pageok
pageok
pageok
More on the Financial Meltdown and the Legal Response.

1. Why do people like me and Sandy Levinson keep talking about the Nazi philosopher Carl Schmitt? Schmitt was skeptical that a parliamentary democracy can handle crises: it can only role over and let the executive act. You can read Levinson here (marred only by the pervasive tone of indignation: what exactly does he (realistically) expect?), or for a scarily timely scholarly treatment of Schmitt and our administrative state, see this paper by Adrian Vermeule.

2. The legalists in American law schools rage at the Bush administration for claiming constitutional authority to wage the war on terrorism rather than going to Congress but are indifferent when the Bush administration cites, as authority to address the current financial crisis, a statute enacted by Congress seventy years ago and a judge-made doctrine that permits agencies to interpret ambiguous statutes expansively. Is it really so difficult to see that these two cases are the same from the perspective of the rule-of-law values that the rule of law is supposed to advance: public debate and authorization of policy by a representative body for the purpose of addressing events that it is actually aware of? I say that you have to approve of both or neither.

3. Speaking of which, see the bill the Bush administration is pushing on Congress, and this analysis by David Zaring. Note the "without limitation" language and the stripping of judicial review. Whatever you think of Bush administration lawyers, one cannot deny that they've learned some lessons from the Supreme Court's reaction to their war-on-terror policies.

John (mail):
Realistically, it's this emergency thing. No one is going to try to stop the president from acting in an emergency to protect Americans. However, after the emergency is over, the lawyers (and profs!) will emerge to battle over the aftermath--war or finance.
9.20.2008 10:17pm
Mac (mail):
T

he legalists in American law schools rage at the Bush administration for claiming constitutional authority to wage the war on terrorism rather than going to Congress but are indifferent when the Bush administration cites, as authority to address the current financial crisis, a statute enacted by Congress seventy years ago and a judge-made doctrine that permits agencies to interpret ambiguous statutes expansively. Is it really so difficult to see that these two cases are the same from the perspective of the rule-of-law values that the rule of law is supposed to advance: public debate and authorization of policy by a representative body for the purpose of addressing events that it is actually aware of?


It's not at all difficult to see that they are the same. However, everyone in Congress and in the Universities and the Media, etc. seems to think they are arm chair generals. However, they all know they are in way over their heads when it comes to finance and are more than happy to let someone else sort it out. How else can they take credit if it works and blame others if it doesn't which seems to be Congress' main preoccupation these days?

Well, actually, what I said regarding the credit blame thing would apply to the war on terrorism as well.

Gee, you want Congress to think and work? How dare you? Why bother with the Constitution when you've got a cushy job, health care for life, a fabulous retirement and many, many perks?

My biggest fear is that this Congress will try to but in and do something. No surer way to ensure financial ruin for this country.
9.20.2008 10:26pm
Mac (mail):
Shuld read, "butt in".

Sorry.
9.20.2008 10:28pm
Smokey:
...talking about the Nazi philosopher...
Well, heck, if you're gonna talk about Nazis, those promoters of eugenics, then let's talk about their modern day counterparts.
9.20.2008 10:37pm
AGBates:

"The legalists in American law schools rage at the Bush administration for claiming constitutional authority to wage the war on terrorism rather than going to Congress but are indifferent when the Bush administration cites, as authority to address the current financial crisis, a statute enacted by Congress seventy years ago and a judge-made doctrine that permits agencies to interpret ambiguous statutes expansively."



Maybe I'm missing something, but I don't really see the similarity. Defenders of the AIG move can plausibly say: (1) there was literally no time to consult Congress because it seemed like the financial system might collapse at any moment, and (2) most aspects of the takeover are public, so Congress and/or the people can ratify or disapprove it after the fact. Cf. Lincoln, Message to Congress in Special Session, July 4, 1861. Also, as you note, the Administration is seeking Congressional authorization for its next move.

Few, if any, of the President's questionable war-on-terrorism initiatives shared these features. Had the President publicly claimed the constitutional authority to take various protective measures in the immediate aftermath of 9/11, for example, he would have been on stronger constitutional ground.

This is not to say that the NSA surveillance, etc., were wrong or the AIG takeover was right. It's just that there's a sound basis on which the "legalists in American law schools" can distinguish the two episodes.
9.20.2008 10:39pm
The Ace:
I don't think they are the same. Many GWOT policies affect the actual constitutional rights of individual people. These things would arguably be unconstitutional without Congressional action. The bailout does not affect individually protected liberties. I do not have a constitutional right to a small and effective government that respects free markets. I do have a right to counsel/ freedom from unreasonable searches/ speedy trials etc. Those rights were violated by the wiretapping etc. The bailout does not affect individual liberties.
9.20.2008 10:39pm
Harvey Mosley (mail):
They are the same. I may not have a right to
a small and effective government that respects free markets

but I do have a right to a government that obeys the law. The federal government is supposed to be one of enumerated powers. Without constitutionally valid authority to act, the government is breaking the law, whether its about torture or taking over private businesses.
9.20.2008 10:51pm
Mac (mail):

The bailout does not affect individual liberties.


Your money. The soundness of your monetary system. The amount the Government puts you in hock for doesn't affect your individual liberties? Who would have thought? I have never met a soul who was wiretapped or searched unreasonably, etc. and they seem to be darned hard to find. I dare say, all of us will feel the effects of this action.

I am not saying that the Government was right or wrong in either case. But, I hardly see the distinction, Ace.
9.20.2008 10:53pm
Sasha Volokh (mail) (www):
Surely one can believe that they're different on the grounds that the Fed statute really does cover what they're doing, while the claims of inherent Article II power are invalid? Like, perhaps one doesn't care about public debate of things that Congress actually knows about -- I, for instance, don't care about that; I just want to know whether there's a statute on point. But then it's a matter of evaluating legal arguments on their merits. Surely the arguments aren't isomorphic to such a degree that everyone must agree with one if and only if they agree with the other? Like it might depend on details of constitutional separation of powers doctrine vs. statutory interpretation of the Fed statute?
9.20.2008 11:02pm
JMK (www):
The fact that the Constitution addresses war specifically might be the difference.
9.20.2008 11:04pm
_quodlibet_:
s/role over/roll over/
9.20.2008 11:37pm
Rent_to_own:
Speaking of Nazis*. "Role over."

It is bad theater and I pray this one act(or) play closes on opening night but I fear this is intermission.


*probability this post contains errrors -- 100%
9.20.2008 11:44pm
Casper the Friendly Guest:
If there is a constitutional basis for invalidating the Fed's actions, it can be undone. An executive agency's power to act is defined by the Constitution and governing statutes, and any action beyond those powers is void ab initio.

Granted, it would not be easy to undo the AIG situation, but it is a heck of a lot easier to undo than, say, going to war. So I apologize if I'm not quite as up in arms as I would be if the POTUS started dropping bombs on yet another sovereign nation without congressional consent.
9.20.2008 11:54pm
A. Zarkov (mail):
If a "mortgage related asset" turns out to be anything like the commerce clause, then this bill could stand as the most massive economic power transfer to the executive branch in the history of the United States. This thing sure looks like rule by decree without review. In particular

... are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
is a really scary clause. Monday I will be on the phone telling my Senators and congressman to vote "no."

This act could lead the US to hyperinflation like Germany experienced in 1923 where prices doubled every 49 hours, or Hungry in 1946. Here is how it could unfold.

1. At every stage we will hear that printing money is better than doing nothing.

2. When inflation ignites, the executive passes emergency wage and price controls to protect the people from price gouging.

3. When (2) fails, index wages, interest rates, pensions, etc to the rate of inflation where inflation is defined by the executive of course.

4. Americans are forbidden to own gold. FDR did this in 1933 by executive order.

5. When (3) fails US fiat currency will have become worthless and the US will adopt another medium of exchange, say The New Dollar= (fill in a large number) old dollars.

After WWII Hungry experienced the mother of all hyperinflations*, where prices doubled every 15 hours. The final banknote was the 100 million b.‑pengő. Then they gave up an issued a new currency
florent= 400,000,000,000,000,000,000,000 000,000 ‑pengő
Sounds too fantastic for the US? Perhaps but who would have dreamed last year that the US financial system would approach collapse in 2008?

*Hungry has been outclassed by Yugoslavia and Rhodesia (Zimbabwe). Zimbabwe even made inflation illegal!
9.21.2008 12:16am
Asher (mail):
Could I just advise you and other Schmitt-happy scholars that it might be prudent, when you bring him up, to mention that Schmitt was actually against the Nazis before they came to power, to the point of making legal arguments for not allowing them to run for office, and that the work you're referring to when you speak of Schmitt was all written before 1933? Yes, once Hitler became Chancellor Schmitt joined the Party and became an apologist for the regime, but that's after the fact (though, of course, some interpret Schmitt to have been making a broadly fascistic argument in the pre-Hitler years). I just think that when you say "Nazi philosopher Carl Schmitt" people immediately think you're making some kind of oblique comparison between what we're seeing now and Nazism.
9.21.2008 12:30am
Moonage Webdream (mail) (www):
"Sounds too fantastic for the US? Perhaps but who would have dreamed last year that the US financial system would approach collapse in 2008?"

Quite a few people did. Given the timing, the most notable I would assume would be John McCain:

"If Congress does not act," McCain said in 2005, "American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system and the economy as a whole."
9.21.2008 12:41am
r.friedman (mail):
We'll get some real legislation in January, this is just stopgap authority. Don't expect it to sunset. We'll still be litigating bailout cases 25 years from now. The Emergency Court of Appeals, which was set up in 1942 to handle cases arising from WWII price controls, heard its last case in 1961. The Temporary Emergency Court of Appeals, set up to handle cases arising from the 1972 wage and price controls, had its remaining cases transferred to the Federal Circuit when that court was created in 1992.
9.21.2008 12:53am
Elliot123 (mail):
I observe lots of people complaining about the fact that the administration took action, but nobody tells us what should have been done.

For those who don't like the AIG rescue, exactly what do you think should have been done? Specifics?

For those who object to the Fed injecting money into the banking system, what should have been done? Specifics?

For those who think Congress should be taking the lead, do you observe Congress taking up the problem now? What are they doing?

For those who advocate no action, can you tell us the result of letting Fannie Mae, Fredde Mac, Lehman, Bear Stearns, Merrill Lynch, and AIG default on their obligations and enter bankruptcy?

For those who think Obama knows the answer, can you tell us what it is?

For those who think McCain knows the answer, can you tell us what it is?

Does anyone know of an elected politician who has the knowledge to understand exactly what is happening now, rather than complain about "regualtion, deregulation, greed, mismanagement, reform, and lobbyists?" Who?
9.21.2008 1:35am
A. Zarkov (mail):
"Quite a few people did. Given the timing, the most notable I would assume would be John McCain..."

Good for him. Why doesn't he remind the voters of that fact in his campaign? Instead he tell the voters that he doesn't understand economics.
9.21.2008 1:54am
RPT (mail):
Mac says:

"My biggest fear is that this Congress will try to but in and do something. No surer way to ensure financial ruin for this country."

Which presumes that the country is in good financial shape now? Isn't Bush asking for a $700 billion legally unreviewable giveaway, which will not be accompanied by any required reforms or consideration for the taxpayers, except for those few who will be the bailees? What is the urgency? Is this a surprise?
9.21.2008 2:08am
A. Zarkov (mail):
Eliot123:

Those are all good questions, but I want to know why the executive has to be given the power to rule by decree to deal with this problem? How about having Congress hold hearings and gather facts the way it's supposed to do before passing legislation? Especially legislation like this. Will they cut $700 billion in spending in other areas? Is McCain willing to stop spending money on the Iraq war? Is BHO willing to give up his expensive new programs? I want to know where a federal government, already deeply in debt, is getting $700 billion? Borrow it? From who? The consumers are in debt, the banks are broke. More foreign money, I suppose. But suppose Treasury issues bonds and they don't sell. What then? Sell the bonds to the Fed who will pay for them with its magic checkbook. Aha- seigniorage. See Hungary 1946.
9.21.2008 2:10am
A. Zarkov (mail):
From Calculated Risk: New York Times Makes a Funny.


The plan only limits the Treasury to "$700,000,000,000 outstanding at any one time", so the total purchases can exceed $700 billion. In fact, every time the Treasury sells some securities, they will probably plow the net proceeds back into more troubled assets until the entire $700 billion is gone.

Think of a drunk gambler at a slot machine. He starts with $100 and slowly loses. Every now and then he wins some money, but he keeps putting the coins back into the slot until he has lost everything. That is how this plan will work.

Unless there is a dramatic changes, there will be no upside participation in the financial companies for taxpayers, and the taxpayers will recapitalize the banks by, in Krugman's words, "having taxpayers pay premium prices for lousy assets".
9.21.2008 2:21am
A. Zarkov (mail):
Krugman says "No Deal."
Here's the thing: historically, financial system rescues have involved seizing the troubled institutions and guaranteeing their debts; only after that did the government try to repackage and sell their assets.

The Treasury plan, by contrast, looks like an attempt to restore confidence in the financial system — that is, convince creditors of troubled institutions that everything's OK — simply by buying assets off these institutions. This will only work if the prices Treasury pays are much higher than current market prices; that, in turn, can only be true either if this is mainly a liquidity problem — which seems doubtful — or if Treasury is going to be paying a huge premium, in effect throwing taxpayers' money at the financial world.
Krugman has nailed it. This plan stinks on ice.
9.21.2008 2:28am
A. Zarkov (mail):
From the Market Ticker-- The Mother of All Frauds.

This gets better and better.
This, at first blush, would seem to indicate that only American firms would be covered. Nothing is further from the truth. If the Chinese wish to unload some of their purchased toxic sludge they merely sell it to, oh, Goldman Sachs for 40 cents on the dollar and then Goldman sells it to the Treasury for 50. This, under the black letter of the law here, is perfectly legal, which means that one must assume that Paulson will in fact foist off all the bad paper on world markets that was originally based on a mortgage in the United States, while allowing his banker buddies here to loot the taxpayer by acting as an intermediary in the transaction!
Read the whole thing, he dissects it piece by piece.
9.21.2008 2:35am
Johnny Canuck (mail):
Elliott123:
the Administration has a monopoly on information, so how is anyone else to know without receiving, analyzing and discussing the issue with the benefit of such information what should be done?

Although Mallaby in today's Washington Post has what sounds to me (who knows nothing about economics) like a better answer.
9.21.2008 3:26am
Kirk:
Casper,
if the POTUS started dropping bombs on yet another sovereign nation without congressional consent.
When did that ever happen? Outside Cuba, Sudan, Serbia, and Iraq in the mid-'90's, that is..
9.21.2008 4:02am
A. Zarkov (mail):
"When did that ever happen? Outside Cuba, Sudan, Serbia, and Iraq in the mid-'90's, that is.."

Cuba?
9.21.2008 7:17am
Moonage Webdream (mail) (www):
"Why doesn't he remind the voters of that fact in his campaign? Instead he tell the voters that he doesn't understand economics."

I have no idea
9.21.2008 9:38am
Norman Bates (mail):
Correct me if I'm wrong, but it seems to me that the dictum "The Constitution is not a suicide pact." is just as insightful and applicable in this case as the old liberal slogan "Better that ninety-nine (nine?) guilty men should go free than that one innocent man should hang." is in arguments about capital punishment.
9.21.2008 10:50am
George Weiss (mail) (www):
regarding the 'no judicial review' part of the law-isn't it a little superfluous anyway given standing doctrine?

the supreme court has pretty consistently said that paying taxes does not give anyone standing to challage the legality of a certin spending program

hence-none would really have standing anyway-so the nonreviewability language is really just another way to speed things up.
9.21.2008 11:11am
DiverDan (mail):
Just pondering - Section 6 states: "The Secretary's authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time." Does that mean $700 Billion FACE AMOUNT --assuming the Secretary certainly isn't silly enough to pay face value for bad notes (is he?), that seems to limit the total outlay at one time to some percentage of $700 Billion, say 20%-75%, depending on the quality &marketability of the collateral. Most "mortgage-related assets" (excluding highly speculative IO swaps and other obscure carve-out securities) have some value, related to the value of the underlying real estate. If the real problem with the present holders of these securities is a lack of liquidity, and the Secretary is merely providing the services of a financial intermediary - paying fair market value for an illiquid asset, and taking the risk (post positive and negative) of holding the asset til maturity, or liquidating the collateral, is this really a bail out? And while I realize that the scale is very large, is this really any different in kind than any other time the government enters into the market as a participant? At least it's not trying to artificially set prices, as it does in the market for health care.
9.21.2008 12:07pm
Mark Field (mail):

the old liberal slogan "Better that ninety-nine (nine?) guilty men should go free than that one innocent man should hang."


Liberal? That saying predates liberalism itself. You can find its equivalent in Blackstone, who was by no means a liberal.


Does that mean $700 Billion FACE AMOUNT


Good question. I think it means the Sec'y has $700B to spend; he could buy much more than that in the face amount of MBS once they're discounted.
9.21.2008 12:30pm
Elliot123 (mail):
"the Administration has a monopoly on information, so how is anyone else to know without receiving, analyzing and discussing the issue with the benefit of such information what should be done?"

If that is the case, then what's the basis for the criticism of what they did?
9.21.2008 1:08pm
Kirk:
Zarkov,

Sorry, that was poorly written: Unlike our little excursions in Cuban, Sudan, and Serbia, Iraq has experienced multiple encounters, but it's only the major invasions where I'm 100% sure there was congressional approval, so that's what I was trying to restrict. But even if all the no-fly-zone stuff was approved, too, I'm pretty sure the aspirin-factory attack wasn't voted on any more than the Bay of Pigs was.
9.21.2008 1:11pm
Don51 (mail):
"The legalists in American law schools rage at the Bush administration for claiming constitutional authority to wage the war on terrorism rather than going to Congress..."

Someone ignore Senate Joint Resolution 23, Authorization for Use of Military Force (Enrolled as Agreed to or Passed by Both House and Senate) Sep 2001?

http://thomas.loc.gov/cgi-bin/query/z?c107:S.J.RES.23.ENR:

NB - (1) SPECIFIC STATUTORY AUTHORIZATION- Consistent with section 8(a)(1) of the War Powers Resolution, the Congress declares that this section is intended to constitute specific statutory authorization within the meaning of section 5(b) of the War Powers Resolution.
9.21.2008 3:42pm
Suzy (mail):
I wish I was an economist and could better understand what is going on. What's puzzling me at the moment is why more attention isn't being paid to shoring up the mortgages themselves, in the form of helping all those individual borrowers to refinance or otherwise keep afloat and keep paying their obligations? Is it just that nothing significant can be done to help prevent the defaults? Or is it that it would take too long and thus wouldn't restore confidence quickly enough to prevent a meltdown? In my simple and maybe simplistic thinking about this, it seems like a good idea to improve the quality of all the bad securities out there, by making it easier for people to keep paying and avoid losing their property.

I share the concerns that this gives too much power to the executive branch, seemingly without Congress taking much time to think over the ramifications. I can understand why some emergency ability to act might be needed, so that action to prevent an immediate calamity can go forward without being held up by meritless legal challenges. However, can anyone explain to me why all of the decisions made should remain beyond later legal review? Why would that be so bad? Kind of like actions Bush took in the war on terror were occasionally subject to later review, which has provided at least some measure of accountability. There's language in the proposal about Congress having some oversight, but it's not clear to me how that will work.
9.21.2008 3:49pm
Moneyrunner43 (www):
A. Zarkov reminds me of an event that happened to me many years ago. I was piloting a light plane, low on fuel and disoriented. Getting on the radio I asked for a directional fix. The response I heard was "Stand by, one." Here I was cruising along at about 120 knots, not sure of where I was going in an aircraft at several thousand feet running out of gas and some ass told me to hold on as if I could pull over to the side of the road.

Now I may be told that the fix I got in was my own fault, and it seems that the fix we are in today was the fault of a lot of people (not including McCain) who told us everything was fine and not to worry about Freddie and Fannie. But to be told by A. Zarkov to hold our horses when there is a run on money market funds and the end is literally a few hours away is so disassociated from reality that it appears to be a bad parody.

The stock markets open at 9:30 AM Monday morning and if the Administration had not acted, there would have been blood in the streets.

How about having Congress hold hearings and gather facts the way it's supposed to do before passing legislation? Especially legislation like this.


Right, stand by global markets, Congress is going to hold hearings. You want to inspire terror in the hearts of investors, tell them that Barney Frank and Chris Dodd who vouched for the soundness of these GSEs just before they went bust are in charge.
9.21.2008 5:55pm
Joe Yowsa (mail):
Don51,

Yep. Someone must have missed that.
9.21.2008 7:50pm
magnoon (mail):
"Why doesn't he remind the voters of that fact in his campaign? Instead he tell the voters that he doesn't understand economics."

Except during the convention or the debates when he can speak at length directly to voters McCain is dependent upon a hostile press to communicate such things. McCain has not told the voters he doesn't understand economics, he said it once (and I think he hedged by saying he didn't think he knew "enough") and the press has simply chosen to repeat the comment endlessly as if McCain was saying it over and over.

McCain has spoken at length on his 2005 efforts -- I have read campaign speeches where he went into detail. But the press has not been eager to highlight these comments.

FWIW, the Bush administration proposed substantial Fannie/Freddie reforms even earlier, in 2003, but unless the press covers that story the facts will disappear from public consciousness.
9.21.2008 8:13pm
Jim Miller (mail) (www):
You wrote; "role over". Great pun, was it intentional?
9.21.2008 11:12pm
Fat Man (mail) (www):
"Why do people like me and Sandy Levinson keep talking about the Nazi philosopher Carl Schmitt?"

Because you are self-hating Jews?
9.21.2008 11:59pm

Post as: [Register] [Log In]

Account:
Password:
Remember info?

If you have a comment about spelling, typos, or format errors, please e-mail the poster directly rather than posting a comment.

Comment Policy: We reserve the right to edit or delete comments, and in extreme cases to ban commenters, at our discretion. Comments must be relevant and civil (and, especially, free of name-calling). We think of comment threads like dinner parties at our homes. If you make the party unpleasant for us or for others, we'd rather you went elsewhere. We're happy to see a wide range of viewpoints, but we want all of them to be expressed as politely as possible.

We realize that such a comment policy can never be evenly enforced, because we can't possibly monitor every comment equally well. Hundreds of comments are posted every day here, and we don't read them all. Those we read, we read with different degrees of attention, and in different moods. We try to be fair, but we make no promises.

And remember, it's a big Internet. If you think we were mistaken in removing your post (or, in extreme cases, in removing you) -- or if you prefer a more free-for-all approach -- there are surely plenty of ways you can still get your views out.