Sunday, September 28, 2008

A Congressional Overseer for the Secretary of Treasury

Rick Pildes

A crucial element to enabling the bailout bill to go forward is the creation of a new Board, the Financial Stability Oversight Board, that now sits over the Secretary of the Treasury for purposes of implementing the Act. This Board (really, an executive committee of the Board) has the power to “direct, limit, or prohibit" the activities of the Secretary ... to the extent the Committee determines that such activities are not in accordance with the purposes of this Act." This committee will consist of the Chairs of the Fed. Reserve Board, the SEC, and the FDIC. Thus, this group of officials can dictate to the Secretary of the Treasury which actions he can or cannot take to carry out the Act.

I blogged elsewhere about some of the issues this unusual structure creates. See I want to expand on the initial point so that readers have a fuller understanding of the nature of the issues. American constitutional law has recognized for many decades that Congress has the power to create independent agencies. An agency is independent when Congress designs the agency so that the President does not have complete power to control the agency because the agency heads, unlike members of the cabinet, do not serve at the pleasure of the President. The formula for insulating agency heads from plenary presidential control is for Congress to permit them to be removed only for certain “good cause” reasons that are defined in a statute.

But while Congress can create independent agencies, there has also always been understood to be a limit to Congress’ ability to do so. Although the Supreme Court has never had to define this limit with any precision, the general understanding, reflected in both doctrine and academic analysis, has been that there are at least a small core of cabinet-level officials whose unfettered loyalty to the President is so essential to the role the Constitution creates for the Presidency that Congress cannot insulate this core set of officials from plenary control of the President. This issue came to head in the post-Civil War era, when Congress tried to prevent the President from being able to fire the Secretary of War (as the Secretary of Defense was then called) in the Tenure in Office Act. The immediate precipitant to President Andrew Johnson’s impeachment and near conviction was his refusal to comply with this Act. Over time, a virtual consensus has emerged that Johnson was correct that Congress’ power to create independent actors has to stop, at least, at positions like the Secretary of Defense.

To the extent there are a core group of actors that must remain completely subject only to the President’s control and judgment, I think the Secretary of the Treasury must come under this principle. As noted, there is no precise definition which actors constitute this core and the answer cannot be based on status as a member of the “cabinet;” the Constitution does not create or define a “presidential cabinet” and the statutes creating cabinet-level entities have changed over time. But I would think, at the least, that the four original departments of government that Congress created originally – and that were thus recognized from the start as essential to implementation of national law – would have to be in this core. That means the Secretaries of Treasury, State, Defense, and the Attorney General are the essential arms of the President that Congress cannot intrude upon. If a law were to permit the President to fire the Secretary of the Treasury not for any reason at all, but only for “good cause,” I think that law would likely be unconstitutional, and that most scholars would agree.

That’s the background for understanding how unusual a Board is that sits atop the Secretary of Treasury and that can veto and control his or her decisions. True, the Board cannot do this across all the issues the Secretary addresses, only those that arise under the bailout bill. When Congress created the Independent Counsel and made that investigator/prosecutor independent of the President’s plenary control, the Supreme Court upheld the Act because, said the Court, the Independent Counsel only performed “narrow functions.” So an inroad to this extent, in that context, of the President-Attorney General relationship was constitutionally acceptable. Perhaps, since the bailout bill deals with a specific set of issues, we should also view this new Board as only performing “narrow functions” too – although, given how much appears at stake for the economy, this might not be all that convincing (indeed, given how profound the effect on government of investigation of the President can be, one wonders whether the Court today would still consider even an Independent Counsel to be performing only a “narrow function’).

In essence, Congress has created a structure in which the Secretary of the Treasury now has something of two masters. On most issues, it is the President. But on issues related to the bailout bill, it is the new Board. If the President had complete control over who the members of the Board were, this would not be important. Even if the Secretary now had a boss, as long as that boss remained fully under the control of the President, the basic separation of powers issues would be satisfied: the President would still have effective, complete control over one of his core agents, the Secretary of the Treasury. But this is not the case with the executive committee of the Board. It’s members must be, as defined in the bailout bill, the Chairs of the Fed, SEC, and FDIC. For now, Congress has given the President the power to choose who those Chairs are, but Congress could take that power away at any time (and I do not see an argument that the President has the inherent constitutional power to decide who the Chairs are of independent agencies). Thus, the Secretary of the Treasury will now have two masters, one of whom, this new Board, is not itself under the full control of the President.

The concern I raise is not one that would be recognized only by those who have the strongest views about the constitutional imperative of a “unified executive branch.” Those with the strongest views do not accept the constitutionality of independent agencies, period. But even those who agree with the Court and longstanding practice that Congress can create independent agencies have always recognized that, at some point, there is a limit. Up until now, most have thought that limit would be crossed if Congress sought to give a small set of core executive officials some other master than the President alone. That is why this novel structure of power in the bailout bill is worth noting and considering carefully.

Perhaps in another post I will discuss how courts are likely to respond, should legal challenges to this structure arise.


I basically agree with the theory of this post. However, as an empirical matter, I think that the federal courts (including the Supreme Court) turn pragmatic in high-stakes situations. This raises the question of whether the oversight provisions are severable from the core of the bailout. If severable, the concession required to pass the bailout is a sham. If courts admit that the provision is not severable, the question becomes whether the reviewing court will consider the political cost of killing the entire emergency plan too high a price for the Court (and the country) to pay. This is likely to turn on how long it takes for such a case to come before the courts.

This is an extraordinarily interestihg post. The one caveat I have is with regard to the Attorney General. Yes, it's true that (s)he was one of the original cabinet officials in Washington's time, but surely we can say that the role, especially in modern times, of the AG as chief prosecutor, among many other things, could license putting some statutory distance between an AG and a President. I agree with Rick that we almost certainly do want at least a minimal "unitary executive" with regard to State, Treasurey, and Defense, but I have real reservations with regard to the AG. I'm curious whether Rick finds it relevant that most American states and a number of foreign countries (Israel, for example) have independent AGs (most of whom, in the American states, are elected, of course).

I'm certainly no scholar or expert on the topic. But I think if the Sec. of the Treasury is suddenly given a brand new sphere of authority, it does not necessarily follow that such new authority falls under the same line of command that more traditional duties do.

I agree that optimally, Paulson would have had no role whatsoever in the oversight of this program. However, that (and much else) was apparently politically too difficult for the Democrats to attempt.

While the bill gives power to the Secretary of the Treasury, it also establishes a new Assistant Secretary position and locates the program within his/her jurisdiction. Therefore, the question may not be whether the Secretary of the Treasury, surely one of the "principal officers" of the country, is no longer under the unilateral control of the president, but whether the Assistant Secretary and the program are.

Which raises the question, in which branch of government are the independent agencies located? Some of them, like the SEC, are outside of any branch. The Federal Power Commission was independent, but its successor FERC is within the Department of Energy. The Comptroller General is within the legislative branch. The Judicial Conferences are within the judicial branch. All of these offices can prescribe regulations with the force of law binding on executive appointees and enforce these regulations. The FDIC is a government corporation, as is the TVA. Each of these exercises some governmental powers.

The unitary executive theory fails to recognize the power of Congress under the necessary and proper clause to create whatever mechanisms seem to it appropriate.

A good friend can tell you what is the matter with you in a minute. He may not seem such a good friend after telling.
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