OBAMA’S TERRIBLE POWERS
Published on TheHill.com on April 13, 2010
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.
Once the government takes over such a company, it will acquire the right to replace the entire board of directors, fire the management of the company, wipe out stockholder equity and even sell off divisions of the company.
Essentially, this bill permits the government to launch an unfriendly takeover of any financial institution it wishes without risk and with no poison pill or other counter-measures possible.
This legislation, essentially, confers on the federal government police powers that, under our system, are the exclusive preserve of state and local government. 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. Consider:
• Will Obama, or any future president, target companies that are particularly vocal in their opposition to his policies or generous in funding his political opponents? Will the fact that Obama would have this power force companies, investors, CEOs and managers to self-censor their opinions and political involvement because they fear the wrath of a vengeful president?
• Will this grant of authority force companies to hesitate before they grow and expand? Will it function the same way the antitrust powers of the Justice Department do in making companies re-examine mergers and acquisitions with a view toward what Justice will think of their resulting market share? In antitrust situations, where a specific action brings companies under scrutiny — like a merger — such concern is not unreasonable. But when the simple act of making money, showing a profit and expanding in size puts a company in federal crosshairs, does this not have the potential to attenuate the capitalist focus on growth?
• In an environment where the feds are looking over the shoulder of every financial institution to see if they should take it over and shut it down, will this not force financial companies to follow the most risk-averse lending policies possible? Doesn’t this mean that it only makes sense to buy government paper, since consumer loans, mortgages and business lending could be considered risky and lead to a federal takeover? Isn’t this policy precisely the opposite of what we need to catalyze economic growth?
• In a political world where contributions from financial institutions are sought and widely given, doesn’t this power give the president and his party unlimited fundraising ability, simply by baring its teeth and showing the power it has to take anybody over and fire anybody? Given the fact that Goldman-Sachs was the second-largest donor to Obama’s campaign, giving $954,795, doesn’t this new power raise the specter that the federal government could take over financial institutions so as to make the competition lighter for its donors? Already, there is considerable evidence (cited in our new book, 2010: Take Back America — A Battle Plan) that Goldman profited handsomely from the decision of its former CEO — Bush’s Treasury Secretary Henry Paulson — to allow Lehman Brothers to fail. Now that the Treasury secretary will have the takeover power, might it not be used as irresponsibly and with as many bad consequences as Paulson used his power in the Lehman crisis?
While the focus on the regulatory bill has been on the consumer protection provisions, which I tend to support, there has been far less scrutiny on these horrific expansions of federal power.
Fidel Castro and Hugo Chavez could only dream of this power.