McCain Adviser Revises Comments on SEC Chair

Addressing the current Wall Street crisis before an audience in Cedar Rapids, Iowa, Sen. John McCain announced a new proposal for preventing the future collapse of huge financial institutions in the future.

From McCain’s prepared remarks:

“We cannot wait any longer for more failures in our financial system. Structures like the Resolution Trust Corp., that dealt with the failed savings and loan industry, were designed to clean up the system and worked. Today we need a plan that doesn’t wait until the system fails. I am calling for the creation of the mortgage and financial institutions trust — the MFI. The priorities of this trust will be to work with the private sector and regulators to identify institutions that are weak and take remedies to strengthen them before they become insolvent. For troubled institutions this will provide an orderly process through which to identify bad loans and eventually sell them.

This will get the Treasury and other financial regulatory authorities in a proactive position instead of reacting in a crisis mode to one situation after the other. The MFI will enhance investor and market confidence, benefit sound financial institutions, assist troubled institutions and protect our financial system, while minimizing taxpayer exposure. Tomorrow I will be talking in greater detail about the crisis facing our markets and what I will do as president to fix this crisis and get our economy moving again.”

This afternoon, McCain campaign economic adviser Doug Holtz-Eakin hosted a conference call with reporters to reiterate McCain’s pledge to create the MFI, promising that McCain will provide more details in a speech tomorrow. Holtz-Eakin also took the opportunity to finesse another of McCain’s statements, in which McCain said that if he were president, he would “fire” Chris Cox, the chairman of the Securities and Exchange Commission. It has now been widely reported that the president lacks the constitutional authority to fire the head of an independent regulatory commission. During the call, Holtz-Eakin revamped McCain’s comments, saying instead that McCain would demand Cox’s resignation.

“We saw today an indicator of the kind of manager John McCain intends to be as president, calling, for example, that had he been president, he would immediately demand the resignation of any Cabinet agency, particularly the SEC commissioner who had a track record that did not meet the standards that John McCain felt were appropriate.”

Holtz-Eakin was repeatedly asked what, specifically, Cox had done wrong. His answer was a bit nebulous, other than a major meltdown had occurred on Cox’s watch and he wasn’t proactive enough in heading off the crisis.

One interesting point of history, it was President Franklin D. Roosevelt’s demand for the resignation of the head of the Federal Trade Commission in 1933 that led to the Supreme Court case Humphrey Executor vs. Roosevelt, in which the high court ruled that the president could not constitutionally fire the head of a federal regulatory body. Heathcote Wales, a constitutional law expert at Georgetown University Law School, indicates that the rules for removing the head of an independent commission vary according to the statutes of the particular agency, but generally they can only be fired with cause — and presiding over a crisis would probably not meet that standard. Class dismissed.