Bail-Out Legislation: A Dictatorship For The Treasury Secretary

Most dictators get to wear general’s uniforms, have multiple palaces, and several wives. Henry Paulson had better call his tailor.

The Administration’s proposal to buy up to $700 billion in mortgage-related securities from financial institutions gives the Secretary of the Treasury colossal powers which have not been since the times of Napoleon and Ghenghis Kahn.

The legislation, if approved by the Congress, would also pass these powers on to Paulson’s successor, no matter whom that person might be.

The section on buying assets is unusually vague and stupendously broad: "Authority to Purchase.–The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States." In other words, there is no mechanism set to determine the price of these assets. Will it be by auction or at the whim of those within Treasury who do the buying? Which institutions will be within the realm of the purchasing action and which will be left out without aid or recourse?

In almost all ways, the bill, if passed, would put the Treasury Secretary outside the law. "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." The power of the Judicial Branch as an element of the Constitution’s mandate for "checks and balances" has been suspended, undercutting a critical principle established by the Founding Fathers.

An additional subversive part of the bill is that "The term “Secretary” means the Secretary of the Treasury." Once Paulson has retired and a new President is sworn in, the chief executive will have the right to appoint a new man who may well not share Paulson’s view of how the act should be interpreted or enforced. The rules for enacted the program might, at that point, be radically changed.

Other than that, the proposal is just fine.

Douglas A. McIntyre