Excuse Me?

by hilzoy

Here's a disturbing story:

"The financial world was fixated on Capitol Hill as Congress battled over the Bush administration's request for a $700 billion bailout of the banking industry. In the midst of this late-September drama, the Treasury Department issued a five-sentence notice that attracted almost no public attention.

But corporate tax lawyers quickly realized the enormous implications of the document: Administration officials had just given American banks a windfall of as much as $140 billion.

The sweeping change to two decades of tax policy escaped the notice of lawmakers for several days, as they remained consumed with the controversial bailout bill. When they found out, some legislators were furious. Some congressional staff members have privately concluded that the notice was illegal. But they have worried that saying so publicly could unravel several recent bank mergers made possible by the change and send the economy into an even deeper tailspin.

"Did the Treasury Department have the authority to do this? I think almost every tax expert would agree that the answer is no," said George K. Yin, the former chief of staff of the Joint Committee on Taxation, the nonpartisan congressional authority on taxes. "They basically repealed a 22-year-old law that Congress passed as a backdoor way of providing aid to banks." (...)

The change to Section 382 of the tax code -- a provision that limited a kind of tax shelter arising in corporate mergers -- came after a two-decade effort by conservative economists and Republican administration officials to eliminate or overhaul the law, which is so little-known that even influential tax experts sometimes draw a blank at its mention. Until the financial meltdown, its opponents thought it would be nearly impossible to revamp the section because this would look like a corporate giveaway, according to lobbyists.

Andrew C. DeSouza, a Treasury spokesman, said the administration had the legal authority to issue the notice as part of its power to interpret the tax code and provide legal guidance to companies. He described the Sept. 30 notice, which allows some banks to keep more money by lowering their taxes, as a way to help financial institutions during a time of economic crisis. "This is part of our overall effort to provide relief," he said."

The WSJ covered this a few weeks back (h/t publius.)

Here's the relevant section of the Internal Revenue Code. It provides that "The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section and section 383". I am not a lawyer, still less a tax lawyer, but offhand, I would not have thought that rescinding a law counts as promulgating a regulation necessary or appropriate to carry out its purposes. And if it doesn't, it's not clear where Secretary Paulson gets the authority to give banks a twelve-figure tax break.

Meanwhile, in other news, Treasury seems to be about to shovel around $40 billion more at AIG:

"Under the terms ironed out late Sunday, the government would give AIG more money, including $40 billion from the U.S. Treasury's $700 billion Troubled Asset Relief Program. It would also receive less interest than on the bulk of the original loan, while freeing AIG from exposure to some of the risky financial instruments that nearly caused it to file for bankruptcy protection."

So: they get tens of billions of dollars, they pay less interest, and they get to transfer some of their riskiest assets to -- guess who? -- us!

Yves Smith:

"This is the essence of AIG's latest proposal:

Man walks into pawn broker. He says to the person behind the counter, "You know that watch I brought in two weeks ago? I know you lent me $85, but now I need another $50. And I will tell you why you will give it to me. I have a gun with me. I will blow my brains out here, right now. With your nice carpet, I guarantee it will cost you more than $50 to clean up your store. And that's before we get into the cost of keeping your store closed while you clean my grey matter off your walls and what my suicide might do to your store's reputation."

Oh, and we forgot to mention that the man in the story above pulled the same trick last week and it worked like a charm."

More from Yves here: AIG: The Looting Continues. Felix Salmon is similarly underwhelmed, and Willem Buiter thinks it might be "time to pull the plug on AIG". (Either that or just nationalize and have done with it.)

This is all above my pay grade. However, a few thoughts:

First, when you're spending hundreds of billions of taxpayer dollars, it seems to me to be really important to target them well. In the case of the bailout, that would seem to mean deciding which firms to try to recapitalize and which to let fail. (And it ought to be possible to arrange for this failure to be less cataclysmic than the Lehman failure was, given any kind of advance notice.) One of the things that really worries me about all this is that I can't see any sign at all that we're making these kinds of distinctions, as opposed to just bailing out everyone in sight (except, of course, for homeowners and other non-corporate persons.) This is bad: it's wasteful, and it also produces moral hazard.

Second, on the first story: as I said, I'm not a lawyer, so I can't tell whether Treasury acted illegally. Regardless of whether they had the legal authority to do what they did, though, they should have gone to Congress before rescinding a statute at a cost of over $100 billion. If Congress does not agree with his action, it should undo it. The Post story claims that they're afraid they'll destabilize the market if they say that Paulson's actions were illegal. If so, then they should figure out what a good resolution would be, go to Paulson quietly, and tell him that if he doesn't sign on, they will undo his action publicly. If he cares about market stability, he'll sign on.

Third, giving banks a huge unilateral tax break is the sort of thing that might as well have been designed to deprive the bailout of whatever popular support it might ever have had. We live in a democracy. People's opinions matter. The Treasury should remember that, and act accordingly.

Comments

[Hartmut]

Well, every $ given away that way will not be spent on the undeserving by the socialist president elect. So at least the treasury will stay in the red while the new guys have to sing the blues [/snark]

[Gary Farber]

"Well, every $ given away that way will not be spent on the undeserving by the socialist president elect."

After all, if the money was given to mere workers -- or worse, the unemployed or unemployable -- for, say, health care, or a living wage, or to help individuals with their own housing needs, or for prescription drug help, or for education or training, or for child care, they might quit working hard, and it would be wealth redistribution, which is just wrong.

But this isn't socialism, because socialism is giving money and power to poor people, so this is okay. Just make sure no poor people are helped!

[Redhand]

The Bush Administration bypass statutes by Executive fiat in order to reward incompetent money interests? I'm shocked, shocked!

[tomeck]

I don't doubt that there is a lot of financial trouble out there, but I'm wondering how much of this (i.e. the Section 382 thing) is just an attempt to so overwhelm the government with debt that the Obama Administration will have it's hands tied? Is this Grover Norquist's last fling?

[bobbyp]

tomeck,

The 'we can't afford it' meme is a false construct that should be rebutted root and branch.

Econ 101, which see.

As for speculation as to what is driving these exacrable decisions, I suggest "looting". It's as good a guess as any.

[Ugh]

The Treasury Department and IRS have absolutely no authority to issue that notice. Everyone I've talked to that's read the notice agrees. The notice itself does not cite any authority supporting the action it takes.

No court would agree that carrying out "the purposes of this section" includes repealing the section for favored industries. The notice basically publicly announces "when it comes to bank mergers, we are not going to enforce the law." It's appalling (and note, by the way, that this is not in fact a regulation in any event, which would require an opportunity for taxpayers to provide comments, not to mention give congress an opportunity to stop it).

A friend of mine at the Treasury department said they have taken a lot of heat over that notice, and rightly so. It's interesting that the article says that some lawyers who represent the banks who benefited from the notice say it's legal, because I don't know how you can advise your client that it can rely on actions taken by an executive agency that the agency clearly has no authority to take. Other than to say "we'll do the merger in reliance on the notice and it will be too late to take it back." Which is basically what happened.

Oh, and since taxpayers have no standing to sue over it, there's nothing anyone can do.

[Jay C]

Oh, and since taxpayers have no standing to sue over it, there's nothing anyone can do.

So in other words, this is the financial equivalent of the Yoo Memos? The Executive directing the government to take some action or other regardless of what the laws or regulations provide - and "justifying" it by internally-generated "interpretations" which seem to invariably boil down to: "because we say so"?

Swell.

[bedtimeforbonzo]

Realizing something had to be done to stabilize the markets, along with Nell, if I remember correctly, I was one of the biggest handringers here about the haste in which the Bailout was being jammed down our throats.

And now look.

Sometimes anger isn't misdirected, misguided or misused after all.

Paulson, former Goldman-Sachs CEO, pushed legislation that helped the banks. Imagine that.

Do we really need to wait 70-plus days before the Bush crooks leave office? They will all leave rich, fat and happy; Wall Street got theirs, the working man and the less fortunate Gary described did not.

We need Summers in Treasury ASAP.

And while the banks are backdooring Congress for a handout, let's get on with it -- I'll take my stimulus check now, please.

[bedtimeforbonzo]

P.S. At this point, while we continue to bail out every entity that is Too Big To Fail, while we practice socialism for the rich -- while those businesses and banks are benefiting from government handouts, taxpaper handouts, yet their ilk has the nerve to accuse Barack Obama of being a front for socialism -- the only thing that makes sense is this parenthetical comment from hilzoy:

"Either that or just nationalize and have done with it."

[Ugh]

It's probably worse than the Yoo memos as I doubt there is some undicslosed internal legal memorandum purporting to justify the notice. (which is here if anyone wants to read it). I would guess orders from on high came down to do this, legal justification or no.

Interestingly, the Notice does not have an effective date, which raises the question of whether it can be applied retroactively to bank mergers that occurred before the Notice was issued, such as the BofA/Merrill merger (which may not have actually been officially finalized until after the notice was issued).

The real questions is whether, if the Obama administration retroactively revokes the notice (assuming they would want to), banks could successfully sue to get the benefits of the notice based on some sort of estoppel argument for reliance on the actions of administrative agencies. But more likely, it's just going to be taken as a fait accompli and they might revoke the notice going forward.

Note that the notice came soon after Goldman Sachs and Morgan Stanley converted to bank holding companies. Had they not done so they wouldn't have been eligible to take advantage of the notice (I believe).

[Ugh]

The other shocking thing about this is that there is just no limit to this sort of thing. Suppose McCain had won and signed a must pass bill with an 5% increase in the marginal rate. Then suppose the Treasury issues a notice saying that they will not enforce the 5% increase and let everyone pay the old rate cause, gosh, things are just so bad right now.

This is essentially what they've done with the notice and section 382, and they are counting on the bank mergers to keep anyone from doing anything about it.

[Model 62]

@Ugh

The lawyers' position seems like the position taken by telecom industry lawyers: the administration told us to break the law.

It'll probably result in the same consequences.

[Don the libertarian Democrat]

Wow. This wasn't news:

Saturday, October 4, 2008
Not Really Free Market After All
Paulson's stimulus plan:

http://economix.blogs.nytimes.com/2008/10/04/will-paulsons-two-plans-unplug-the-liquidity-trap/

"Treasury Secretary Henry Paulson’s plan, which is now law, is fiscal stimulus that will be injected directly into the banking system to supplement almost nonexistent private-sector lending with government cash and determination. Mr. Paulson may be shooting the right weapon at the right time because it will help rescue the banks while restarting corporate and consumer lending.

But Mr. Paulson’s fiscal-stimulus work didn’t end with the bailout bill.

With hardly anyone noticing, on Wednesday he pushed through very technical and obscure changes to tax regulations that provide a “tax subsidy” for acquirers of troubled banks. Just as automakers stimulate car sales through rebate checks, the Treasury is providing a form of tax rebate to acquirers of troubled banks. Everyone can thank Hank Paulson and his stealth tax-driven fiscal stimulus for the astonishing news that Wachovia was being acquired by Wells Fargo and not Citigroup. It was Mr. Paulson’s tax subsidy to Wells Fargo that provided the fiscal grease to make this deal happen. Pundits who point to the deal and proclaim that the “free markets work without government help” don’t understand the motivating effect of several billion dollars of tax benefits to Wells Fargo."

Your government's dollars at work.

[Hogan]

The 'we can't afford it' meme is a false construct that should be rebutted root and branch.

Absolutely. The first principle of public finance is "If they think it's important, they can always find the money."

[Gary Farber]

"We need Summers in Treasury ASAP."

You don't like Timothy Geithner?

[jdog]

The fact that Bush is still president, despite three years of abysmal approval ratings, and despite being repudiated in the recent election, is an indication of a major flaw in our Constitution. He should be gone, now.

Bush Administration incompetence from here to Jan. 20 will cost us Billions.

[faux facsimile]

Can we finally stop pretending that the purpose of this 'Bailout' farce was anything other than aiding the expansion of the big banks and rescuing their shareholders and executives, and that whatever benefit the real economy derives is simply an incidental side-effect?

[hilzoy]

Ugh -- thanks. You have no idea how long I spent looking for it last night, in a futile attempt not to have to rely on reporters when there are primary sources.

[Nell]

We live in a democracy. People's opinions matter. The Treasury should remember that, and act accordingly.

Remind Shock Doctrinaire Hank Paulson to shake. The cowardly, near-silent acquiescence of Congress as they allow their legislative role to be taken over is as much the real point of the article as news of the illegal money grab itself:

Some congressional staff members have privately concluded that the notice was illegal. But they have worried that saying so publicly could unravel several recent bank mergers made possible by the change and send the economy into an even deeper tailspin. ... "It's just like after September 11. Back then no one wanted to be seen as not patriotic, and now no one wants to be seen as not doing all they can to save the financial system," said Lee A. Sheppard, a tax attorney who is a contributing editor at the trade publication Tax Analysts. "We're left now with congressional Democrats that have spines like overcooked spaghetti. So who is going to stop the Treasury secretary from doing whatever he wants?"

Who indeed? Maybe this front-page story will generate enough heat to get the members to do their jobs, but why should it take that? And it's far from certain that they will act to reverse this theft of powers and money.

Each one of these handed-over powers is a loaded gun waiting to be picked up by a future executive. Including the next one. What's Larry Summers' position on this tax credit?

[Nell]

Hastening to clarify after reading btfb's comment:

My question about Summers was not an expression of support for his nomination to Treasury. That would be one of the more deeply disappointing of the many disappointments I expect.

I'd have asked the same question about Geithner if I'd been able to remember his name; thanks, Gary.

Because no one has standing to bring legal action, Congress alone has the power to reverse this. In a parallel universe the Bush administration could acknowledge the illegality, withdraw the notice, and apologize to the American people and Congress.

It would be far better, for purposes of preventing future unconstitutional grabs of this kind, for Congress to assert its prerogatives explicitly and quickly. Powers ceded create precedents.

[Nell]

It's become clear that the Paulson (Bush-Cheney) agenda is to "encourage" bank mergers above all, and Treasury is using all the tools at its disposal and some that aren't to do so.

[Ugh]

In a parallel universe the Bush administration could acknowledge the illegality, withdraw the notice, and apologize to the American people and Congress.

It would be interesting to see the banks' reaction in that parallel universe. Screaming bloody murder would be a vast understatement.

[bedtimeforbonzo]

Gary posted: "You don't like Timothy Geithner?"

He'd be fine -- after all, he's the "next Larry Summers."

Nell: What's wrong with Summers?

[Nell]

The banks are going to scream bloody murder in our actual universe, but this kind of lawlessness cannot be allowed to stand and become precedent.

If the power to legislate, particularly the power to legislate tax rates involving billions of dollars, is not exclusive to Congress, then we have an all-powerful executive, and Congress is merely decorative.

[bedtimeforbonzo]

What faux facsimile said.

[bedtimeforbonzo]

jdog brings up a valid point.

Does anyone know what the founders were thinking when they designed the transition between administrations to last a couple of months?

Wouldn't a couple of weeks be enough?

[Nell]

What's wrong with Larry Summers?

Majorly, he's part of the problem, not the solution. As Clinton's Treasury Secretary, he was a major part of the deregulatory spree that led to our recent series of bubbles and crashes. The kind of fox in the henhouse that would send a chummy note to fellow fox Ken Lay with the handwritten P.S.: "I'll keep my eye on power deregulation and energy market infrastructure issues." Yeah, you do that, guy.

Minorly, he's corporate scum of the worst kind: promoting policies based on the lives of the third world poor being worth a fraction of Americans' lives, defending sweatshops, opposing worker protections in trade agreements.

Hey, I'm a grownup, even if a left-wing one. I know we're not going to get a non-capitalist as Treasury Secretary. But I want someone who's not a blind free-market ideologue, someone who understands how we got here. I want someone with a strong sense of Obama's and the federal government's obligations to the population as a whole, the people who elected him, not just the financial elite that provided a third or more of his campaign money.

[Nell]

The founders were living in a period without phones, faxes, email, TV, computers, cars...

It used to be from November to the following March.

Given the scale of the job, I can't honestly wish that there were less time to prepare, even given the unusually large amount of prep the Obama organization has already done.

[Jesurgislac]

bedtimeforbonzo: Does anyone know what the founders were thinking when they designed the transition between administrations to last a couple of months?

Time to pack up your possessions, decide which of your slaves to keep and which to sell, find a tenant for your home for at least the next 4 years (or shut down and sell), and get from wherever you are in the United States to Washington DC* by horsepower, over very, very bad roads.

*Actually, I suppose it would have been New York that the Founders were originally thinking of: when did they decide to move the capital to Washington DC?

[Nell]

@Jes: I believe that, although Pres. Washington governed from New York, that the District of Columbia was mapped out during his administration with the idea that the presidential house as well as Capitol and Supreme Court would move there.

Congress met in New York from the beginning of Washington's term, then in Philadelphia, with the move to DC after 1800.

I think. Fifth-grade U.S. history was a loooonng time ago.

[Gary Farber]

"Does anyone know what the founders were thinking when they designed the transition between administrations to last a couple of months?"

Yes, of course. It took months by carriage to get to Washington from the frontier, and weeks from the further colonies.

[Gary Farber]

"But I want someone who's not a blind free-market ideologue,"

I'm unconvinced that that describes Summers. I have a lot of respect for Brad deLong, but also for others who give an impression of Summers that isn't a caricature.

I've read a fair amount of the arguments over Summers, and I wind up not having much of an opinion, other that that I've read arguments for him that somewhat gloss his weaknesses, and arguments against him that are huge caricatures, and that I'm always impressed by articles have lots of details and links that I can check myself, personally.

If you have links elaborating on "Minorly, he's corporate scum of the worst kind: promoting policies based on the lives of the third world poor being worth a fraction of Americans' lives, defending sweatshops, opposing worker protections in trade agreements," I'd read them with interest. This doesn't sound like someone with too much hate on for the poor, and I'm not remembering appalling things happening when he was last Secretary: do you have any reminders on that?

btfb, some of the other arguments about Summers are, of course, the huge imbroglio over his comments about women that got him forced out of Harvard, as well, of course, as the famous comments about nuclear waste in Africa. For a defensive view on those, here is Noam Scheiber. Sheryl Sandberg.

[Gary Farber]

Fifth link: Jonathan Cohn claims "I do know that Summers--whatever his shortcomings, real and perceived--would be a passionate, effective advocate for progressive economics in the White House."

Links to the con case?

[Gary Farber]

"Congress met in New York from the beginning of Washington's term, then in Philadelphia, with the move to DC after 1800."

Specifically:

Before 1800, at least eight other buildings and eight other cities have hosted Congress, going back to the First Continental Congress. Since the ratification of the United States Constitution, Congress has only met in two other buildings. The capitol was first located in New York, with Congress meeting in City Hall (Federal Hall) from 1785 to 1790.[4] When the nation's capital moved to Philadelphia, the Philadelphia County Building (Congress Hall) served as the capitol from 1790 to 1800.

[...]

The Senate wing was completed in 1800, while the House wing was completed in 1811. However, the House of Representatives moved into the House wing in 1807. Though the building was incomplete, the Capitol held its first session of United States Congress on November 17, 1800. The legislature was moved to Washington prematurely, at the urging of President John Adams in hopes of securing enough Southern votes to be re-elected for a second term as president.[18]

Incidentally:

[...] The Supreme Court also met in the Capitol until its own building (behind the East Front) was completed in 1935.

The Second Continental Congress first met in Philadelphia, like its predecessor, then:

The Continental Congress was forced to flee Philadelphia at the end of September 1777, as British troops occupied the city. The Congress moved to York, Pennsylvania, and continued their work.

Later:

* May 10, 1775 – December 12, 1776, Philadelphia, Pennsylvania
* December 20, 1776 – March 4, 1777, Baltimore, Maryland
* March 5, 1777 – September 18, 1777, Philadelphia
* September 27, 1777 (one day only), Lancaster, Pennsylvania
* September 30, 1777 – June 27, 1778, York, Pennsylvania
* July 2, 1778 – March 1, 1781, Philadelphia

Travel in colonial times. They knew the country would be expanding, so figured on delegates journeying for many weeks from far Ohio, etc.

[Nell]

Aside from my link above to Summers' letter to Ken Lay, which he sent at the beginning of his term as Treasury Secretary, there are these illustrations and discussions of his views (with, in most cases, links to Summers' own words in context).

On shipping toxic waste to the third world.

'toxic' links to the notorious 1991 memo, with appropriate mockery, published at the time in the New Yorker.
'waste' is Jon Schwarz's dissection of a recent obtuse Michael Kinsley "defense" of Summers.

While at TinyRevolution, go to the main page and read the two or three other recent posts on Summers, one of which links to Dean Baker's description of Summers' role in setting the stage for the Enron collapse, as well as the dotcom bubble/crash.

Another post documents Summers in 2000 making a wholly false public claim about income gains in third world countries that had "moved to the market".

Summers worked with Greenspan and Rubin to block regulation of credit default swaps and other derivatives, in the language of a free-market ideologue:

On May 7, 1998, two weeks after [CFTC Commissioner Brooksley Born's] April showdown at Treasury, the [Commodities Futures Trading] commission issued a "concept release" soliciting public comment on derivatives and their risk.

The response was swift and blistering. Within hours, Greenspan, Rubin and Levitt cited their "grave concerns" in an unusual joint statement. Deputy Treasury Secretary Lawrence Summers decried it before Congress as "casting a shadow of regulatory uncertainty over an otherwise thriving market."

I'm not going to provide links to document other examples of Summers' active support of the Clinton-era high-dollar, high-trade-deficit, free-(of worker protections)trade policy, and the stock bubble. It should not need documentation that Clinton's Treasury Secretary carried out the Clinton economic policies.

Dean Baker, other liberal and left economists, and many labor leaders criticized these policies at the time -- for their effects on the U.S. manufacturing base and for their unsustainability. Their voices were marginalized in the chorus of media and Democratic politicians' praise.

The hollowing out and financialization of the U.S. economy didn't begin with the Clinton (Rubin/Summers) administration, and it didn't end, but Clintonomics helped the process along rather than repairing it in any way.

If the idea was to recycle the Clinton administration, why go to the trouble to oppose Sen. Clinton in the primaries? Summers is the wrong choice for this moment and this administration.

[Gary Farber]

Thanks, Nell!

[bedtimeforbonzo]

Well, since we no longer travel by horse and carriage, jdot's suggestion to move up the transition makes sense.

For one thing, it would eliminate this talk of the danger of having "two presidents at the same time."

For another thing, it would get Bush out of town a lot quicker and back to Crawford to do the one thing he might do well -- clear brush.

[yoyo]

So how about on jan22 or whenever, the IRS shows up and starts auditing? They can just say "oh, there was a notice? want to go to court and see if hold up?" and voila, the taxpayers own another bank.

[yoyo]

speaking of which, if every damn pig-feed banker was put through a thourough audit, i'm sure the taxpayers would be appreciative.

[Gary Farber]

"Well, since we no longer travel by horse and carriage, jdot's suggestion to move up the transition makes sense."

I was under the impression most people had thought that for several decades.

[d'd'd'dave]

i always seem to stand alone on this blog.

(Without commenting on the legality of overriding the law by fiat as treasury did) I think the law was inconsistent and unfair in the first place. Good riddance, I say.

[dr ngo]

The transition may well be too long, but I'm not sure I'd want one too short, either. Unlike the parliamentary system, where they tend to have a "Shadow Cabinet" presumptively ready to move into office the day after they election, in the US, with our all-too-long-and-often-too-bitter months/years of campaigning, I suspect that most presidents-elect actually need some time to put together a functioning cabinet, &c. If the candidates during the last month or so before the election were trying both to run an all-out campaign and to vet and select a governing team, one or other of these tasks would probably suffer - and my bet would be on the vetting/selecting.

Could it all be done before Christmas? Probably, but it would have to be well before, cutting the transition to a month. Otherwise, we're at least a week into January already.

[kris]

Gary,
Also, see the following for his conduct during the Shleifer affair:

http://www.thecrimson.com/article.aspx?ref=511201

http://www.economicprincipals.com/issues/06.01.22.html

http://www.cdi.org/russia/johnson/2006-62-24.cfm

Added to his other activities (e.g his recommendations regarding heavy industry etc) and statements, I think this does cast doubt on his general trustworthiness.

Delong is a friend of Summers (and Shleifer about whom he kept completely silent) and his opinion is not very objective. I personally don't trust his judgement on these matters.

[Hartmut]

One problem with the long transition is that the parting president has too much time to make mischief (I am not even talking about destruction of incriminating eveidence). A way to compensate for that would be laws that prevent the president from doing certain things* during the transition period and allowing a quick reversal by the incoming one.
Unfortunately that would probably require constitutional amendements or SCOTUS will kill those.

*especially appointments and pardons

[Nell]

Dr ngo's right about the transition. Another reason not to move inauguration forward unduly is to assure that the election itself is wrapped up.

Blessedly, the presidential race was not close this time, but it could be again. Without wishing to start us off on yet another stolen-election discussion, I think it's fair to say that many commenters here would prefer that the votes in 2000 had been fully counted/recounted, or at least that the votes would be fully counted in a similarly close race in the future.

Then there's Congress. Given the existing imbalance of power, there's a strong case for the House and Senate to have a chance to get organized before the inauguration. There's a good chance in any federal election of at least one Senate race being close enough to require a recount; that's likely to have implications for committee chairmanships, etc.

In January 2007, while visiting Senators' offices as part of the out-of-Iraq lobby day, I was struck by the degree of un-settled-in-ness of the offices of the newly elected ones. That was an off-year, so the contrast with an administration settled in for its seventh year in office was particularly stark.

[Nell]

Gary: This doesn't sound like someone with too much hate on for the poor

That's an article about income inequality in this country, not the third world.

"Harness Market Forces to Share Prosperity" sounds like the work of a free-marketer to me. Not willing to register to read the full article, I allow for the possibility that the headline misrepresents Summers' case. From the opening excerpt, it's clear that he's rejecting his own previous commitment to the free-market orthodoxy that economic growth alone will reduce poverty or increase middle-class incomes. But the headline doesn't sound as if his new thinking puts much emphasis on fiscal approaches.

[liberal]

nell wrote, If the power to legislate, particularly the power to legislate tax rates involving billions of dollars, is not exclusive to Congress, then we have an all-powerful executive, and Congress is merely decorative.

I agree. This is the most important point here.

While I "get" the standing issue, that Congress would have to revisit the issue and conduct a vote seems preposterous. If that's the case, what's to prevent the Executive from breaking any law where it suspects that one of the chambers won't vote to curb them?

Law should be binding on future governments until both chambers vote to change it, and either the executive doesn't veto it, or the executive does so and Congress overrides.

[liberal]

Nell wrote, As Clinton's Treasury Secretary, he was a major part of the deregulatory spree that led to our recent series of bubbles and crashes.

See especially "What Went Wrong" (Wash Post, 2008-10-15), which shows that Summers directly had a hand in ensuring derivatives would not be properly regulated.

[Hob]

Tom, I'd like to hear more about this phone's qualifications and interests. Would it be a good choice for Treasury, or should we consider appointing the wristwatch phone to a different position, say, Secretary of Education?

[Nell]

@liberal: That's the 'block regulation' link I excerpted in my comment of Nov 10 6:38 pm. But it's a very important article that can't be recommended too often! ;>

Seriously, it is a must read for anyone who wants to grasp the financial mess we're in, and is particularly helpful for those who are tempted to blame it all on the current regime.

[Nell]

liberal: While I "get" the standing issue, that Congress would have to revisit the issue and conduct a vote seems preposterous. If that's the case, what's to prevent the Executive from breaking any law where it suspects that one of the chambers won't vote to curb them?

Law should be binding on future governments until both chambers vote to change it, and either the executive doesn't veto it, or the executive does so and Congress overrides.

The appropriate punishment for Paulson would be post-office impeachment. I'm completely serious about this.

This is a classic 'state of exception', the constitutional no-man's-land into which we're thrust when vultures like Paulson (and whoever above him knew and approved) put the Shock Doctrine into practice.

Paulson (and whoever approved) has to be held accountable for this flouting of the law. Yet that's a function of the third branch... but there's no standing for anyone to start the court process.

In light of that, then maybe the suggestion of commenter yoyo is the way to go: soon after the inauguration, the new executive has the IRS notify Wells Fargo (and anyone else who might have been planning to use it) that this tax break is not available. No court would uphold Paulson's action.

[TSW]

Nell,

What's the point of "post-office impeachment"? There may be precedent for that (Belknap), but the only punishment possible is removal from the office he no longer holds. Is the point to disqualify him from holding other offices in the future? I don't get it.

Also, to everyone complaining about standing. Do you really want some Joe-the-Plumber type guy to be able to challenge every tax or spending decision in court, even though it has absolutely nothing to do with him personally? Courts generally do not referee turf disputes between the executive and the legislature because both sides are presumed to be able to defend themselves politically. If Congress can't stand up to a lame duck President with record low approval numbers, that says more about Congress than about the courts' failure to intervene.

[Nell]

liberal asked this important question: what's to prevent the Executive from breaking any law where it suspects that one of the chambers won't vote to curb them?

One one level, the answer is, of course, a decent respect for the opinions of humankind, and sincerity to the oath made when sworn in, to faithfully execute the laws. But what is to deter future executives full of people like Bush and Paulson?

My answer is the punishment that was intended by those who wrote our constitution: impeachment.

A signal needs to be sent that those who flout the separation of powers will pay a price.

I don't expect everyone to agree, but I hope that makes clear what the point is. What's your answer to liberal's question?

[Nell]

TSW, no one that I've read here is complaining about the lack-of-standing problem, in the sense of wanting to invest standing in people who don't have it. Your Joe the plumber hypothetical is a straw man; no one who's commented wants that.

But you fail to take liberal's point seriously. Our whole system depends on the branches respecting the separation of powers. I agree that in this case Congress needs to act, quickly and forcefully, to make explicit that the Treasury does not have this power.

And they should make it clear that if Paulson does not withdraw the notice, that Congress will begin impeachment proceedings against him after he leaves office. There is no basis for good faith whatsoever here. He knew he was flouting the law and the separation of powers.

[Gary Farber]

"If the candidates during the last month or so before the election were trying both to run an all-out campaign and to vet and select a governing team, one or other of these tasks would probably suffer - and my bet would be on the vetting/selecting."

But there have been plenty of stories about the Obama team doing exactly that: working hard on selecting and vetting people for the last couple of months.

And while it's obviously true that the parliamentary system provides advantages with a shadow cabinet that ours does not, Britain does manage to have the new PM move into 10 (or 11) Downing Street the next morning after the election. I should think we could manage it in a month. Sure, not everybody is up and running for some months, but that's always the case no matter what.

I think we could cut the transition from January 20th back to at least December 1st or so.

Obviously, I'm prepared to hear expert opinion that differs.

And then I shall make my royal ruling by decree, and it will all change.

[Gary Farber]

"'Harness Market Forces to Share Prosperity' sounds like the work of a free-marketer to me. Not willing to register to read the full article"

Huh? I'm not registered. There's no need to register to read the article. I don't expect it to change your mind (and I'm not particularly trying to; I agnostic on Summers for now), I'm just puzzled why you think you have to register to read the article. It's not very long, either.

[Nell]

Gary, the Financial Times apparently requires registration once you read four of their articles online in a given month. I have apparently reached my limit for November. I'll try on my partner's machine later; he reads a lot less political and financial news than I do.

[Gary Farber]

"Gary, the Financial Times apparently requires registration once you read four of their articles online in a given month."

I didn't know that. How do they keep track, I wonder, if you just delete their cookie? Or, rather: in that case, have you tried deleting their cookie?

[Nell]

While I'm at it -- I should be getting ready for a meeting and out the door -- my two cents on the transition is in an earlier comment on this thread: There is the distinct possibility of an election not being resolved by early December.

So I'm fine with the length of time it takes now. Not every campaign is going to have Obama's level of prep for the transition. Some incumbents will be defeated for a second term; they deserve time to wrap things up.

We're just all especially impatient now because we don't trust the current regime (correctly) and we're looking forward to the new. But in any less extreme contrast, I think the time is an okay and necessary thing.

[Gary Farber]

"Some incumbents will be defeated for a second term; they deserve time to wrap things up."

How is it that every Parliament around the world gets along fine by booting out incumbents with one day's notice, then? Are they all cruel and destructive in not letting defeated membes have "time to wrap things up"?