| Eric Rosengren’s departure from the Federal Reserve Bank of Boston under a cloud marked an unfortunate end to a storied career filled with important contributions to New England and the nation.
And while his were arguably the least of the sins committed by Federal Reserve regional governors recently caught making significant stock trades while they both were actively shaping the Fed’s response to COVID-19, there is no debating that Rosengren broke the trust Americans placed in him. Now, the Fed must act swiftly to restore that public confidence.
Fed Vice Chair Richard Clarida has also come under scrutiny for similar trades but has not stepped down.
Rosengren merely traded a few positions in real estate investment trusts, according to the Wall Street Journal and Bloomberg, while Dallas Fed President Robert Kaplan wheeled and dealed into the millions of dollars like the Goldman Sachs executive he once was, but the effect is the same. Anyone who has the power to move markets with a simple utterance – and Rosengren has loudly called for the Fed to raise interest rates and relax its economic stimulus measures in recent months in the face of not-so-transitory inflation – should not also be able to direct their own investments in those markets.
Except that they are currently able to with relative abandon. Kaplan’s, Clarida’s and Rosengren’s trading was perfectly in line with current ethics rules, the Fed said, which effectively bar senior staff only from trading in bank stocks and making any moves just before and after a meeting of the Fed’s interest-rate-setting Open Markets Committee.
To their great credit, Kaplan and Rosengren immediately pledged to sell their individual stock holdings and later resigned once it was clear they’d lost the public’s confidence. But that’s beside the point: The fact that even the economy’s high priests, the leaders of our most trusted institution cannot conduct themselves without creating the appearance of corruption shows Fed Chair Jerome Powell’s simple “review” of the central bank’s ethics guidelines won’t be enough.
Sen. Elizabeth Warren’s Anti-Corruption and Public Integrity Act could be a good starting point for reform discussions. The bill would ban individual stock ownership by members of congress, cabinet secretaries, senior congressional staff, federal judges, White House staff and other senior agency officials while in office, and force them to sell privately-owned assets like companies or commercial real estate that could create conflicts of interest.
This relatively simple step could help end the longstanding and well-known epidemic of insider trading by members of Congress and senior executive branch officials who routinely get access to advance knowledge about how the government is planning to intervene in the economy or in the lives of individual companies.
At a time when Americans’ trust in the institutions essential to the basic functioning of society are at an all-time low, it’s time we did something to win that trust back.
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