Financial markets in the United States and around the world face
a dire emergency requiring urgent and decisive action. Some key
parts of the credit market are on the verge of gridlock, resulting
not just in the collapse of major financial institutions but also
in credit disruption that is severely weakening the long-term
prospects of non-financial companies. And while this is currently
most visible in Wall Street and in the financial sector, it is only
a matter of time before the fallout hits Main Street, with
potentially devastating economic effects for typical American
households.
Swift action is needed to deal with the "toxic" mortgage-backed
securities that are causing credit markets to seize up. The package
of emergency steps now before Congress is intended to address that
problem and restore America's credit markets while protecting the
taxpayer as much as possible from the cost of dealing with the
crisis.
Faced with a crisis of this scale, lawmakers need to consider
steps that would be out of the question in more normal times. That
is why Congress must structure a recovery
plan that involves an extraordinary taxpayer commitment to
stabilizing the situation and restoring confidence in the financial
system.
While there are those in Congress who would push the role of
government far beyond what is necessary in this crisis, the core
technical parts of the negotiated package are acceptable. Important
protections for taxpayers have been added to the original plan. And
while some questionable and potentially counterproductive features
have also been added, other egregious proposals-such as enormous
handouts to activist housing groups-were stripped away during the
negotiations. Taken together, the main financial measures are
likely to accomplish the goal, and the unwise measures are
sufficiently limited to warrant passage.
Certain provisions are far more troubling, however, and raise
serious constitutional concerns. Specifically:
- The legislation grants extraordinary powers to the Treasury
secretary without providing sufficiently specific direction. The
legislation still simply gives the secretary a functional "blank
check" of authority rather than sufficient legislative direction as
to what constitutes permissible action.
- The oversight board contains members not directly subject to or
removable by the President, which raises substantial concerns of
abrogating the President's authority under Article II and makes the
entire structure thereby less democratically accountable.
Both concerns could be (and should be) remedied, first by
providing greater guidance and guidelines to the secretary
regarding his new authority-sufficient that a reasonable person
would be able to determine what acts would be lawful and which acts
undertaken by the secretary would be unlawful-and second, ideally,
by either removing the oversight board entirely or limiting its
role to an advisory one.
Thus serious constitutional concerns remain and should be
addressed in putting together a statute to deal with this current
and hopefully temporary credit emergency. The constitutional
questionability of some provisions is worrying, as is the
centralization of power. Nonetheless, the situation is so grave
that we must take unusual measures now and accept some negotiated
arrangements that remain very troubling, provided they are limited
in extent and time and are not accepted as a permanent part of our
government.
Stuart M. Butler, Ph.D.,
is Vice President for Domestic and Economic Policy Studies and Edwin Meese III is Ronald
Reagan Distinguished Fellow in Public Policy and Chairman of the
Center for Legal and Judicial Studies at The Heritage
Foundation.