Tue Sep 23, 7:49 AM ET

Washington – In recent weeks Henry Paulson Jr. has become one of the most famous and, perhaps, consequential US Treasury secretaries since Alexander Hamilton assumed the office on Sept. 11, 1789.

Secretary Paulson is not the sole architect of the Bush administration's bailout strategy for the US economy, of course. By all accounts he is part of a troika of top policymakers with Federal Reserve Chairman Ben Bernanke and New York Fed Chief Timothy Geithner.

But as the public face and dealmaker of the plan, Paulson is the one most in the spotlight. Moreover, bailout legislation submitted to Congress by the White House over the weekend would transform Paulson's office into that of temporary overseer of America's entire financial system.

This may not be the role that former Goldman Sachs head Paulson envisioned when he signed on as President Bush's third Treasury chief.

"But he has to do this. He has no choice," says Peter Morici, a business professor at the University of Maryland and the former chief economist at the US International Trade Commission.

The proposed expanded powers for the Treasury secretary are one aspect of the Bush bailout plan that has drawn criticism from Democratic members of Congress.

Under the proposal, the United States Treasury would have the power to buy virtually any financial instrument from any institution, as a means to relieve it of bad assets and pump credit back into the economy. New Treasury staff would help manage this program, although the administration foresees contracting with private firms to manage its new asset holdings.

Oversight of Treasury sought
For the most part lawmakers aren't grumbling about Paulson himself.

"We've got the right man" to deal with the problem now, said Sen. Christopher Dodd (D) of Connecticut, chairman of the Senate Banking Committee, in a broadcast interview on Monday.

What lawmakers do want is more oversight of the program than the White House has outlined so far. Many are troubled by wording in the proposal that appears to bar any review of Treasury's bailout actions by the courts or other administrative agencies.

Rep. Barney Frank (D) of Massachusetts, chairman of the House Financial Services Committee, said Monday that he would propose an oversight board that would report to Congress at least monthly.

Democratic lawmakers would also like the bailout legislation to include more help for troubled homeowners and restrictions on pay for executives of companies that sell their firms' bad debt to the government.

"The private sector got us into this mess. The government has to get us out of it. We want to do it carefully," said Representative Frank in a broadcast interview.

In the postwar era, many Treasury secretaries were financial experts before assuming the job. The Bush administration broke that mold somewhat by looking to industry for its first two Treasury chiefs, Paul O'Neill and John Snow.

Mr. O'Neill's feuds with the administration over his opposition to tax cuts may have made the White House view Treasury with suspicion, says former Treasury economist Bruce Bartlett. "The result was that the Treasury job got downgraded," he says.

The primary role of the Treasury is financing the operations of the US government, and that is helped if the department head understands the key role confidence and capital flows play in financial markets, says Mr. Bartlett.

"Maybe if we had had a Treasury secretary with some clout [prior to Paulson's arrival] ... we might have avoided some of these problems," he says.

If nothing else, the current crisis may ensure that future presidents recruit their secretaries of the Treasury from Wall Street, or what remains of it, says Professor Morici. After all, notable Treasury chiefs of the recent past include Robert Rubin, another former Goldman Sachs executive, who served during the Clinton administration.

A regularity to banking troubles
Today's problems are impressive mostly for their scale, according to Morici. Both the Great Depression and the savings and loan crisis of the 1980s required direct government intervention in private markets to prop up US finance.

"The fact of the matter is that about once a generation banks get us in trouble and we have to bring in a posse to straighten them out," says Morici.

White House-Congress negotiations over bailout details were moving quickly at time of writing. But it remained an open question whether lawmakers will move as fast as the White House wants. "It's important that we act quickly, but it's more important that we act responsibly," said Senator Dodd on Monday.

A draft bill from Dodd would add to the administration's plan help for homeowners and limits on executive compensation. It would also call for the government to get a stake in companies helped by the unprecedented rescue.

An emergency board of two appointees from the House and two from the Senate would watch over the Treasury's bailout operations, under Dodd's plan. The whole program would last only a year, as opposed to the two years proposed by the administration.

First votes on the bailout could come as early as Sept. 24. Mr. Bush on Monday urged lawmakers to move as fast as possible. "The whole world is watching" the plan's progress, he said in a statement.

• Associated Press material was used in this story.

Article: HERE


Is Paulson's Bailout Proposal Constitutional? No

The Nation -- Treasury Secretary Henry Paulson draft proposal for the bailout of struggling financial-services firms sought to make himself the most powerful unelected official in American history through his proposal to take charge of vast sectors of the U.S. economy -- setting policy, buying and selling assets, determining whether financial institutions thrive or collapse -- with no oversight.

Under Paulson's draft plan, Congress and the courts would have been barred from reviewing or challenging his moves to stabilize financial markets -- effectively making him the nation's economic czar.

That's not just a dangerous power grab for economic and politic reasons. It's unconstitutional.

Paulson's power grab was specifically spelled out by the treasury secretary in Section 8 of his proposal, which read: "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."

Senate Banking Committee Chris Dodd, the Connecticut Democrat who sought his party's nomination for president this year but has arguably emerged as a more influential player in his role as the congressional point-man on a crisis that is bigger than an election, pushed back on Monday.

Dodd offered a plan to give Paulson extraordinary -- and, frankly, excessive -- powers. But the senator also moved to place tighter time limits on the period in which the treasury secretary would be able to exercise those powers, to establish an special inspector general to monitor the program and to set up an emergency board with two congressional appointees to provide oversight.

Ultimately, Dodd and his compatriots should be able to restrain Paulson's power grab.

But they must be as specific in their constrain of Paulson as the treasury secretary was in his overreach.

Section 8 of the Paulson proposal must be stripped in its entirety.

There can be no vagueness, no gray area.

Otherwise, the treasury secretary would become a more powerful -- and unaccountable -- figure even than our powerful and unaccountable president. And, as such, he would be operating in direct conflict with the Constitution.

The nation's essential document makes it clear that every member of the executive branch is subject to legislative and judicial review.

Congress cannot delegate its oversight authority to a cabinet member, even in a time of turmoil. The opening section of the Constitution gives all -- emphasis on all -- legislative authority to the House and Senate. Under the well-established constitutional doctrine of nondelegation, Congress cannot cede that power in the manner that Paulson's draft plan proposed -- or, for that matter, in any manner whatsoever.

"It's hard to run afoul of the nondelegation doctrine, but if anything does, this is probably it," Jamie Raskin, a professor of constitutional law at American University's Washington College of Law, told the Maryland Daily Record, a newspaper that deals with legal issues. "How does Congress just give away $700 billion and tell the Secretary of the Treasury to figure out the rest?"

Raskin, a state senator, said that the doctrine of nondelegation "was the first thing I thought of when I heard that the administration's entire plan was on three pages and that the third page said $700 billion would be allocated to this purpose [and] programmatic details are to be fleshed out by the treasury department."

It is good that Raskin and a few others are reading the fine print.

It is necessary that Congress do the same.



Article: HERE