The US central bank and senior officials of the federal reserve board might be the most powerful organization globally. They control or influence the money supply, the value of our dollar, the bond market, interest rates, inflation, and the stock market.
They are privy to information that the average person is not privileged. Thus they have a form of insider information. Insider trading is against the law and usually puts people in jail.
Last year, it appears that a couple of Fed Presidents were actively trading the market while there was a high probability of obtaining insider knowledge. Both said they would sell any holdings of individual stocks by Sept. 30 and put the proceeds into index funds or cash.
Now, the point of this article is not to be accusatory. Instead, point out that officials have the ability to trade stocks with a form of inside knowledge of the Federal Reserve Board. Once again, insider trading is against the law.
What is their consequence? They must sell their stocks, and they get to keep their profit.
Of course, Fed Chair Jerome Powell stated that he was going to review all of these rules.
The rules that guide personal financial practices for Fed officials are the same as those for other government agencies. In addition, the Fed has supplemental regulations that are stricter than those for Congress and other agencies.
"This review will assist in identifying ways to tighten those rules and standards further. The Board will make changes, as appropriate, and any changes will apply to the Reserve Bank Code of Conduct," the statement said.
This article says that Fed rules explicitly prohibit trading during Fed policy meetings, a time when market-sensitive information is known. It requires securities to be held for at least 30 days and forbids officials from holding bank stocks or funds with holdings concentrated in the financial sector that the Fed oversees.
But the broader language in the Fed's internal rules requires officials to avoid even the appearance of conflict or of using their position for personal gain.
Once again, Mr. Powell, review all that you want to in regard to the rules. Senior officials should not be allowed to trade stock. We wonder why we have problems in this country. Incidentally, members of Congress have even fewer regulations – that should make you feel good about the system.
ASK BOB about money and investment issues. Bob is always happy to visit with you.
Bob Brooks is a Financial Adviser and host of The Prudent Money Radio Show, which airs daily at 3 PM CST on 91.3 FM, 97.5 FM, and 99.9 FM in the Dallas Forth Worth metroplex. Listen online at www,prudentmoney.com/radio-show. You can reach Bob at 972-386-0384 and online at email@example.com.