September 2008 Archives
I spent most of this week in New York City, marveling that everything seemed so normal while the financial markets crashed around us. I've been worried that the end of the party was going to come with an incredible hangover, and was glad to hear that the Treasury Department, after years of tying its hands further and further behind its back was finally doing something.
But now it seems - well, it seems like their big idea of doing something involves making sure it's done the worst way. Maybe not quite the worst way - it's not Mellon's "Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate."
It seems to be the next worst way, however, judging from what I've seen of the proposed legislation. Lots of power, and $700 billion of borrowed cash, to the Treasury Secretary, with basically no oversight unless the President feels like firing him. There's vague mention of semi-annual reports to Congress, and then there's this barrier to anything effective:
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.
Oddly, for a proposed response to a disaster in which not knowing the value of securities is a key problem, there isn't even provision for publication of the terms on which securities are purchased.
The financial situation looks dire, but it's hard to imagine that this is an even vaguely respectable solution. It looks like a promise to reinflate collapsed bond markets, with no efforts whatsoever to correct the behavior that collapsed them in the first place. It's a $700 billion spending spree on assets whose value is opaque at best, worthless at worst. The companies that bought, sold, and created them can just go on their way - it's not clear what, if any, 'haircut' they'll be getting. The "Credit Reform" section points to law regarding HUD loans, and seems mostly about bookkeeping rather than reform.
It's also hard to imagine adding to the power of an already power-mad executive branch in an administration that seems not to understand boundaries. No review, no oversight, barely even a formula for acquiring these assets. How much money has to disappear in sweetheart deals before people finally get mad?
Big problems call for bold solutions - but this seems to be very bold, without much solution.