With Congress set to consider the administration's proposed bailout bill in the coming days, calls to add oversight checks are coming from nearly all quarters. Both presidential candidates have called for some sort of independent oversight board, while House Republican Leader John Boehner has said that Congress should have a "serious oversight role" in the bailout.
What concerns many -- including most economists who've commented on the plan -- is the limitless powers the bill gives to the Treasury Department. One line in the bill states that decisions by Treasury Secretary Hank Paulson are "non-reviewable" and "may not be reviewed by any court of law or any administrative agency."
The proposed bailout will empower the government to buy at least $700 billion in toxic mortgage-backed securities and other assets. (The $700 billion is not the total projected cost. Rather, it's simply the amount of bum assets the government will be allowed to hold at any one time.) One of the key questions, perhaps the top one, is how the government will set the price for what it buys. The proposed bill -- all of two pages long -- says nothing about that.
Some experts have called for the government to side-step the whole messy process, which many think is rife with opportunities for taxpayers to get swindled, and instead buy equity in the banks themselves.
Meanwhile, New York Times business columnist Floyd Norris writes that if the proposed plan does go forward, the deals would need a serious dose of transparency: "The prices paid for assets should be transparent to the public, and some way should be found to allow others to bid for them, in at least some cases. That would help to assure that the price being paid was a fair one."
The details of the proposed bill are already changing, but the changes haven't had to do with accountability. Instead, the bailout was repeatedly expanded over the weekend as lobbyists pushed to get their clients covered.
The Times sees "signs of the industry’s fingerprints on drafts of the legislation released over the weekend." When the bailout was unveiled last week, it only covered U.S. banks. By yesterday, the bailout had been extended to cover banks abroad. And while the initial proposal limited the government to buying mortgage-backed securities, as of this morning it will be allowed to buy "any other financial instrument."
With the increasing number of toxic investments the government is preparing to take on, somebody is going to have to manage it all. Among the candidates, according to the Times, are Morgan Stanley and JP Morgan Chase. The Times says, "A job that could earn them $1 billion a year."