Everybody involved in the Wall Street bail-out crisis should step back, take some deep breaths and give serious thought to what is about to be done here. If the financial crisis is as dire as Treasury Secretary Henry Paulson claims, it is all the more reason to pause and assess realistically the bailout proposal now on the table and to consider if there are less draconian measures that are more suited to the task but don’t require effectively nationalizing the financial sector of the economy.
First, the draft text was changing rapidly last night, but several troubling provisions remained that exempted the Treasury Department from proper judicial accountability. No man should be above the law, not even Henry Paulson. There was progress on assuring adequate legislative oversight, but mandatory quarterly reports to Congress, GAO audits and a congressional oversight panel are useless in the absence of prompt and comprehensive public disclosure requirements binding on Treasury and Congress. With $700 billion or more at stake, more oversight and accountability are called for, not less.
Second, a related point is the need for greater transparency in the whole process. It is troubling that more than a few members of Congress came away from closed-door briefings by Paulson over the weekend saying what they heard scared the daylights out of them. The public cannot make wise decisions regarding the present crisis if they do not know the full truth about its seriousness. Paulson and those he briefed need to step up and level with taxpayers. And there should be no hesitation about adopting the suggestion from John McCain and others that all transactions authorized in a bailout be posted on the Internet in an accessible, searchable format. Anything less will be an invitation to the worst kind of insider lobbying abuses that undermine the public interest.
Third, is it too much to ask Congress to resist, for once, the temptation to use the urgency of the crisis to create a legislative Christmas Tree? Democrats should think twice about seeking to impose ideologically motivated add-ons such as giving the federal government authority to regulate corporate compensation, or to leverage passage of a second “economic stimulus package” that includes bailouts for other ailing industries.
Fourth, there are credible alternatives to the Bush administration’s bailout approach. Economist Brian Westbury, for example, suggests allowing troubled firms to erect an accounting firewall around at-risk assets created between December 2003 and August 2007 by fire-walling them from the rest of their balance sheets and then holding those assets to maturity. The government’s main role would be in providing insurance for the sequestered assets instead of buying them outright. By comparison, the Bush bailout looks like a bum’s rush for economic freedom.
