Analyzing the Bailout

Shortly after the announcement that a deal had been reached on an economic bailout plan, the Heritage Foundation published an initial analysis of the deal's provisions. "An Initial Review of the Bailout Agreement" is available here.

Major Financial Provisions of the Plan

The bailout legislation establishes a new Office of Financial Stability within the Treasury Department that will have the authority to buy "troubled assets" and to employ "other methods" to fix the current mess. Initially, $250 billion is available to be used, with another $100 billion possible contingent upon justification to the Congress. And if that doesn't do it, the Treasury Secretary could get another $350 billion upon notification to Congress and providing that Congress does not say no.

Oversight and Separation of Powers Concerns

A new oversight board would be charged with reviewing actions taken by the Treasury Secretary and the Office of Financial Stability, recommending courses of action to the Treasury secretary for implementing the bailout plan, and reporting to the Treasury Inspector General or the Attorney General suspected cases of "fraud, misrepresentation, or malfeasance."

The Heritage analysis raised several constitutional concerns. According to Heritage, the bailout legislation could be declared unconstitutional "as an improper delegation of legislative authority" because the law allows the Secretary of the Treasury significant authority that may not properly reside with him. The Heritage analysis says, "Our Constitution allows no Czar, with standardless discretion to prop-up or manage various industry sectors."

Next, Heritage says is that "oversight mechanisms...were added as a substitute for the constitutional separation of powers" and that these mechanisms "amount to an attempted 'power-sharing' arrangement." Heritage notes, "Congress and the President may be satisfied with a power-sharing deal that permits broad executive authority with opportunities for congressional micromanagement and political nitpicking...but the constitutional separation of powers was designed to protect the individual liberty of citizens precisely because the Framers feared the branches would otherwise work out such deals."

A final concern raised by Heritage involves the power of the Financial Stability Board. In short, Heritage says, "...the Board would be granted broad power to 'ensure that the policies implemented by the [Treasury] Secretary are" in accordance with the bailout legislation. The problem is that the board could override decisions of the Secretary, a cabinet official.

Other provisions included in the bailout plan include restrictions on both the pay and termination compensation of CEOs, and the possibility of taxpayer repayment.

Dropped Provisions

Some bailout plan provisions that did not make it into the final legislative bill include allowing bankruptcy courts to change mortgages, using the bailout plan to finance low-income housing and provide money to activist groups (ACORN was the big sticking point on this one), and changing corporate governance and proxy rules.