Reviews | Why public officials should invest in the index mutual fund
Friends, I’m here to tell you about a simple product that could help restore public confidence in government officials: the index mutual fund.
A surprising number of people who run the country cannot seem to separate their private investments from their public responsibilities. They own shares in companies they supervise; they make public policy decisions that increase the value of their private portfolios. They dance to the borders of illegality, and even when it is impossible to prove that they have broken the law, they clearly trample on public trust.
Earlier this week, two members of the Federal Reserve’s policy-making committee announced their resignations following the revelation that they had traded last year in assets whose values ââwere affected by the response from the Fed to the pandemic / recession.
This echoed earlier revelations that a number of senators had executed well-timed stock market maneuvers at the start of the pandemic, a period in which the Trump administration was making dire predictions in private while smiling brilliantly in public. .
Former Georgia Senator Kelly Loeffler, for example, sold around $ 20 million in stock from the day she attended a private briefing on Covid for senators in late January 2020. She also invested between $ 100,000 and $ 250,000 in Citrix, a company which offers teleworking software.
There are disturbing examples in all branches of government. To take just one of the most egregious examples of the Trump years, Wilbur Ross, the former secretary of commerce, broke his promise to cede some of his stock and then lied about it.
Neither Fed officials, senators, nor Mr. Ross have been charged with breaking the law, although that may say more about the state of the law than their behavior. But a new Wall Street Journal investigation found that 131 federal judges broke the law between 2010 and 2018 by presiding over cases involving companies in which they or their families were also shareholders. In a significant minority of these cases, judges or their families bought and sold shares while the case was in court.
The current system, by relying on the integrity of public officials, undermines confidence in the integrity of these officials. Americans should not be asked to believe that public servants reap the benefits of political decisions only by coincidence – a claim that boggles the mind.
Fortunately, there is a simple solution: Public officials should be limited to passive investments like index mutual funds, which invest in broad categories of companies or assets. Everything else, like a family business, should be left to a blind trust.
Improving disclosure requirements helps expose conflicts of interest, but it only serves to highlight the inadequate, inconsistent and poorly enforced state of current law.
When caught, officials tend to insist that conflicts are unintentional.
R. Brooke Jackson, a Colorado federal judge who has overseen 36 cases involving companies in which he and his wife owned shares, told the Journal he doesn’t pay attention to his investments. âI preferred to stay in the dark,â he says.
Ms Loeffler, one of the richest people to ever serve in the Senate, also insisted that the exchanges were carried out “without our input, our direction or our knowledge”.
Since the alternative is to confess to wrongdoing, the emphasis on ignorance is not surprising. It may even be true. But it’s not good enough.
Robert Kaplan, chairman of the Dallas Federal Reserve, bought shares of Apple while the Fed bought the company’s bonds as part of its broad campaign to support financial markets. Kaplan says he hasn’t broken any rules and is resigning because the public outcry is a âdistractionâ from the Fed’s mission. But the point is, Fed officials shouldn’t be allowed to indulge in this kind of distraction. If Mr. Kaplan has not broken any law, it is only because the laws are far too accommodating.
Ohio Senator Sherrod Brown, the Democrat who chairs the Senate Banking Committee, which oversees the Fed, said this week that he plans to introduce legislation prohibiting senior Fed officials from holding shares in companies individual.
This ban should also apply to Mr. Brown and his colleagues. This should apply to judges. It should apply to the executive. There is no good reason to let public officials trade in securities. Indeed, such a law could have financial advantages for honest public officials. Putting money in an index fund is generally a better investment than buying individual assets – unless, of course, you are trading on the basis of inside information.
One concern is that investment restrictions could discourage some wealthy people from running for office. But take a moment to chew this: Wouldn’t we all be better off if public service were limited to people who were willing to subordinate their private interests to the public good?