Another step away from our Constitutional system, with applause

Summary:  A crisis like we have today tests both out system of government and America’s values.  How is our Constitutional regime doing?  Not so well, taking more hits to its already weak superstructure.  Not that many in America care, as we still have cable to watch as our Republic slowly fades away.

Systemic failure manifests itself in the weakest part of a machine.  Today that weak part of our political engine is Congress.  The history of English democracy rose with power of Parliament.  American democracy may die with the power of Congress.  Power flows year by year to the Imperial Presidency, a trend obvious since the early 1960’s.

But be chipper, legislative power is so yesterday.  Fast, dynamic Executive Leadership is 21st century America — a government fit for consumers.  For peons.

Lawmakers Left On the Sidelines As Fed, Treasury Take Swift Action“, Washington Post, 18 September 2008 — Excerpt:

The frenetic pace of the financial crisis has forced the Treasury Department and Federal Reserve to make rapid-fire decisions in recent days, leaving Capitol Hill lawmakers effectively impotent — and frustrated. … Congressional leaders learned of the rescue late Tuesday during a hastily called meeting in the Capitol with Bernanke and Treasury Secretary Henry M. Paulson Jr., who explained the deal after it was done.

Congressional Irrelevance“, Todd Zywicki, posted at The Volokh Conspiracy (an A-team law blog), 18 September 2008 — Excerpt:

One interesting aspect of the recent government bailouts has been the complete irrelevance of Congress. The operation and decision-making seems to be run almost entirely by the Secretary of Treasury and Federal Reserve. Congress appears to lack the ability, the will, and the decisiveness to play any role except spectator, as a handful of senior executive branch officials have nationalized major portions of Wall Street.

What is further interesting is that Congress is not missed in the slightest. No one is clamoring for a greater role for our elected representatives in dealing with these problems. I haven’t heard anyone saying, “We really need to get Congress more involved in this. They’ll know what to do.”

The other day, I offered my view that Congress today is fundamentally a silly place stocked with silly people. This latest situation illustrates the principle. I don’t know whether Paulson and Bernanke are doing the right thing (I tend to think not). But I know for certain that I’d rather that they be making these decisions than Congress.

Moreover, this problem has become systemic. A recent Wall Street Journal article noted that the current Congress has enacted less legislation than any Congress in recent history–and that includes its many symbolic pieces of legislation such as renaming Post Offices. The output of administrative agencies dwarfs that of Congress. The Senate’s behavior on judicial nominations is preposterous.

I sense a vicious cycle at work here. As Congress has become more dysfunctional and unable to address matters of public importance, the Executive Branch has stepped in to fill the gap. In turn, this allows Congress to behave in an even less-serious manner, which in turn necessitates further action by the Executive Branch. If the Executive waited for Congress to do anything, nothing would get done. So Congress essentially spends its time bloviating and posturing, while the unelected beavers in the bowels of the bureaucracy crank out federal regulations.

Put more generally, Congress’s ridiculousness has increasingly caused it to forfeit its status a co-equal branch of government. 40 or 50 years ago it might have been plausible to imagine Congress addressing important public policy issues like entitlement reform or health care reform (I’m not saying they would have done it, but it seems like it was more plausible then). Serious people were in the Senate then — Taft, Johnson, etc. Today, however, the idea that serious solutions to pressing social problems might originate in Congress is hard to suggest with a straight face.

As obvious as all this is, even bright reporters seem to find this difficult to clearly see.

Market Law“, Ezra Klein, blog of The American Prospect, 17 September 2008 — Excerpt:

The AIG bailout — in fact, all of the bailouts — have been conceived entirely without their involvement. Indeed, the Federal Reserve and the Treasury Department have been acting, over the course of this crisis, as if they are the sum total of the government. And that may be the correct approach: Neither the president nor the legislative branch possess the expertise or speed to be involved in the real-time crisis management that Bernanke and Paulson are trying to manage. They could, presumably, reverse decisions after the fact or change the contours of the law, but for now, the ship is being steered by the Chairman of the Federal Reserve, the Treasury Secretary, and an informal working group of Wall Street CEOs and banking powerhouses. And the government, as we normally think of it, has basically accepted their temporary authority.

You’ve heard of martial law? We’re currently in a state of market law.

This is painfully wrong.  The massive interventions of the government into the finance industry are the opposite of free market dynamics.


The foundation of a democracy is its people.  We must insist that our leaders follow the forms of government set forth in the government.  However pressing the need to watch the latest sitcom or game on cable, there is nobody else who should or will do this.

We have to elect serious people to Congress, demand performance beyond acting as overpaid ombudsmen, and insist that the exercise the power of their office.  Not just hold hearings after major events to play 100% hindsight pomus judges.

We have an election in November to start the process.  And some emails to your Congressman demanding involvement in the financial crisis might help.


Please, do not bother posting comments whining that it is all too difficult, that cowardliness and despair are the only rational responses to our helplessness.  Instead use the time to read a biography of Franklin, Jefferson, Washington, Adams, Jackson, or Lincoln.  That might remind you of what is possible and stiffen your spine.

Please share your comments by posting below.  Please make them brief (250 words max), civil, and relevant to this post.  Or email me at fabmaximus at hotmail dot com (note the spam-protected spelling).

Key Treasury Department documents

We cannot plead the “we didn’t know the details in the fine print” excuse. The important details about this massive nationalization have been clearly spelled out for us.  See this page for a current list of Treasury Department documents.

Some FM posts about the current crisis

For a full listing see the FM reference page about the Financial crisis – what’s happening? how will this end?.

A few of the most important posts warning about this crisis

This crisis has long been forecast by many, including in articles on this site.  Even now that we are in the whirlwind, these provide valuable background material on its causes — and speculation about the results.  Here are some of those posts.

  1. A brief note on the US Dollar. Is this like August 1914?, 8 November 2007 — How the current situation is as unstable financially as was Europe geopolitically in early 1914.
  2. The post-WWII geopolitical regime is dying. Chapter One, 21 November 2007 — Why the current geopolitical order is unstable, describing the policy choices that brought us here.
  3. We have been warned. Death of the post-WWII geopolitical regime, Chapter II, 28 November 2007 — A long list of the warnings we have ignored, from individual experts and major financial institutions (links included).
  4. Death of the post-WWII geopolitical regime, III – death by debt, 8 January 2008 – Origins of the long economic expansion from 1982 to 2006; why the down cycle will be so severe.
  5. Geopolitical implications of the current economic downturn, 24 January 2008, – How will this recession end?  With re-balancing of the global economy, so that the US goods and services are again competitive.  No more trade deficit, and we can pay out debts.
  6. A happy ending to the current economic recession, 12 February 2008 – The political actions which might end this downturn, and their long-term implications.
  7. What will America look like after this recession?, 18 March 208  — The recession might change so many things, from the distribution of wealth within the US to the ranking of global powers.
  8. The most important story in this week’s newspapers , 22 May 2008 — How solvent is the US government? They report the facts to us every year.
  9. The World’s biggest mess, 22 August 2008 — A brillant ex pat looks at America from across the ocean.

To see the all posts on this subject, go to the FM reference page about The End of the Post-WWII Geopolitical Regime.

6 thoughts on “Another step away from our Constitutional system, with applause”

  1. Are there serious people running for office? It seems that US voters are not very taken to politicians who emphasize the problems facing USA.
    Fabius Maximus replies: It is a marketplace. The political apparatus produces the kind of products we demand. The candidates match what we, the voters, want. Look at the Republicans enthusiasm for McCain/Palin, and the Democrat’s for Obama.

    Note only those who get involved have any influence in the process.

  2. There are striking parallels between the Soviet collapse and the present state of the U.S. The main parallels are the deficit, the burdening empire and **most of all** the state of denial.

    Oil=grain, Bush=Breznev, 2008=1980.

    The most credible description of the Soviet collapse is this:
    The Soviet Collapse – grain and oil“, American Enterprise Institute, 18 April 2007

    A discussion conducted in 2007 about this article: “Why did the Soviet Union fall?“, at Marginal Revolution, 13 June 2007

    It looks, nobody predicted in 2007 the current situation.

  3. Under the control of the Democrats, Congress has indicated its willingness to excoriate the Bush administration, ignore its own role in creating the mess, and shown a willingness to block anything Bush attempt. So now the adults step in with a fait accompli. Unfortunately for the rest of us, this just means a logical progression down the socialist rabbit hole: no one will touch the sacred cow of subprime loans to “minorities and the poor”; so, this poison pill will continue its work through the economy.

    Here is an interesting link re the interconnection of the Democrats, Obama’s campaign, the subprime mess, and now Iran: “Not Quite Ready for Subprime Time“, posted at the Gate of Vienna, 18 September 2008.

  4. Fab
    I don’t think your conclusion is true:
    This is painfully wrong. The massive interventions of the government into the finance industry are the opposite of free market dynamics.

    Every market depends, crucially, on two pillars:
    1) Property ownership (as actually enforced), and
    2) Enforcement of contracts.

    These bailouts are due to the BIG organization failing to fulfill some contractual obligation. Every ‘Free Market’ advocate would agree that contracts must be enforced. What is not universally agreed upon is a) exactly how to enforce a contract, and b) who has what power, when.

    The Executive part of the gov’t is the Enforcement part. You seem to claim that inaction by the Fed & Treasury, to be followed by uncertain gov’t bankruptcy Court actions at some uncertain future time, is a better policy. Such gov’t Court action might also take place without Congress, with or without Congressional hearings. But all Court uncertainty would also create more failures of contract fulfillment, with additional bankruptcy Court hearings.

    The injustice of big companies failing to fulfill their contracts is ‘clear’. What is not clear, nor agreed upon, is the optimal way to enforce the contracts / punish those who fail. Justice is a grey area. Insofar as one of the goals of imperfect justice is to minimize the costs of the justice system, it seems likely that fast action by the Fed and Treasury are doing this.

    What Congress should be doing is creating better rules for faster, more clear justice in future cases; perhaps also adding taxes and regulations to reduce the likelihood of such cases.

    Fab, I think you should look at more opposing views

    Glass Steagall: The Real History“, Marginal Revolution, 19 September 2008.

    They point to a good David Roche article about the expected $1.2 trillion loss, of which before AIG we’ve only seen some $800 billion ($510b bank plus $250b Non-Deposit Financial Institutions, like AIG;). I think you’d agree with him. “The Credit Crunch Will Go On”, David Roche, op-ed at the Wall Street Journal, 18 September 2008
    Fabius Maximus replies: This is quite a bizarre way of looking at it. When did the US government assume the role of fulfilling private contracts in which one party failed to fulfill its end of the deal?

    We have an institution, and old and effective one, called bankruptcy court to handle such situations. Note that the courts do not use government money — your and my money — to settle claims. Calling it a “market action” when the government does so is amazing. In that sense the Soviet Union, in which the State was the universal counter-party, was a free-market system. Who knew?

    “But all Court uncertainty would also create more failures of contract fulfillment, with additional bankruptcy Court hearings.”

    There are special procedures that could have been used to accellerate the process and remove uncertainty. Government ownership is unprecedented.

    I do not see any relevance about the repeal of Glass-Steagall to this debate. Perhaps that was a significant step in getting us here (a debate for historians), but irrelevant now. Roche’s op-ed is mostly blather, ending on a common and sophomoric note.

    “But all is not gloom. There will be an end, as there is to all things. When we emerge from this it will be to a world in which thrift has replaced leverage and scarce capital is invested more productively.”

    Roche is just saying “such is life”, which is not helpful. Everything — wars, famines, plagues — works itself out eventually. John Maynard Keynes wrote in 1923:

    “In the long run we are all dead. Economists set themselves too easy, too useless a task if, in tempestuous seasons, they can only tell us that when the storm is long past the ocean is flat again.”

  5. Fabius,

    You seem to confuse “democracy” with a particular weighting of crisis-response powers between two of the co-equal branches of government. An assertion that Congress should have more power generally is well and good. However, the last major inflection point for that was the Truman administration.
    Fabius Maximus replies: I do not understand what you are saying.

    I describe events that break us away from our existing political regime, based on the Constitution.

    On a second level, a shift in power from the legislative to executive branches has throughout history (speaking anachronistically about the terms) been associated with a concentration of power and a reduced degree of control by the people. This has been so going back to Greece.

    “However, the last major inflection point for that was the Truman administration.”

    And your point is what? Should we feel good about this trend?

  6. So let’s be clear on your claim: using bankruptcy court, the old and effective institution that doesn’t use taxpayer cash to satisfy contracts, is better than giving ‘dictator’ like power to Sec. of Treasury Paulson.

    I don’t believe bankruptcy court w/o taxpayer cash results in a better USA over the next 10 years than the unprecedented bailouts — but I haven’t seen any reasonable article dealing with the expected costs of relying on bankruptcy courts. Have you?
    Fabius Maximus replies: I believe you miss the point. An analysis of that would have been useful for our leaders and us before these decisions were taken. Now it is moot, of theoretical interest only. The point is raised merely to show that there were alternatives.

    Showing that there were alternatives, of which this is just one, is necessary to rebut the mindless objection of “this was the only path!” I say “mindless” because there is almost never only one choice.

    So the die is cast. Now all we can do is speculate about the costs and consequences. I suspect both will be far larger than consensus expectations, by a full order of magnitude (i.e., 10x).

    For more recent examples of this process at work, consider both the Gulf of Tonkin resolution (result: Vietnam War) and the urgency to stop Saddam’s nukes (result: the Iraq War). I find it baffling that it is not obvious by now how these things work out. We are like children, repeatedly falling for the same trick.

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