You and Eric Posner are full of invocations of Schmitt the past few days. I think I know where Posner stands, but in your case I'm a little less clear. Is your point merely descriptive, i.e. "look, folks, you might not have noticed but we're really living in a Schmittian constitutional dictatorship"? Are you decrying Schmittian uses of emergency power? Extolling it (I doubt this)? If you're decrying it, as I suspect, do you think there's a viable democratic way to deal with financial crises? And isn't it probably the case that the American people are so hopelessly ignorant of economics (pace Bryan Caplan) that, if the government were to act in a way that reflected how the people felt about spending their tax dollars on bailouts of investment banks, instead of just heeding the wisdom of sovereigns Bernanke and Paulson, we'd almost certainly be led astray?
 

Sandy: I must confess that I don't understand the breathlessness, nor the invocation of Schmitt, nor -- especially -- the analogy to what Bush did post-9/11 (a move that Eric Posner also makes over at the Volokh Conspiracy, as if a multi-year, extensive program of secret rendition and torture in violation of numerous existing laws and treaties is somehow analogous to a loan that is open, statutorily authorized, and (apparently) not violative of any prohibition).

In every society, there come emergency situations that could not have been, or were not, foreseen, and thus as to which the existing law is inadequate.

The crisis that began in 1929 was one such emergency. The political branches responded, appropriately, by establishing new institutions to deal with such emergencies, giving them broad new authorities, and (in the case of the Fed) attempting to insulate them somewhat from ordinary political influences, in the belief that bureaucrats so unburdened would be likely to address the problems more effectively. As you put it, "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." Is there anything wrong with this? That's the basic New Deal administrative state. What's "Schmittian" about it?

The emergency powers granted in 1932, intentionally drafted quite broadly, happen to be of great assistance when, in 2008, a new emergency comes along, one that could not have been anticipated (at least in this precise form) in 1932. The existing baseline laws work as they were designed -- they are flexible enough to give the Fed the tools to try to deal with the new crisis, at least in the short run.

There is no "legal trangression" -- unlike the torture and surveillance programs, there was no violation of statutory limits here (not that I can see, anyway). There certainly is no "dictatorship," in any respect: Paulsen and Bernanke must act according to law, and if they use their discretion in unwise ways, the legislature can step in and amend the laws to correct them.

The President and the Vice President are not the central players, of course -- but then, that's to be expected in an area of such complexity, particularly seeing as how the 1932 Congress preferred that non-politically-sensitive bureaucrats would get the first bite at addressing the emergency. In fact, however, it would be virtually impossible for Bernanke to act in a way that was fundamentally opposed by both the President and Congress, which is as it should be.

As it turns out -- not surprisingly -- the 1932 law is extremely helpful, at least in a pinch, but does not adequately provide for all of the remedies that are necessary to adequately deal with the new emergency. So the federal officers closest to the situation begin to contemplate, not violations of existing law (that was Bush post-9/11), but instead how to draft new laws would be most beneficial. They consult Congress, as they should -- and the legislature can take as much of a leading role as it sees fit. Of course it defers largely to the judgments of those it has assigned to become expert in such matters -- but what is wrong with that? What's new about that? And those experts actually draft the initial proposed legislation: Imagine that! --the Executive branch drafting legislation . . . just as it does several dozen times a month.

An emergency that does not admit of easy answers? Of course. But a constitutional crisis? Of what sort? What am I missing?
 

Both of these comments are very helpful. As to the first, my main interest is descriptive. I agree with Marty (and everyone else, for that matter) that emergencies do in fact arise, and that it is a very good idea to design institutions in advance that can respond to them. I don't think we've done a particularly good job of that in the US, not least because too much power is placed in the hands of a single person who has a crass political incentive, particularly at election time, to decare that we face an emergency. (I wasn't aware of Eric's postings, which I'll look up in a few moments.)

I don't know that Marty and I have a serious disagreement. Given my esteem for him as a lawyer, I accept without demurral his description of the current legal situation, i.e., neither Paulson nor Bernanke "transgressed" any law. And it may be that the 1932 law is just the right example of a "framework statute" that allows a rapid response to a foreseeable emergency. My analytic point is that there may not be that big a difference between a constitution with formal emergency powers clause, like the Weimar Constitution, and our system that turns out to include a host of emergency powers laws delegating to executive officials sweeping powers with signifciant consequences for the country as a whole.

And I think it remains to be seen how much scrutiny the new legislation gets before passage, given that there is such pressure (from Paulson and Bernanke, presumably) to pass it quickly in order to restore confidence in the markets.

As to Schmitt, I have been "pushing" him for at least the past three years because I think he is a brilliant and extremely troubling analyst of 20th (and now 21st) century "democratic" politics. He was, by almost all accounts, an awful person who played an awful role in the coming to power of the Nazi Party, but that, unfortunately, does not mean that his ideas are not extremely illuminating.

I hope this is helpful, and I look forward to whatever Tray or Marty might wish to add.
 

1) The problem is that the financial sector developed new instruments that the institutions themselves did not know how to value when the instruments went partially insolvent. Thus, the banks had to assume they were valued at zero and were not willing to lend money to one another using these instruments as collateral.

2) The solution worked out between the Fed, Treasury, other national banks and the private sector would be that the government would purchase these assets at a discounted value and then work at valuing and selling the assets. This gives the banks liquidity again and hopefully stops the panic.

3) Because the financial experts were making it up as they went along, it is absurd to assume the political class had any answers. The snide shots at Mr. Bush are silly considering Harry Reid told reporters yesterday that no one in Congress knew what to do. This is why you choose a qualified Fed and Sec Treasury.

4) Bush intentionally avoided making speeches while the experts worked out a solution so that he would not end up starting a panic by saying inadvertently saying something wrong. Indeed, Bernanke and Paulson were also staying largely mum for the same reason. Reid should have followed suit rather than admitting ignorance yesterday.

5) BTW, this is a great opportunity to make money. I sold my stocks when the market downturn started and went bargain shopping this morning to make a few grand by the end of the day. I expect to remake the same money I made last year on the same stocks as they return to their normal values.
 

1) The problem is that the financial sector developed new instruments that the institutions themselves did not know how to value when the instruments went partially insolvent. Thus, the banks had to assume they were valued at zero and were not willing to lend money to one another using these instruments as collateral.

I call BS (and not "Bear Strearns"). I think they knew the value reasonably well. What they got was a gummint willing to buy this crap, "pig in a poke", on behalf of the taxpayers. Albeit the value is "highly discounted", so taxpayers can rest assured that they're getting a good deal [ 8^P) ], but what does it say about the rationality of the vaunted "free markets" (or the fairness of the deal to taxpayers, either one) than no one wants to buy this crap?

Cheers,
 

[N]o one in Congress knew what to do.

Or was willng to do what no one else wanted to do.... ;-]

Bush intentionally avoided making speeches while the experts worked out a solution so that he would not end up starting a panic by saying inadvertently saying something wrong.

Admittedly always a worry. But I notice that someone made a sh*tpile of money Wednesday before and as word got out (eventually through CNBC) that the gummint was going to play the patsy and buy the poke, sight unseen.... [This, BTW, is a prime example of why bettign you have better end earlier information than the insiders is a poor decision]

Cheers,
 

As you put it, "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." Is there anything wrong with this?

Perhaps so. There's a wonderful line from Schmitt's preface to his Crisis of Parliamentary Democracy that I think captures what Levinson's getting at:

"The development of modern mass democracy has made argumentative public discussion an empty formality. Many norms of contemporary parliamentary law...function like a superfluous decoration, useless and even embarrassing, as though someone had painted the radiator of a modern central heating system with red flames in order to give the appearance of a blazing fire."

And that's what's going on here. Congress is the paint on the radiator. Yes, they'll go through the motions of voting on the bill Treasury hands them, but they won't hold hearings to determine whether this is really necessary, have any control over exactly where this massive appropriation is headed, or even know when they vote on the bill whether the whole thing will cost 500 billion or twice that much. It'll all be done before this time next week, and just like that, all the tax and spending proposals of both presidential candidates will become obsolete, because there won't be any money left for them. (It'll be fascinating to see if the candidates admit this, or if they continue their kabuki debate over who has the better fantasy-land tax cut and dreamworld healthcare plan.) Is this all for the best? I think so, but it isn't very democratic to hand away 20-40% of taxpayer revenue without even debating the matter, as will likely happen, simply on the basis of some horror stories told in a closed door meeting to a select group of Senators.
 

The long range view of elected officials is the next election. OOPS! That's only weeks away. How can Congress hold meaningful hearings with elections coming up? Is this a form of constitutional crisis?
 

Tray:

Congress is the paint on the radiator. Yes, they'll go through the motions of voting on the bill Treasury hands them, but they won't hold hearings to determine whether this is really necessary, have any control over exactly where this massive appropriation is headed, or even know when they vote on the bill whether the whole thing will cost 500 billion or twice that much.

One of the RW talk show guys [probably Hannity, but they all sound so much alike I can't remember for sure] was complaining the other day that Congress was going to do this. If I thought there was a snowflake's chance in getting through, I would have called and asked him about the USA PUTZRIOT bill that nobody read....

Then we have to worry about Republicans altering the text of the bill after Congress does vote on it and approve it. You'd think that such a bill would be invalid, but.....

Cheers,
 

arne:

The GOP administration just saved our asses from a massive near Great Depression level series of bank failures after the Dem Congress punted and talked about going home to campaign and the Dem presidential candidate could only repeat "Uh" about thirty times when reporters asked him what he would do..

I am sure you will relay your deep appreciation of Bernanke and Paulson for their rather impressive work.
 

Basically on the "Schmittian crisis" point, I follow Marty rather than Sandy.

Re Tray's Post: As I have pointed out on this thread there is every reason to suspect that the Administration knew this was coming and decided to hope against hope that they could delay it coming to the forefront until after the November elections - thus leaving the next Administration with the ultimate poison pill.

In such circumstances, the market (which is free and international) forced the Bush Administration's hand and, doubtless with extreme reluctance, recourse was had to New Deal emergency powers. Now the scale of the problem is such that Congress will have to legislate.

At this point, Congress is very far from being the 'paint on the radiator'.

First, Congress can hold hearings to determine precisely why the system failed. Holding the executive to account is one function of the Congress and I suggest that those office-holders responsible for wrecking the economy are impeachable - if only to ensure that they do not in future hold offices of profit under the United States.

Second, Congress can, and must consider the legislation needed to ensure this will not happen again. I suggest this should include a single financial services regulator to licence all participants in the financial services sector, both corporations and individuals, to ensure they are 'fit and proper' to participate in the markets, with jurisdiction to regulate which financial instruments may be marketed, on what terms and to whom, with audit functions - financed by a levy on the regulated firms and with power to bar those who do not behave from the markets. It may need to include a requirement for periodic reporting to Congress.

Third, Congress has the power of the purse and can decide where the tax burden of paying for all this should lie - and it might not be a bad idea to provide for a 15% tax surcharge on corporate profits and executive salaries and other compensation in the financial services sector until the capital costs are amortised.

But then you all, like me, live in an elective dictatorship. One of our residual privileges is to boot out the party in office when they allow a crisis like this to develop.

Re Bart's post:-
The institutions have actuaries and others who could have assessed the risks fairly accurately, the problems were

i) that there was no regulator to double check before the instruments were marketed; and

ii) there was a political desire to keep offering people mortgages to those who could not genuinely take on the burden of a mortgage. A subsidised product might have been more appropriate.

One useful tax the Congress might usefully consider would be a retrospective capital gains tax on all those who have made capital gains from market trading during the last 8 years.

That would teach Bart and his friends not to support the laissez faire economic policies which have come back to bite everyone.

Shag: if the long range view of politicians is as you say, the bankers' view of a long term facility for industrial redevelopment is 48 hours! Perhaps that is something else which needs fixing.
 

This comment has been removed by the author.
 

mourad said...

In such circumstances, the market (which is free and international) forced the Bush Administration's hand and, doubtless with extreme reluctance, recourse was had to New Deal emergency powers. Now the scale of the problem is such that Congress will have to legislate.

This is something new. There is no New Deal statute or regulation which was enacted or repealed during the past generation's deregulation which would have addressed this. Indeed, the 1999 Gramm-Leach-Bliley deregulation breaking down the barriers between banks and investment firms allowed the mergers rescuing Bear Stearns, Merrill Lynch and very shortly Morgan Stanley.

Congress can hold hearings to determine precisely why the system failed. Holding the executive to account is one function of the Congress and I suggest that those office-holders responsible for wrecking the economy are impeachable - if only to ensure that they do not in future hold offices of profit under the United States.

This is amusing given that the President and the Senate with McCain in the lead twice attempted to pass regulatory reforms of Freddie and Fannie and the Dems now in control of Congress along with some GOP blocked both efforts in order to subsidize house purchased for the non-credit worthy constituents.

Second, Congress can, and must consider the legislation needed to ensure this will not happen again.

This does need to be done, but I fear that they will go far overboard and end up denying credit to the credit worthy.

Third, Congress has the power of the purse and can decide where the tax burden of paying for all this should lie - and it might not be a bad idea to provide for a 15% tax surcharge on corporate profits and executive salaries and other compensation in the financial services sector until the capital costs are amortised.

Because the US has nearly the highest corporate taxes in the world (higher than your UK) that is already driving business overseas, this is a moronic idea unless one is attempting to impose the damage to the GDP and employment that Bernanke and Paulson have just avoided.

Re Bart's post:- The institutions have actuaries and others who could have assessed the risks fairly accurately...

Based on what past experience? These instruments are brand new and had never gone partially insolvent before.

...the problems were: i) that there was no regulator to double check before the instruments were marketed

And how precisely were the regulatory agencies to have any more success than the financial analysts for the banks with their own money on the line?

...and ii) there was a political desire to keep offering people mortgages to those who could not genuinely take on the burden of a mortgage. A subsidised product might have been more appropriate.

We agree. See the above contribution by the Dems in Congress on behalf of their uncreditworthy constituents.

One useful tax the Congress might usefully consider would be a retrospective capital gains tax on all those who have made capital gains from market trading during the last 8 years. That would teach Bart and his friends not to support the laissez faire economic policies which have come back to bite everyone.

You feel the need to punish those who risk their money to finance economic growth?

Are you a communist or merely a flaming socialist?

Obviously, it would be useless explaining the basic economic principle to you that the only thing you get from punishing wealth creation is less wealth.

Instead, I will make my feelings about the idea of the government looting my retirement simple. Do the initials F O have a meaning to you?
 

"Bart" DePalma:

The GOP administration just saved our asses from a massive near Great Depression level series of bank failures....

No. They saved the a$$es of all the Wall Street fat cats and bank executives with $700B of "our money" ... the taxpayers' ... and their children's.... For some strange reason, I am not happy with that.

Cheers,