Surely Dick Morris must be exaggerating when, in his column on “financial reform,” he writes the following (paragraphs are in different order than in original for analysis purposes):
If the financial regulation bill that passed the House last year becomes law, President Obama and his Treasury Secretary will acquire the right to take over any financial institution they wish to, provided that, in their sole opinion, it is both “too big to fail” and on the brink of insolvency.
… The House bill provides for no judicial review and does not require any objective evidence of imminent failure to trigger the takeover provisions
…. The blank check the bill gives the feds to take over any financial institution is really more of an exercise of eminent domain than it is an extension of traditional federal regulatory power.
This grant of power to the executive branch is unprecedented and potentially totalitarian.
Morris exaggerates only slightly in form, but not at all in substance. In one instance, he understates the dangers.
If you go to the full text of the bill (sorry, it’s one big document with no page numbers) as the House passed it (relevant sections haven’t been changed by the Senate according to the tool available at the link), you find the following concerning the “Financial Services Oversight Council”:
(b) Membership- The Council shall consist of the following:
(1) VOTING MEMBERS- Voting members, who shall each have one vote on the Council, as follows:
(A) The Secretary of the Treasury, who shall serve as the Chairman of the Council.
(B) The Chairman of the Board of Governors of the Federal Reserve System.
(C) The Comptroller of the Currency.
(D) The Director of the Office of Thrift Supervision, until the functions of the Director of the Office of Thrift Supervision are transferred pursuant to subtitle C.
(E) The Chairman of the Securities and Exchange Commission.
(F) The Chairman of the Commodity Futures Trading Commission.
(G) The Chairperson of the Federal Deposit Insurance Corporation.
(H) The Director of the Federal Housing Finance Agency.
(I) The Chairman of the National Credit Union Administration.
(J) The head of the Consumer Financial Protection Agency.
So it isn’t that a President and Treasury Secretary can unilaterally act, at least in form. But … everyone listed is a political and/or presidential appointee, and it would take an extraordinary and usually unavailable degree of courage by a number of them to stop the Treasury Secretary from doing what he or she wanted to do.
As to no judicial review, Morris is essentially right. Again, from the bill’s text:
Judicial review under this section shall be limited to the imposition of a mitigatory action pursuant to subsection (e)(5). In reviewing the Council’s imposition of a mitigatory action, the court shall rescind or dismiss only those mitigatory actions it finds to be imposed in an arbitrary and capricious manner.
In other words, judges cannot review the Council’s mitigatory actions on their merits, but only on a very subjective standard of how they are imposed. That eliminates virtually all of the substance of what judicial review is supposed to be about.
Morris emphasizes the “too big to fail” aspect of proponents’ arguments, but the language of the law indicates that the Council doesn’t really need that as an excuse to exercise its broad authorities. Again, from the House-passed version:
In General- The Council may subject a financial activity or practice to stricter prudential standards under this subtitle if the Council determines that the conduct, scope, nature, size, scale, concentration, or interconnectedness of such activity or practice could create or increase the risk of significant liquidity, credit, or other problems spreading among financial institutions or markets and local, minority, or underserved communities, and thereby threaten the stability of the financial system or economy.
Some of the itemized considerations have to do with size, but many, including “local, minority, or underserved communities” most assuredly do not. Any “financial activity” seen to potentially harm “local, minority, or underserved communities,” such as charging slightly higher interest rates to those who live in areas deemed to have a prior history of high default rates, could be construed to be “destabilizing” and be stopped under an aggressive enough regime. A financial institution refusing to comply with the Council’s demands would be subject to government takeover.
Morris is exactly right that “objective evidence of imminent failure” is not necessary, meaning that the Council could — I’m not saying will, I’m saying “could” — be as arbitrary, capricious, and political in its decision-making as it wishes, with no meaningful checks on its powers.
That, as Morris writes, is indeed “unprecedented and potentially totalitarian” — which is why it must be stopped.
There can be no meaningful compromise involving this kind of legislation.