Despite the dire warnings from Treasury Secretary Hank Paulson and Fed chairman Ben Bernanke that Congress risks financial Armageddon if it refuses to immediately pass the proposed $700 billion bailout, lawmakers are fighting back with proposals of their own. The resistance of elected politicians to the wholesale adoption of the bailout was inevitable. There was no way congressmen and senators were going to start taking orders from two guys who never won a vote from anyone.
As we reported this morning, GOP backbenchers have put forward their own (kind of lame) proposal and are articulating a variety of criticisms of the Treasury’s bailout plan. The Democratic leadership is arguing that the proposal should include more legislative oversight, changes to bankruptcy laws to allow judges to modify mortgages and caps on executive pay.
It’s a big change from last week, when Paulson and Bernanke seemed to believe that their bailout plan would pass effortlessly through the halls of Capitol Hill. But anyone surprised by the uprising against the plan simply doesn’t understand the mechanics of government.
In one sense, the huge transfer of power to unelected officials is a boon to legislators, who can escape accountability for the bailout. One the other hand, a transfer this momentous also saps legislators of their ability to require the financial industry to fork over campaign donations and other lobbying favours. Congressional oversight here operates to further reverse rent seeking, where public officials extract rents from private sector lobbyists.
Absent modifications advocated by Democrats, lobbyist attention would only need to be directed at the Treasury. From the point of view of the banks, this is probably more efficient—it’s cheaper and easier to buy off one government gang of bureaucrats than the offices of dozens of senators—which is one reason the banking industry lobbyists at the Financial Services Roundtable are opposing the Democrat’s changes.
Seven hundred billion dollars is a lot of money to distribute, and there’s going to be a lot of lobbying over how the bailout spoils gets divided. There’s no way Capitol Hill politicians are going to allow themselves to be left out of the coming lobbying bonanza.
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