Fair-Weather Unitarians

Marty Lederman

As Jack has recently observed, apart from Katrina, the Iraq War and the conflict with al Qaeda, there has hardly been a government challenge of greater enormity this decade than the economic crisis we are now facing. Yet someone who is neither elected nor politically accountable, Ben Bernanke, is making virtually all of the nation's most momentous monetary decisions . . . and there is little the President can do about it. (The President may not remove members of the Board of the Federal Reserve except "for cause," 12 U.S.C. 242, which has long been understood to reflect congressional intent that the President may not remove such officers merely because of a substantive disagreement with their particular monetary decisions.) What's more, virtually everyone in the Nation now accepts this as the Way Things Ought to Be and, truth be told, is grateful and relieved that the President is not "the Decider" when it comes to the fate of our economy.

And what does the Bush Administration have to say about this profound threat to the "unitary executive"? After all, even with respect to the much-less-powerful Consumer Product Safety Commission, the Bush OLC (per John Yoo), wrote that a similar for-cause removal condition for CPSC Commissioners "could prove to be unconstitutional."

Well, on Monday, the Administration's Department of Treasury will "propose a far-reaching overhaul of the nation's financial regulatory structure that would reshape the relationship between Wall Street and Washington and redefine the responsibilities of some of the federal government's most powerful agencies." In particular, and most strikingly, the powers of the Federal Reserve would be dramatically expanded: the Fed "would gain the power to investigate any aspect of financial institutions that threatens the stability of the entire system, gathering information and taking action to combat risks to the financial system as a whole." In the words of one Treasury official, the Fed "would act as a 'free safety,' . . . with broad but somewhat undefined powers to roam the entire playing field of Wall Street's activities."

The Executive Summary of the Administration's statutory proposal, the "Blueprint for Financial Regulatory Reform," summarizes that "[t]he Federal Reserve's responsibilities would be broad, important, and difficult to undertake." The Fed would retain its current authority to implement the Nation's monetary policy and provide liquidity to the financial system. "In addition, the Federal Reserve [w]ould be provided with a different, yet critically important regulatory role and broad powers focusing on the overall financial system and the three types of federally chartered institutions (i.e., FIIs, FIDIs, or FFSPs). . . . In terms of its recast regulatory role focusing on systemic risk, the Federal Reserve [w]ould have the responsibility and authority to gather appropriate information, disclose information, collaborate with the other regulators on rule writing, and take corrective actions when necessary in the interest of overall financial market stability." For example, "the Fed would be given the authority to order investment firms to improve their systems for monitoring risk." If the Fed determined that certain risk exposures pose an overall risk to the financial system or the broader economy, it would "have authority to require corrective actions to address current risks or to constrain future risk-taking." The Fed could use this corrective action authority "to require financial institutions to limit or more carefully monitor risk exposures to certain asset classes or to certain types of counterparties or address liquidity and funding issues." The plan states that such Fed actions "should be coordinated and implemented with the appropriate regulatory agency to the fullest extent possible." However, "the Federal Reserve would have residual authority to enforce compliance with its requirements under this authority." The Fed would also have primary oversight responsibilities for payment and settlement systems -- "the mechanisms used to transfer funds and financial instruments between financial institutions and between financial institutions and their customers," which "play a fundamental and important role in the economy by providing a range of mechanisms through which financial institutions can easily settle transactions." The Fed would, under the Administration plan, "have discretion to designate a payment and settlement system as systemically important, and . . . have a full range of authority to establish regulatory standards." And the Fed would be given the ability "to undertake market stability discount window lending," which would "expand the Federal Reserve's lender of last resort function." (Recently, the Fed used its authority for the first time since the 1930s to provide access to the discount window to non-depository institutions.)

This is an Administration that has famously advocated for ever-increasing centralization of power in the presidency, and that has strenuously advocated for the "unitary executive" theory, under which the President should have effective control of the entirety of the "executive power" of the United States. Taken seriously, this would be a fundamental challenge to the post-New-Deal order, under which many important functions are assigned to actors who are for all practical purposes immune from meaningful presidential control.

And yet under the Administration's new statutory proposal, the "independent" Fed would be given much broader authority than it already enjoys to regulate the nation's economy. Needless to say, the Administration has not -- thus far -- added that tis bold new proposal "could prove to be unconstitutional." The Blueprint for Monday's statutory proposal does not even mention the apparent constitutional anomaly that these important functions would be transferred away from the control of the elected President and other politically accountable officials.

Many moons ago, in my very first semester in law school, the great Charles Black regaled my ConLaw class with a reminiscence of one day in the mid-1970s when he was waiting out a plane delay in an airport. Black happened to look up and spot Arthur Burns quietly sitting by himself across the way. The apparent absurdity of the fact that he was gazing upon one of the most powerful men in the world suddenly dawned on Black, and he asked himself: "Now who, exactly, elected him to run the nation's economy?; and where in the Constitution . . . .?"

But where are the unitary executive proponents -- in the Administration and among the academic and other champions of Justice Scalia's dissent in Morrison v. Olson -- when it comes to the most important and powerful "independent" agency of them all, the Federal Reserve? Nowhere to be found, far as I can tell. Indeed, apparently they see no problem in expanding the purview of the Fed even further, to give it virtually unreviewable regulatory authority over additional sectors of the economy.

To be fair, in a footnote in an Arkansas Law Review article in 1994, Steve Calabresi, one of the leading proponents of the unitary executive theory, conceded that under his view the statutory independence of the Fed is unconstitutional. (Calabresi also argued that such legal independence is unnecessary, because even without statutory insulation from the President, a "practical independence can always be achieved within our formal constitutional structure if public opinion thinks it desirable that it should exist" -- a conclusion that does not contend with the distinct possibility that the public expectation of Fed independence is largely a function of the fact that the Fed has been legally immune from executive control for so many decades: Before Congress limited the President's removal power in 1935, there was no expectation of independence -- the Fed included the Secretary of Treasury and Comptroller of the Currency as ex officio members so as to preserve executive control specifically to insure that the executive branch would be able to exert an appropriate degree of control over monetary policy, and President Wilson used the threat of removal to influence monetary policy.)

But there's a reason that concession is buried in a footnote. If Calabresi's is truly the view of the unitary executive proponents, they don't speak about it much in mixed company -- because to do so would reveal the radical nature of their otherwise reasonable-sounding theory: Taken seriously, Justice Scalia's widely admired arguments in Morrison would call into question the independence of the Fed and many other agencies that the public now assumes will and should act independently of White House control. And to question the constitutionality of these agencies at this late date would be to sound the death-knell for the unitary executive theory . . .

. . . which might explain why Justice Scalia wrote only for himself in Morrison (with Chief Justice Rehnquist writing for the Court in an opinion rejecting most of the UE theory).

The one-sided vote in Morrison might be explained, in part, by an case that was argued two years previously: President Reagan's Solicitor General, Charles Fried, had aggressively pushed a unitary executive argument to the Court in Bowsher v. Synar, claiming that one reason the Comptroller General could not be given important budget-reducing authority was because he was not subject to plenary presidential removal authority. (Fried won the case, but on the narrower ground that such functions could not be performed by an official subject to congressional control.)

At oral argument, the Comptroller General's lawyer, Lloyd Cutler, told the Court that if they accepted Fried's argument about the need for presidential removal authority, they would "take over the side with you the Federal Reserve Board which itself makes broad, predictive findings of fact and sets policy, the Federal Communications Commission which you have held determines the course of future public policy when it is issuing licenses and deregulating common carriers, and many other commissions."

In response, the very first thing Fried did at the beginning of his presentation was to try to assure the Court that his removal argument did not lead down that slippery slope to the unconstitutionality of the Fed: "I would like to say at the outset that this second argument does not in our view in any way cast any doubt on the validity of agencies such as the Federal Reserve Board, the Federal Trade Commission, or any such agencies, and that the notion that the second argument in some sense endangers those agencies or would embark this Court on some constitutional adventure is simply a scare which we don't intend to throw into the Court and I don't think need be thrown there."

To which Justice O'Connor famously responded, to laughter from the audience: "Well, Mr. Fried, I'll confess you scared me with it."

And ever since then, unitary executivists have wisely avoided any mention of how their theories would affect the constitutionality of the Federal Reserve. The Bush Administration's proposal to greatly expand the authority of that independent agency merely confirms that when it comes to theories of the unitary executive, the Fed is the third rail. Touch it at your peril. As Jack wrote:

Within the halls of the Bush Administration, nobody seems to be thumping the pulpit, arguing about the framers and demanding the sacred prerogatives of the Unitary Executive. Messrs. Cheney and Addington are nowhere to be heard from defending the President's powers to take responsibility for the money supply and for the financial crisis we are now in. President Bush doesn't want the buck to stop in his office. He likes the dictatorship of the Fed just fine. Of course, if the Fed were charged with interrogating prisoners, it would be a different matter entirely. . . .

Posted 10:10 PM by Marty Lederman [link]