Written by Heritage Foundation
September 29, 2008
The Heritage Foundation
The $700 billion financial rescue that the House will vote on today is a significant improvement over the drafts released last Friday, and the Friday before that. According to the Congressional Budget Office, the plan will eventually cost "substantially less" than the oft-quoted amount of $700 billion, and it even has the chance of making taxpayers money. Taxpayers will receive warrants from the firms that sell distressed assets to the government and, if after five years the plan has lost money, a fee will be assessed upon financial institutions to repay the taxpayers. Taken together, from a purely economic standpoint, the bill properly addresses the dangerous situation currently facing credit markets.
In many ways, the plan also improved by subtraction. Gone is the diversion of taxpayer money into a corrupt housing slush fund. The left has also abandoned its efforts to give judges new powers to rewrite mortgage contracts in bankruptcy proceedings. Another dropped provision would have made it easier for interest groups to use shareholder meetings to advance their own agendas.
However, there are still two major constitutional problems that need to be addressed. First, the latest text does not sufficiently narrow the scope of authority delegated to the Treasury secretary; i.e., the law provides no "intelligible principle" to guide and direct the secretary's actions. Our Constitution allows no czar, with standardless discretion to prop up or manage various industry sectors. Language does exist that can both provide Treasury with the tools it needs while protecting liberty. Hopefully, conservatives in Congress will fight for such measures.
The second constitutional problem arose only after Congress tried to fix the first. Instead of finding language that properly directed executive action, Congress punted by creating a new "power-sharing" arrangement: the Financial Stability Oversight Board. Composed of the chairman of the Federal Reserve, the Treasury secretary, the director of the Federal Home Finance Agency, the Securities and Exchange Commission chairman, and the Department of Housing and Urban Development (HUD) secretary, this quasi-executive entity would have unprecedented structure and power. A majority of these board members are not removable by the president except for cause.
Congress has never attempted to give the discretion and responsibility to one cabinet official who is directly answerable to the president, and then subject his actions to the direction, modification and veto of another board - especially one not wholly subject to the president's direction and control. This oversight "fix" makes it harder for the American people to hold their elected leaders accountable. It remains dubious whether such an entity would pass muster in the courts, as it clearly offends Article II and the lines of democratic accountability that it established.
According to the Los Angeles Times, "Treasury Secretary Henry M. Paulson is about to become the most powerful mortgage financier of the modern era - most likely of any era." The Washington Post reports: "[Paulson] would stand largely unfettered by traditional rules, largely unrestricted in his ability to spend $700 billion of federal money." The New York Times notes, "one overarching aspect of the initial plan that remains is the vast discretion it gives to the Treasury secretary." Lawmakers need to have a spirited debate to make sure they get this massive transfer of power right..