ranges used to denote the value of each asset, online disclosure, real time disclosure that is downloadable, searchable and sortable, and requiring more frequent (quarterly) disclosure for asset sales or purchases exceeding $250,000. That’s a good start.

One could even argue going further and requiring lawmakers to disclose their stock trades after they make them. This could dissuade any actual improper behavior and┬ádispel┬áthe common belief that anything lawmakers do is to enrich themselves and their friends. This both creates an accountability mechanism and is in the lawmaker’s self-interest.