Wednesday, September 24, 2008

The Bailout: Two Thoughts and a Summary Perspective

Ok - another post on the bailout proposal. I've been reading more commentary from journalists, economists and even the Treasury Departments website.

Two emerging thoughts and a summary perspective:

First thought:

The more I think about it, the more outraged I become that the Bush Administration has asked the American people to give $700 billion to Henry Paulson with absolutely no ability to influence how he uses it or any mechanism whatsoever to hold him accountable for any decision he makes.

As proposed by the Bush Administration, the Treasury Secretary would be given the following power (source: Dept of the Treasury Website):

[The Treasury Secretary] will have authority to issue up to $700 billion of Treasury securities to finance the purchase of troubled assets. The purchases are intended to be residential and commercial mortgage-related assets, which may include mortgage-backed securities and whole loans. The Secretary will have the discretion, in consultation with the Chairman of the Federal Reserve, to purchase other assets, as deemed necessary to effectively stabilize financial markets.

I added the bold font myself for emphasis. Make no mistake - this is basically saying that Henry Paulson can buy anything he wants with this money. This is a bad idea. It is a potentially catastrophic idea when combined with the following clause in the Bush Administration's proposal:

Sec. 8. Review. Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

This is from the Administration's bailout proposal summary issued this weekend. You can read it for yourself here.

I say all this, not because I doubt Paulson competence or integrity. Install any human being (alive or dead) you want in this position - and give him/her this power - and I would be writing the exact same post. No one should have this much unregulated power. Adams, Jefferson and Madison will spin in their graves if this bill passes.

Fortunately, it looks like it won't. Even the Republicans are balking at its passage.

Second thought:

I cannot find - anywhere - a clue as to the origin of this $700 billion number. Not a single high level equation or minimal set of assumptions. Not one pie chart even speculating where this money might go. At an absolute minimum we should get an explanation that says something like this:

"This money is to buy approximately 1,000,000 bad mortgages at an average price of approximately $700,000 a piece".

I totally get that this is a tremendously complicated problem and I don't expect, nor would I trust, a detailed, line-item budget for these funds. But we are seeing no transparency whatsoever - and that is totally unacceptable.

So - a summary thought:

Whatever fallout we are going to have from this crisis, it is not going to be materially worse, in the long run, if Congress takes another week or even two to get the best possible solution in place. Turning over $700 billion dollars to one man who, by the way, has only about 4 months to spend it, is one of the most ludicrous ideas in the history of Western Civilization.

And I say that understanding that crises often need us to act much faster than the slug we call the U.S. Congress is capable of moving - but to give that level of power and preclude retroactive accountability is unjustifiable under ANY circumstances.

Let's all take a deep breath and spend another week letting these Congressmen and Senators - 95% of whom are no more prepared to evaluate this plan than a 19 year old second semester economics student - talk to experts and get up to speed.

Let's not allow a once in a generation economic debacle to lead us into a once in a century political one.


Megan said...

I totally agree with you when you say that no one should have so much unchecked power. I saw a snippet of the hearings with Paulson and even he said he welcomed congressional oversight.

I don't understand why the Bush administration keeps pushing for ultimate power without having to answer to anyone (can you say patriot act?); it shows both profound hubris and extreme insecurity.

I don't know how they justify the necessity of lack of review in this situation (have they given specific reasons why they think it is needed?), and I can't believe they think it will fly this time. So glad the Republicans are balking.

I looked at Obama's plan for all of this, and I especially like his idea of "no golden parachutes" for the CEOs. When I hear about their "bonuses" in a normal economic year, the sheer vastness of the amount makes my stomach turn. But if they still get them after this bailout, I will be extremely upset.

Unknown said...

I don't understand why the Bush administration keeps pushing for ultimate power without having to answer to anyone

Lord Acton weighs in.

I don't know how they justify the necessity of lack of review in this situation

They don't even try, because they don't have to. Trust in your President, citizen!

All of this is par for the course with the Bush administration. My mind has been boggling for eight years at how anyone could think that the vast majority of his ideas were good ones.