It was reported last week that Paul Pelosi, husband of former House Speaker Nancy, recently sold a sizable amount of Visa stock. Actually, it wasn’t that recent. July 1st to be exact. But since Pelosi’s sale preceded the September 24th announcement of the Department of Justice’s (DOJ) antitrust case against Visa, it got people talking, including Donald Trump.
The DOJ’s meritless case rates its own comment, and one is forthcoming. For now, it’s useful to address the hysterics that emerged from the Pelosi trade.
An editorial from the New York Post demanded in BOLD that stock trading by members of Congress and their family members be outlawed. Such a move would exacerbate the real problem, all the while harming small investors.
To see why, it’s useful to point out that not every activity disliked by the left and/or right leaning requires a law. This truth is something the right-leaning in particular should embrace. They’re supposed to be for limited government, but as with a proposal to ban stock trading by the politically connected, members of the right are intent on empowering lawmakers even more when it comes to passing laws.
To which some will respond that “this law is different.” “This rule” is meant to limit the ability of politicians to profit off of “insider trading.” Actually, this proposed law isn’t different. It’s the perpetually aggrieved asking government to once again do something to make sure others can’t do something without government’s permission. No thanks.
Only for the proposed ban to look worse the more the reasonable and free-thinking think about it. Seriously, stop and think about if the allegations about what Paul Pelosi are true. What if he did sell Visa shares on advance knowledge of the DOJ’s plan to tie it up in antitrust litigation? If so, Pelosi should be cheered.
Equity markets are information personified. That’s why share prices can change so much on a day-to-day basis, but also over the years and decades. As the knowns about public companies evolve, so do their share prices. Equity prices are just a look into the future based on all known information about a certain company.
In which case the sooner information reaches the marketplace, the better. For all investors. Really, how awful to buy shares that don’t price in essential information, including a pending federal lawsuit. To the extent that equity buyers do this, they’re making a purchase at a certain price that has the potential to be profoundly altered (for the good and bad) by the eventual arrival of new information.
Applied to Visa, an argument could be made that the DOJ’s announcement of an antitrust suit was already pretty well telegraphed. Figure that the DOJ (and the FTC) under Joe Biden had long made their disdain for “big” rather apparent. But if not, or regardless of whether or not, equity sales, purchases and holds imbue the stock market with valuable information. If Pelosi sold his Visa stake based on foreknowledge of a DOJ lawsuit against it, Pelosi did all investors a service.
To which some will persist with the belief that not everyone has access to information that the husband of a powerful politician does. That’s no doubt true, but it doesn’t alter the fact that we’re all made better off the more that all corporate knowns are priced. It similarly doesn’t alter the greater, but unsung truth that it’s no simple feat to trade based on inside information.
Most notable, however, is that complaints about Paul Pelosi’s trades amount to whining about symptoms, not the real problem. The real problem is that government is so big, and has so much power to wreck businesses. Since it does, those inside government possess knowledge that may or may not move stocks up or down.
In short, Pelosi is not the bad guy. He’s once again good for bringing crucial information to the marketplace. If critics don’t like his trading, the answer isn’t to empower government even more, it’s to shrink the power of government so that the Paul Pelosis of the world don’t know any more than we do.
