Recent news cycles have featured endless accusations about members of Congress allegedly profiting from stock-trading. These criticisms fall on both sides of the aisle. 

Wrongdoing is hard to prove for certain, and maybe there’s nothing to see here, but perception is everything. It is little wonder then that only one-in-four Americans approve of the way Congress is handling its job. 

There is no getting around the fact that members of Congress are privy to information the average investor doesn’t have and, since politicians buy and sell stocks like the rest of us, there is going to be an understandable public distrust in their ability to completely unsee what they learn every day and then not act on it at night.

How can this growing issue get put to bed?

One remedy is zero tolerance.

No equity investing while a legislator is in office. The same applies to their immediate family. This is an instant quick solution that completely restores trust that legislators aren’t padding their personal wealth with insider knowledge. It’s the overwhelmingly best solution that isn’t going to happen until donkeys (or elephants) fly. Unless some outrageous stock trade happens and galvanizes public opinion into demanding it, a total ban on stock trading is a nonstarter.

Another remedy would be to allow equity investments, but only in blind trusts.

The obvious upside is that this approach completely separates congressional self-interest from the job. Congressmen and women would have no idea how, or if, any policy they are deciding on might affect their personal wealth. 

The main disadvantage of this approach is still public perception. Much of the voting public looks at Congress with a high degree of distrust already. In this environment, how likely are some voters to trust that blind is really “blind.”

The second problem is how a blind trust would be executed. What types of guidance is allowed to be given to the trustee, and how often can it change, would be a challenge? Would a member of Congress be allowed to say, “I want some health care stocks in the blind trust, some utilities, some defense, etc.?” If not, would it be fair or acceptable to the legislators, in the spirit of a true blind trust, to force them to tell their financial advisor “do the best you can and don’t tell me what you are up to?” History suggests this is unacceptable to a majority of members. 

A third approach would be to only allow stock holdings in very broad Mutual funds or Exchange Traded Funds (ETF).

The upside of this option is that any piece of legislation is highly unlikely to move the needle on the whole market, or if it is broad enough to do so, it’s probably very good policy. Who can complain about that? There’s not much downside other than removing a degree of economic freedom from members of Congress that every other American now enjoys. Some would say that’s fine. Being in Congress should be an opportunity to serve, not to profit from that service. 

But it is doubtful members of Congress would agree.

Finally, and most likely to be accepted, would be an investment transparency option requiring full public disclosure.

As former Supreme Court Justice Louis Brandeis once said, “sunlight is the best disinfectant.” Members of Congress could be allowed to trade as often and as freely as they like on the condition that their trading accounts be visible in real time, including all their individual stock holdings and number of shares.

The other stipulation could be that investment houses, such as Fidelity, Vanguard, BlackRock, T. Rowe Price and others, be allowed to create congressional investment mirror ETFs that any citizen could buy into. These funds would invest in exact proportion to all the shares held by Members of Congress and their families. The moment any Member sells or buys, the ETFs would trade proportionally on behalf of their investors.

The advantages would be that “the little guy” no longer is at a disadvantage and in fact has the chance to get an equal shot at benefitting from insider information or sound policies being formulated in Congress. The public perception of insider advantage is instantly erased. The downside is that bad investment decisions by lawmakers will harm private investors as well.

Investment rules requiring full public disclosure for members of Congress would be the best option for several reasons:

• Experience suggests that congressional agreement on any other option is unlikely.
• Not agreeing to full public disclosure would be hard for members to explain back home.
• Full disclosure goes further than the other solutions to building trust that the system isn’t rigged.
• Voters don’t mind having smart legislators if they can benefit just as much as the people they elect.

The need for congressional investment rules could not be more urgent. When the American public loses faith in the integrity of members of Congress, it undermines voters’ trust in democracy. This is a price the Republic can no longer afford to pay. 

(Bruce Stokes is senior visiting fellow at the German Marshall Fund. John Newcaster is a former oilfield services executive.)