To save the US economy - Republicans turn to a tribunus plebis??!

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I just read the draft text of a proposal to save the economy "LEGISLATIVE PROPOSAL FOR TREASURY AUTHORITY - TO PURCHASE MORTGAGE-RELATED ASSETS", that gives new power to the treasury. What I found most startling was this little passage:

It reeks of unconstitutionality. It would mean absolute command authority of the Secretary of the Treasury over the monetary and financial aspects of the economy, unreviewable by court or any oversight body. Does America nowadays call for a tribunus plebis?

Or, in other words: What is it about these Republicans that makes them think they can dictate to the Federal Courts and Congress? Is that passage not a direct challenge to the Supreme Court? To Congress? From a lawyer's point of view this is utterly revolting and alarming. And then there is the irony of it coming from the the markets-are-good-government-is-bad ideology party. In light of that line they put a remarkable extent of faith in the executive branch of the government. Is the economoc situation really that bad, or what problem is it that Republicans since Bush do have with the constitution? Does America now need an economic star chamber?

This is pure authoritarianism. Throw in the unitary executive branch theory for good measure, and you can summarise that, as far as powers of the executive branch are concerned, the president's and administration's powers under the view of the current administration would be about as absolute as Stalin's: Secret deliberations, unreviewable decisions and unilateral action. This is a Republican bred monster. And it's really, really scary. Will they let it loose?

 

Who drafted this? Was it Bush or someone in Congress? Considering the uncertainty of the next election (the winner of which will be appointing said Secretary, yes?), this just seems like idiocy. The hard republicans don't want to give Obama that much power, the hard Democrats don't want to give McCain that much power, and the hard rationalists won't want to give anyone that much power.

 

BTA,
those mortgage-based assets we're talking about are amounting to up to $700 billion debt. For which Treasury is to be given carté blanche. That's a lot of money to play with (think of unaccountable no bid contracts). These junk assets are being held in varying degrees by about everyone in the finance sector in the US.

The financial sector makes up what percentage of the US economy? In 2006 it was over 20%. I presume it has since grown. So where are we? Some 25%? More?? The impact is significant. The Treasury will have a say over everyone who holds those assets. Not only financial institutions in the classical sense like banks or investment banks but also for example insurers, who had been engaging in the debt business as well (think of GAI).

 

Considering that several significant banks have either gone bust or are in serious financial trouble I doubt the financial sector has exactly had a booming period of growth in the past two years.

I think you're overreacting. This is a law for a financial emergency where it is felt that the executive branch needs to be able to act without various committees of congress messing about first and delaying what should have been done yesterday. This is very typical during a financial crisis and something that needs to be done. In Finland the parliament gave a very large mandate for the government to deal with the financial crisis and depression in the 90'ies.

 

Morg,
there's a gulf between 'a large mandate' and carté blanche with unaccountability.

 

Oh yes, there also is a sunshine provision in it, two years. Just as there was one in the Patriot act. Which was renewed iirc. Considering Congress's willingness in the past to reign in on an administration that is apparently not forwarding the mandate of laws, do you trust in that?

 

BTA,
I don't share your optimism about either measure.

You are aware that executive action is a swift and sharp sword legally and practically, especially in the absence of judicial checks?

Mind that if that swords cuts you, there is little if anything you can do about it. That you take comfort in Congressional oversight is poignant. It is only that congressional oversight takes a loooong time, and then there is the open question of whether it helps. Congressional oversight is a politicised process with the investigators in Congress having to ask (pretty, please) for information (a thing that the Bush administration for instance habitually refused to provide). It also means that it can be turned into a he-said-she-said partisan 'debate' rather than a factual matter of legality as it would be in a court. Those who devised that proposal certainly had that as an insurance in mind. And then, parliamentary oversight takes place usually after the fact. Odds are the money is gone by then. And the current trend is that a result, if there is one, is about wrist slaps, at best.
Lest we forget ...
Bush violated the law with his wire tapping, that not only exceeded the broad mandate of the Patriot Act but even pre dated 9/11 and the Patriot Act. And now for the fun bit: With the wire tapping bill that the Whitehouse pushed, and that was accepted by Congress, they gave themselves retroactive immunity and no one of them is to be charged for lawbreaking, even though that's precisely what they did. Under Sec. 8. of the current proposal they won't have to do even that. 'Unreviewable in a court of law' does include criminal prosecution and trial for crimes as well I guess. What is this? Proactive immunity? For me the proposed legislation is an invitation to abuse of power unparalleled in American history. For others, it is a time of opportunity. Lo and behold, under Bush you have been able to see what an administration can get away with when they refuse oversight. Take that for can-do-spirit.

As if that's not enough, from what I read Paulson has been making phone calls, asking other nations for money.

Let me guess what he probably said: "Gee, you know, you lent us all that money, and we did all those nice things with it, and now we have this crisis, and it's like, well, gone °. Now trust us, this time we will do better, because the Treasury will have a free hand °°. Unless you give us more, by buying our worthless garbage °°°, we're all going down, and take you with us. Now I could just go and print more money °°°° ... but I rather ask you for your taxpayer's money °°°°°!"

My government and the British government so far are less than thrilled with the offer. What is this, President Barnum and Secretary Ponzi?

Spoiler

Warning: The following section includes even more scorn than previous parts of the post.

Spoiler

° ... which means it is not our fault. It's more like spontaneous combustion - an inexplicable mystery.
°° ... and thanks to the beatifying power of the holy market and our proven best business practices! Our success is a template for the world to emulate, which is why we won't change anything
°°° ... according to the market proven rule: You bought it, now you own the problem. Gives an entirely new meaning to ownership society. Now, as an afterthought, if we buy all that toxic waste, can we force America to adopt strict European style regulations in return? After all we're shareholders then. My hunch is that it would be along the line: You sure do own all that junk, but don't you know it's junk? How can you hope to exact leverage with nothing?
°°°° ... which I do anyway Sucker!
°°°°° ... than ask mine for theirs. After all, we believe in tax cuts and high spending!

 

I think you are seeing demons in places there aren't any. I talked with my economics proffessor about the current financial meltdown and the founding of this new "scrapbank" (roskapankki in Finnish) and he said it seems to be resembling a lot the one we had in the Finland in the nineties to sum up all the loans and set a government body to supervise it (most likeley that would be the treasury). Now I can't help the fact that you see this as another sham by the Bush adminstration to get more power but really, a crisis usually puts more power in the hands of the executive branch and rightfully so when you need to act swiftly you can't be subject to congressional inquiries or committee decisions in every turn in the same way that every military operation executed during a war does not need to go through those procedures. The Congress can assign hearings and if necessary set up an investigation in the matter. Now if those measures won't do there's a fundamental problem in the constitional balance of powers rather than in the individual law.

 

More and more I come to believe that process and judicial oversight are the only things that guarantee the rule of law (and that includes respect for individual rights). If you are 'hit' by an executive act, waiting for Congressional oversight, which may manifest itself when politically expedient, is not effective legal protection. Access to court for grievances is the only way to ensure that.

That aspect aside, what I find particularly galling is that Paulson is really going abroad, trying to basically extort money to pay for the mess US refusal to govern (and a refusal it is when you consciously deregulate for ideological reasons) has caused. They really ask us to pay for the mess they caused? That's chuzpah. And it is not very credible either: The cure for the excesses of laissez faire is to be carté blanche??! Gimme a break.

What I find outright distasteful is that the Feds are now buying up this toxic waste, or Level III 'assets'. They aren't worthless, after all they represent mortages with some land and presumably a house attached. They are worth something, even though nobody right now knows how much. The real trouble is that the market bid is 25% to 30% below the prices that banks carry these assets on their books. That is a problem because accounting these assets that way has inflated profits and led to liquidity that didn't exist to be handed out to shareholders and managers. Basically they happily bled themselves white. This money is now gone. Banks are currently calling for these 'assets' to be sold 75 to 80 cents on the dollar. Hedge funds bid about 55 to 60 cents. While banks are desperate to sell, they cannot accept the offered price without taking ruinous losses.
So what Paulson is offering the banks is to pay more than the hedge funds. That way he plans to give the banks back their squandered liquidity at the taxpayer's expense - which is by the way likely to result in better looking, if still fictive, balance sheets - and probably some more dividends for shareholders and premiums for execs, just because they won't have to re-adjust their books to deep-red numbers and record losses they have in reality. I would be immensely surprised if, when, when buying that junk from whoever holds it, Paulson would prohibit them paying dividends and bonuses or if he would freeze managerial salaries. I don't believe that. So, eventually, the 'cure' for the current crisis is upping the ante with a straight face in an attempt to avoid a panic.

The same picture of rewarding failure at the top emerges in the private acquisition of ailing US banks: Barclay's is going to buy parts of Lehman the very same way. The Lehman execs will get their bonuses and pay for their excellent work of steering Lehman at the wall. There is no accountability, and there is nobody taking responsibility. You don't hear execs saying: Trading AAA as if they were worth something was a moronic idea. I repent and I don't want my salary for the last two years. Neither does one see bankers jumping out of skyscrapers like they do in Japan when they really screw up. The attitude is: Everybody did everything right and the crisis just ... happened. That's the fourth-grader's excuse for screwing up.

All the while the guys who get shafted are the fools who accepted a mortgage they can't afford. To add insult to injury they are being accused of being irresponsible and of living beyond their means (like by John McCain). Yes, indeed, how irresponsible. It's just that their irresponsibility pales in scale to what those did who get the rewards. You can bet that the mortgage debtors do have to repay their debt. The banks won't have to. Privatisation of profits, socialisation of losses. And all the while you hear the neo-liberal pundits babble asinine nonsense, much like those old commies: Really free market does work! - just as in: Ah, socialism didn't work, but that wasn't real socialism. True believers, united in delusion. Almost funny.

 

The eternal dilemma of banking and monetary policy is how to install responsibility to banks and bankers and it's indeed quite problematic. However letting banks fall and take the global financial markets with it is not the way to teach them a lesson, and it would either way be the people taking the financial hit. During the bank crisis (yes I keep referring to our bank crisis since it had a lot of similarities to this meltdown) the same accusations were made back then and a lot of them hold true but what else are they supposed to do. In my opinion the Fed is doing exactly what it needs to do in order to save the financial markets. If banks start rolling down everyone will lose. People will lose confidence in the banks and banks lose confidence in each other. The credit market will freeze and the interest rates will jump sky-high affecting everyone, especially those with a mortgage.

You can't punish the banks without either punishing the investors (people with retirement funds or who happen to store their money in a bank, which I assume would include most of us) or the ones indebted (those with a mortgage). When banks fail the state has to bail them out, the other option is financial chaos.

 

I'm confused on one thing. Everyone seems to be blaiming this on deregulation and free market, but wasn't it the Clinton Administration (and possibly a republican congress) in the 90's that made these same lenders offer loans to poorer people in an effort to increase the number of poor home owners (give them a house and they can do better?)? That sounds more like bad regulation than deregulation, and a governed market rather than a free market.

As seems always lately, this is new news to me, so feel free to correct me if I'm wrong.

 

The main culprit of the current mortgage crisis is considered by many to not be George Bush, or anyone directly involved in the Bush administration, but rather, Phil Gramm. In between jobs as a Senator from Texas and John McCain's chief financial strategist, he lobbied for the banking industry, and got a lot of the new legislation (read deregulation) pushed through Congress in 2001-2003.

So while I never miss a chance to do so, I really cannot point the finger entirely at the Bush Administration on this one. About the only thing that I can blame Bush for is his lack of action over the past couple of years when the warning signs were evident. Or perhaps a better question, why in the world would McCain keep Gramm associated with his campaign?

 

Aldeth,
you're right. Deregulation was a neo-liberal thing, and as such shared as an ideal by the GOP as much as the Democrats.

 

Ragusa - Gramm would be stunned, as would most anyone else who follows American politics, to hear him referred to as a "neo-liberal," assuming that there is even such a thing and you did not make that tag up yourself. Gramm is a Texas, hard-core evangelical conservative. He is w-a-y more conservative than GWB. Sorry, your info is just wrong. Deregulation began with the Carter adminstration, but that was only specific transportation industries - like trucking and airlines, which did lead to lower rates, but have only had marginal success in creating the competition that was imagined within those industries. It was really the Reagan administration that turned deregulation into the solve-all solution for all kinds of big business. Unless, of course, you consider Reagan a "neo-liberal" was well. As a true "liberal" I'd be interested to learn just what a "neo-liberal" is supposed to be. Is that like the "New Democrats," which would include Bill Clinton?

Aldeth - What Bush did was to remove oversite from a vast number of government agencies that were supposed to monitor the "deregulated" big business. Yep, a lot of the blame falls on him, because his "privatization" program for all kinds of govenment functions, which, btw, includes the military, has more or less put the "foxes in charge of the hen houses." No guess as to what happens there....

 

Neo-liberal is another term for a libertarian. The terms as far as I know are pretty much synonyms. Neo-liberal is more commonly used in Europe though.