Regulatory Insiders

The Wall Street Journal published an exhaustive piece of investigatory journalism this week about stock trading by senior officials and employees of federal regulatory agencies, You can see the full WSJ article here, and a summary of six “takeaways” from the reporting here. It’s a classic example of old-fashioned shoe leather reporting, but on a big scale. One of the six takeaways describes what the Journal team did:

“The Journal obtained and analyzed more than 31,000 financial-disclosure forms for about 12,000 senior career employees, political staff and presidential appointees. The review spans 2016 through 2021 and includes data on about 850,000 financial assets and more than 315,000 trades reported in stocks, bonds and funds by the officials, their spouses or dependent children.”

The fruits of the investigation justify this enormous amount of work by the reporting team, because the analysis found that thousands of federal administrative officials trade stocks in companies their agencies are actively regulating. The full article is worth reading, but let’s focus today on five of the takeaways.

First, more than 2,600 federal agency officials owned millions of dollars in stocks in companies that were lobbying their agencies. Second, officials directly owned stocks in companies whose businesses obviously would be affected by decisions made by their regulatory agencies, including Defense Department officials owning stocks in aerospace and defense companies, an EPA official owning stock in an oil and gas company, and an FDA official investing in food and drug company stocks that were supposed to be off limits. Even more amazing, some Defense Department officials owned stocks in Chinese companies that the U.S. was considering for blacklisting.

Third, The Journal investigation found dozens of examples of officials trading in stocks of companies shortly before their agencies announced enforcement actions against those companies. Fourth, 1,800 officials owned stock in Facebook, Amazon, Apple, or Google. And fifth, about 70 officials engaged in trading that most normal investors don’t even consider, like options trading or short selling, including some individual trades of between $5 million and $25 million.

The ability of regulatory officials to buy or sell stocks in companies that are under the oversight of their agencies is obviously a gaping hole in federal law. Administrative officials are supposed to be objective and dispassionate in their decisionmaking. When such officials are directly investing in companies they are regulating, often under circumstances–like trades made shortly before regulatory actions are to be announced–such conduct gives rise to reasonable suspicions that insider information might have influenced the buy or sell decision. The potential conflicts of interest are even greater when regulatory officials engage in especially risky trading tactics, such as short selling, or large-money trades. And, perhaps most concerning, the agencies in question apparently had rules prohibiting much of this conduct, but waived the rules so the trades could be made.

It’s time for members of Congress to get off their duffs, stop the constant fundraising, skip another appearance on CNN, MSNBC, or Fox News, and take a good look at the conflict of interest and stock trading rules applicable to the administrative state. A statute that requires officials to avoid any direct ownership of stocks during their service in regulatory agencies–and instead participate solely in mutual funds managed by others–seems like a good start. Given the increasing role of federal agencies in making decisions that affect our lives in countless ways, we’re entitled to some meaningful assurance that those decisions aren’t influenced by the regulators’ personal financial interests.

An Old-Fashioned Honorable Resignation

Today the director of the Secret Service, Julia Pierson, submitted her resignation.  She did so after being ripped by Congressmen of both parties for a series of appalling security lapses by the agency charged with protecting the President, including most recently the disclosure that the Secret Service had somehow — astonishingly — allowed the President to get on the elevator with an armed man.

Pierson said she resigned because it was obvious that Congress had lost confidence in her ability to run the agency — and she was right.  I can’t defend her management of the Secret Service, but I can applaud her decision to do the honorable thing and resign.

Pierson’s candor and approach is refreshing and, unfortunately, all too rare in Washington, D.C. these days, where embattled agency heads seem to routinely try to batten down the hatches and blame somebody else for the failings of their agencies.  Kathleen Sebelius presided over one of the worst, most expensive debacles in federal government history during the rollout of the healthcare.gov website, and she hung around for months afterward.  Who has resigned to atone for the obvious failings in security along the Mexican border, for allowing a whistleblower to spirit away a huge cache of top-secret government documents, for allowing the IRS to target groups because of their political orientation, or for countless other disasters?  Has anyone?

Pierson’s resignation reminds us that the people serving in government used to serve at the pleasure of the President and Congress and were decent enough to take the blame and submit their resignations when screw-ups occur on their watch.  Julia Pierson, at least, understood her proper role and had the class to do the right thing — but such an act of personal accountability is incredibly rare.  What does that tell you about the people who now serve in our government and don’t seem to be accountable to anyone?

Who’s Spying On Whom?

The interaction between the Central Intelligence Agency and the Senate Select Committee on Intelligence has grown increasingly bizarre — even by the standards of the weird, symbiotic world of Washington, D.C.

California Senator Diane Feinstein, normally a stout defender of intelligence-gathering programs, has accused the CIA of spying on the SSCI as it performs its “watchdog” function and attempts to exercise oversight over America’s intelligence-gathering agencies. The CIA denies that charge, but says the SSCI improperly obtained access to documents the CIA did not intend to share. Indeed, the CIA has referred the matter to the Justice Department to consider whether a criminal investigation should occur. Yesterday’s Washington Post has a good recap of the issues and competing versions of events.

I don’t know who is telling the truth. I do know, however, that this dispute perfectly captures the “down the rabbit hole” nature of the relationship between our increasingly powerful administrative agencies and their purported congressional watchdogs. So, the CIA gets to decide exactly what the “watchdogs” can see? And if the “watchdogs” get hold of documents the CIA doesn’t like, the watchdogs might be subject to criminal prosecution — even though the documents clearly are being used in furtherance of the oversight function that is a key part of Congress’ job?

Doesn’t all of this suggest that the fox is controlling access to the henhouse? Does anyone believe we’ll ever truly get to the bottom of all of these surveillance programs and understand who is spying on whom? This kind of story strikes at the core of the credibility — or lack of credibility — of congressional fact-finding reports and raises serious questions about whether anything, or anyone, is keeping our intelligence-gathering agencies in check.

Janet Yellen And The Role Of The Fed

Yesterday the Senate confirmed Janet L. Yellen as the new chairwoman of the Federal Reserve Board. Yellen was confirmed by a 56-26 margin, as the sour winter weather apparently kept many Senators from the Capitol for the vote.

Yellen, 67, has an impressive resume. She is a graduate of Brown, received her Ph.D in economics from Yale, and taught at Harvard, the London School of Economics, and later at Cal Berkeley, so she has the Ivy League and academic roots that Fed followers respect. She has worked at the Fed as an economist, was first appointed to the Fed in 1994, served as chair of the Council of Economic Advisers under President Clinton, then headed the San Francisco branch of the Fed. She also has been intimately involved in setting Fed policy in response to the housing bubble, the long recession, and what she accurately foresaw as a “jobless recovery.”

The interesting thing about Yellen’s nomination is not that she was chosen or confirmed, but rather that her confirmation battle provoked criticism of the Fed from the right and left. Some Senators criticize the Fed for not doing enough to promote employment, economic growth, and the middle class, and others fault the Fed for doing too much, with its aggressive bond-buying program and decisions to keep interest rates at historic lows — moves that clearly have helped the stock market, but could provoke a tumble when those policies come to an end, as they inevitably must.

In my view, the criticism of the Fed is part of a growing problem in our country. Instead of members of Congress making decisions on how to deal with the economy, they expect the Fed to address the issues for them. The Fed acts as a nearly autonomous agency, with members who are not chosen by popular election deliberating in secret and making decisions that are described by carefully scripted statements. The Fed’s increasingly central role has made it a kind of fourth branch of government that manages the economy — and also makes it a convenient whipping boy for politicians across the political spectrum, who can blame the Fed when the economy doesn’t operate at peak efficiency.

It’s another, sad example of how representative government is shrinking and the power of administrative agencies that are not directly accountable to the people is growing. It’s not a positive trend, and we need to do something about it.

Some Explaining To Do

The House Energy and Commerce Committee has scheduled a hearing on Thursday on the federal government’s health exchange website.  They’ve asked Kathleen Sebelius, the Secretary of the Department of Health and Human Services, the agency that is principally responsible for the website, to testify.  Sebelius has declined, saying she is not available to testify.

It’s not clear to me why Sebelius has declined the request.  The CNN story linked above doesn’t say Sebelius has a conflict on her schedule.  Instead, the HHS spokesperson said:  “Given that the government was shut down until today, we were given a very short timeline to respond to this request.”  Does that mean that the Secretary of HHS needs more than a week to be prepared to answer questions about how the website is working?  If so, perhaps the problems with the website are even more extensive than has been reported.

I hope Sebelius’ response to the request doesn’t mean that the Obama Administration is going to stonewall providing meaningful information about the operations of all of the health exchanges and the status of the enrollment process, and I hope that Sebelius reconsiders her decision and decides to appear.  The websites are a crucial component of the Affordable Care Act, and the federal government has already spent hundreds of millions of dollars on them.  Taxpayers and citizens have a right to know how the system is performing.

In my view, it’s also in the interest of Sebelius and other administration officials to explain what is happening.  If there are problems, identify precisely what they are and describe what is being done to fix them and when the fixes will be completed.  If the enrollment process has some successes to its credit describe what those are.  No doubt friendly members of the House Energy and Commerce Committee will be happy to ask some questions designed to fully elicit the good news, just as diehard opponents of “Obamacare” will be asking tough questions.

As a matter of good government, we should all support requiring administrative officials to promptly testify when Congress calls.  We would all be better off if Congress exercised more oversight over our vast administrative state — from its surveillance programs, to its spending habits, to its error-plagued websites, and beyond — and regularly subjected agency heads to tough questioning about federal programs.  I can’t believe there is anything on Secretary Sebelius’ schedule right now that is more important than appearing before Congress and providing a credible explanation of what is happening with Healthcare.gov and the other health exchange websites.

In Thrall To The Administrative State

Jonathan Turley, a law professor at George Washington University who appears frequently on cable TV news shows, has an thought-provoking article in the Washington Post that captures some of my concerns about the incessant growth of the administrative agencies of the federal government and what it means for American citizens.  It’s an important issue that is well worth pondering.

In my view, there are two key points that should be part of our thinking about this issue.  One is laziness, and the other is accountability.

Part of the reason why the administrative agencies have grown so vast is that the President and the Congress have been, and continue to be, lazy.  (And, just so no one thinks this is an attack on the current President and Congress, let me be clear — this is something that has occurred, without significant interruption, since the 1960s, under Presidents of both parties and Congresses controlled by both parties.)  Presidents and members of Congress don’t want to roll up their sleeves and grapple with the details of how a particular federal law should be implemented or applied, so they write legislation in broad strokes and then yield huge amounts of discretionary authority to the administrative agency that is charged with writing the specific rules and then supervising enforcement of the law.

The justification for that approach is that administrative agencies are “subject matter experts” that can make finely honed decisions about how the law should be applied, what forms should be submitted, what fees should be charged, and what punishments should be imposed in the event of non-compliance.  That justification sounds good — but what makes us believe that the agencies really have such expertise, or that they exercise it in a dispassionate, apolitical way?  And, even more fundamentally, why shouldn’t we demand that Congress develop such subject-matter expertise?  Before Congress writes a law that may have an enormous impact on a particular segment of the economy, is it so unreasonable to expect that the members of Congress on the committee that writes the legislation actually have some reasonably detailed understanding of what they are doing?  I would be happy to see members of Congress spend less time on fundraising and cable TV appearances and more time on actually mastering the details.

The accountability issue is equally important.  Well-educated, reasonably attentive Americans know the names of the President, the leaders of Congress, their Representatives and Senators, and the major members of the Cabinet.  But who, at any given point in time, can name the head of the IRS or the FDA or the FTC?  When an issue arises with an agency like the IRS and not only the President, but also the leadership of the IRS, take the position that they had no idea what was being done, we have reached a critical point of non-accountability.  That kind of shrug of responsibility is not acceptable, because in a representative government our elected officials must know, and be accountable for, the actions of the agencies they are charged with supervising.  If they don’t, we must demand that they develop some mechanism to keep track of, and direct, the regulatory actions.  Part of that mechanism has to involve shrinking the bureaucracies and removing some of their power and discretion — because obviously it is easier to supervise and direct a smaller agency with rigidly defined authority than a sprawling entity that is given broad, poorly defined authority.

If we don’t get the growth of the regulatory state under control, we may move into a truly Orwellian scenario, where citizens can be trapped in a bureaucratic maze with no hope and no recourse.  If the President and members of Congress are viewed as powerless to do anything about it, we may see still further erosion in the number of Americans who care enough to vote in elections.  I don’t think you have to be a Constitutionalist — or for that matter a Democrat or Republican — to conclude that we don’t want, and cannot tolerate, that kind of government.