The Bailout and Judicial Review

Damon W. Root | September 29, 2008

Today's big House revolt against the bailout was welcome for all sorts of reasons, though it's worth pointing out one way that today's bill was at least superior to the proposal Treasury Secretary Hank Paulson first conjured up. Here's what Paulson's original draft had to say on the matter of judicial review:

Decisions by the Secretary pursuant to the authority of this act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

So much for checks and balances! Or as the Cato Institute's William Niskanen put it, "For the second time in six years, the Bush administration has asked Congress for nearly unlimited authority without an independent professional review of the evidence that led the administration to request such authority."

Here's what today's ill-fated Emergency Economic Stabilization Act of 2008 had to say on the matter:

Actions by the Secretary pursuant to the authority of this act shall be subject to chapter 7 of title 5, United States Code, including that such final actions shall be held unlawful and set aside if found to be arbitrary, capricious, an abuse of discretion, or not in accordance with law.

Judicial review by the federal courts, in other words, which is immeasurably better than placing Paulson (or whoever replaces him) above the law. As Niskanen notes, the Bush administration has an extremely troubling record of pushing and grabbing for as much executive branch authority as it can possibly get. Former Justice Department attorney and "torture memo" author John Yoo, for instance, recently went so far as to praise the belligerent and domineering Andrew Jackson for his "vigorous exercise of his executive power."

Assuming today's crazy quilt of "no" votes eventually comes undone, let's hope that this particular improvement at least remains intact.

Comments

|9.29.08 @ 6:48PM|#

Laws written and passed in haste generally are fucked up laws. See Patriot Act.

This crisis has been brewing for years, been obvious to the non-comatose for more than one and "we need to pass this emergency bill this weekend or the sky will fall" just don't cut it with me.

Ask me sometimes why I'm excessively (appropriately?) cynical and I'll point to D.C. for the last 10 days.

|9.29.08 @ 6:56PM|#

Decisions by the Secretary pursuant to the authority of this act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency

The arrogance of this statement is breathtaking. It's really quite impressive. I give it an 8 for style.

Doug|9.29.08 @ 7:06PM|#

Decisions by the Secretary pursuant to the authority of this act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

I'll give it a 10 for treasonous.

hotsauce|9.29.08 @ 8:45PM|#

Of course now the bill (assuming one is passed) will be subject to that oh so important check and balance called rational review.

Nick|9.29.08 @ 9:20PM|#

I have such mixed feelings, I feel like I'm being torn in half.

I'm overjoyed that this particular piece of legislation failed and that we see a great number of congresspeople acting on principle to follow the will of the people. This package was the wrong package, by far. It probably could have been cut in half, better targeted with more oversight, and done mostly the same thing - preventing a short term collapse and a long term recession.

At the same time, my feelings towards a bailout in general are about the same as I feel towards the dropping of the atomic bombs at Hiroshima and Nagasaki. Its something we dream of never needing to have done, we think it's one of the most terrible occurences possible. But the alternative was invading Japan, where civilians likely would have fought Vietnam-style and killed potentially hundreds of thousands of US troops and the population of Japan would have been completely decimated. Which one saves more lives? We can never know, but I think the balance of risk is that the atomic bomb, like some sort of a bailout, was/is necessary.

I don't think rejecting any bailout means less statism. If the market does indeed collapse and we go into a slightly smaller Great Depression, I think we'd see more government involvement in the economy than if we prevented the market from failing in the first place. Not that the bailout will work - it's a risk, and I don't necessarily think this particular bailout would have worked. But some bailout to restore confidence in markets and correct the distortions the government caused (with a good likelihood that the loan will be repaid and the companies will be reprivatized when stabilized) may actually be more preferable from a libertarian perspective to a Great Depression where consumer confidence in free markets is destroyed followed by a new New Deal.

I'm sure I'm the minority here, but I think we should be asking what the risks are in the event of a crumpled economy where people do assume statism is the only way out? Is this a time to be ideological or utilitarian? If we had, say, a $200 billion bailout targeted as a shock to the system with heavy oversight that avoids the moral hazard (by replacing the executives who got us into this mess with better financial managers like Warren Buffett), has an exit plan upon restabilization and works to correct the market distortions, this solution may be the best, as unfortunate as the situation is.

|9.30.08 @ 12:38AM|#

Anyone still not convinced we need a third party? This charade by Paulson may be the much needed alarm bell for the American public. We can talk about change and reform all we want but as long as we continue to send the same corrupt establishment back to DC decade after decade the looting will continue.

|9.30.08 @ 12:52AM|#

The point may be moot now, but please explain how a court will decide whether a government purchase of mortgage securities is arbitrary and capricious? What standard will the court use? Will they set aside a purchase if the judge thinks the price is too high? Judicial review of such buying decisions will either be illusory or arbitrary itself.

Abdul|9.30.08 @ 8:02AM|#

I think a little too much has been made of the fact that the Treasury secretary will have non-reviewable decisions under the bailout. Congress does have the consitutional power to set jurisdicitional limits for federal courts, so it's not a consitituional problem.

Keep in mind that the constituionality of the bailout law itself can still be challenged in federal court, it's just that agency decisions made under the law itself are not challengeable. A good analogy would be that while Congress has power to declare war, and the president has the power to wage it, courts cannot review any General's strategic decisions, no matter how stupid they might appear.

There's a good practical reason for that. If the bailout is going to work at all, it will require a group of experts to make decisions about which companies and securities need propping up, and which can be allowed to bleed to death. Due to the death of infallible economics experts in the world, Congress is letting the Treasury Dept. handle it. Court challenges to Treasury Dept's economic triage decisions would stall and defeat any chances of the plan working just as court review of a General's strategic decisions would defeat any chance of a battle plan working.

One can make the argument that the bailout won't work under any circumstances. One can make the principled libertarian argument that the bailout shouldn't be allowed to work. However, passing the bailout, but handicapping it with unlimited federal court review would gurantee that it doesn't work.

Abdul|9.30.08 @ 8:19AM|#

"Due to the death of infallible economics experts "

Should be dearth

|9.30.08 @ 9:43AM|#

"I am the law."

This constant expansion of federal authority and the removal of Constitutional fetters is not unique to the Bush administration. Quite a bit of this sort of thing was attempted during the previous few administrations, with varying degrees of success. In other words, don't think that your party or your candidate is likely to be much different. Unless you're voting LP, I guess.

Mr. X|9.30.08 @ 3:17PM|#

...such final actions shall be held unlawful and set aside if found to be arbitrary, capricious, an abuse of discretion, or not in accordance with law.

This is some level of judicial review, but as any attorney can tell you, the chance of something being overturned by a court on abuse of discretion review is very slim. This is mere window dressing on what are still pretty much unlimited powers.