The administration thinks ahead

THE ADMINISTRATION THINKS AHEAD…. As part of the debate over the banking crisis, there’s been a nagging question about the limits of governmental authority. Kevin Drum noted over the weekend, for example, “Legally, I’m not sure Obama has the statutory authority to take over a big bank. He may well need congressional authorization of some kind first.”

The administration hasn’t said whether it wants to temporarily seize financial companies, but according to a front-page piece in the Washington Post, administration officials are thinking ahead about steps that may become necessary. They may very well ask Congress to extend the authority now, just in case.

The Obama administration is considering asking Congress to give the Treasury secretary unprecedented powers to initiate the seizure of non-bank financial companies, such as large insurers, investment firms and hedge funds, whose collapse would damage the broader economy, according to an administration document.

The government at present has the authority to seize only banks.

Giving the Treasury secretary authority over a broader range of companies would mark a significant shift from the existing model of financial regulation, which relies on independent agencies that are shielded from the political process. The Treasury secretary, a member of the president’s Cabinet, would exercise the new powers in consultation with the White House, the Federal Reserve and other regulators, according to the document. […]

Besides seizing a company outright, the document states, the Treasury Secretary could use a range of tools to prevent its collapse, such as guaranteeing losses, buying assets or taking a partial ownership stake. Such authority also would allow the government to break contracts, such as the agreements to pay $165 million in bonuses to employees of AIG’s most troubled unit.

Robert Waldmann added, “Sounds a bit like Bush and Iraq frankly. Asking for the authority while saying they don’t want to use it, and going through the motions of trying something else…. Oh well you go to nationalization with the Senate you have not the Senate you want.”