Bankruptcy

Before I Hand Over a $700 Billion Check, How About Some Balances?

By Bob Lawless

When the government bailout of the financial industry was first announced, we were told more details would be forthcoming. The weekend has passed, and we still have few details. We're being told that there is a big threat, things have to happen quickly, and we give the Administration broad powers and trust them to do the right thing. When have we heard that before? Rather than being steamrollered again, Congress should demand some accountability rather than giving Treasury and Hank Paulson unfettered powers.

To the extent we have more information than we did on Friday, the proposal has become vaguer. Instead of mortgage-related securities, Treasury now would be authorized to purchase "any financial instrument." Instead of the buyout being limited to institutions with headquarters in the United States, Treasury could buy "any financial instrument" from an entity with "significant operations in the United States."

I'm basing those characterizations on what I have read and heard from the media. Another strike against transparency is that the text of Treasury's proposal that was so easy to find over the weekend has disappeared from the mainstream media sites. We don't know how the current proposal stands, and I hope that is remedied soon. Someone will probably post a comment perhaps linking to the current text of the proposal, but that still does not explain why it suddenly has become so difficult to find.

Although I have a number of concerns about the proposal, one step that would go a long way would be to give effective congressional oversight over Treasury's actions in implementing the buyout plan. As it currently stands, Treasury can buy what it wants from who it wants. There would be reports to Congress, but the initial proposal was short on specifics on what would be in those reports. Moreover, we now have seen two successive presidential administrations that invoked executive privilege with ever-increasing frequency. We currently have an administration who flaunts congressional subpoenas. What is to say Treasury will not later invoke claims that its actions should be free from investigation, using whatever excuse it later finds convenient?

Whatever bill passes, Congress should ensure that it contains specific provisions giving it powers to review Treasury's actions, including the power to compel Treasury officials to give testimony and turn over any documents related to their actions in the bailout. Checks and balances -- now there is an idea.

Full post as published by Credit Slips on September 22, 2008 (boomark / email).