Treasury chief Paulson on verge of historic new powers
The administration's bailout plan would make him temporary overseer of the US financial system.
Freddie Lee/Fox news Sunday/AP
Secretary Paulson is not the sole architect of the Bush administration's bailout strategy for the US economy, of course. By all accounts he is part of a troika of top policymakers with Federal Reserve Chairman Ben Bernanke and New York Fed Chief Timothy Geithner.
But as the public face and dealmaker of the plan, Paulson is the one most in the spotlight. Moreover, bailout legislation submitted to Congress by the White House over the weekend would transform Paulson's office into that of temporary overseer of America's entire financial system.
The proposed expanded powers for the Treasury secretary are one aspect of the Bush bailout plan that has drawn criticism from Democratic members of Congress.
Under the proposal, the United States Treasury would have the power to buy virtually any financial instrument from any institution, as a means to relieve it of bad assets and pump credit back into the economy. New Treasury staff would help manage this program, although the administration foresees contracting with private firms to manage its new asset holdings.
Oversight of Treasury sought
For the most part lawmakers aren't grumbling about Paulson himself.
What lawmakers do want is more oversight of the program than the White House has outlined so far. Many are troubled by wording in the proposal that appears to bar any review of Treasury's bailout actions by the courts or other administrative agencies.
Democratic lawmakers would also like the bailout legislation to include more help for troubled homeowners and restrictions on pay for executives of companies that sell their firms' bad debt to the government.
"The private sector got us into this mess. The government has to get us out of it. We want to do it carefully," said Representative Frank in a broadcast interview.
In the postwar era, many Treasury secretaries were financial experts before assuming the job. The Bush administration broke that mold somewhat by looking to industry for its first two Treasury chiefs, Paul O'Neill and John Snow.
Mr. O'Neill's feuds with the administration over his opposition to tax cuts may have made the White House view Treasury with suspicion, says former Treasury economist Bruce Bartlett. "The result was that the Treasury job got downgraded," he says.
The primary role of the Treasury is financing the operations of the US government, and that is helped if the department head understands the key role confidence and capital flows play in financial markets, says Mr. Bartlett.
"Maybe if we had had a Treasury secretary with some clout [prior to Paulson's arrival] ... we might have avoided some of these problems," he says.
If nothing else, the current crisis may ensure that future presidents recruit their secretaries of the Treasury from Wall Street, or what remains of it, says Professor Morici. After all, notable Treasury chiefs of the recent past include Robert Rubin, another former Goldman Sachs executive, who served during the Clinton administration.
A regularity to banking troubles
Today's problems are impressive mostly for their scale, according to Morici. Both the Great Depression and the savings and loan crisis of the 1980s required direct government intervention in private markets to prop up US finance.
"The fact of the matter is that about once a generation banks get us in trouble and we have to bring in a posse to straighten them out," says Morici.
White House-Congress negotiations over bailout details were moving quickly at time of writing. But it remained an open question whether lawmakers will move as fast as the White House wants. "It's important that we act quickly, but it's more important that we act responsibly," said Senator Dodd on Monday.
A draft bill from Dodd would add to the administration's plan help for homeowners and limits on executive compensation. It would also call for the government to get a stake in companies helped by the unprecedented rescue.
An emergency board of two appointees from the House and two from the Senate would watch over the Treasury's bailout operations, under Dodd's plan. The whole program would last only a year, as opposed to the two years proposed by the administration.
First votes on the bailout could come as early as Sept. 24. Mr. Bush on Monday urged lawmakers to move as fast as possible. "The whole world is watching" the plan's progress, he said in a statement.
• Associated Press material was used in this story.