Robert Kaplan abruptly resigned his post as chairman of the Federal Reserve Bank of Dallas last month, on the same day as his Boston counterpart Eric Rosengren.

The two cited personal reasons for their unexpected departures, but the public understood it was a necessary response to a Wall Street Journal investigation into important personal stock trades they had made at times. criticism when the Federal Reserve intervened in the markets in response to the COVID-induced turmoil.

You might see these abrupt resignations as a failure of ethics and governance at the country’s central bank. But I think this is a misinterpretation. Their resignations are in fact a success of governance. It’s a good sign that the Federal Reserve’s code of ethics – and Fed Chairman Jerome Powell – have prompted swift and decisive resignations in response to even the appearance of a conflict of interest.

Powell then promised a new review of the ethics rules for Federal Reserve employees, as it should be. It is important that people see the Federal Reserve as an ethical institution.

It is all good and remarkable.

It also serves as a periodic reminder of the horror of governance and ethics rules and practices for equity trading by members of Congress.

In short: they can get away with far too much. They should not be allowed to trade individual stocks. But they do, and they divulge far too little of it, and it’s disgusting.

There is a law, first passed in 2012, called the Stop Trading on Congressional Knowledge Act of 2012 (STOCK Act). It requires officials to disclose any stock transaction within 45 days of trading. Dozens of members of Congress this year have ignored or violated this law with late disclosures. Sometimes elected officials do not disclose. The penalties under the STOCK Act for these types of offenses are minimal, like hundreds of dollars.

In late September, the ethics watchdog Campaign Legal Center cited seven members of Congress for massive failure to disclose their stock transactions.

It is a bipartisan issue. The Campaign Legal Center report named and humiliated House Representatives Cindy Axne (D-Iowa), Warren Davidson (R-OH), Lance Gooden (R-TX), Bobby Scott (D-VA), Thomas Suozzi ( D-NY), Roger Williams (R-TX) and Michael San Nicholas (D-Guam)

These seven people have traded in the stock market for hundreds of thousands of dollars without reporting. Five of the seven sit on the House financial services committee, which appears to be a particularly egregious breach of trust.

In June, Business Insider US reported that Rep Pat Fallon (R-TX) did not disclose 93 stock trades valued between $ 7.8 million and $ 17.5 million between January and April 2021. Fallon is member of the House Armed Services Committee and was trading Boeing stock, which obviously isn’t OK.

After receiving COVID-19 briefings in February and March 2020, the two Georgian senators at the time, Kelly Loeffler and David Perdue – both Republicans who later lost their seats in special elections – reportedly traded shares for millions of dollars.

Earlier this month, Business Insider reported 37 members of Congress who broke the STOCK law.

Other Texas elected officials cited by Business Insider for STOCK violations include Representatives August Fluger (R) and Dan Crenshaw (R).

Do we know for sure whether members of the House and Senate trade stocks profitably using their internal knowledge or regulatory power? Not exactly. Could it be simply cases of forgetfulness and non-disclosure, as elected officials generally claim? Sure.

But that is not the point. The point is that even the appearance of elected officials taking advantage of the system undermines confidence in government and in the markets.

Eliminating individual stock trading would not solve all cases of insider trading, insider trading or influence peddling in Congress.

But the sheer ethical audacity of Senators and Representatives – having access to relevant inside information and wielding extraordinary voting and regulatory power to influence the results, and then being able to invest accordingly – is insane. They shouldn’t be able to do that.

Clear ethics rules prohibit journalists from writing about stocks that interest them. Physicians must periodically declare that they have no financial interest in the businesses associated with the prescriptions they write. Lawyers, real estate agents, board members of companies and nonprofits have codes that prohibit obvious conflicts of interest when it comes to investing. The list of professionals covered by restrictive ethical rules goes on and on.

It’s so obvious that members of Congress shouldn’t be able to trade shares of companies over which they exercise regulatory oversight – or over which sectors they receive inside information – that their leeway to trade shares seems ludicrous. It can’t really be happening, can it?

Surely there are strict rules in place to stop this?

Not really. It happens. And he’s hardly ever punished by Congress itself.

Incidentally, the executive must follow much stricter rules of financial ethics. Senior officials – especially with large investment portfolios – typically place their investment in a blind trust for the duration of their service. (President Donald Trump was a notable and unfortunate exception to this practice.) Lower-ranking executive employees are required to disclose even things like gifts received worth more than $ 15. This is a signal to everyone, especially the voting public, that their decisions won’t even appear to be made for personal gain.

This is not true for members of Congress, who set their own rules – which also allow them to board other people’s private jets with few restrictions, unlike employees in the executive branch.

It’s like an inversion of the cynical golden rule: “He who has the gold makes the rules.”

In the case of Congress, it is more: “Whoever sets the rules makes gold.”

I understand that there is a biblical golden rule as well, but I am in a cynical state of mind today.

Michael Taylor is a columnist for the San Antonio Express-News and author of “The Financial Rules for New College Graduates”.

michael @ michaelthesmart

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