Elizabeth Warren has quickly emerged as one of the leading critics of the Obama administration’s bailout plans. Her sharply worded missives on the faults of the bailout plans have surprisingly rubbed some pundits the wrong way, resulting in a fierce backlash. Most of this backlash, however, is more confused than it is convincing.
At the heart of the matter is the contention that Warren has somehow stepped beyond the parameters of her role as a TARP watchdog to become a shadow Treasury Secretary. This accusation, however, is built on an uninformed and unduly constrained view of her role as chair of the Congressiional Oversight Panel. The panel was not charged with simply watching the TARP funds go and monitoring their effectiveness. It was charged, in a law duly passed by both houses of Congress and signed by the president, with reporting to Congress on “the current state of the financial markets and the regulatory system.”
That’s a very broad mandate. Is it too broad? Critics who take this position are actually not criticising Warren but the underlying statute. Still, they’d be wrong to do this. Warren’s mandate needs to be broad because the TARP is overly broad.
When it passed the TARP, Congress granted the executive branch an almost unprecedently broad authority to rescue the financial system. The programs for rescuing the financial system have dramatically changed shape several times. None of those that have been put into effect are anything like the program that was touted when the law was passed. There’s an argument to be made that this original grant was unconstitutionally broad, a surrender of rule-making authority that should properly sit with the legislative branch. But that’s water under the bridge. Given the open-endedness of the TARP, Warren’s authority also had to be somewhat open ended.
If anyone should be criticised for improper power grabs, it should be Tim Geithner. He attempted to unilatterally exempt players in his deranged P-PIP scheme from legally mandated salary caps, and had to be reigned in by Treasury’s own lawyers. He has been putting conditions on the repayment of TARP funds in violation of the law. The scope of his office is far beyond anything dreamed of by the framers of the constitution or even most recent occupants.
Keep in mind that Warren’s actual authority is quite limited. She lacks subpoena power. She has no ability to enforce her opinions. She cannot order Treasury or banks to perform any tasks, answer any inquiries or withhold from any activities. All she can do is talk. She’s something of a public advocate, speaking as an outside critic. That’s something that’s very valuable given the refusal of the Obama administration to engage in public deliberation about its bailout plans.
Is it beyond the pale for her to question the underlying assumptions of the TARP rather than simply critiquing its execution? Well, if she were doing that, it would be a problem. After all, the TARP was approved by both houses of Congress and signed into law by the president. She isn’t questioning the availability of billions to rescue the financial system. Instead, her critique has been far narrower, confined to the programs developed by the administration to carry out this legal mandate. That is certainly within the legally mandated scope of her office.
By the way, her job is not simply to watch the TARP money flows. That job sits with the Treasury Department, which has its own internal watchdog–Neil Barofsky–who has also been sharply critical of the lack of internal controls over the TARP. Warren’s job was intentionally created to be much broader than Barofsky’s.
Probably the best critique of Warren’s office is to say that it allows lawmakers to get off the hook when it comes to their own oversight duties. Rather than delegate supervision to an oversight panel, it would be far better if oversight was handled directly by a Congressional committee led by an elected representative. Congressmen love to delegate their powers, however, because it allows them to have their cake and eat it too: they escape direct accountability for the critique while still keeping a check on executive power.
But a strict non-delegation requirement would put Congress on an uneven footing with the adminstration, which has a delegation problem of its own. The Treasury Secretary is, after all, exercising authority that should properly sit with the president himself. The president too enjoys the non-accountability of delegation. Basically, the system now works with delegation on both sides. That’s regretable but trying to limit delegation in one branch and not another would shift the constitutional balance of powers.
There’s also an objection that Warren’s experience is lacking and her arguments lack depth. This is also wrong-headed. While Warren may lack experience in judging the best way to prevent the financial system from collapsing, so does everyone else in the world. We’re in uncharted waters here, tryng to peice together what might work from limited historical examples. No one’s experience running an investment bank, running a branch of the Federal Reserve, handling corporate bankruptcies, working for the FDIC or doing anything else during more normal times can possibly provide authoritative experience in our current situation.
Most importantly, whatever Warren’s short-comings might be, she is right about several problems at the core of the Obama administration’s bailout programs. The financial system will not be fixed by providing subsidies to market failures. It’s strange to hear otherwise market oriented people react with disgust to this basic insight. If anything, they should be thanking Warren for reminding us that even in these panicked times, basic ecoomic principles continue to operate.