House Committee Grills Bankers

As the House and Senate agreed to a $789 billion stimulus package on Wednesday, the CEOs of 8 major banks were testifying before the House Financial Services Committee. Addressing the bankers, and it seems, everyone else in the room, Chairman Barney Frank said, "There's a lot of anger in the country, much of it justified."

Committee members questioned, castigated and berated the bank executives. Rep. Michael Capuano (D-MA) made it clear that "America doesn't trust you anymore."


Thanks to TPMtv

Nor do Americans trust Congress to right the economy. A Rasmussen poll released Wednesday says that 67 percent of voters "have more confidence in their own judgment than they do in the average member of Congress." Fifty-eight percent agreed that "no matter how bad things are, Congress can always find a way to make them worse."

One hundred percent of them better hope that they are wrong.

The Lady or the Tiger, 2008

In a televised address on Wednesday evening, President Bush explained why the $700 billion bailout of major financial institutions had to be implemented quickly to preserve "America's overall economy." The President said that:

The government's top economic experts warn that, without immediate action by Congress, America could slip into a financial panic and a distressing scenario would unfold.

He explained the administration's plan:

It would remove the risk posed by the troubled assets, including mortgage-backed securities, now clogging the financial system. This would free banks to resume the flow of credit to American families and businesses.

Any rescue plan should also be designed to ensure that taxpayers are protected. It should welcome the participation of financial institutions, large and small. It should make certain that failed executives do not receive a windfall from your tax dollars.

[…]

First, the plan is big enough to solve a serious problem. Under our proposal, the federal government would put up to $700 billion taxpayer dollars on the line to purchase troubled assets that are clogging the financial system.

In the short term, this will free up banks to resume the flow of credit to American families and businesses, and this will help our economy grow.

Second, as markets have lost confidence in mortgage-backed securities, their prices have dropped sharply, yet the value of many of these assets will likely be higher than their current price, because the vast majority of Americans will ultimately pay off their mortgages.

The government is the one institution with the patience and resources to buy these assets at their current low prices and hold them until markets return to normal.

And when that happens, money will flow back to the Treasury as these assets are sold, and we expect that much, if not all, of the tax dollars we invest will be paid back.

The final question is, what does this mean for your economic future? Well, the primary steps -- purpose of the steps I've outlined tonight is to safeguard the financial security of American workers, and families, and small businesses. The federal government also continues to enforce laws and regulations protecting your money.

Earlier Wednesday, a letter signed by 166 economists was sent to the Speaker of the House of Representatives and the President pro tempore of the Senate. The economists, who represent nearly every political viewpoint in the country, are urging hearings and contemplation. The text of their letter:

As economists, we want to express to Congress our great concern for the plan proposed by Treasury Secretary Paulson to deal with the financial crisis. We are well aware of the difficulty of the current financial situation and we agree with the need for bold action to ensure that the financial system continues to function. We see three fatal pitfalls in the currently proposed plan:

1) Its fairness. The plan is a subsidy to investors at taxpayers’ expense. Investors who took risks to earn profits must also bear the losses. Not every business failure carries systemic risk. The government can ensure a well-functioning financial industry, able to make new loans to creditworthy borrowers, without bailing out particular investors and institutions whose choices proved unwise.

2) Its ambiguity. Neither the mission of the new agency nor its oversight are clear. If taxpayers are to buy illiquid and opaque assets from troubled sellers, the terms, occasions, and methods of such purchases must be crystal clear ahead of time and carefully monitored afterwards.

3) Its long-term effects. If the plan is enacted, its effects will be with us for a generation. For all their recent troubles, America's dynamic and innovative private capital markets have brought the nation unparalleled prosperity. Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted.

For these reasons we ask Congress not to rush, to hold appropriate hearings, and to carefully consider the right course of action, and to wisely determine the future of the financial industry and the U.S. economy for years to come.

The Lady or the Tiger? Which door would you choose?

Uncomfortably Numb Update: Feingold Fights

Yesterday, Sen. Russ Feingold (D-WI), and Rep. Brad Miller (D-NC) introduced The OLC Reporting Act of 2008.

From Sen. Feingold's press release:

This bill represents an important step toward curbing secret law and restoring the balance of power between the White House and Congress.

The OLC Reporting Act would:

• Require the Attorney General to notify Congress within 30 days when the Justice Department issues a legal opinion that:

◦concludes that a federal statute is unconstitutional;
◦relies on the “doctrine of constitutional avoidance,” a doctrine used by Yoo and his colleagues to justify strained interpretations of the law;
◦relies on other interpretive tools to avoid applying the law to the executive branch; or
◦decides that a federal law has been repealed by a later statute, when the later statute does not say so explicitly.

• Retain existing statutory protections for privileged information, while ensuring that Congress receives the information necessary to perform its legislative and oversight functions.

• Protect national security through special procedures for the submission of classified information.

With the current House session scheduled to end on September 26, and a lame duck session after the November election highly unlikely, Feingold and Miller's bill probably won't move until next year.

Uncomfortably Numb

Today, the news focused on the bankruptcy of Lehman Brothers, the Federal Reserve's likely bailout of American International Group (AIG), and the ramifications for Wall Street and the world financial markets. Meanwhile, a Senate subcommittee was listening to recommendations for the next President to restore a constitutional balance of power.

"Restoring the Rule of Law" was the subject of testimony before the Senate Judiciary Subcommittee on the Constitution. In his opening statement, Chairman Russ Feingold (D-WI), said he called the hearing to "tackle the wreckage that this President (Bush) will leave." Feingold began:

Tomorrow, September 17, is the 221st anniversary of the day in 1787 when 39 members of the Constitutional Convention signed the Constitution in Philadelphia. It is a sad fact as we approach that anniversary that for the past seven and a half years, and especially since 9/11, the Bush Administration has treated the Constitution and the rule of law with a disrespect never before seen in the history of this country. By now, the public can be excused for being almost numb to new revelations of government wrongdoing and overreaching. The catalogue is breathtaking, even when immensely complicated and far reaching programs and events are reduced to simple catch phrases: torture, Guantanamo, ignoring the Geneva Conventions, warrantless wiretapping, data mining, destruction of emails, U.S. Attorney firings, stonewalling of congressional oversight, abuse of the state secrets doctrine and executive privilege, secret abrogation of executive orders, signing statements. This is a shameful legacy that will haunt our country for years to come.

Mickey Edwards, Former Chairman of the House Republican Policy Committee, gave testimony that went beyond Presidential abuses of power to outline Congress's neglect of the checks and balances specified in the Constitution.

For most of the past eight years, and for many years before that, the Congress has failed to lived up to its assigned role as the principal representative of the people. Congress's constitutional role includes primary authority over spending priorities, tax policies, and the choice over whether or not to go to war. All of these decisions require the gathering of the information necessary to act judiciously. All of these decisions require a willingness to see to it that those decisions are complied with. But in recent years, instead of fulfilling this important trust, Congress has too often been silent.

[…]

Every member of Congress takes an oath of office to uphold and defend the Constitution. Republican members do not take an oath to defend a Republican president and Democratic members do not take an oath to defend a Democratic president. Once that oath of office is taken, loyalty to the Constitution takes primacy over loyalty to party or individual. But that is not what has happened in recent years.

Here is the challenge, stated as candidly as I can state it. Each year the presidency grows farther beyond the bounds the Constitution permits; each year the Congress fades farther into irrelevance. As it does, the voice of the people is silenced. This cannot be permitted to stand. The Congress is not without power. It can refuse to confirm people the President suggests for important offices; it can refuse to provide money for the carrying out of Executive Branch activities; it can use its subpoena power and its power to hold hearings and above all, it can use its power to write the laws of the country.

In closing, Mickey Edwards reminded Congress of its essential purpose:

Do not let it be said that what the Founders created, you have destroyed. Do not let it be said that on your watch, the Constitution of the United States became not the law of the land but a suggestion. You are not a parliament; you are a Congress – separate, independent, and equal. And because of that you are the principal means by which the people maintain control of their government. Defend that right, and that obligation, or you lose all purpose in holding these high offices. That is how you preserve and defend the rule of law in the United States.

It is easy to cite President George W. Bush for a litany of arrogant, misinformed abuses of power, if not outright violations of law. His abuse of the Constitution requires, at least, an investigation into articles of impeachment. That may be the most glaring failure of Congress, specifically the Speaker of the House of Representatives.

I applaud Senator Feingold for holding this hearing, and find it particularly notable that Mr. Edwards found it necessary to remind Congress of the purpose of its existence. If Congress had been doing its job the last several years, it would have seen the warning signs of the current financial crisis and acted to preempt it. I'll let you find the irony in that.