Government Insiders Treat the Stock Market Like a Game and You’re Not Invited

Credit: Wang Yu Ching, Flickr.

Corruption is more complex than the elite class wringing their hands and siphoning cash from American taxpayers in any way they can. It is not only more subtle, it’s frequently legal by taking advantage of various loopholes in the law. The landscape of statutes criminalizing stock manipulation is porous at best and according to recent reports, government officials with insider information are taking full advantage for financial benefit. 

In early October, the Wall Street Journal published an investigation that revealed a troubling trend of federal officials in regulatory agencies trading stocks of companies they oversee. A widespread issue, these activities are taking place in some of the most consequential entities of the executive branch. Over two hundred officials at the Environmental Protection Agency (EPA) and over a quarter of officials at the Department of Defense (DoD) made investments in companies that their employers regulate. 

Most concerningly, the average proportion of officials who filed public financial disclosures that traded stocks in companies they regulated approached 25%, a number that implicates hundreds of people. This insider trading represents a serious conflict of interest as the officials can make decisions that benefit their bottom line rather than the people. These agencies have ethics standards regarding such conflicts, but the Journal explains that they were either waived or they complied with the standards due to exemptions. 

These are not just low-stakes contracts either. Lockheed Martin, the largest contractor for the federal government, recently obtained a contract worth over $62 billion from the Air Force for flight software. With revenue rising both in the short and long term, officials are certain to be incentivized to make decisions that buoy that growth, regardless of the benefits the public may receive from them.

The entrenchment of insider trading is far from limited to regulatory officials. More visibly, members of Congress also trade stocks in companies before and after making laws that affect them. Nancy Pelosi (D-CA), the Speaker of the House, suffered bipartisan backlash after Business Insider revealed that her husband Paul Pelosi traded stock in several technology companies right before vital legislation was passed. He “exercised seven-figures worth of Alphabet… options days before” Congress introduced a bill prohibiting such activity.

The Speaker took several conflicting stances on the bill within a few weeks, which would have heavily limited the ability of legislators and their families to trade stocks. She initially signaled opposition, arguing that "We are a free-market economy, they should be able to participate in that,” in response to critics of her husband’s activity. As support for the legislation grew, she gave a reluctant green light if fellow Democrats backed it. 

Her support was fleeting, however; House leaders delayed putting it up for a vote again and again, much to the dismay of supporters. Abigail Spanberger (D-VA), a representative for Virginia and fierce proponent of the ban, said that it was a “failure of House leadership.” It was also a failure of congressional leaders to hold themselves to any reasonable standard of ethics. They are not fond of the idea of cutting off an income source so lucrative that two exchange-trading funds (ETFs) have emerged that allow people to match legislators’ unusually profitable trading and share in the wealth.

When you allow a culture of corruption to thrive without consequences, it spreads across every part of government like a contagion. The Wall Street Journal also found that 131 federal judges ruled on cases that involved companies they held a vested interest in. Their trading violates federal law, but it’s unlikely any of them will be punished for it. This means that significant numbers of officials in every branch of the federal government have acted on insider information to benefit their stock portfolios.

Who it does not benefit is the people who these officials are meant to serve. Rather than ensure the government fulfills its obligations to the public, these insiders would rather treat the stock market like a game they can cheat in without consequences. With consumer prices at a record high and inflation surging, countless Americans are withering financially at least partially because of the poor decisions of the officials who are now raking in profits in ways that are unethical if not outright illegal. It is a sad state of affairs and one not likely to change. The public can only hope our leaders eventually gain the courage to limit themselves, but for now, they must suffer the externalities of the corrupt habits of those they entrusted to serve with integrity.