The Fine Print

A number of observers (including, remarkably, the lead on NBC nightly news last night) have drawn attention to Section 8 of the bill, which would give the Treasury Secretary blanket, unreviewable authority to do what he wants, with minimal reporting requirements. On its face this is a non-starter. That the language was proposed at all, however, should be extremely troubling, because it reveals a fundamental un-seriousness on the part of the Administration. If things are so bad that they require such draconian measures then the situation is much more dire than the Administration has let on. Perhaps a bank holiday would be more in order? Or if things are really not so bad, then suggesting the Treasury Secretary should effectively act in secret smells like a heist. Taking pause on the implied ambiguity of the proposed language in Section 8, the Congress should use whatever time it needs to consider what to do instead of being stampeded into a ruinously expensive mistake.

The fact that the proposed $700 billion is a revolving credit line doesn't bother me. Indeed, that's about the only honest admission in the bill's language: clearly, a bail-out of the U.S. real estate markets will cost a lot more than $700 billion when all is said and done. Putting a dollar cap on the revolving credit is just another way of indicating that the process will take time, that some sort of triage mechanism will have to be devised, and that, optimistically enough, some debts are expected be patched up and sent home.

Which gets to a third point. The administration is proposing authority for a two year period. Even if we were in the middle of the Administration's term of office this would be too long. But we're not: we're about to have an election in a few weeks that will bring a new Administration to Washington. It makes no sense whatsoever to tie that new Administration's hands, nor to try to implicate either campaign in the bill's success or failure with Congress (despite both Senators ultimately having a vote on it). Ideally the bill should propose a bridge authority of three months, six months at the outside, to get a bail-out started. In any case, the fact of the matter is that nobody know how this will work in practice and to try to define all the parameters now isn't helpful.

Most critics from the left have noticed things that the bill does not do. Senator Bernie Sanders, for example, is particularly eloquent, as has been Robert Kuttner, and others. I agree entirely with the substance of such criticism. I would hesitate, however, to try to load this bill up with complicated things like re-regulation. The main things to change, as outlined above, would be to prohibit rescue of CDS hedge funds, to add a bipartisan board to oversee what is being done, and to require full transparency to the public. Maybe half a dozen related points can be folded in — politically, you want a veto-proof majority solidly on board.

Once the bail-out has started working then comprehensive re-regulation is in order and, most likely, politically do-able. As should be a look at new taxes on the rich.

And, while we watch events unfold, interesting philosophical questions may be kicked around. This bail-out institutionalizes socialism for the rich. What about socialism for everybody else? What political changes must we come to terms with, or will everybody agree to pretend that this astonishing outbreak of socialism for the rich has never happened?