Senate bailout: Where’s the oversight?

by Kurt Schulzke on October 2, 2008

If you buy the notion that a bank bailout is necessary — and many of us do not — the bill passed last night by the Senate is seriously deficient in terms of governance and oversight.  It should, therefore, be rejected by the House.

The bill grants extraordinarily expansive power to the Secretary of the Treasury to control not only banking, but, indirectly, the entire U.S. economy.  In granting this power,  Act Section 103, copied below, requires the Secretary to “take into consideration” a list of nine items.  Like the powers granted, the list is broad and vague.  Against this backdrop, you would expect robust control and governance, real oversight to ensure that the broad powers granted are used appropriately.  The reality — discussed after Section 103, below — is exactly the opposite.

Because the judicial review mechanism in the bill is virtually non-existent (you can only sue to stop the Secretary’s actions if you believe it violates the Constitution), a wisely-crafted bill should include independent oversight of the power-holders and their actions.  Yet it does not.

Rather, the bill creates a five-person Financial Stability Oversight Board composed of precisely those people who will wield all the power including the Secretary of the Treasury himself.  (See Section 104(b), below.) This Board — whose members would necessarily be involved in any abuse of the power — will be responsible for telling the Congress when it happens.

Going a step further, Section 108 of the bill (also below) requires the Secretary to write regulations “to address and manage or to prohibit conflicts of interest that may arise in connection with the administration and execution of the authorities provided under this Act.”  Perhaps the Secretary’s first regulation could be to prohibit the Secretary from attending Oversight Board meetings.