Elected officials should be forced to let go of all their assets to a neutral 3rd party asset manager who they’re allowed zero communication with during the time of their service.
I work in "tech" and I'm substantially net short "tech" as a hedge for potential layoffs, via options. Unfortunately I can't hedge via my employer's stock directly (like most companies my employer very explicitly disallows it, plus I'd be running a high risk of an insider trade accusation; I think it's understandable and acceptable).
A better idea might be to force people's allocation way ahead of time, say any change must be pre-announced 6-12 months ahead of time. That's how responsible executives (for example Bill Gates) sell their stock - via long term stock sale programs. Once signed - has to happen, whether good news or bad news.
What if, in exchange for being one of the most powerful people in the most powerful nation on earth, you don't get to participate in the same wealth building schemes as everyone else?
Instead you get a hefty salary, and the people who say "Nah, I'd rather get rich in the stock market" are probably not the ones you want wielding all that power anyway.
The primary driver and motivation for politicians should be altruism, do good for the sake of it. So many people in NGOs etc. are capable of doing just that; working for "the good" even though it pays bad, why should we not expect that from politicians?
The US (I'm Swiss) is in my opinion a primary example on why you want to keep the kind of people that care about their own personal finances as far away from politics as possible. Let them play real estate sharks or monopoly at wall street or whatever floats their boat; just don't let them anywhere close to positions where decisions are made that impact not just their life but everyone else's too.
Any system that relies on people being good is a bad system. A good system is one that has good outcomes with weak and venal human beings. The US federal system has its merits but it’s far inferior to Switzerland’s.
> So many people in NGOs etc. are capable of doing just that; working for "the good" even though it pays bad, why should we not expect that from politicians?
Because the government is important. Ideally we want not the best of the people who are motivated by their conception of the good, we want the best, full stop. The average NGO is much less well run than the average company. At the extreme top level where you’re comparing the Gates Foundation with General Electric you’re dealing with at least roughly equivalent levels of competence but if you want the best and you can afford it you shouldn’t self handicap by only hiring those who don’t value money much.
Altruism is complicated.
But that isn't the objective. Allowing them to use only transparent, hard to game investments is offset by doubling or quadrupling their existing base salary. That is the trade off. Some will find other jobs because they want to become megarich. Fine, let them leave; others will be happy to run for their vacant office under the terms of the new deal.
Secondly, by investing only in bonds and broad index funds, their goal is to help the economy overall and in the long term. If someone is allowed to buy a ton of Lockheed stock, guess who they are going to steer projects to? If their money is parked in DJIA, to benefit themselves they should do what is right for a broad range of companies.
It's pretty easy to cheat the system with a long only portfolio, if you're truly controlling the system: cause a deflation -> long treasures will be awesome (TMF just went +100% in the corona-crisis), cause inflation -> gold and maybe also stocks and real estate.
There's no single parameter that you can hook a leader to to assure progress. That's what voting is for. It is a very hard, very old, and probably impossible to solve problem: https://www.investopedia.com/terms/a/agencyproblem.asp
Things like this site from OP may work wonders. We need more disclosure and more pesky people prodding at leaders and executives, analyzing their every step. Journalism, serious journalism, even if done by non-professionals. Remember that since Markopolos & Madoff the SEC is giving substantial cash awards to whistleblowers (proportional to the penalty), which is fantastic. And they're paying out money all the time, so if you know of any fraud do yourself and the society some good: https://www.sec.gov/whistleblower
Causing a deflation is very hard, unless possibly if you control the fed.
And that's for the government as a whole. I'd be very surprised if an individual senator can't affect that meaningfully.
Compare that to the current system where a senator hears about huge news that will move individual stock prices next week, and can easily make huge profits.
Deflation is not that hard, just dampen social security. Or stop half of military contracts and half of infrastructure spend. Or just go to the federal budget and do anything to reduce it by > 30%. You'll have a deflation (a recession) in a month, even before those changes actually go into effect.
classic HN backseat driver - everything is easy, "just" do XYZ.
You can also jack up taxes and start paying off govt debt instead of spending it on something new. Would have similar effects.
If you think I'm wrong please write why or post a link with some economic thought, would be curious to read.
Edit: I think I understood it. You mean that broad, "macro-like" allocation would prohibit shenanigans with assets in narrower domains, like for example when a congressman successfully pushes a particular drugs-related law that has very big impact on a some particular pharma company. It is more realistic that they can change a single paragraph in some act than they can throw out 30% of the federal budget to "finally start paying back our enormous national debt".
I've not seen that before. How is the rule structured? Can you buy otm puts?
I can't really imagine that a formulaic program, established in advance and rigorously followed could possibly run afoul of insider trading rules regardless of your position at the company.
Something like: "In order to hedge my undiversified finical interest in X: While I am employed at X, on days A and B each year I will purchase 1 year puts with strike at 50% of the spot price (or the next higher price available) with Y% of my take home pay and either hold them until the expiration date, until they produce a return of Z, or the time of my choice if my pay is reduced or I stop working at X."
i think it’s fair, you’re not restricted from trading other companies. this prevents unethical people from taking advantage of insider knowledge.
Obviously, restrictions on "restricted insiders" driven out of federal law exist... but I'm referring to restrictions that would prevent you from programmatically hedging your employment risks. You're not going to have an insider trading problem from such a program.
As far as fair goes-- it's fair if they compensate you for the loss of that freedom, otherwise it isn't. It's up to you to figure out what compensation is fair.
Employment is an extremely large undiversified risk. Through no fault of your own the company could go tits up with little notice, leaving you seeking new employment at the same time as many other people. Unemployment benefits are a rounding error for highly compensated employees. For good reason, you're generally prohibited from having alternative concurrent employment which would be the obvious way to reduce employment risk. It's prudent to take actions to hedge this risk. If the company takes one of the avenues off the table for that they it compensate you for or provide an alternative (like a good severance agreement).
Bonds+stocks only doesn't protect you from stagflation (inflation up, growth down) or a depression (inflation around zero, growth down).
Bonds+stocks+gold only doesn't protect you from a depression.
Both a depression and a stagflation can easily last for over 5 years, so it should be taken seriously, IMHO.
Related: https://www.artemiscm.com/ (see the paper linked below; note that this is also a sales pitch from a long vol fund, so possibly it's a little too optimistic about the strategy).
Risk parity's fatal flaw is assuming all instruments must be generating continuous profits.
SPY (S&P 500 index exchange traded fund) was around 335 in February.
Buy, cheaply a put (right to sell 100 shares) at a price of 300, expiring in 60 or 90 days, for about $150.
A couple of weeks ago, SPY was at 240. Sell the put, for a gain of at least (300 - 240) times 100 times delta (a description of relation of the option gain to the stock change) of about 0.60, for a gain of at least $3500 to $4500.
Robert Shiller often complains about the lack of general public awareness when it comes to hedging. Rationally, if you work in an oil company you should be short oil, but the opposite is much more common to be found in the real world. Similarly with real estate - if you have a big mortgage maybe you should somehow be short on the real estate market elsewhere, just in case your city becomes the next Detroit.
Also, you never buy long dated puts ATM in bull markets with the intention of hedging. It's usually much further OTM, since it becomes a lot cheaper. Right now all options are very expensive due to high implied volatility.
Seriously, the way it should work is that elected and appointed government officials, as well as civil servants with potential access to material non-public information (MNPI) should all be required to use only investment accounts managed by a manager with full discretion and with whom the official does not communicate.
Knowing only the returns the manager has yielded over several years tells the official very little about how the manager will perform in a recession, in a boom, or in a boring year.
Look at book deals and board seats.
It’s the bennies and perks of being a representative that outweigh making $200k/yr. Plus so many of them already have cushy incomes by time they are in office, being a representative is really the cherry on top the cake.
Right, but I think the argument behind paying them more is that you shouldn't have to already have a cushy job to become a representative. We complain on here from time to time about how representatives don't understand technology, but it's no surprise when most folks who understand technology would be taking a pay cut to become a representative. Same with fields like medicine and management.
Lots of ways that could be implemented.
A wealthier congressman could employ a firm to manage their money.
On common way to protect against insider trading is to make irrevocable trades fat in advance.
For example, irrevocably say you buy $500 of an index fund every month.
So, yeah, just make them use managed accounts.
(not building housing can increase existing house prices... but is not necessarily a good move)
Edit: If anything, the Landsburg policy is just a tepid approximation of Georgist finance.
NIMBY policies increase house value, but decrease land value.
B) If you look at the salary of public officials inflation adjusted, the president would be making a few mil a year if they still made Washington’s salary. We’ve let public salaries atrophy badly.
This wouldn't change if the salaries went up 10x, or even 100x.
Influence is worth far more than cash ever could be.
The expensive part is GETTING elected, not serving. If you don't have the resources to win, the salary doesn't help you.
A higher paid politician is also less likely to be corrupt (since the agent causing the corruption will need to beat their high salary, which is risk free). A higher paid politician will not need to worry about blowbacks from policies that are good for society but bad for existing entrenched players.
And a higher paid politician may encourage people, even if they were poor initially, to work to become a career politician (and study it, the same way a neurosurgeon or any other professional trade would). High pay almost always equate to high intelligence, and i would hope that an intelligent person is also someone who can run things better.
I don’t have any data to inform my decision on what would be the best number though so I should shut up.
The reason to oppose it can't be "I can't afford it". It's more "those bastards don't deserve it". And that's not how mature adults should think about things.
Compared to the impact the federal government has on all our lives, it's nothing. If it resulted in 1% better governance, it would be a really well spent $15.
$10M is 8 figures.
I agree it's high :) $1M might be enough.
Also, remember that this is "in exchange" for anyone who assumes office to mostly forgo income from individual investments and I'd add things like book deals and honoraria after office. Someone mentioned Singapore and that's my example case here.
Getting what you just proposed (or any of the many other obvious ways to prevent insider trading) through a senate full of insider traders is the problem
Solve that one
Because congress wrote the law.
Nancy Pelosi's net worth is $160M. You can't pay her "better" to compensate for loss of "gravy".
https://en.wikipedia.org/wiki/List_of_current_members_of_the...
Keep your part A.
Throw away your part B. Nobody deserves to make more money because they either screwed their country or refrained from screwing their country.
You went the wrong way. If anything they should take a vow of poverty.
What’s that? Then no one will want to be a Senator? Good.
So you’re saying today’s state of affairs is unavoidable and there’s absolutely nothing we can do. How defeatist!
That’d be a good start. An unforceable but public vow of poverty upon swearing in would still be good.
(a) elected officials could hold only cash, bonds, and index funds, specifically bonds and index funds that are open the general public and have at least $XX assets, to prevent engineering an index fund available only one one or a few people.
(b) pay them better to make up for the loss of gravy. Sure, the pay raise would not be sufficient to make up for the lost income, but it should be high enough that none of them could complain they can't live on the salary. Paying the senate majority leader under $200K / year is not enough, considering they often have living expenses in Washington and their home state. Lower ranking members get paid less. Pay the leader $1M/year and everyone else $500K/year and then prohibit anything but vanilla investments.