Strictly speaking, $700 billion dollars (a couple of dollars for every star in the Milky Way) is not a completely blank check. But it's pretty close. And that's what the Treasury Department is asking for to buy mortage-related assets ("toxic waste") from failing banks. There is plenty of reason to believe that something dramatic has to be done, before our entire financial system up and dies. Talk all you like about punishing the heartless capitalists behind the mess, but if a long string of banks goes belly-up, nobody will benefit. But, as Paul Krugman says, this is not the right deal. Mostly because of this paragraph in the proposed legislation:
Sec. 8. Review. Decisions 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.
You're kidding, right? Treasury Secretary Henry Paulson might be a smart guy, but he remains a cog in the Bush administration. The people who brought you the Iraq war, the Katrina response, Alberto Gonzales, Harriet Myers, and Guantanamo Bay. I don't know about you, but when faced with a terrible crisis demanding immediate action, my first response is not "Let's give those guys nearly unlimited power, with no oversight whatsoever." An action that would be unique in American history, and possibly the largest transfer of power from Congress to the Executive branch ever. More substantively, though, the plan is outrageous on the face of it. It is a feature of late capitalism that the government will occasionally have to bail out failing institutions. But typically the way that happens is for the government to simply take over the institution entirely, and sell off what it can. Here, the plan is to simply pay huge amounts of money for terribly bad assets -- leaving the companies (and their managers) to get on with their lives and their valuable assets. As Josh Marshall put it: this is moral hazard on steroids. Taxpayers swallow the toxic waste, and Wall Street breathes a sigh of relief. There's no question that part of the idea here is "Something needs to be done in a hurry -- let's smash something through that gives us unchecked power, while everyone is panicking and not likely to ask too many questions." No economist, left or right, likes the plan. Obama is against the blank check, although doesn't seem to be putting his foot down. McCain is thundering righteously against the robber barons on Wall street, as he has been doing -- well, for at least the last week, before which he tended to thunder righteously against overzealous government regulators who were restraining Wall Street's creativity. Change you can believe in.
