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The Stock Market Is an Engine of Civic Destruction

The chief mechanism of wealth accumulation relentlessly and unfailingly pits the American people against their elected representatives.

Drew Angerer/Getty Images

A weird thing happened over the last few months: The economy imploded, with 40 million Americans unemployed (and as many as 27 million lost their health insurance). Food bank lines stretch for miles. Yet the stock market rebounded after its March dip. Even as recent protests and the violent response by police roil the nation, as businesses get their windows smashed and their supplies looted, the market is up, up, up. This is happening in large part because the Federal Reserve has acted to prop up industries that should have gone bankrupt, and because money is fake. All of this is fake. Have you ever really looked at your hands, too?

At the same time as all of this was happening, another scandal emerged to illuminate the widening gulf between ordinary Americans and the elites. Various members of Congress were revealed to have sold off stock right after attending closed-door briefings on the coronavirus pandemic, months before any action was taken to protect the public. Senator Kelly Loeffler, one of the richest members of Congress, sold millions of dollars’ worth of stock and purchased stock in a teleconferencing company. Senator Richard Burr sold off between $628,000 and $1.72 million, including stocks in hotels that would soon be empty. The Campaign Legal Center identified hundreds more transactions, from 12 senators and 37 representatives, between February 2 and April 8. At the end of last month, Representative Phil Roe of Tennessee was revealed to have bought stocks in Zoom and sold stocks in cruise lines.

The fake buoyancy of the stock market and the lucrative trades made by these members of Congress are connected. The fact that we have a Congress full of rich people—over half are millionaires—is a big enough problem, even when they aren’t using that wealth to profit from information that the public doesn’t have. Even if members of Congress were forced to stash all of their assets in blind trusts, a glaring problem would remain: Their personal wealth would still be tied to this rotten institution, the stock market.

Last month, The American Prospect’s David Dayen detailed how the Fed’s corporate bailout in March inflated the stock market—even if only temporarily—before it had spent any of the money Congress appropriated. The Cares Act appropriated $454 billion to use as an “equity stake” for the Federal Reserve’s loans, but since that money could be leveraged at a 10-to-1 ratio, that meant a $4.5 trillion “money cannon”—aimed mostly at the large corporations that had the expertise to tap it.

Even before it lit the fuse on that cannon, equity markets “ballooned,” anticipating the huge cushion of Fed cash. Boeing, for example, said it was “rejecting” a corporate bailout—but it issued $25 billion in bonds, which Dayen said was “entirely made possible by the Fed’s implicit guarantee of corporate bond markets.” Carnival Cruises, a company that by all measures of human happiness and worth should not exist, took an understandably huge hit from the coronavirus pandemic. Thanks to the Fed’s actions, Dayen wrote, Carnival was able to secure $5.75 billion in loans in March, at a far lower rate than the hedge fund loan sharks it had been considering earlier that month. The Fed saved it hundreds of millions of dollars, and its market cap grew by $3.5 billion; a nice cushion for the likely future waves of coronavirus. All this was thanks to, according to an account in The Wall Street Journal, investors’ “fear of missing out” on the good deal. The FOMO economy thrives. As one Wall Street analyst told CNBC this week: “We have a giant Fed cycle that looks like it’s never going to stop.” The stock market has, of course, never been wrong about the prospect of endless returns.

As Dayen noted, Congress did not have to cede all its power in structuring this rescue to the Fed, but “rescuing investors—rich people like members of Congress and the donors they listen to—makes it easier for Congress to keep ignoring the needs of everyone else.” It is clearly a problem that members of Congress who hold hundreds of thousands or millions of dollars in stocks—who themselves would find their portfolios kept afloat by their own actions—are the ones tasked with deciding what to do with the stock market. In this way, the handful of Republicans who took their confidential briefings on the coronavirus situation and spun that knowledge into gold are mostly a different type of corrupt from the rest.

This does not detract from the sordid disgrace of this particular scandal. If these members did indeed profit from the knowledge of a coming pandemic that has so far killed at least 100,000 Americans, they should be in prison; this is the sort of thing that makes one wistful for angry mobs with pitchforks or perhaps putting them in the medieval stocks, for a more fitting punishment. But the more intractable problem is that members of Congress are so rich in the first place, and that this very wealth warps their incentives when it comes to regulating Wall Street—no matter how it’s invested, or how detached they are from that process.

As The Intercept’s Jon Schwarz pointed out in March, the stock market pushes us “psychologically to the right … shredding our instincts for social solidarity.” It gives even regular, middle-class Americans a financial incentive—a literal investment—in things that are otherwise totally opposed to their interests, encouraging fossil fuel companies to continue our death march towards climate change, and health insurance companies to exert an iron grip on Americans’ throats. If your retirement income is tied up in United Health stock, you would stand to lose financially if the government took over providing health insurance to everyone or even if it instituted a public option that eroded some of the company’s market share. This is bad enough if you are simply some Boomer growing more conservative as your wealth grows; it is far worse if that same dynamic applies to members of Congress, who are tasked with making decisions to benefit all of us, not just those with big portfolios.

In 2014, MapLight reported that around half of Congress owned individual stocks, but many more have money in investment funds, meaning their wealth is still tied to the overall health of the stock market. Outlets frequently report on conflicts of interest between members’ individual stocks and their duties: investments in pharmaceutical and biotech companies, for example, or fossil fuels. There is no obvious reason why this sort of individual trading should be allowed at all, as many pointed out in the wake of the recent scandals. But it’s not great, either, if members of Congress stand to profit from episodes like the market’s recent fart-huffing explosion, enabled by the bailout they approved. In contrast to members of Congress, about half of Americans don’t own any stock at all. Only 14 percent of households own stock directly; the rest have their money in investment vehicles like 401(k)s. And the top one percent of Americans own over 40 percent of the stock, while the bottom 60 percent own just 1.8 percent.

The evidence shows that for most people, picking individual stocks is a mug’s game, and that you’re much better off just sticking your money in an index fund and letting it grow with the market. Yet there’s also research showing that members of Congress have been able to beat the market, implying they really did trade on insider information (though the study also found that the implementation of the STOCK Act eradicated this advantage). The members of Congress implicated in the Great Coronavirus Sell-Off Scandal have largely defended themselves by saying they don’t personally manage their stocks. The office of Representative Phil Roe told The Hill that he “does not manage his personal stock investments and uses a third-party investment manager to handle personal stock purchases and sales.”

How can members of Congress make so much money from an activity they claim they aren’t involved in at all? Easily, because the stock market is essentially just One Weird Trick for the already wealthy to increase their wealth. If you have $1 million already, you can just stick that sucker in a fund and watch the pot grow and grow, without doing anything. You don’t have to have any skill or labor to do so; you just have to already have cash. You pay a wealth manager, or just a computer, to grow your wealth for you. It is the Rosebud cheat in the Sims, but in real life, with actual money that can buy you real furniture.

This would be one thing if the success of the stock market was at all tied to the success of the American people—if the stock market went up, and members of Congress profited, when good jobs were created, or workers were paid more, or more people had health insurance—but the opposite is true. It goes up when things get worse, as evidenced by its continuous growth during a period of Total Shit for most Americans. It goes up when Aetna finds a new way to kick people off their health insurance, or when Eli Lilly prices a new drug at more than the average American earns in a year, or when Exxon finds a big new gloop of oil to turn into atmosphere-choking gas. Members of Congress know this. They know that corporations’ profits are tied to bad, anti-worker, anti-human decisions by their boards. You can’t really expect the Republican Party to care much about that—that’s sort of its whole brand—but many, if not most, Democrats are in the same situation. Virginia senator and Democrat Mark Warner is the richest member of Congress.

There is no easy answer to this problem. Banning members of Congress from having stocks or index funds would mean they’d have to find somewhere for their money. Are they allowed 401(k)s? (Ideally, in this happier world, we would find a less horrendous way to handle retirement funds first.) Perhaps we could institute a wealth cap on members of Congress, which would work to improve their ability to represent the poor, too. We could invent a new kind of government bond, just for members of Congress or other public servants. We could permit this trading activity but nationalize the individual members’ profits and put those funds toward the common good. We could just abolish the stock market. But there has to be a better way than stacking our legislature with rich people who get richer the more they screw over the rest of us.