Everyone should read the actual text of the proposed bailout plan the administration is sending to Congress. It’s clearly not a final version (the part about only purchasing from financial institutions headquartered in the US has already been changed, as Kathryn notes below), but it’s the essential shape of the proposal. See if you can read through the whole of it without concluding that everyone in Washington has lost their minds.
I’m not an economist, and I wouldn’t pretend to be one, but just as an observer of Washington, and as someone who has worked on the Hill and at the White House, it is simply apparent from this draft that this program will get completely out of control very quickly. It gives the Secretary of the Treasury essentially unlimited power to use $700 billion to make purchases the scope of which is defined very loosely and vaguely. It even says:
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
Even if Hank Paulson were the all knowing god of economics, would it make sense to give this kind of power to the treasury secretary for the next two years just forty days before an election? Shall we go through our mental list of who an Obama administration (or a McCain administration for that matter) is likely to put in that post? And doesn’t it make sense to establish some kind of process for deciding how specifically to use the money? To put in place some criteria of prioritization? Some real-time oversight? Isn’t transparency crucial to the proper functioning of our modern financial system? And how is everyone in both parties suddenly satisfied that this approach is the only one that could work?
Most of us are in no position to question the view, espoused by just about every economist heard from in the past few days, that some serious action is called for and soon. But the way this is all being pushed through, and the character of the proposal itself, are deeply disconcerting.