“This is huge news,” someone on Bloomberg Television declared, as the network interrupted a live broadcast from a crowded container port to announce new restrictions on trading activity by Fed officials and staff.
For the better part of two months, Jerome Powell labored under the shadow of a mini-scandal precipitated by “revelations” that Robert Kaplan, Eric Rosengren and Richard Clarida all traded securities last year during the Fed’s unprecedented push to backstop the economy and financial markets amid the worst economic downturn in a century.
Kaplan and Rosengren “retired,” with the latter citing health concerns and the former blaming the “distraction” caused by his own trades. As for Clarida, the Fed described his activity as a “pre-planned rebalancing.”
At pains to inoculate the Fed from additional criticism (not to mention repair any damage done to his renomination bid), Powell launched an internal review.
On Thursday, he unveiled “tough new rules” on trading for policymakers and senior staff who are henceforth restricted in their capacity to purchase individual stocks, invest in individual bonds, invest in agency securities or dabble in derivatives.
Powell described the restrictions as “expansive” and took the opportunity to declare that the Fed is now “at the forefront among major federal agencies” when it comes to investment and trading rules.
Going forward, policymakers and senior staff are compelled to give 45 days’ notice before buying or selling securities. They’ll also need to have any purchases or sales approved and are required to hold investments for at least a year. Additionally, policymakers and senior staff won’t be allowed to make any trades whatsoever during what the Fed described as “periods of heightened financial market stress.”
Reactions to the new rules will vary. The peanut gallery (so, finance-focused social media and a few well-known tabloid portals) will spend an inordinate amount of time Thursday exchanging clichés, creating memes and reveling in one another’s hapless ba dum tiss efforts. Serious critics whose opinions actually count for something (e.g., Elizabeth Warren) will claim the rules are a step in the right direction but don’t go far enough and are too little, too late to restore the public’s faith in Powell. Powell’s supporters on Capitol Hill will applaud “swift” action. Someone will call it “bold.”
Meanwhile, the public (in whose interest everyone involved claims to be acting and on whose behalf everyone purports to be speaking) won’t care one little bit. And that’s assuming they even notice. The vast majority of Americans will never get the memo about this “huge news” (to quote the voice on Bloomberg Television), nor would they know what to make of it or why it’s important if they did.
Nothing in the new rules changes the numbers that count. 10% of Americans control nearly all of the stocks (figure below).
The undereducated own almost no corporate equities (figure below).
The bottom 50% is almost totally bereft (figure below).
Like all luxuries, stock ownership is disproportionately the purview of white people who make at least $100,000 per year (figure below).
Those visuals (and I could conjure a half-dozen more) speak to what actually matters in America when it comes to stock ownership, financial assets and the trading thereof.
Average Americans don’t care if Fed officials trade into (or out of) securities during periods of market stress. Everyday people don’t even know what the Fed does, let alone who Robert Kaplan is. If you explained the situation to them, most regular folks would shrug. “So you’re telling me there was a possible conflict of interest? Imagine that!”
In fact, the irony is that the very people (i.e., Main Street) who the finance community imagines are aggrieved at this situation would undoubtedly find it amusingly quaint that anyone would spend more than a few seconds marveling at a non-crime that can be roughly summarized as “rich people getting incidentally richer.” Quainter still to the American everyman is the idea that the discovery of another conflict of interest among society’s elite is newsworthy.
Everyday people care about their own lives first, the lives of those they care about second and everything else last, if at all.
Imagine you’re a single mother trying to raise two teenage boys in a violent Chicago housing project. If that’s you, whether or not a former Goldman executive-turned associate Harvard dean-turned technocrat bought and sold some stocks last year is so far removed from anything that’s even remotely relevant to your daily life that it may as well have happened on Mars.
The only link between those trades and regular Americans is the extent to which they (the trades) speak to a system that continues to reward the same privileged group of people in a never-ending cycle that perpetuates the wealth divide and ensures inequality of opportunity. Restricting Fed staff from trading isn’t going to change that, which means it’s totally irrelevant to the public.
Powell on Thursday congratulated himself. On behalf of the public. The bar for Fed officials is now sufficiently high “to assure the public we serve that all of our senior officials maintain a single-minded focus on the public mission of the Federal Reserve,” he said.
(“There’s a pretty significant tent city that I drive through on the way home from work.”)