Long live the king

The government needs to stop focusing on granting unprecedented emergency powers.

Although Tim Geithner is now the face of the Treasury Department, it wasnâÄôt all that long ago that we had the lumbering, smoke-voiced Henry Paulson as the federal governmentâÄôs finance chief. History will probably not be kind to PaulsonâÄôs ignominious tenure, in part because he was at the helm when the American economy hit the iceberg, but perhaps in larger part due to his reaction to the crisis. Seen through the retrospective lens of trillions in bailouts, buyouts, stimuli, and financial rescues, itâÄôs easy to forget PaulsonâÄôs initial reaction to the looming disaster was not indicative of measured wisdom or political practicality, but instead a noisy and ham-handed power grab. In an infamous three-page memo issued from Treasury, Henry Paulson earned the nickname âÄúKing HenryâÄù for demanding a fat check from the government and saying that âÄúdecisions 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.âÄù Secretary Paulson essentially wanted to become his own branch of government, one that was better-funded than the Pentagon, and answerable to absolutely no one. It was outrageous, and it did not stand. Unfortunately for Americans, it seems that failed ideas have a tendency to return from the wilderness, irrespective of how soundly they were debunked. Which brings us back to Tim Geithner, the heir apparent to the mighty money throne of King Henry. The king is dead; long live the king. All week long, Secretary Geithner has been in front of congress making demands that would make King Henry blush. Eschewing plain explanation in favor of dense financial doublespeak, Geithner said âÄúThe US Government does not have the legal means today to manage the orderly restructuring of a large, complex, non-bank financial institution that poses a threat to the stability of our financial system,âÄù a situation that he claims emphasizes the âÄúurgent need for new resolution procedures for systemically important nonbank financial firms.âÄù In other words, the government doesnâÄôt have a legal means by which to prevent the collapse of companies like AIG. While a legitimate concern, the proposed solution is completely out of dimension. To respond to problems in the future, the government would have the power to seize control of financial institutions and exert complete control over their contracts. Specifically, this would allow the government to sell and transfer assets, arbitrarily renegotiate contracts, and fund the troubled businesses with government money if need be. To make the proposal more shocking, the power to seize any business, manipulate it, or give bailout funds would not be left to our elected officials. Instead, the decision to seize the business would be made by the Treasury Secretary and the Chairman of the Federal Reserve, and the management of the companies would be left to the FDIC. While this system mirrors the existing apparatus that the FDIC uses to take control of failed banks, the issue is a matter of scale. Thusfar, AIG has been the recipient of $180 billion of bailout money, and is almost certain to get more. Passing the emergency control of large financial operations to a small, unelected group of bureaucrats without leaving the taxpayers recourse is dangerous and outright anti-democratic. While itâÄôs clear that reform of our financial sector is crucial, the goal of those reforms should not be to streamline governmental manipulation of failed firms, but rather to create economic conditions in which the financial firms are less likely to fail in the first place. At present, our country seems focused on questions of power âÄì who has the power to cap salaries, who has the power to issue bailouts âÄì when what we need is a focus on balance. If anything, bestowing these emergency powers to the Treasury undermines the necessity for balance, because it keeps us assured that even if the institutions fail, we can just pass the buck to Treasury and the FDIC. But we canâÄôt, not forever. And if we try, all we do is leave ourselves with an expensive governmental power that will deliver the bill, rather than protect us from ever needing to pay it.