Legal Commentary

First, consider the "second subtitle," as it were, on the book's jacket: "How the Federal Reserve Became the Fourth Branch of Government." A major thesis of the book is that Bernanke, in behalf of the Fed, was taking many important decisions basically independently. Even if Paulsen was playing a role (often quite an unhelpful one), the ostensible President of the United States, one George W. Bush, was entirely irrelevant to most of the events Wessel describes, as was, by and large, Congress, at least until the sums of money became so completely gigantic that Congress had to authorize them (and did so basically at the pointn of an economic gun on the assurance by Bernanke and Paulsen that a failure to act would be equivalent of accepting a Pearl Harbor-like decimination of the American and world economy). Congress, not for the first time, had indicated a complete inability to act genuinely to prevent the crisis; the economy had to be going over the cliff before it would act. (Does this strike a chord with regard to current events?)

The second point is perhaps of even more immediate concern to lawyers, for Wessel's recurrent mantra, always in italics is whatever it takes. This describe Bernanke's determination that the slide toward another Great Depression, if not worse, not take place on his watch and his concomitant willingness to do "whatever it takes" to avoid that. Thus the invocation of a hitherto obscure 1932 law--and the fact that it was passed in 1932 is of independent interest, since that obviously precedes FDR's coming to power--that authorized the Fed to do a variety of amazing things in "unusual and exigent" circumstances. One might well regard this as an example of "delegation run riot," at least in traditional terms. But Wessel notes that even that law wasn't an out-and-out blank check, and that it required some creative lawyering and jerry-rigging of institutional structures to justify what was done. "Seeing imminent danger to the financial system, Bernanke and the New York Fed's Tim Geithner had no choice but to improvise...." (p. 148, emphasis added). Indeed, to quote from the concluding chapter, "they stretched law to do whatever it takes to protect the system from clear and present danger" (p. 274, first italics added) .

In an article that Jack and I have recently written, on "Designing a Constitutional Dictatorship," we put forth the notion of "distributed dictatorial authority," by which we mean, simply, that it is a profound error to assume that there is one and only one "Great Decider" for all issues. It depends very much on the kind of "clear and present danger" that is thought to be facing the nation as to who will claim such authority. With regard to military and foreign policy, it will almost always be the President, though, of course, it is increasingly difficult to distinguish national and foreign policy with regard to economic issues. But if it is the economy, then, if Wessel is correct, it was, and presumably in the future will be, the head of the Fed who will be inclined to repeat Al Haig's memorable statement that "I'm in charge," and, if Wessel is correct, we'll be very happy that somebody so competent as Bernanke was in charge. But it might also be a good idea to ask some serious institutional design questions about what has happened the past couple of years, and whether we are entirely happy with the emergence of the Fed not only as a "fourth branch of government," but also with the fact that the head of the Fed, whether it's Greenspan or Bernanke, has the power he does. But, of course, what's the alternative, given, as Wessel also demonstrates, the necessity on occasion to make truly immediate decisions? As it happens, Hillary Clinton's infamous "3 AM" ad probably has far more relevance with regard to financial crises than to foreign policy ones, where there will be (with the exception of Pearl Harbor, perhaps) time to convene an EX COM, as with the Cuban Missile Crisis. In any event, Wessel's book deserves both a large audience and, more to the point, a wide discussion. (Dare I note, for example, that his conclusions also notes that "[a]t the Fed, there was more than one conversation about the advantages of parliamentary systems, where the prime minister can count on his party to do whatever he deems necessary at the darkest hour," conversations provoked, of course, by the inability of the President to rally his party behind the bailout in October and the added momentum toward collapse that was generated by the initial defeat of the bill.)

Full post as published by Balkinization on August 18, 2009 (boomark / email).