CHAOS WASHING MACHINES

The major storyline seems to be emerging that this historical moment of crisis in financial markets demands unprecedented and quick action--with no time for lawmakers to think or to consider other options. It is worth considering that the Constitution is not wired for speed by design. Rapid decision making and democratic governance are not generally the same thing. Add in the fact that this is being driven by two wholly unelected technocrats acting as agents for a lawless presidential regime, and the problems for rule by the people are clear.

Furthermore, the speed and scale of the bailout are reminiscent of the PATRIOT act passage, wherein most Congress members never read the bill. Only this time the Bush administration is asking for the cost of the failed, unnecessary, and horrifically overbudget Iraq War in a single lump sum, to be showered on financial institutions which have proven themselves to be untrustworthy and incompetently run. There does not seem to be a call for punishment of the knaves who got the country into this mess. Nor is there a call to take away the great wealth from the malefactors of great wealth who caused this problem in the first place.

Like the failure to prevent the September 11 terrorist attacks, it seems as if nobody will be held responsible in the responsibility-free Bush era. Yet, as I teach my first year students: these are all decisions made by people for specific reasons at specific times. This was not a natural disaster, this was entirely manmade. Shouldn't we demand answers and penalties for the responsible parties? We punish teenagers caught with joints more than we are planning to punish the bankers and financial wizards who have strained or destroyed the present and future prosperity of our country.

A question worth considering: since there is not one policy of the Bush administration that has been successfully implemented, not a single one, what is the basis for thinking that a complicated bailout of this sort will work effectively? (Incidentally, I am open to hearing about a single successful policy of the Bush-Cheney regime if you can conjure one up)

Some people point as an analogy to the Savings and Loan bailout which was necessary under Bush I. (I haven't seen anyone dwell on the obvious point that there is an undelicious irony in that W. has at last surpassed his dad in economic failure too) But there was a crucial difference in that instance--the unregulated Savings and Loans had failed already and were insured by the government to begin with. Those were insured deposits, whereas Wall Street has never purported to be anything but risky. Now, when there is actually a risk, nobody wants the risk. But don't the rest of us have to live with risk? Didn't Rusmfeld tell us that democracy is chaotic?) In this case, the Bush administration is seeking to prevent failure by putting the taxpayers on the hook for the bad decisions of the banks, to buy a bunch of worthless paper (hence the new word dejour: "toxic investments"). Correct me if I am wrong, but does this not leave the banks to go sin again without paying the piper?

I was starting to think that only a few of the usual Libertarian cranks were agreeing with me but some very sharp and important criticism has emerged.

I am going to excerpt these at length because these critiques so utterly capture what is happening:


Balikinization has an excellent series of posts, centered around the theories of Carl Schmitt --"Soveriegn is he who decides on the exception":

"Consider some implications:

1. This is exactly what Carl Schmitt met by an "exceptional" situation that requires legal transgression and perhaps even "dictatorship." Recall, incidentally, that "Sovereign is he who decides the existence of a state of exception." Well, it's easy enough to identify the "sovereign(s)" this past week: Ben Bernanke and Henry Paulson.
...

4. Congress is now being "consulted," but one wonders if the consultation will be any more substantial than occurred, say, with the hurried passage of the USA PATRIOT ACT or the AUMF, where time was perceived as of the essence, with no time for old-fashioned hearings and deliberation. How many of us are saying some version of "things will never be the same after the events of this past week"? Thus Charles Shumer is quoted as saying, “You have the credit lines in America, which are the lifeblood of the economy, frozen. That hasn’t happened before. It’s a brave new world. You are in uncharted territory, but the one thing you do know is you can’t leave them frozen or the economy will just head south at a rapid rate.” And the Times reporter notes, "As officials at the Treasury Department raced on Friday to draft legislative language for an ambitious plan for the government to buy billions of dollars of illiquid debt from ailing American financial institutions, legislators on Capitol Hill said they planned to work through the weekend reviewing the proposal and making efforts to bring a package of measures to the floor of the House and Senate by the end of next week. "

The consequence of the "things will never be the same" mantra with regard to September 11, a far less serious blow to the US economy than the shennanigans of America's "leading" economic institutions, was a massive shift of power to the executive branch, helped along by a Schmittian reading of Article II. And in that instance, the "executive branch" was very definitely personalized in the Great Decider and "unitary executive." That is not what is happening here. There is a massive shift of power to the executive, but it is the Executive as instantiated in a (professionally competent) Secretary of the Treasury and an institutionally independent head of the Fed. As suggested above, almost nobody wants the current President to get involved, Harvard MBA though he may be. And, instead of relying on Article II, we instead will see Schmittian readings of New Deal legislation. (And, of course, the New Deal itself, especially if analyzed through the lens of an Ackermanian "constitutional moment," is profoundly Schmittian. Indeed, the question we should be asking is whether we are going through a "constitutional moment" with regard to regulation and control of the banking and financial system, even if it lacks almost all of the legitimating indices that Ackerman painfully constructed (including elections). Though, interestingly enough, no one seems to want to define the present moment as a "constitutional crisis," only (if that is the right word) as an economic one. So is the corroboration of how truly deep the New Deal moment was in constructing a new political order?

Here is a clear eyed view of how to interpret what is happening:

"In response to the crisis created in part by its own incompetence and ideological blinders, the Administration now asks for enormous new powers to run the economy in a form of state planning that would make Friedrich Hayek turn over in this grave but would surely bring a smile to Carl Schmitt's lips.

In the latest version of its plan, the Secretary of the Treasury is given authority to take 700 billion dollars (that's 700,000,000,000) from the federal budget and spend it pretty much however he likes, free from any oversight requirements or restrictions that apply to public contracts and especially free from any form of judicial review. (The technical term for this is "committed to agency discretion.").

Oversight and regulations of public contracts are designed to prevent malfeasance, corruption, self-dealing and conflicts of interest in the distribution of federal monies. The Administration wishes to dispense with all of these restraints and precautions, just as it sought to run the Iraq war on no-bid contracts. That was bad enough, but here the dangers of bad deals and conflicts of interest are staggering."
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Put differently, the Administration wants the Secretary to take over a sizable chunk of the nation's capital and insurance markets, and run them as a firm. It is a merger of public power and private capital that would have made a 1930s advocate of state corporatism proud. And because the Secretary's power is effectively unreviewable, he can make sweetheart deals with any or all of the firms and financiers that got us into this mess, providing handsome compensation packages to outgoing executives or, in the alternative, bring these failures into the government to run the new grand public/private business enterprise....

"I do not oppose emergency plans to preserve liquidity in markets and prevent a further crisis. What I do object to is plenary discretion in the executive in running the nation's financial markets, especially given the history of the past seven years, which has been a sorry parade of venality, incompetence, hubris and failure.

The modus operandi of the Bush Administration has been to use crisis to seize unreviewable power for the executive. Have we learned nothing from the last seven years? True, the face of our new Dear Leader is Mr. Paulson, and not Messrs. Bush and Cheney. But who, pray tell, do Mr. Paulson and his associates work for? If one truly credits the theory of the unitary executive so beloved by the Bush Administration, who, at the end of the day will these masters of the universe be taking orders from? And whose friends, business associates, and allies will stand to benefit from their deal making?

But there is more. The current secretary of the Treasury will soon be gone, replaced by the appointee of a new Administration, run either by McCain or by Obama. The next President-- and the next Secretary of the Treasury-- will face the very same temptations. If you think that the current Administration will behave itself appropriately-- a dubious proposition given its history-- do you have any guarantee that the next Administration will be equally well behaved? (As one commentator pointed out below, the Democrats have their share of friends and allies on Wall Street too. And don't even get me started about a McCain Administration advised by Phil Gramm.) We set a dangerous precedent by handing more and more unreviewable power to the president to nationalize large aspects of our economy and run them without effective oversight.

One would have thought that conservative, free market Republicans, of all people, would have warned us of the dangers of state planning and state control of the economy. Certainly they have spared no opportunity to denounce reform of our health care system as socialism. These accusations seem to be stilled, however, when the issue is bailing out the Republican Party's friends on Wall Street, while enlisting many of these friends in running the new state corporate enterprise, and selling the assets back to the same group later on.

It is a bit like the privatization of the old Soviet Bloc. Faced with crisis, the old communists became the new capitalists; they made the most of changed conditions by buying up old state businesses and running them as capitalist oligarchs. In America we see the same logic in reverse: Faced with a crisis of their own making, the old capitalists become the new communists."

One question is if this signals a broader systemic collapse. The fundamentals of the economy have been shown to be rotten to the core. The ability of government to cope with disaster --natural or man-made-- with any degree of effectiveness has been revealed to be close to nil over the past 8 years. What indeed happens to a society (not even to mention an empire) when the political economy ceases to function on this level?



and here is an essential annotated look at the "the Odd Couple (Our Current Constitutional Dictators re the Economy)", worth reading completely. Here is the conclusion:

"The Bush Administration, even in its waning days, certainly seems to like "unfettered authority." So is this the equivalent, applied to the economic sector, of the "national-security" unfettered authority asked for, and basically granted, by a submissive and scared Democratic Congress? Such legislation, of course, can be made to fit within "rule-of-law" paradigms if all that is required is ex-ante legislative acquiescence to the executive. But, as I have argued earlier, this is far, far away from any civics-book vision of how our ostensibly separation-of-powers system is supposed to work. I do wonder if Brandeis, Cardozo, and Stone would label what appears, at least today, to be the proposed legislation, which will presumably be added to the U.S. Code within the week, as being "delegation run riot" and whether we should care what the answer is."