Thursday, October 30, 2008
The State and the Banks
My broadcast yesterday on American Public Media's "Marketplace" extended a point I had previously made in this space:
Nothing is more permanent than a temporary government program. That's an old saying and a true one.
When the United States entered the First World War in 1917, Congress granted the president broad emergency powers over international trade. Those powers were not rescinded until 1975!
Who knows when we'll see the end of the government's new emergency role in banks, insurance and possibly automobiles and pension funds, as well.
We may think we are fighting fires., but we are also unintentionally building institutions that could endure for some considerable time — institutions that nobody much wants, but that we have no clear plans for liquidating. Decisions made in haste and without much thought in 2008 may end up profoundly shaping the economy of 2018 or 2028 or 2038.
The government may soon feel compelled to order banks to lend. But once government gets accustomed to this power, it will not be so readily surrendered. We need exit strategies.
It's urgent that every emergency action be matched with a plan to undo that action — sunset clauses in the law, countervailing powers within the executive. How about empaneling an independent board to monitor and report on progress toward the early termination of the government role in finance? Or creating in the Treasury Department an Assistant Secretary for Privatization and Liquidation to counterbalance the Assistant Secretary, who already exists, who now runs the troubled asset program.
The humble title of assistant secretary conceals enormous power, and we will need an equally aggressive official to offset that power. As James Madison warned two centuries ago: Ambition must be made to counteract ambition. The interest of the man must be connected with the constitutional rights of the place.
Above all, we will desperately need from the press, the Congress and the people constant questioning, scrutiny and pressure against this unwanted, undesirable, and unsustainable new federal role in banking and finance.
Reader Jacob Kaufman sends this interesting alert that some on the left-hand side of the political spectrum are beginning to speculate along exactly the lines I fear. Here's from Matt Yglesias' ThinkProgress blog:
But if the government directly controls major financial institutions, that would give the new administration extraordinary leverage over the national economy. Suppose the new CEO of AIG decided he didn't want to insure assets of companies whose executives make unseemly multiples of
the national median income? There are all kinds of crazy things you could do. And of course not all of them would be good ideas. But some of them would! And the smart folks on our side need to be figuring out which ones they are."
10/30 10:58 AM
