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Latest Bailout Plan Restores Government Balance of Power

As I wrote last week, the initial Paulson bailout proposal — granting Treasury Sec. Henry Paulson Jr. absolute power over $700 billion in taxpayer money, unbridled by any pesky congressional oversight or judicial review — had the effect of eviscerating the usual checks and balances that American government was designed to provide.

The new plan that’s reportedly winning broad support appears to repair that major flaw.

Despite Sen. John McCain’s and many House Republicans’ refusal on Friday to go along with the amended bailout plan — a rare compromise worked out between the Bush administration and congressional Democrats that reveals more the depth of this crisis than any new ideological meeting of the minds — a new proposal seems to have been negotiated.

Though details are still being worked out, the new bill reportedly includes a congressional oversight board and pay limits for executives whose companies seek government help. It requires the government, as owner of distressed mortgage-backed securities, to try to prevent foreclosures. It would also give the government some equity stake in companies seeking financial aid — allowing taxpayers to profit should their financial health be restored. Let’s hope that equity stake is a strong one.

News reports aren’t addressing directly whether aggrieved shareholders could sue the Treasury secretary if he mismanaged their holdings, or what other role there might be for judicial review.

But Washington lawyers following the negotiations closely tell me that the offensive Section 8 of the plan – which Huffington Post and others described in vivid detail last week — has been removed. So have other limitations on legal review, like Treasury’s powers to hire private contractors without following any of the usual public contracting laws designed to prevent conflicts of interest — including hiring friends, family or companies in which the secretary has a financial interest.

Whether enough Republicans will go along with the plan to make it work, or at least to convince some of the less secure Democrats that it’s a risk worth taking, remains to be seen.

The public, understandably baffled by how this could all work and wary of handing this administration more billions of dollars to spend at its will, may need some educating and convincing that this is all actually in the public interest.

But the new plan — both what it includes and what it leaves out — suggests that Congress is well on its way to not only restoring some stability to the economy, but to restoring the rule of law and the separation of powers threatened by the original Paulson plan.

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