Titel „U.S. Public Policy Creation in Response to the Financial Crisis … · 2017. 3. 10. · A...

Titel„U.S.PublicPolicyCreationinResponsetotheFinancialCrisisof2007-2008”

InauguraldissertationzurErlangungderDoktorwürdederPhilosophischenFakultätderUniversitätHeidelberg,

vorgelegtvon:StephenUrich,

Erstgutachter:ProfessorDr.ManfredBerg,

Zweitgutachter:Dr.habil.MartinThunert,

Datum:30.10.2015.

TableofContents

Abstract.............................................................................................................................1

1. Introduction...............................................................................................................21.1Methodology.......................................................................................................................51.2TheoreticalFramework.......................................................................................................121.3TheoriesaboutDelegation..................................................................................................16

1.3.1AbdicationHypothesis.......................................................................................................171.3.2PoliticalToolHypothesis....................................................................................................261.3.3TheCapacityofPoliticiansAffectstheAmountofDelegation..........................................341.3.4MoreAuthoritywillbeDelegatedtotheExecutiveBranchinInformationallyIntenseIssueAreas...........................................................................................................................................351.3.5Complexpolicyareasleadtomoredelegation..................................................................351.3.6WherethisPaperFitsintotheLiterature..........................................................................36

1.4ExistingFramework.............................................................................................................36

2. PolicyCanBeCreatedAtManyLevels......................................................................532.1DirectCongressionalAction..................................................................................................532.2Delegation.............................................................................................................................572.3UnilateralExecutiveAction...................................................................................................902.4InterrelationsbetweentheBranches...................................................................................98

3. Hypotheses............................................................................................................1153.1AbdicationHypothesis......................................................................................................1163.2Agents...............................................................................................................................1183.3Constraints........................................................................................................................1203.4UnilateralExecutiveAction...............................................................................................1293.5ImplicitDelegation............................................................................................................131

4. CaseStudy.............................................................................................................1314.1NatureoftheCrisis...........................................................................................................1354.2ActionsTaken....................................................................................................................141

4.2.1EmergencyEconomicStabilizationActof2008...............................................................1424.2.2AmericanRecovery&ReinvestmentActof2009............................................................1534.2.3HelpingFamiliesSaveTheirHomesActof2009..............................................................1554.2.4FraudEnforcementandRecoveryActof2009................................................................1554.2.5Dodd-FrankWallStreetReformandConsumerProtectionAct......................................1574.2.6NationalCommissiononFiscalResponsibilityandReform.............................................1724.2.7BudgetControlActof2011..............................................................................................1734.2.8OtherResponsestoEconomicCrises...............................................................................1844.2.9OtherGovernmentalActions...........................................................................................198

5. Results...................................................................................................................2035.1AbdicationHypothesisvs.DelegationHypotheses............................................................2035.2TheSelectionoftheAgentsofDelegation.........................................................................213

5.2.1ToEnsureAgentIndependence.......................................................................................2155.2.2AgencyExpertiseandCapabilities....................................................................................224

5.2.3EnsureCoordination........................................................................................................2275.2.4ToGiveAttentiontoanIssue...........................................................................................229

5.3TheUseofConstraints......................................................................................................2315.3.1TimeLimits.......................................................................................................................2345.3.2ConsultationRequirements.............................................................................................2365.3.3ReportingRequirements..................................................................................................2405.3.4PublicHearings.................................................................................................................2425.3.5Rule-MakingRequirements..............................................................................................2435.3.6Recommendations...........................................................................................................2475.3.7Exemptions.......................................................................................................................2495.3.8Oversight..........................................................................................................................2505.3.9SpendingLimits................................................................................................................2545.3.10AppointmentPowerLimits............................................................................................2555.3.11JudicialReview...............................................................................................................2565.3.12SummaryofConstraintsUsed........................................................................................259

5.4UseofUnilateralExecutiveAction.....................................................................................2605.5UseofImplicitDelegation.................................................................................................264

6. Conclusion.............................................................................................................267

Bibliography..................................................................................................................272

1

Abstract

Crisescanhavesignificanteffectsonthemethodofpolicycreationandonthe

contentoftheresultingpolicyitself.Thispaperinvestigatesthemethodofpolicycreation

employedinresponsetothefinancialcrisisof2007-2008.Inparticular,thispaperlooksat

thecreationandimplementationoftheDodd-FrankActthatattemptedtoaddressthe

causesofthecrisisandminimizethelikelihoodandseverityoffuturecrises.Byusinga

rationalchoicetheoryandatransactioncostanalysisframeworktoinvestigatetheactions

takenbypoliticalactorsastheyrespondedtotheunfoldingcrisis,thispaperinvestigated

themethodofpolicycreationandthemotivationsthatdeterminedit.

Aclosereadingoftheactionsofthelegislativebranchduringthecrisisandpost-crisis

periodinvestigatingwhethertheactionswereconsistentwiththeresultspredictedby

delegationtheoryliteraturefoundconsiderablesupportfortheabdicationhypothesis

duringthiscrisis.Italsobecameapparentthatafewkeyconstraintsincludingtimelimits

andconsultationrequirementswereusedextensivelybycongressduringthisperiodto

controltheactionsofagentsthatweredelegatedpowerwhereassomeothersortsof

constraints.Bywayofcomparison,otherconstrainttypeswereusedsparingly.

Congressalsoappearedtohavehadspecificmotivationsforthechoiceofagentto

delegatetowhichwerepresentformostoftheactsofdelegation.Theseincludedensuring

agencyindependence,ensuringcoordination,leveragingagencyexpertise,andensuring

constantandlong-termattentiontoanissue.

Alongwithcongress’explicitdelegationofpowertotheadministration,therewere

considerableamountsofimplicitdelegationinwhichexecutivebranchactorsasserted

powersthatwerenotexplicitlydelegated.Theinstancesofimplicitdelegationdecreased

laterinthecrisisasthefocusofpolicycreationshiftedfrommitigatingthecurrentcrisisto

forestallingfuturecrises.

Duringthecrisis,thepresidentprimarilyreliedonthepowertopersuadeandlargely

avoidedusingexecutiveactionstocreatepolicy.Inaddition,minimalpowerandauthority

wasdelegatedbycongressdirectlytothepresidentduringthisfinancialcrisis.

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1. Introduction

ThepublicpolicyoftheUnitedStatesdirectlyaffectsthelivesofmorethan300

millionAmericancitizensaswellascountlessindividualsresidinginothernations.Itthusis

ofgreatimportanceastowherethispolicycomesfromandwhatitconsistsof.Thereare

numerouswaysinwhichpublicpolicygetscreatedintheUnitedStates.Mostoftheseare

formalprocessesrequiringactionsofthepresident,congress,orthebureaucracytoenact

policythoughinsomeinstancespolicycanbecreatedorenactedbyhabitorprecedentor

throughthecourts.Bythetermpublicpolicy,thispaperisreferringtothoseactionsof

governmentthatsetgovernmentalactionandpriorities.Thiscanincludelawsand

regulations,butalsoincludesspendingpriorities,foreignrelations,militaryactions,and

othercoursesofactionsthataffectthelivesofcitizensortheactionsofthenation.

FormuchofthehistoryoftheUnitedStates,enactingpublicpolicywasprimarily

donebycongressthroughtheissuanceoflaws.Nowhowever,itisincreasinglyperformed

byotherpoliticalactorsandbyothermethodssuchasdelegation1andunilateralexecutive

actions.2Bymakingtheassumptionthatthepresident,thoseincongress,andthe

bureaucracyarerationalpoliticalactorsonecaninvestigatewhyspecificavenuesofpolicy

creationareusedandwhythishasledtoadecreaseinthepercentageofpolicyenactedby

congress.Onecanalsoexaminehowtheprocessofcreatingpolicyisalteredbythe

existenceofacrisisaffectingthenation.Therearenumerousmethodsthatcanbeusedto

createpolicyandthedecisiontouseoneavenueofpolicycreationratherthananotherisa

consciouspoliticaldecisionbyoneormorepoliticalactors.Therearedifferent

requirements,costs,andpayoffsforeachmethodofenactingpolicyandsomeareopento

onlycertainpoliticalactorsorareavailableonlyatcertaintimes.Somemethodsarecyclical

innatureandmorevaluableatdifferenttimesinapoliticalcycle.Theexistenceofacrisis

influencesthepoliticaldecisionsthatleadtoactorsselectingonemethodoranotherwith

1Kiewiet,D.RoderickandMathewD.McCubbins.TheLogicofDelegation:CongressionalPartiesandtheAppropriationsProcess.UniversityofChicagoPress.1991.

2Howell,WilliamG.PowerwithoutPersuasion:ThePoliticsofDirectPresidentialAction.PrincetonUniversityPress,2003.

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whichtopursuetheirends.Furthermore,thisdecisioncanhaveprofoundeffects

throughouttheprocessaffectingissueidentification,policyformulation,agendasetting,

decision-making,andpolicyimplementation.Theresultingpolicyisinturngreatlyaffected

bythesefactorsandthusisdependentonwhetherthereisacrisisanditscharacteristics.

Thecommonmethodsthroughwhichpolicycanbecreatedaredirectlybycongress

intheformoflegislation,throughdelegation,orunilaterallybythepresident.Eachofthese

hasmanydifferentpotentialvariations.Forinstancethepresidentcanperformahostof

differenttypesofunilateralactionsandcongresscanstructuredelegationinanumberof

waysdependingontheneedsofthesituation.

Whilecongress,duetoitsroleastheincarnationoflegislativepower,hastypically

beenviewedasthecreatorofpolicyinthegovernment,thesituationisfarmorecomplex

andcongressplaysamuchsmallerrolethantheconstitutionmayimply.Thepresident,

governmentalagencies,organizations,localgovernment,andinternationalorganizationsall

createpolicy.Thereareoftencomplexpolicysolutionsandalargenumberofpotential

waysforpublicpolicytobecreatedandcongressdoesnothaveamonopolyonthese.Even

whenenactingpolicyusingmethodsinwhichcongresshasprimacyitmustmakeallowances

andadaptitspolicypreferencestothoseofothers.

Therehavebeendifferentviewsontheextenttowhichthevariousbodiesof

governmenthavecontrolovertheactionsofgovernment.Theserangefromthosethat

believethatthereiscongressionaldominance3tothosethatseeapowerfulpresidencythat

overtimehascontinuedtogainpowers.4Thecentralquestionaboutdominanceistowhat

extentdothevariousbodieshavepoweroverthepolicycreationoutcomesandtheactions

ofgovernment.Similartothequestionofwhohaspoweroverpolicy,thereisthedebate

overwhosepreferencesarerepresentedbytheactionsofthegovernment.

Oftenpolicycreationdoesnothaveasinglesourcebutreliesonpoliticalbodiesthat

haveanovertroleinitsshapingaswellasthosethathavehadamoresubtlerole.

Governmentalbodiesnegotiateamongstthemselvestodeterminewhatactionsaretaken.

Differentpoliticalentitiesoftenwilladoptdifferingstrategiestoaddressanissueevenwhen

3Calvert,MoranandWeingast1987;McCubbinsandSchwartz1984;WeingastandMoran19834Golden2000;Nathan1983

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thedesiredendresultissimilar.Thereisaninterplaybetweenpoliticalactorsand

governmentalbodiesthatworkwithandcompeteagainsteachotheraseachtriesto

achieveitspoliticalends.5Whileeachpoliticalactorultimatelyseekstoadvancehis/her

ownends,thefactthatnationalpoliticsisarepeatedgameleadspoliticalactorsand

politicalbodiestobestronglyincentivizedtogetalongandworktogetherandrulesbecome

institutionalized.6Thiscooperationleadstothebestandmostpredictableresultsfor

individualpoliticalactorsandtherebymaximizestheirreturns.Inpart,governmentalbodies

takeactionsthatareinaccordancewiththepoliticalactorsthatcomprisethem,butalso

limittherangeofactionofthetypicalpoliticalactor.Thebodiesorinstitutionstakesteps

suchaspunishingthosethatdonotactingoodfaiththatcanbringactionsofthebodymore

inlinewiththemedianactorthatcomprisesit.Theseindividualsthatareaggrievedwill

sometimesactasstrongreciprocatorsandpunishthosethattheyfeelhavetrespassed

againstthemevenwhentheactofpunishmentmayleadtoevengreaterlossesforthe

aggrieved.7Thishelpsleadtomorepredictablepoliticalresults.

Thecreationofpublicpolicyisnotadiscreteevent,buttypicallyconsistsofa

politicaldialogovertimebetweenanumberofindividualsandgroups.Oftenadraftofa

publicpolicyisfirstdesignedorcreatedanditisonlyalaterdatethatitmaygetenacted.

Atboththeinitialcreationstageofthepolicyandatitsenactmentthepolicycanbeshaped

andindividualsandentitiescanchangethepolicythatisenacted.Inthecurrentpolitical

systembillsforexamplemaycomefromanumberofsourcessuchasinterestgroupsor

congressionalcommittees.Mostbillsthataresubmittedeachsessiondonotgetpassedin

thatsession.8Overtimesupportmaygrowforapolicyanditmaybereintroducedand

eventuallybecomealaw.Thepresidentalsooftencherrypicksfromproposalswithgood

acceptancefromcongressandthenationandheadoptsandembracescertainofthese

initiativeswhichbecomepartofhislegislativeagendaoraplankinhiscampaign.Thiscan

leadtoasignificantlagbetweentheinitialdraftingofaproposalandthepointatwhich

supportforthebillhasincreasetosuchanextentthatitgetsenacted.Duringacrisis,this

5Hall,PeterA.andRosemaryC.R.Taylor.PoliticalScienceandtheThreeNewInstitutionalisms.1996.6Greif,andChristopherKingston.“Institutions:RulesorEquilibria”inPoliticalEconomyofInstitutions,DemocracyandVoting.2011.7Gintis,Herbert.“TheEvolutionofStrongReciprocity:CooperationinHeterogeneousPopulations.”TheoreticalPopulationBiology,65:17–28.2004.8Govtrack.“StatisticsandHistoricalComparison”https://www.govtrack.us/congress/bills/statistics

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timeperiodbetweentheinitialpolicyproposalandpolicyimplementationcanbe

significantlyshortenedasistheperiodbetweentheproblemrecognitionandthepolicy

proposal.Thisisoneofthefactorsthatcanleadtodifferencesbetweenthepolicyformed

duringacrisisandthatformedduringthesteadystate.

Certainpolicyareaslendthemselvestodifferentmethodsofenactingpolicy.

Foreignaffairsandmilitaryaffairsaretypicallydomainsinwhichthepresidenthasprimacy.

Whileboththepresidentandcongresshavesomeformalpowersintheseareas,typically

thepresidentlargelyguidesthecreationofpolicyinthesepolicyareas.Howeverevenin

theseareascongresshassomepowersandthoughthepresidenttypicallyisabletomove

firstinthisarena,congressoftenhasrecoursesavailableifitweretodecidethatit

disapprovedoftheagreementsthatthepresidenthassignedorthepolicythatheis

proposingthatthenationadopt.Economicpolicyisanareawherethepresidenttypically

haslessabilitytounilaterallysetpolicy,howeverhis/herabilitytodosoisbolsteredina

crisis.

Inadditiontothepresident’sroleincreatingpolicy,congressalsodelegates

considerablepowertoexecutiveagenciesandotherbodies.Whilecongressoftenplaces

constraintsontheseentitiestoensurethatthepolicythatisultimatelycreatediswithina

narrowrangeofalternativesthatareacceptabletocongress,thisstillallowspiecesofpublic

policytobedeterminedbythosetowhomthispowerisdelegated.Inacrisis,the

bureaucracycreatesandimplementspoliciesbasedoffofpowerthathadbeenauthorized

priortothecrisisandoftenreceivesadditionalpowerstodealwiththecrisis.Insome

instancesthesepowersmaybetemporary,butofteneventhesecanhaveaneffecton

alteringallowedactionsofthebureaucracyandcanaffecttheshapingoffutureeconomic

policy.

Thispaperwilllookatthemethodsofpolicycreationusedduringthefinancialcrisis

andthecausesforthosemethods.Italsolooksforgeneraltrendsregardingthestructureof

delegationduringthisperiodandthereasonsthatitwasused.

1.1Methodology

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Theanalysisconductedinthispapermakesseveralassumptions.Firstofall,

boundedrationalityisassumedinordertoinvestigatethewaypoliticalactorsandbodies

behaveandhowitaffectspublicpolicycreation.Inotherwordspoliticalactorscannot

knowalltherelevantfactsandoftenmustmakedecisionsinafast-pacedenvironmentwith

incompleteinformation.Theyarethuscapableofmakingmistakes.Thisisnottosaythat

theseactorsareirrational.Rather,thispapermakestheassumptionthateachactorhasa

payofffunctionthatmaybeshapedbymultiplemotivationsandthateachactorwill

attempttomaximizetheirpayofffunction.

Thisdissertationlooksatthecreationofeconomicpolicyduringacrisisoverthe7-

yearperiodspanningthestartofthehousingcrisisandendingwiththe4-yearanniversary

oftheDodd–FrankWallStreetReformandConsumerProtectionAct.Inotherwords,this

papercoverstheperiodfrom2007throughJuly2014.Thistimeframeshowsthecurrent

statusofpolicycreationandalsoincludesanumberofpoliticalsituationsandcorresponding

powerbalances.Italsoincludesdifferenteconomiccrisesincludingtheburstingofthe

housingbubble,thefollowingrecession,andanumberofrelatedissuesandatallsegments

ofacrisis:leadup,identification,initialresponse,deepening,plateau,improvement,

resolution,andaftermath.Bybubblethepaperreferstoalargeandlong-lastingdeviation

ofthepriceofsomeasset-suchasastock,bond,orahouse-fromitsfundamentalvalue.9

Therewereseveralcrisesthatoccurredsince2000.Bytheterm“crises”thispaper

referstoexternaleventsthatcombineimmediacy,severedownsiderisk,andpublic

salience.Typicallytheseareexogenouseventsthatarenotexpected.Usingthisdefinition,

therewereanumberofcrisesduringthisperiod.Thelistsofcrisesduringthisperiod

includethetechbust,aseriesofcorporateaccountingscandals,theDeepwaterHorizonoil

spill,theoilcrisisfromthemid-2000s,theCaliforniaElectricityCrisis,HurricaneKatrina,the

responsestothe9/11terrorattacksandthewarsinIraqandAfghanistan,California

electricitycrisis,thewarinAfghanistan,thewarinIraq,escalatingworldfoodprices,the

HousingCrisis,andtheFinancialCrisis.Thispaperfocusesonthehousingandfinancial

crisisbecausethepopulacewasseverelyadverselyaffectedbythiscrisisanditwasviewed

bymostofthenationsasbeingathreattothemandashavingimmediacy.Thecrisisthis

9Blinder,AlanS.AftertheMusicStopped:TheFinancialCrisis,theResponse,andtheWorkAhead.PenguinPress.2013.

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paperwillinvestigatewasselectedbecauseitarguablyaccountsforsomeofthemost

importantlegislationmadesincethestartofthemillenniumandthuscanshowhowpolicy

iscreatedinthisdayandage.Also,becauseofitsimportance,itiscomprisedofmuchmore

thanasinglepolicydecision,butratherisshapedbyahostofdifferentactionsandthus

givesusmoredataandcomplexitytoinvestigate.

Bynatureoftheirpublicvisibilityandthethreattheyentail,criseswillgenerallyelicit

aresponsefromgovernmenttoeitherforestallthedeleteriouseffectsofthecrisisorat

leasttobeseenbythepublicastakingactionandworkingfortheirconstituentsbydealing

withthecrisis.Thusthisistypicallyatimewhenthegovernmentwillattempttoenact

significantpublicpolicychangesandtheregenerallyisgreaterwillingnessonthepartofthe

publicandgovernmentalinstitutionstoacceptlargerinitiativesthanwouldbethecase

otherwise.Whenconfrontedwithacrisis,thegovernmentmustdecidehowtorespondto

thecrisisandwhatpolicyshouldgetimplementedaspartofthisresponse.Crisisafterall

comesfromtheGreekwordkrisismeaning'decision'.Thistendencytomadesignificantand

oftendrasticpolicychangeswhenconfrontedwithcriesmakesthisanimportantareato

investigate.

Toinvestigatethequestionsposedbythispaper,thispapermakesuseofcommon

theoriesandresearchonsuchtopicsaspoliticalmotivations,crises,anddelegation.This

dissertationinvestigateswherepublicpolicyoriginatesfromandthewayitisstructuredby

lookingatactionsduringtheperiodstudiedandbylookingatadetailedcasestudy.Thiswill

helpthispapertodeterminethevalidityoftheassertionthatthelegislativebranchisbut

oneofmanyactorsenactingpublicpolicyandtheroleofdifferentavenuesofpolicy

creationinresponsetoacrisis.Furthermorethispaperwillusethosemethodsto

determinehowthispublicpolicyisdeterminedbyinstitutionalandenvironmentalvariables

andhowinturninturnwilldeterminethecontentofthepublicpolicy.Thecasestudy

includedfocusesonthecreationofamajorpieceorpiecesofeconomicpublicpolicyand

providesavantagepointintothestepstakentocreatethepolicy.Italsoinvestigatesthe

rolesofvariouspoliticalactorsinitthepolicycreationprocess.Thesemajorpiecesofpolicy

areparticularlypertinentandareworthyofstudybecausetheyhavehadsignificantsecond

andthirdordereffectsontheactionsoftheUnitedStatesandthelivesofitscitizensand

alsoformthedefaultpatternforfuturegovernmentactionwhenfacedwithsimilarstimuli.

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Toinvestigatetheeffectofcrisis,thispaperwillassumeadefaultcaseinwhich

congresscreatespolicywithoutacrisis.Itthenlookstoseewhattheresultwouldbeinthis

default,statusquocaseandfromthatitwilltrytoascertainanychangesinthecausesor

neteffectsonpolicythatoccurdototheexistenceofacrisis

Themethodsbywhichpolicyiscreatedchangeovertimeandsomescholarshave

claimedthatinthecurrentdayandagetherehasbeenashiftinwhocreatespolicyinthat

theexecutivebranchissaidtohaveanincreasingroleinthisdomain.10Bylookingindepth

attheactionsofpoliticalplayers,theseassertionswillbetestedwiththeempiricaldatain

theseexamplestodeterminetheextentoftheroleduringacrisis.Thepaperalso

investigateshowvariouspolicytoolsfitintoapolitician’stoolboxandhowtheyinteractto

eachotherduringacrisis.

Whilethispaperisfocusedonsuccessfulpolicychanges,itisimportanttonotethat

othermajorattemptstochangepolicyhavebeenlesssuccessful.Thefailuretoenactnew

policycanprovideinsightintothepolicymakingprocessandtheavenuesforpolicy

creation.

Theperiodthatwasselectedtostudywas2007-2014.Thisspanoftimeisalong

enoughperiodthatinformationcanbegainedbyinvestigatingit,butisfocusedenoughto

allowthestudytodeterminethedetailsofthecurrentprocessesofpublicpolicycreation.

Thispaperintendstodoanempiricalanalysistoseeifthedataduringthisperiodare

consistentwithhypothesesputforwardbyresearchersinthefield.Thispaperlargelyusesa

casestudytoinvestigatethesefactsasopposedtomoreofastatisticalmethodsuchasthat

employedbyShull11orEpsteinandO’Halloran12asthisseemstoglossovermuchofthe

detailsandcomplexity.

Thereisacomplexinterplayofforcesthatshapethemethodbywhichpolicyis

createdandthepolicycreationitselfdependsonnumerouspoliticalactors.Thereare

10Golden2000;Nathan198311Shull,StevenA.PolicybyOtherMeans.TexasA&MUniversityPress,2006.

12Epstein,DavidandSharynO’Halloran.DelegatingPowers:ATransactionCostPoliticsApproachtoPolicyMakingunderSeparatePowers.CambridgeUniversityPress,1999.

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numberofvariablesthatdeterminetheactionsofeconomicactorsandthemethodthey

choosetocreatepolicy.Therearealsoenvironmentalissuessuchaswhetherthereisa

crisisornotthatcanalterbehaviorsofpoliticalactorsandthusalterpolicyproducedin

termsofscaleaswellascontent.Inaddition,therearealsoinstitutionalandstructural

variablessuchaswhetherthecongressandpresidencyarebothheldbythesameparty.

Finally,therearealsopersonalvariablessuchasthepresident’sADAscoreandtendencyto

actunilaterally.Thisdissertationdoesnotuseeitheracongress-centricorpresident-centric

frameworktodelveintothenuances,butratherattemptstolookattheeventsand

causalitythatcreatedpolicy.Theactualactionsthatledtotheformationofpolicydepend

onanumberoffactorsandcannotbeadequatesummarizedwithasimplerframework.

Thatbeingsaid,thisanalysiscanprovidegeneralinformationthatcanbeusedtoinvestigate

thistopicandcanserveresearcherswhowishtoexploreitfurther.

Aspartofthisassessmentprocess,thisresearchwillattempttoascertainifthereisa

patternthatdescribesthemethodsthroughwhichpolicyiscreated.Inparticularinlooking

atacasestudythispaperseekstodeterminewhetheritwascongress,thepresident,the

executivebranch,orsomecomplexinterrelationamongstthesethatledtothe

establishmentofpublicpolicy.Publicpolicyisoneofthemainoutputsofgovernmentand

soonecangainabroadsenseastogovernment’sfunctioningbyitshandlingofthiskey

governmentalcapability.Thespecificsofpublicpolicyanditseffectsrelylargelyonwho

createsthepolicyandthemannerthatwasusedtocreateit.Thusonewouldexpectthe

institutionalframeworkaswellaspowerbalancesbetweenthevariouspoliticalactorsto

haveaneffectontheresultantpolicytheycreate.

Therearedifferencesinthemethodsusedtocreatepublicpolicybetweenthe

currentperiodandpasterasofgovernmentasshownbyrecentstudiesstatingforinstance

thatdelegationisalotmorecommontodaythanitwasinthepast.13Inaddition,thereisan

increaseinpartisanshipthatshouldbothaffectthewaythatpolicyiscreatedaswellasthe

wayitisstructured.Whilepartisanshipandbattlesbetweenthepresidentandthecongress

13Marshall,WilliamP.“ElevenReasonsWhyPresidentialPowerInevitablyExpandsandWhyItMatters”BostonUniversityLawReviewVol88,Number2:505-522.2008.

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havealonghistoryitisgenerallyacknowledgetohaveincreasedoverthelastfewdecades

andthishasledtodifficultypassinglaws.

Therehavebeenmajorstructuralchangesovertheyearsthathavealteredthe

institutionsandthepoliticalenvironmentandthusthepolicycreationofthecurrentera

differssignificantlyfromthoseinsaythe1960s.Amongthesechangeshavebeenchanges

inpowerbetweenthepresidentandcongress,thetendencyintheHousetosendabillto

multiplecommittees,therulingthatlegislativevetoesareunconstitutional,theDemocrats

losingtheirstrangleholdontheHouseofRepresentatives,andthemoveawayfrom

centralizedcontroloftheHouseofRepresentatives.

Whileeachofthesemayseemlikearelativelysmallchange,whencombinedthey

haveamajoreffectwhichleadstotheconclusionthatpolicycreationfromthe1960swas

significantlydifferentfromhowitisnow.Inaddition,therearecountlessotherfactorsthat

aredifferentaboutthisperiod,suchasanall-timelowinvetoes,whichmayhaveasofyet

unknowneffectsonpolicycreationandthusalsomakethisperiodunique.Thus,sincethe

frameworkinwhichpolicyiscreatedissotransitory,thispaperfocusesonasmalltime

periodtogetasnapshotofpolicycreationasitcurrentlystands.Whiletheperiodissmallit

isrelativelyrepresentativeintermsofgovernmentalcontrol.Itincludesaperiodwitha

DemocrataspresidentandaperiodwithaRepublicanaspresident.Furthermore,this

periodincludesperiodsinwhichonepartycontrolsboththepresidencyandthecongress,

thoseinwhichcongressandthepresidencyarecontrolledbyoppositeparties,andthosein

whichcongressitselfwassplitsothatonepartycontrolledonehousewhiletheotherparty

controlledtheotherhouse.

Thefirststeptoanalyzingthecreationofpolicyduringacrisisistodeterminewhat

methodsareusedinwhichsituationsandwhyitistheyareusedinthosesituations.The

choiceofamethodtocreatepolicyisapoliticalactthatdirectlyaffectspolicyandsoitmust

beanalyzedassuch.Assuchonemaylooktowhatdeterminesthispoliticalactiontakenby

variousmembersofgovernment.

Delegationisoneofthekeymethodsofcreatingpolicyandshouldbeinvestigatedto

seeinwhatsituationsitisusedratherthandirectlegislation.Onemethodonecanuseto

analyzetheactofdelegationistousetheTruthinLegislationStatementpositedby

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Schoenbrod.14Whileheusesthesehypotheticalstatementsasawaytothinkaboutcurbing

whatheseesasrampantdelegation,thesectionswherehebreaksouttherequired

informationthatcongresswouldneedtosupplyforeachbillunderhishypotheticalTruthin

LegislationActmatchtheinformationthatwe’dwanttoanalyzetheindividualactsof

delegation.Helaysoutthefollowingarticleregardingeachpieceofdelegation:eachissue

thatthebilldelegates;theextenttowhichthebilldoesanddoesnotgiveguidanceonhow

thedelegationshouldbeimplanted;whyCongressdecidednottomakethelawitself;the

kindsofblamethatthedelegationmightshiftfromlegislatorstotheagency;theresources

andtimeneededtocarryoutthedelegationincomparisonwiththeresourcesandtime

providedinthebillandcurrentappropriations;theextenttowhichlegislatorsmay

interveneintheimplementationofthedelegation;andthepersonaladvantagethatcould

accruetolegislatorsfromsuchintervention.Asimilaranalysiscanalsobedonefor

unilateralexecutiveaction.

ThefocusonresourceswasincludedinSchoenbrod’slistascongress’lackoftimeto

handleissuesisacommonreasongivenforwhycongressdelegates.Schoenbrodalso

focusedonitduetoaconcernaboutunfundedmandatesinwhichcongresscanpass

politicalcostsontoothers,butgetcreditfordoingagooddeed.Amongtheexamplesof

thishedescribesisthemandatebythefederalgovernmentthatschoolsandthelocal

governmentsthatfundthemtocleanupasbestos.Thelocalgovernmentsarenotallowed

todecideatwhatpointitmadesensetorequireasbestosremovalortoweighthecostsand

benefitsofactions.Insteadcongressgotcreditforprotectingthesafetyofschoolchildren,

butthecosts,botheconomicandpolitical,werebornebythelocalgovernments.Lookingat

thissecondpointcantellusaboutwhatcongressistryingtoaccomplishwiththis

delegation.

Theanalysisofthechoiceofpolicycreationmethodisfocusedlargelyonthefactors

listedbySchoenbrod.Thispaperdoesthisbylookingatthecharacteristicsofthepolicy

creationmethodandmakingsuppositionsaboutthemotivationsofpoliticalactorsbasedoff

theirvotes,words,politicalpower,etc.

14Schoenbrod,David.PowerWithoutResponsibility:HowCongressAbusesthePeopleThroughDelegation.YaleUniversityPress,2008.Page172.

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Whendelegationisusedtocreatepolicyonecanlookatrelatedfactorsaswellsuch

aswhoisdelegatedtoo,theconstraintsusedinthedelegation,andthescopeofthe

delegation.Thesecangettotheheartofsomeofthequestionsabove,butcanalsogivea

viewastowhattheresultofthedelegationwillbeandhowthedelegationchangedthe

ultimateresultingpolicyinsteadofifcongresshaddirectlycreatedalaw.Similaranalysis

willprovehelpfulwhenevaluatingtheuseofunilateralexecutiveactioninpolicycreation

whichinmanyinstancescanbeviewedasatypeofdelegationandoftencomesaboutdue

toabroaddelegationofpowertotheexecutivebranch.

Thereareothertypesofcrisessuchasmilitaryconflict,terrorism,environmental,

political,andlawandorder.However,thispaperinvestigateseconomiccrisesbecausethey

arearelativelycommontypeofcrisisandoneinwhichcongresshastheabilitytoaddress

directlyordelegate.Furthermoreitisanareainwhichcongresshasprimacyoverthe

presidentasopposedtomilitaryandinternationalaffairsinwhichcaseinpracticeifnotin

theory.Duringacrisis,powertendstoshiftfromthecongresstothepresident,butasthis

isacaseinwhichcongresswouldtypicallystartwithsignificantpower,thisallowsfor

congresstocontinuetoplayarole.Thepresidentisviewedbymostcitizensastheproper

initiatorofmajoractionsandheactsinaccordancewiththisperception.

1.2TheoreticalFramework

Rationalchoiceinstitutionalismlaysoutoneoftheframeworksthatthispaperuses

toevaluatetheactionsofcongressandotherpoliticalactorssuchasthepresidentand

executiveagencies.Thisframeworkinvestigatestheinterrelationbetweentheinstitutions

ofthefederalgovernment.Itviewspoliticalactorsasbeingrationalandbeingutility-

maximizershoweveritpresupposesconstraintsandboundariesuponactionsbasedoffof

factorssuchasthestructureoftheinstitutionalframework.

Rationalchoiceinstitutionalismcontainsconceptsofprincipal-agenttheory.Italso

makestheassumptionthatpoliticalactorslookateachproblemrationally.Thestrict

interpretationofthisassumptioncanbequestionedintherealworld,butingeneralcanbe

13

takenasarulethatcansimplifytheanalysiswhilestillexplainingmuchofthebehaviorsof

thosemakingpoliticaldecisions.

Thepolicychoicesthatthenationcanmakeatanygiventimearenotinfinite.The

possibilitiesarecircumscribedbyanumberoffactorssuchasthepublicsentimentabouta

topic,theopinionsofthoseinoffice,thelimitsofactionaffordedtoinstitutionsthatcraft

thelegislation,socialandlegalnorms.Thusnotallpoliciespreferredbythoseinvolvedin

creatingpolicycanbeachievedundercircumstances.Amongthosepoliciesthatare

unattainablearesomebeneficialpoliciesthatprovidehigherutilitytothenationandthe

politiciansthanthepoliciesthatareultimatelyenacted.Inadditioninstitutions,suchas

congress,areinfluencedbyotherinstitutionsandentities.Theinstitutionsareboundby

limitsoftheirpower,theprocedurestheyuse,theirconstituentmembermakeup,andthe

institutionalhistory.

Besidestheselimitations,policycreationfacesanumberofrealworldcircumstances

suchasuncertaintyaboutthecurrenteconomicandpoliticalstatethatshapethepolicy.

Therewillalsobeuncertainlyabouteconomictheoryaswellashumanactions.Those

creatingpolicycannotknowtheresultsoftheirpolicyorhowthepolicywillultimatelybe

viewedbyvoters.Thefullrangeofeffectswillnotbeknowngoinginandunintended

consequencesarealmostassured.Forinstance,duringtheeconomiccrisisfrom2008to

2009therewasa21%increaseinthenumberofapplicationsfordisabilityastherewas

moreeconomicincentivetogoondisability.15Typically50%ofthosethatapplyfor

disabilityaregranteddisabilityand99%ofthoseapprovedfordisabilitypaymentsnevergo

backtoworkdespitethefactthattheaverageageofnewrecipientsisonly49.16Thusthere

canbesecondordereffectsthatcanaffectthenationfordecades.

Furthermoreasinallpoliticalprocessesanumberofindividualsoftenwithdifferent

goalsandworkingatcross-purposeshaveahandinshapingtheresultingpolicy.Thiscan

leadtoinefficientorpoorlydesignedlegislationorevenlegislationthathaswithinit

provisionsthatundermineitself.Theconflictinggoalsoftheindividualsthatshapepolicy

15Hargreaves,Steve.“DisabilityClaimsSkyrocket:Here’sWhy”CNN.4/11/2013.

16Fletcher,MichaelA.“DisabilityclaimsrisingsharplyatSocialSecurity.”WashingtonPost.September14,2010.

14

canalsolimitthesizeandscopeoftheactionthatcanbetaken.Insuchanenvironment,

politicalactorsdotheirbesttomaximizetheirutilitybymakingapproximationsofthe

resultingeffectsoflegislationandtryingtochangethepoliticallandscapeandthepolicy

decisionsinquestiontoachievearesultthatbestmatchestheirdesiredendswhile

minimizingrisk.Thecreationofpolicyisgreatlycomplicatedbythisfactthatpartieshave

incompleteknowledgeandtheyhavetomakeestimatesastolikelyoutcomesandtherisks.

Thestrategicinteractionoftheseactorsthroughacomplexprocessshapesandcreatesthe

policythatisproduced.

Policyiscreatedatmanylevelsofgovernmentandbymanyinstitutions.Congressis

typicallyseenasthepreeminentpolicymakingentityinAmericaduetothelegislative

powersthatareuniquelygiventoitbytheU.S.Constitution.However,thereareavast

numberofentitiesthatactuallycreatepublicpolicyintheUnitedStateswithcongressbeing

butoneofthese.Thisabilityofotherinstitutionstocreatepolicyisinlargepartduetothe

vastquantityofpolicymakingpowerthatcongresshasdelegated.Muchofthispowerwas

delegatedtoexecutiveagenciesthatcomprisemuchofthegovernmentalbureaucracy.

Similarly,theheadsoftheseagenciesaredelegatedagreatdealofpoweraswell.Members

ofthecabinetandotheragencyheadsoftencangeneratepolicyandlawwithoutthedirect

actionofcongressorthepresidentandthushavethepowertounilaterallymakepolicy

decisionsthatcanaffectthenationandthosethatliveinit.Thepresidentalsohasbeen

delegatedsignificantpowersandduetohisuniqueroleastheheadoftheexecutivebranch

heisabletohaveamajoreffectonpolicy.17Hisabilitytoaffectpolicyisevengreaterina

crisisinwhichhis/heruniquenesscausespeopletolooktohimtoprovideleadershipand

guidance.Thushegetsfirstmoveradvantageincraftingsolutionstothepolicyandhas

significantpoliticalbackingandpublicsupporttoenactchanges.Healsoisoftengiven

emergencypowersfarinexcessofthetoolshetypicallyemploystocreatepolicy.

Thepubliccanmostreadilybeswayedbythepresidentashehasauniqueroleand

heisfarbetterknownthanothermembersofthegovernment.Mostindividualsdonot

evenknowthemembersofcongressthatrepresentthemanddonotattentivelylistenfor

17Marshall.2008.

15

messagesemanatingfromcongress.18Peoplehavehigherexpectationsforthepresident

andexpecthimtoperformactionsandfixproblemsthatthecountryfaceseveninareasin

whichthepresident’sformalpowersareslight.Amessagefromthepresidentincreases

salienceandimprovesthelikelihoodthatthingswillgothewaythepresidentwants.

People’sexpectationsofthepresidentoftenrequirethatheneedstotakeactionsto

addresstheseexpectationswhethertheactionstakenhavemuchvalueornot.Highgas

pricesaffectthepresident’sratingsthoughhehaslittlecontroloverthemandmovesthat

wouldbetakenwouldbeshort-sitedandpoliticallymotivated.Gaspricesriseannuallyin

thesummerduetoincreaseusagehoweverthepresidentisstillconsideredresponsibleby

manyforit.

Issuesthataffectpeople’slivesdirectlysuchasthepriceofgasorthe

unemploymentratehaveanoutsizedeffectontheopinionsofvotersandaretypicallya

greaterimpetusforchangethanissuesthatdonotdirectlyaffectthem.Economiccrises

haveamajoreffectonvotersandthusleadtoacalltoaction.However,itisnotonlythese

personaleffectsthatcanaffectvoters.Peoplechangetheiropinionsandvotingpreferences

andthusthepressuretheyputoncongressbasedoffofboththeirpersonaleconomic

interestsaswellassociotropicreasons.Aneconomiccrisishasbothpersonaland

sociotropicsalienceandsothemessageofthepresidentwaslikelytobeheard.Thesameis

trueofthethreatofterrorism.

Arnoldarguedthatthepoliticsofexpliciteconomicpolicy,policyproposedinan

efforttoimprovetheeconomy,differedfromthepolicyofderivativeeconomictheory,

policywithmacroeconomiceffectsthatisproposedforotherreasons.19Forderivative

economictheory,hestatesthatpolicymakersfocusmoreonthenoneconomiccomponents

ofthepolicythanforexpliciteconomicpolicy.Thisisinlargepartduetoconsiderationsof

howtheirconstituencieswilljudgethepolicyandthefactorsthatwilldetermineifapolicy

isbroadlysupported

182000SocialCapitalCommunityBenchmarkSurvey.http://thearda.com/Archive/Files/Downloads/SCCBS_DL2.asp19Arnold,R.Douglas.TheLogicofCongressionalAction.YaleUniversityPress,1992.151.

16

1.3TheoriesaboutDelegation

Thispaperlooksatthegovernmentalresponsestothefiscalcrisisandattemptsto

seehowwelltheoriesofdelegationmatchwiththegovernmentalactionthatwastaken

duringthisperiodtodealwiththefinancialcrisis.Thispaperinvestigatesbelowsomeofthe

morecommontheoriesofdelegation.Therehavebeenanumberofinvestigationsintothe

tendencyofcongresstodelegate.TheserangefromKiewietandMcCubbins20theoretical

frameworktoEpsteinandO’Halloran’sstatisticalapproach.21Manyoftheseanalysesrely

onaprincipal-agenttheoryframeworktomakeconclusionsaboutmotivationsandeffects

ofdelegations.Mostframeworkssoughttousetheorytodeterminethemotivationsof

congressindelegatingtotheexecutivebranch.Thesehavetypicallyvieweddelegationin

oneoftwoways.Eithertheyseedelegationasapositivedevelopmentinwhichcongress

usesaninnovativepoliticaltooltoenactbetterpolicythatbenefitsfromtheexpertise,time

andattention,andadepoliticizedenvironmentthatcongresswouldstruggletosupply.

ThosesuchasKiewietandMcCubbinsareinthispositivecamp.Therearehoweverthose

thatviewcongress’actionsindelegatingasfundamentallynegativeandstemmingfroman

aversiontomaketoughpolicydecisions.Thisavoidancehypothesissaysthatdelegationby

congressisfundamentallyjustacrasspoliticalwaytogetreelectedandthatitstemsfrom

anunwillingnessonthepartofpoliticianstomakeunpopularpoliticalpositionsorthose

thatmayeventuallycausepoliticalharmevenwhenintheinterestsofthenation.

Onetheoryofdelegationisthatlawmakersdelegatebecauseitispoliticallyusefulto

them.Fromthistheoryitfollowsthatlookingasthepersonaladvantagethatwouldaccrue

tolawmakerscanhelpdetermineactionsthatpoliticalactorswilltakesincethesemaybe

majormotivatorsforthedelegationandcanalsoshapehowthedelegationisstructured.22

Similarly,byinvestigatingtheblameshiftingorcredit-takingenabledbythedelegationone

canlearnabouttheactofdelegationitself.

20Kiewiet,D.RoderickandMathewD.McCubbins.1991.21Epstein,DavidandSharynO’Halloran.1999.

22Campbell,ColtonC.“CreatinganAngel:CongressionalDelegationtoAdHocCommissions”.Congress&thePresidency.Vol.25,Iss.2.1998.

17

Thistendencytodelegationdoesnotneedtobealinearoronedirectional

movementandsomeindividualsarguethatdelegationmayoccurinresponsetoashort-

termimpetus,butthatsubsequentlycongresswillregressthedelegationandwilltryto

“nibbleback”someoftheauthoritythatitdelegated.23

1.3.1 Abdication Hypothesis

Theabdicationhypothesisofdelegationarguesthatthetrendtowardsincreasing

amountsofdelegationhascomeaboutprimarilyduetomembersofcongresswishingto

avoidhavingtomakeunpopulardecisions.Thishypothesisalsostatesthatdelegationleads

toexcessivecentralizationofpowerintheexecutivebranchandtoatoointrusive

government.

Theconstitution’sframersenvisionedalegislaturecomposedofnumerous

individualsasposinglessofthreatoftyrannythantheaccumulationofpowerbythe

presidentwhocouldgainakinglikeroleifhisauthoritywasunchecked.Asimilarviewon

therisksofpoweraccumulationtendstoleadtoquestiontheextensiveuseofdelegation

thatcurrentlyoccurs.Thevasttransferofpowertotheexecutivebranchhasalreadyin

someeyes,suchasDavidSchoenbrod,beguntoposeathreattoliberty.Thedecreasein

thepublicopinionofthecongressrelativetothepresidentinrecentdecadeshoweverdoes

littletofortifycongressasapolicycreatingbodywhenjuxtaposedagainstamorepopular

president.Partofthisperceptioncomesfromthebeliefthatcongressisnotdoingthejobit

wassenttoWashingtontodo.Thisviewisalsorepresentedamongsomeacademicsthat

studydelegationandfeelthatitdisplaysthis.Lowiarguedthatcongressabdicatedit

responsibilityforcreatingpublicpolicybyessentiallygivingthatresponsibilitytounelected

bureaucrats.24

Whiletherehavebeendifferingviewsondelegation,onewidelyacceptedfactisthat

delegationhasleddirectlytotheincreaseinthebureaucracy.Some,suchasSchoenbrod,

23Farrier,Jasmine.CongressionalAmbivalence:ThePoliticalBurdensofConstitutionalAuthority.UniversityPressofKentucky,2010.24Lowi,TheodoreJ.TheEndofLiberalism:TheSecondRepublicoftheUnitedStates.NewYork,NY:W.W.NortonandCo.1979.

18

arguethatthisincreaseinthesizeofthegovernmentinturnhasledtopeoplefeelingtoa

greaterextentthattheirlivesarebeingrunbynamelessbureaucratswhoareunelectedand

unanswerabletothepeople.Thelogicalconclusionisthatthishashelpedfeed

dissatisfactionintheUnitedStateswiththequalityofthegovernmentandinparticularthe

roleplayedbythecongress.

Thosewhoseedelegationprimarilyasaploytohelpgetmembersofcongress

elected,suchasDavidSchoenbrod,tendtohaveanegativeviewofboththecausesand

effectsofdelegation.Thiscampbelievesthatbydelegatingawaythetoughdecisionsthat

congressisabdicatingtheirresponsibilityandismerelyparticipatinginissueavoidanceout

ofcowardiceandself-concern.FiorinaarguesthatDelegationcanshiftblamefrom

legislatorontotheagent.25Hethenwentontoarguethatthedecisiontodelegateisa

functionofthepoliticalcostsandbenefitsforwhichtheyhavebeenheldaccountable.This

matchesupwithstudiesthatshowthatduetotheuseofpoliticalheuristicsthatvotersuse

inselectingpoliticians,itisfarmoredamagingforapoliticiantobeblamedthanitisfor

themnottogetcredit.Despitethepotentialbenefitsofdelegation,workshavetriedto

showthattheactualmotivationtodelegatedoesnotappeartobeforthesakeofefficiency

gains.26Thusitisoftenpoliticallyagoodmovetodisassociateorobscurethe

congresspersonfromthepoliticallyriskygoalthatthecongresswishestoachieve.By

delegating,acommissioncanenablethisanditcanbeespeciallyvaluableifthe

congresspersoncaningoodfaithdenytheywereawareofthecommission’sactionsand

decisions.CongletonandSweesterrefertothisas,“Policymakingundertheveilof

ignorance”.27Thisenablesacongressmantotakecreditforamuchdesiredgood,butthey

donotgetblamedfortheinevitablecostsastheycansetupanagenttofigureouthowto

payforitanddelegatethatresponsibility.Fiorinaandothershavesurmisedthatdelegation

totheexecutivebranchislargelyanattempttoshiftpoliticalandothercosts.

25Fiorina,MorrisP.“LegislativeChoiceofRegulatoryForms:LegalProcessorAdministrativeProcess?”PublicChoice39(1):33.

26Aranson,PeterH.,ErnestGellhorn,andGlenO.Robinson.“TheoryofLegislativeDelegation”CornellLawReview68:1.1982.

27Congleton,RogerD.andWendellSweester.“PoliticalDeadlocksandDistributionalInformation:TheValueoftheVeil”PublicChoice.1992.73:1.

19

Itisarguedbythiscampthatdelegationleadstoalackoflegitimacyand

representativenessonthepartofthepolicymakers.Congresswaselectedtorepresentthe

peopleandthecedingofpowerbytheelectorateentailsacontractwiththosetheyelectfor

thosetoactontheirbehalf.Bycongressdelegatingpowertounelectedbureaucratswho

aretypicallyunknowntovotersandarenotchargedwithrepresentingthemorthedistricts

thattheycomprise,thiscontractisvoided.Inotherwordstherecipientsofthedelegated

powerdonothaveamandateandthisdelegationwouldnegateRousseau’sSocial

Contract.28SeymourMartinLipsetdiscussedtheideaoflegitimacybysayingthatit,

“involvesthecapacityofapoliticalsystemtoengenderandmaintainthebeliefthatexisting

politicalinstitutionsarethemostappropriateandproperonesforthesociety.”29Thepublic

perceptionoftheinstitutionsofdemocracyiserodedbydelegation.Thisdecreasesthe

legitimacyoftheseinstitutionsandthegovernmentingeneral.Thiscanbeseeninthose

thatwantsmallgovernmentandareopposedtotheincreaseinbureaucracy.TheTeaParty

movementinparticulararguedforasmallergovernmentandquestioneditslegitimacyand

representativeness.

Despitetheoccasionalpushbackagainstincreasingexecutivepower,congress

continuestodelegatenewpowerstotheexecutivebranch.Accordingtotheabdication

hypothesis,thereasonforthisincreaseindelegationbythecongressisthatindividual

lawmakersbelieveitisintheirinteresttodelegate.Thisisprimarilyfortworeasons:they

feelitwillhelpthemgetreelectedandtheyfeelitwillallowforbetterpublicpolicy.Of

thesetwomotivations,researchershavetendedtoconcludethattheformeroftheseisthe

onethathasthemostinfluenceuponthemindsoflawmakers.DavidMayhewforinstance

arguesthatreelectionistheprinciplegoalofcongress.30

UsingdelegationCongresscanappeartobeactingonthebehalfoftheirvoters.

Actingonconstituents’behalfandinterveningforthemwithexecutiveagenciescanbeone

ofthemostpoliticallybeneficialactionsacongresspersoncantakeandalongwithgarnering

votesisamajorsourceofcampaignfunding.Itcanalsoallowalawmakertotakecreditfor

28Rousseau,Jean-Jacques.TheSocialContract:&Discourses.No.660.JMDent&Sons,Limited,1920.29Lipset,SeymoreMartin.PoliticalMan:TheSocialBasesofPolitics.Doubleday.1960.P.64.

30Mayhew,DavidR.Congress:TheElectoralConnection.YaleUniversityPress.1974.

20

programswhiledisavowingresponsibilityforspendingoranyburdensoftheprogram.In

thewordsofJohnQuarles,formerEnvironmentalProtectionAgencydeputyadministrator,

delegatingtotheexecutivebranchis,"ahandysetofmirrors--sousefulinWashington--by

whichpoliticianscanappeartokissbothsidesoftheapple.''31

ThetropeoffatcatbureaucratsandinsidersinWashingtonjuxtaposedagainstthe

narrativeofdisaffected,unrepresentedoutsiderintrueAmericahaslongbeencommon.In

Americatherehasalsolongbeenanxietyaboutthepowerofthestate.Inthewordsof

KennethDyson,“TheAmericanliberaltraditionisprofoundlyindividualisticandanti-

bureaucratic;itbeginswithautonomousindividualandwithapopulistbeliefthatall

authorityemanatesfromthepeople.Adispersalofpublicpowerwasseenasnecessaryin

ordertomaintainthesupremacyofthepopularwillandtoprotecttheindividual.”32Its

centralpremisethatdecisionmakerscancreatelawsthatimpingeonpersonalfreedom

whilenotknowingorcaringaboutthosetheygovernresonatesespeciallystronglyinthe

caseofdelegationtoexecutiveagenciesandthosethatworkforthem.

TheproliferationofdelegationhasallowedformorerulesandregulationsDavid

Schoenbrod,statesthisandfurtherarguesthatdespitetheemergenceofthebureaucratic

state,thatdelegationisnotinevitableandthatwithoutdelegationfromthelegislativeto

theexecutivebranchthatgovernmentwouldbemorelegitimateandlessintrusiveandhe

statesthatwithoutthedelegation,“morewouldbedonethroughprivateordering,common

law,andstateandlocalrules."33OtherssuchasRichardPiercearguetheoppositeandgo

sofarastosaythatthenondelegationdoctrinenevertrulyexistedandthatitwasnot

necessary.34Likewise,JusticeBlackmunwhodeliveredthemajorityopinioninMistrettav.

UnitedStates35,wrotethat,“Associetyincreasesincomplexity,Congressmustdelegateits

job,“underbroadgeneraldirectives”.Thebroaddelegation,“issufficientlyspecificand

detailedtomeetconstitutionalrequirements.”Hefurtherstatedthat,“inourincreasingly

31Boaz,David.CatoHandbookforPolicyMakers:7thEdition.CatoInstitute.2009.Pg.86.32Dyson,Kenneth.TheStateTraditioninWesternEurope:TheStudyofanIdeaandInstitution.ECPRPress.1980.P.271.33Schoenbrod,David.The Federalist Society's Administrative Law and Regulation Practice Group's panel discussion at the 1998 National Lawyers Convention. 1998.34Pierce,Richard.The Federalist Society's Administrative Law and Regulation Practice Group's panel discussion at the 1998 National Lawyers Convention. 1998.35488U.S.361(1989)

21

complexsociety,repletewitheverchangingandmoretechnicalproblems,Congresssimply

cannotdoitsjobabsentanabilitytodelegatepowerunderbroadgeneraldirectives.”

JohnLockearguedthatalegislature,"cannottransferthepowerofmakinglawsto

anyotherhands,foritbeingbutadelegatedpowerfromthepeople,theywhohaveit

cannotpassitovertoothers....Andwhenthepeoplehavesaid,Wewillsubmittorules,

andbegovern'dbyLawsmadebysuchMen,andinsuchForms,noBodyelsecansayother

MenshallmakeLawsforthem;norcanthepeoplebeboundbyanyLawsbutsuchasare

Enactedbythose,whomtheyhaveChosen,andAuthorizedtomakeLawsforthem.The

poweroftheLegislativebeingderivedfromthePeoplebyapositivevoluntaryGrantand

Institution,canbenoother,thanwhatthepositiveGrantconveyed,whichbeingonlyto

makeLaws,andnottomakeLegislators,theLegislativecanhavenopowertotransfertheir

Authorityofmakinglaws,andplaceitinotherhands''.36

Inthe1989FederaldistrictcaseUnitedStatesv.Mills,JudgeRogerVinsonwrote,"A

delegationdoctrinewhichessentiallyallowsCongresstoabdicateitspowertodefinethe

elementsofacriminaloffense,infavorofanun-electedadministrativeagencysuchasthe

[Army]CorpsofEngineers,doesviolencetothistime-honoredprinciple....Deferentand

minimaljudicialreviewofCongress'transferofitscriminallawmakingfunctiontoother

bodies,inotherbranches,callsintoquestionthevitalityofthetripartitesystemestablished

byourConstitution.Italsocallsintoquestionthenexusthatmustexistbetweenthelawso

appliedandsimplelogicandcommonsense.Yetthatseemstobethestateofthelaw.''The

conceptthatdelegatedortransferredpowerscannotbefurtherdelegatedortransferredis

thelegalconceptofdelegatapotestasnonpotestdelegariwhichisastandardlegalconcept

intheUnitedStatesaswellasintheUnitedKingdomuponwhichmuchoftheU.S.legal

system,tradition,andhistoricexampleswerebased.Itwasexplicitlystatedinsuchcasesas

UnitedStatesv.Sav.Bank.37

Inaddition,priortotheNewDealtherewaslesscentralizationofpowerinthe

federalgovernment.JohnR.BoltonlargelyascribesthistendencytotheCommerceClause36Locke,John.TwoTreatisesofGovernment.CambridgeUniversityPress.1988[1689].SecondTreatise,Section141.

37104U.S.728(1881)

22

oftheU.S.Constitution38andtheTenthAmendmentoftheconstitutionwhichstates,“The

powersnotdelegatedtotheUnitedStatesbytheConstitution,norprohibitedbyittothe

States,arereservedtotheStatesrespectively,ortothepeople.”Togetherthesesectionsof

theconstitutionpreservepowersforthestatesthatarenotspecificallygiventothefederal

government.Thislackofpowerinthefederalgovernmentlimiteditsabilitytodelegate

powerasithadlesscontrolandneededlessofabureaucracytocontrolthings.However

overtimeboththecommerceclauseandtheTenthAmendmenthavecontinuedtobe

reinterpretedandthefederalgovernmenthasgainedmorepowerattheexpenseofthe

states.Thisshiftofpowertothefederalgovernmentconsistofanumberofothersmall

transfersofpowertothefederalgovernmentsuchastheSeventeenthamendmentwhich

allowedfordirectelectionofsenatorsbycitizensasopposedtohavingsenatorsselectedby

statelegislators.39Inaddition,italsocoincidedwiththeweakeningoftiesbetween

individualsandthestatetheylivein.Thiscentralizationofpowercanbeseeninvarious

newprovisionssuchasthefederalincometaxthatwaspermanentlyusheredinwiththe

SixteenthAmendmenttotheU.S.Constitution.

ThechangeintheinterpretationofthecommerceclausecanbeseeninWickardv.

Filburn40,inwhichtheU.S.SupremeCourtusedtheCommerceClausetosustainthe

AgriculturalAdjustmentActof193841andtheyruledthattheconstitutiongavethe

governmenttheabilitytoregulateagricultureeveninthiscasewherethecropsgrownwere

notforsale,butratherforinternalconsumption.InthewordsofJusticeRobertH.Jackson,

“evenifappellee'sactivitybelocalandthoughitmaynotberegardedascommerce,itmay

still,whateveritsnature,bereachedbyCongressifitexertsasubstantialeconomiceffect

oninterstatecommerceandthisirrespectiveofwhethersucheffectiswhatmightatsome

earliertimehavebeendefinedas'direct'or'indirect.'”Itwasn’tuntilUnitedStatesv.

AlfonsoLopez,Jr.42,thattheSupremeCourtruledthattherewasalimittocongress’power

toregulateactivityundertheCommerceClause.

38Article1Section8Clause3.39Bybee,JayS."UlyssesattheMast:Democracy,Federalism,andtheSirens'SongoftheSeventeenthAmendment".NorthwesternUniversityLawReview.91:505.1997.40317U.S.111(1942)41Pub.L.75-430.42514U.S.549(1995)

23

Delegationtendstoincreaselawsproducedandsomeviewthisasimpingingon

liberties.Theconstitutionwasdesignedsothatlawwouldbemadebythetwohousesof

congresswiththepresident’sinvolvementandthistherebywouldlimitthenumberoflaws

thatgetpassed.Thiswouldlimitthenumberoflawsenactedbecauseitrequiresmore

stepstobecompletedandmoreobstaclesovercomeinorderforalawtogetpassed.In

additionwithbillsneedingtopassbothhousesofcongressitmakeslegislation,especially

excessivelypartisanlegislation,muchmoredifficulttogetenacted.AsJamesMadisonsaid

inarguingforBicameralism,“Anotheradvantageaccruingfromthisingredientinthe

constitutionofthesenate,istheadditionalimpedimentitmustproveagainstimproperacts

oflegislation.”43

Amongthosewhothinkthatdelegationhelpsleadtotoomanyrestrictionsand

regulationsaretheCATOInstitute,alibertarianthinktankthatadvocatessmallgovernment,

andtheAmericanCivilLibertiesUnion,anadvocacygroupfocusedonprotectingindividual

rights.InitsHandbookforCongress,theCATOInstitutereferstotheseparationofpowers

asaBulwarkofFreedom.Whilethisalludestotheprotectionfromtyrannythata

separationofpowersensuresbylimitingtheabilityofanyonepoliticalactortoconsolidate

allpower,italsoreferstothepersonalfreedomssafeguardedbyhavingaweakernational

governmentsinceitislesscapableofactionduetocompetinginterestsandgridlock.Asit

saysinthehandbook,“Theupshotwasthattheseparationofpowerseffectivelyrestrained

federalpower”.44Thisconcernaboutexcesslawsisnotnewandhasbeenaround

throughoutthehistoryofAmerica.JamesMadisonwrote,“Thefacilityandexcessoflaw-

makingseemtobethediseasestowhichourgovernmentsaremostliable.”45Besides

personalliberties,thosethatholdthisviewalsoseedelegationasameanstoshiftpowerto

thefederalgovernmentthatshouldbelefttothestates.Thusevenwiththeincreasein

delegation,therearelingeringquestionsaboutboththelegalityandconstitutionalityof

delegationastoaboutthelackoflegitimacyandrepresentativenessengenderedby

delegation.Delegationhascertainlybecomecommonplaceandthenumberofregulations

createdeachyearisquitelarge.AccordingtotheU.S.GovernmentAccountabilityOffice,in

43TheFederalistPapers6244CatoInstitute.“DelegatingLegislativePowers.”CatoHandbookforPolicymakers105-4.45Madison,James.Federalist62.

24

thefourfiscalyearsfrom1996to1999,15,286regulationswerecreated.Thisfarexceeds

thenumberoflawsenactedduringthatperiod.

However,delegationdoesnotalwaysprovidesolutions.Thereisstillapolitical

dimensioninalladministrativeprocessesandpoorlydesignedcommissionscansufferfrom

someofthesameissues.Fisherhasshownthatdelegatingcanberiskyduetothefactthat

voluntarycooperationfromlegislatorsistypicallygivenforpoliticalnotlegalormoral

reasons.

Delegationlowerstheaccountabilityforlegislators.Theoristshavesuggestedthat

delegationdoesnotdestroytheprincipalofdemocracybecausevoterscanalwaysvoteout

membersofcongressiftheyareunhappywiththeactionsdonebyanagencythatwas

delegatedpower.Howeverinpracticethisisaverytenuouslink.Mostvotershaveonlya

basicawarenessofthevotesandpositionsoftheircongressionalrepresentativesandthey

donotknowiftheirrepresentativevotedtodelegatethepowerandtendnottoknow

abouttheprocessofthecreationofadministrativelaworeventherulesthathaverecently

beenpromulgatedbyagencies.Congressisabletousethistoavoidtoughdecisionsandifa

newlawgetsbadpublicity,thecongresspersoncanpretendtobeagainstitandfightingon

thesideofthepeopleagainsttheagencythatcreatedtherulesregardlessoftheiractual

viewpointsandroleintheagencyaction.Thisdelegationalsogoescontrarytotheidealof

congresstakingresponsibilityforlegislationandpolicy.

Furthermore,asSchoenbrodargues,congressfindsitintheirownintereststocreate

lawsiftheycandelegatesinceitallowsforthemtodocaseworkorperformcredittaking

whereasifthemarketorstatessettledtheissuethencongresswouldbeunabletoperform

thesefunctions.46Thisleadstomorefederalrules.

HealsosuggeststhatdelegationhelpsexacerbateotherissuesplaguingtheU.S.

democraticprocess.Forinstancehehashavesuggestedthathighratesofvoterapathyare

tiedtocongress’useofdelegation.Healsosuggeststhatthetendencytodelegate

decreasescongress’willingnesstocompromise.

46Schoenbrod.2008.Pg.19.

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Delegatingcanhelpalegislator’selectabilitybyallowingthelegislatortoavoid

takingpoliticaldecisionswhichwouldbeunpopularwiththeconstituencyintheirdistrict.It

canalsoallowthelegislatortoselectivelytakepositionsthatwouldhelpthempolitically

whileavoidingthosewhichwouldbedetrimentaltotheirreelectionchances.Selective

positiontakingcanhelpframeandcreateapolitician’snarrativeinanelectionandthereby

helpthempositionthemselvespoliticallytobemostlikelytobeapprovedofbythe

constituencyintheirdistrict.Italsoallowsforthelegislatortodocaseworkonbehalfof

thosetheyrepresent.

SchoenbrodfollowingtheworkofFiorinalaysoutahypothesisofhowresponsibility

shiftingaffectslegislationinwhichhehypothesizesthatlegislatorswilldelegateinsteadof

directlylegislate,“ifthepublicwouldperceivethenetbenefitsfromthebillthatdelegates

asgreaterthanthosefromthebillthatdoesnotdelegate.”47Hebuildsthisfromanaxiom

thatlawmakerswillvoteforabillwhenitwillappeargoodtoconstituentsasopposedto

anysortofmeritofthebillinandofitself.Thispessimisticviewisnotfullyborneoutby

empiricalevidenceastherehavebeennumerousoccasionswherelegislatorshavevotedfor

abillthatitiswellknownwillnotbepopularandwillhurtthempolitically.Anexampleof

thisistheTARPActwhichwasuniformlyunpopularwithvoters,butwhichnevertheless

endeduppassingduetothenation’sneedforthelegislation.

Schoenbrodexplicatesfurtherbystatingthanamemberofcongresswillbemore

likelytousedelegationifitwillshiftblameawayfromthemorwouldstillallowcreditto

accruetothem.48Heusesthisresulttosaythatmembersofcongresswillactdifferently

thaniftheoptionofdelegationhadnotbeenthere.49

Delegationalsoallowscongresstoclaimthebenefitsoftheactionwhiletheblame

oftenisplacedontheagencythatmustformulatethedetailsoftherules.Anexampleof

thisiscongresswhichin2001inresponsetoterrorthreatspassedtheAviationand

TransportationSecurityActandwasabletoclaimthattheyweremakingflyingsaferand

protectingpeople.Theagencycreatedbythisacttocreateandenforcerules,The

TransportationsSafetyAdministration(TSA)bycomparisonwasgiventheunpopularjobof

takingtheinvasivestepstoensurethissafetyandtheyhavebeenvilifiedfortheiractions.

47Schoenbrod.90.48Schoenbrod.91.49Schoenbrod.92.

26

Thesplitbetweenblameandpraiseforagenciesandcongressisparticularlytruefor

concentratedinterests.

Thequestionarisesofwhetherthedelegationofpowergoesagainstthenotionof

livinginademocracy,ifthosewhoaredelegatedtocansooftengoagainstthewishesof

ourelectedrepresentativeswhoentrustedthemtomakedecisions.Ifinsteadofour

representativesmakingdecisions,self-interestedbureaucratsmakedecisionsthenthelink

tothepeopleislost.Thesamecriticismholdtrueofspecialinterests,whichtendtobe

morepartisanintheirviews,effectivelymakingthesedecisionsthroughtheircaptureofan

agency.

AccordingtoArnold,Congresstendstopreferconcentratedbenefitsanddiffuse

costswhilecitizenstypicallypreferdiffusebenefits.50Thisprovidesanotherimpetusto

delegatepower.Aslegislators’policypreferencesaremisalignedwiththoseofvoters,

delegationcanhelpthemachievetheirendswithoutthisbeingvisibletovoterswhowould

oftennotapprove.Delegationcanalsoallowmembersofcongresstogetcreditforbenefits

ofaprogramandblametheagencyforthecosts.Itcanalsohelpwithcreditclaimingas

wellasblameavoidance.Tryingtoinsulatecongresses’decisionsandpolicyfrompolitical

considerationscanattimesleadtobetterpolicyandinthesesituationsdelegationcanbe

viewedasatoolthatcanimprovepolicyoutcomes.

1.3.2 Political Tool Hypothesis

Thepoliticaltoolhypothesisviewsdelegationmorepositively.Ratherthan

delegationbeingcausedbycongress’unwillingnesstomakeunpopulardecisions,this

hypothesisviewsdelegationasbeingtheresultofcongresschoosingatooltocreatebetter

policyandresultsthanitcouldnotachievebyactingdirectly.

Bydelegating,congresscanleadtoalesspoliticalandpoliticizeddecision.Congress

isfearfulofalarmsorpublicoutcrybeingraisedandthuswilltrytominimizetheriskofthis.

However,therearetimeswhencongress’endsoranalysisofasituationislikelytovaryfrom

50Arnold,R.Douglas.TheLogicofCongressionalAction.YaleUniversityPress,1992.

27

thoseofnewsoutletsorthepublicandwhichthusmaygiverisetojustsuchalarmsor

outcry.Bydelegating,congresscanavoidthepressuretodeviatefromapolicycourse.

Delegationcanleadtocommitmenttoagoalorcourseofaction,suchasbudget

reduction,withoutrequiringdiscussionoftheproblematicandcontroversialdetailsthatcan

leadtogridlock.Thiscanallowforproblemresolutiontobebrokendownintotwodiscrete

steps.Thedecisiontoaddresstheissueandthemeansbywiththeissueisaddressed.This

canbindcongresstoasolutioncreatedbytheagent.Thisprecommittmentisvery

importantandismorecommonplacethanisexpected.Onecanthinkoftheconstitutionas

aformofprecommittmentthatlimitsthepotentialcoursesofactionforfuturecongresses

sincetheyhavelessfreedomofactionthaniftheconstitutionwasinplace.However,this

wasdoneforapurposetoensurethatfutureleadersofgovernmentwouldfollowcourseof

actionthatweredeemedacceptableactionswhentheconstitutionwaswritteninorderto

ensuretheactionsofcongressdonotfocusonlyontheshorttermexigenciesoftheday,

butkeepwiththesemoreimportantgoalsthatareenshrinedinlaw–inthiscaseinthe

formoftheconstitution.Precommitmentcanbeseeninthedeficitreductiondebatesin

whicheachsideagreedthatacertainamountofspendingcutsneededtobeenacted

thoughtheycouldnotdecideonthespecificsofthecutsandagreedtohaveacommittee

ironoutthosedetails.Itthusseparatedoutthedecisionofcuttingspendingfromthe

difficultanddeeplypoliticizedquestionofwhatspendingtocut.

Precommitmentisusedinmanyforms.EventheConstitutioncanbeviewedasa

formofprecommitmentinthatitlimitstheabilityofcongresstopasslawsthatitwouldbe

abletootherwise.Itgivesprimacytopredetermined,keyprincipalsratherthancurrentday

expediencyandneedsoreventhewillofthemajority.Itwasessentiallyabequestfrom

onebodyinpowertoafuturegroupoflawmakersmuchasitisastraitjacket.Thefuture

congressiseffectivelyanagentofthecurrentcongress.Precommittmentcanencourage

publicdiscussiontoavoidheedlesslyrushingintoreactionaryaction.Precommittment

limitstheactionsofcongressandthusiseffectivelyself-incapacitation.Itcanbeusedasa

signalingmechanisminwhichtheeffectivelylimitthepayofftableandthusifthe

announcementiscredibleitcanaltertheactionsoftheotherside.Likewiseifthey

announcethattheywillpunishtheothersideandpayatit-for-tatresponseiftheotherside

doesnotcoordinate.ThiscanhelpleadtoaNashequilibriumandcoordination.

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Precommitmentisoftenusedtoaffecttheactionsofothers,butcanalsobeusedtoensure

anentity’sactionsareconsistentwiththeircurrentintentionsmuchasamanthatissober

mayensurethatwhenheisdrunkthathedoesnotdrivehomethoughwhenheisdrunkhe

maybetemptedtodrive.Apoliticalactorcanstrategicallyburnbridgestoenforcetheir

courseofaction.Institutionsandcontractscanalsocommitanactororbothactorsto

ensureabetterendresult.Anotherfactorinthissolutioniscredibilitythatcanbebuilt

basedoffoftheoptionsanactorhasandtheircredibilitywhichisbasedontheirpast

actionsandwhethertheyaccordwiththeirwords.

ThosewhoviewdelegationinamorepositivelightsuchasKiewietandMcCubbins

viewdelegationasausefulpoliticaltoolthatcanallowpolicytobeenactedthatotherwise

wouldnotbeviableifcreateddirectlybycongress.Congresscansufferfromgridlock,

excessivepoliticization,alackofexpertiseonrelevantissuesareas,alackoftimeliness,an

excessiveworkload,andinconsistentpolicy.AberbachandRockmanhavestatedthat

delegationallowsforoffloadingofexcessiveamountsofcongressionalworktoa

commissionthathastimetothoroughlyinvestigateissuesandwhichunlikecongresshas

thenecessaryskillstohandletechnicalpolicyissuesthatarenotavailableincongressat

large.51Bydelegating,congresscanmitigatesomeofthesestructuralproblems.Executive

agenciesandadhoccommitteescanbesetuptobenon-partisanandlesspoliticized.

AnexampleofthisistheDefenseBaseClosureandRealignment(BRAC)Commission

whichwassetupin1988todealwiththeover-politicizedtopicofdefensebaseclosures.

FordecadesbeforetheBRACCommissionfewbaseswereclosed,butthefiveBRACrounds

wereabletoclosehundredsofbasesoverthelast25years.PriortoBRAC,lawmakersfor

politicalreasonswouldjealouslyguardbasesintheirdistrictasasourceofjobsandasakey

economicbenefittothedistrict.Whilethereweremorebasesthanneeded,theextra

moneysavedbyclosingabasewouldbesharedbyalltaxpayerswhilethepoliticalcostofa

basestayingopenwouldonlyaccruetothecongressmaninthatdistrict.Thisdescribesthe

classicsituationinwhichtherewasapublicgood,inthiscasetheprudentpolicyofclosing

anunneededbase,wasundersupplied.Socialchoicetheoryalsopredictsthisresult.By

settinguptheBRACcommission,anadhoccommittee,congresscouldremovethisblockto51Aberbach,JoelD.andBertRockman.“ImageIVRevisited:ExecutiveandPoliticalRoles”Governance.Vol1,Iss.1.Pages1-25.1988.

29

baseclosuresandprovideabettersolution.Analysesbyresearchershaveshownthat

delegatingtoBRACobscuresthecausalchainofCongressionalactionsinthebaseclosure

processtherebymakingitsothatnomembercouldbedirectlyblamedforthenegative

effectsinthecommunity.Theprocessevenallowstheaffectedcongressionaldistricts’

representativestoessentiallyappearas“champions”fortheirregionfightingalosingfight

tokeepabaseopen.52Whilelawmakersandthosetheyrepresentwantefficient

governmentthatdoesnotwasteresourcethisresultcannotbeachievedbythecongress.

Thiswasoneexampleofhowdelegationcanhelpsolvecollectiveactionproblemsthatthe

congressisunabletohandleaswellasgeneralpoliticalissues.Iftherewasapolicy

productionfrontierofpotentialpolicythatcanbeachievedbycongressandanother

showingpotentialpoliciesproducedbyacommission,youcouldseethepolicyproduction

frontierhasbeenshiftedandisclosertothecombinedutilityfunctionofthepopulace.

OtherssuchasMaxWeberalsosawpositivesinBureaucracy.53Theyarguethat

governmentbybureaucracyfixesdefectsinherentinothertypesofgovernmentandisa

moreefficienttypeofadministrationthatotheroptionsasitallowsforspecializationand

hasatendencytowardsmeritocracy.Thiswouldargueformoredelegation.

Inaddition,outsourcingtheirworkloadtothelargebureaucracyallowsforatimelier

andresponsivepolicyandcanallowforsubjectmatterexpertstoplayalargerrolein

shapingpolicyaboutcomplexortechnicalsubjects.Alsobyremovingthedecisionmaking

fromcongress’shandsithelpsassurethatpolicyisconsistentovertimeandallowscredible

commitmentstobemadetothoseaffectedbypolicy.SupremeCourtJusticeBlackmun

wroteaboutMistrettav.U.S.54,"Ourjurisprudencehasbeendrivenbyapractical

understandingthatinourincreasinglycomplexsociety,repletewitheverchangingand

moretechnicalproblems,Congresssimplycannotdoitsjobabsentanabilitytodelegate

powerunderbroadgeneraldirectives.''

Delegationnotonlyallowsforexpertise,butalsoencouragesit.Thoseinagencies

tendtobemoreinterestedandknowmoreaboutanareathanthoseinotheragencies.In

52Mayer,KennethR.“ClosingMilitaryBases(Finally):SolvingCollectiveDilemmasthroughDelegation,”LegislativeStudiesQuarterly20(3):393-413.1995.53Weber,Max.WirtschaftundGesellschaft.Tübingen,J.C.B.Mohr(P.Siebeck).1925.54488US361(1989)

30

addition,repeatedexposureandfamiliaritywiththekeysubjectmattergivesthempractical

realworldexperiencethatwouldbedifficultforcongresstogainandwhichenablesagency

staffstoprovidebetterjudgmentwithregardtoareasinthesubjectmatter.Thereisalso

theimportantfactthatagenciesdotheirhiringknowingtheareastheywillberesponsible

forandthefunctionsthattheywillneedtofulfill.Thisenablesthemtospecificallyhire

thosewhocanfillareasinwhichtheyneedspecializedknowledge.Furthermoreasthe

requirementsoftheagencychangeorthefieldofknowledgechanges,theagencycanadapt

theirhiringtoaccountforthesechangesandtherebycontinuetohavethenecessary

skillsetstoaddressthepolicyareasdelegatedtothem.

Delegationcanhaveasignificantimpactwithregardtoproducingeffectivepublic

policyandtheefficientallocationofscarceresources.Theparametersusedtodetermine

themethodofdelegationhaveabigeffectontheresultingpolicycreatedandthus

determiningwhichmethodofdelegationtousewhenhasamajoreffect.Thereforeanalysis

ofthesecanhelpanswerquestionssuchaswhetheritisbeneficialtorequirecommissions

tojustifytheirdecisionusingrecognizablestandardsofutilityorwhetherstrictmembership

controlsshouldbedevisedtominimizepoliticalinfluence.

Delegationtoagenciesalsocansimplifytheprocessofperformingsometasks.

Agenciescanperformsimple,informalactionswithlessoverheadthancancongressand

thusmaybeabletoaccomplishgoalsmoreefficiently.Insomecasestheseinformal

methodsmayserveinlieuofgeneralpolicyorregulation.Agenciesarealsoableto

interpretthelawandcandothisinsuchawayastosimplifythecreationofpolicyandits

promulgationinsociety.Bureaucratsalsocandifferfromcongressinpersonality.For

instance,bureaucratstendtoberiskadverse.Alsotheymayhavedifferentvaluessuchasa

focusonequityasopposedtojustefficiency.Insomesituationsthiscanhelpimprovethe

resultingpoliciesthattheymake.

Thepoliticaltoolhypothesisstatesthattherearereasonsfortheuseofdelegation

andreasonstoviewitasabeneficialdevelopment.InthewordsofLowi,“Itisofcourse

impossibletoimagineamodernstateinwhichcentralauthoritiesdonotdelegatefunctions,

responsibilities,andpowerstoadministrators.Thusthepracticeofdelegationitselfcan

hardlybecriticized.Thepracticebecomespathological,andcriticizable,atthepointwhere

31

itcomestobeconsideredagoodthinginitself,flowingtoadministratorswithoutguides,

checks,andsafeguards.”55Delegationhasmanyfacetsandmaybeinterpretedasapositive

oranegativephenomenonbasedontheuser’sviewpoint.

Delegationcanalsobeleveragedasastrategicgestureinordertogainpolitical

supportfromrivalmembersofcongress.Forexample,membersofcongressonpowerful

steeringcommitteesmayusedelegationtogainacceptancefromothermembersof

congressbyagreeingtodelegatetoanotionallynonpartisanagencyorboard.Thismay

occuriftheybelievethattheissuewillbehandledfairlyorinotherwordsfavorably,bya

nonpartisanbodyorifthiswillcausetheirhomologuesincongresstobemorewillingto

compromiseoncontroversialissues.Successfulreconciliationviadelegationcanleadto

logrollsinwhichmanymembersofcongressagreetoanapproachtoanissuetoremoveit

fromtheirplate.Thisprocesscreatesawin-winsituationformembersofcongressasthey

areabletoconvinceotherswhohavelessatstaketocompromiseandforgestrong

coalitionsthatcanwithstandtherigorsofthelegislativedraftingandapprovalprocess.

Delegationallowsfortheoffloadingofcongress’excessiveworkloadtoagenciesso

thatissuescangetthetimeandattentionthattheydeserve.Membersofcongressspend

moretimesolicitingcontributionsandtakingotheractionsinordertogetreelectedthanin

actuallegislatingandsothetimetheyhavetoanalyzeandpasslegislationisevenmore

limitedandthusoffloadingworkloadmakesmoresense.56

Theoriesofdelegationoftensupposedelegationisusedtomovepolicymakingto

thosewithexpertise,howeverevenagenciesthatareconsideredexpertsinafieldarestill

oftenlackingkeyknowledgethatwouldhelpdetermineapolicyresponse.

Institutionalfactorssuchastheshapeandsizeofvotingdistrictscanaffectthe

resultingelectionandthusthepoliciescreated.Delegationmovesawayfromarelianceon

electoralmajoritiesandcanremovefactorssuchasdistrictmakeupfromthedecisionof

whatpolicytoenact.

55Lowi.93-94.56Campbell.2001.

32

AsArnesonargues,Democracyisnotinandofitselfagoodthing.Ratheritproduces

goodoutcomes.57Followinguponthisthewaytojudgethenormativeeffectofmass

delegationoflegislativepowertotheexecutivebranchistojudgetheresultingstructureby

itsfruits.Thereisnothingintrinsicallywrongwithbureaucracyandtheresultsthatit

producesreliesheavilyonthestructureofthedelegationandthemanninginwhichitis

carriedoutandperformed.Thusthelegitimacyorvalueofdelegationdependsonthese

factorsaswell.

Delegationcansolvesomeofthestructuralproblemsthatcongresshasin

addressingissuesandincreatingpolicy.Forinstancecongresstendstohaveashort-term

temporalfocusastheirtimehorizonistypicallyfocusedsquarelyonthenextelectionandin

thecaseoftheHouseofRepresentativesthisisatmosttwoyearsinthefutureandnota

decentgoalpostwithwhichtocraftpolicy.Bydelegatingdecisionstoanimpartialand

theoreticallynon-partisanbodysuchasacommission,congressisabletogivethedecision

toabodythatismoredeliberativeandhaslessinherentneedtofocusontheshortterm

politicalimplications,butwhichcanratherfindapolicysolutionthatisbetterforthenation

overthelongterm.

Delegationcanbeusedtoconvincepeopletosignontoaspecificgoalwithoutgoing

intotheparticularsorthemeans.Thisisausefulmethodforgettingthingsdone.Examples

ofcaseswherethismethodisusedaretheDefenseBaseClosureandRealignment

CommissionandtheJointSelectCommitteeonDeficitReduction(Supercommittee)charged

withcuttinglong-termspending.CongressmanJamesFlorioexplainedthistechnique,“with

allthecontentiousness,withalltheoutsideforces…oneconsciouslystrivesforambiguityin

ordertogetpeopletosignontothings.”58Delegatingtocommissionssuchasthisalso

allowsnegotiationtobeconductedsecretlyinanunpoliticizedenvironment.Inthewords

ofCampbell,“Whendeliberationsareprivate,partiescanmakeofferswithoutbeing

denouncedeitherbytheiropponentsorbyaffectedgroups.Removingexternalcontact

57Arneson,RichardJ.“DemocracyisNotIntrinsicallyJust”JusticeandDemocracy.CambridgeUniversityPress.2004.

58Bass,Janet.“CongressisaFrustratingPlace.”Lodi-NewsSentinel.Nov28,1989.4.

33

reducestheopportunitytouseanofferfromtheothersidetocurryfavorwith

constituents.”59

Delegaioncanalsobeusedtominimizerisk.Congressdoesnotmerelywantto

maximizecreditandminimizeblame,butalsohasanincentivetominimizetheriskofa

“catastrophic”career-endingpieceoflegislation.Delegation,evenwhennotstrictlyprofit-

maximizingintermsofexpectedblame-creditvalue,canprotectasystematicadvantage

heldbyincumbentsandthusstillincreasetheirchanceofbeingreelected.

Theamountofconstraintanddelegationthusvaryinpartbasedontherelationship

betweenthecongressandtheexecutivebranch.AsAllenSchickwrites,“Wheremembers

arewillingtoentrustthefateoftheirpoliciestoadministrators,theyareapttolegislatein

broadterms.Thelawscanbebrief,withlittlebickeringamongmembersoverthedetails.

Notso,however,whenmembersareskepticalaboutwhetherexecutiveagencieswill

performaccordingtotheirexpectations.”60Thusinpoliticallycontentiousperiodssuchas

whenthereissplitcontrolofgovernmenttheretendstobemoreconstrainondelegated

power.Howevertheamountofdelegationwillnotnecessarilydecreaseasthereare

competingforcesatwork.Thelackoftrustbetweenthebrancheswilltendtowardless

authoritybeingdelegated,butthegridlockthatmayoccurinthetraditionallegislative

processmayleadtolegislatorsbeingmorewillingdelegatebecausetheyarenotableto

passlegislationthemselvesandtheywanttousedelegationasapoliticaltooltoaccomplish

theirpoliticalgoals.Duringmuchoftheperiodthispapercovers,therelationshipbetween

thepresidentandthecongresswaslargelyadversarial.

KiewietandMcCubbinsinvestigatedelegationfromaprincipal-agentframework.61

Thetreatthecongressastheprincipalandthebureaucracyastheagentandinvestigate

whatoccurs.Theyarguethatbureaucratshavegainedsignificantpowerthroughdelegation

andthatthishasbeenincreasing.Theyalsoarguethatlimitedoversightallowsthe

bureaucracytolargelyusethisdelegatedpowerasitseesfit.Furthermoretheyarguethat

thebureaucratshavesignificantcontrolovercongress.Theyhoweverlistwaysthatthe

delegationcanbestructuredoractionsthatcongresscantaketobettercontrolitsagents.

59Campbell,ColtonC.DischargingCongress:GovernmentbyCommission.GreenwoodPublishingGroup,2002.70.60Schick,Allen.“PoliticsthroughLaw:CongressionalLimitationsonExecutiveAction.”inAnthonyKinged.,BothEndsoftheAvenue.AEIPress.1983.168-6961KiewietandMcCubbins.1991.

34

Theincreaseindelegationofpowerwasnotinevitable.Therehavebeentrendsthat

havecontributedtotheincreaseandacceptanceofdelegation.Amongthesetrendsarethe

growthofthenationandthegrowthoftheexecutivebranch.Thedominanceofthe

executivebranchisbynomeansenshrinedinlawnorisitinevitable.Inpreviousperiods

thelegislativebranchhadbeendominant.Aquartercenturybeforehewaselectedto

publicoffice,politicalscholarandfuturepresidentWoodrowWilsonassertedthatCongress,

”hasenteredmoreandmoreintothedetailsofadministrationuntilithasvirtuallytaken

intoitsownhandsallthesubstantialpowersofgovernment.”62Wilsonandotherliberal

politiciansatoftheturnofthe20thcenturyhelpedtoreversethistrend.Theirfocuson

efficiencyandtheirbeliefthatgovernancecouldbemorescientificledtopowershiftingto

theexecutivebranch.Thistrendtowardsmoreexecutivepowerhasbeenexacerbatedby

actionstakenbythegovernmentduringcrisis.Duringthoseperiodspoweroftengets

centralizedorincreased,butthesechangescanpersistevenbeyondthescopeofthecrisis.

Congresshastakenstepstocountertheincreasingpoweroftheexecutivebranch.

Amongtheseactionswereaseriesofchangesdesignedtostrengthenandincreaseitsown

capabilities.Byincreasingtheproficiencyofcongress,itscommittees,andlegislative

agenciesitgivesitselftheabilitytoperformoversightofexecutiveagenciesandcreate

policy.ThelegislativebranchintheUnitedStatesisconsiderablylargerthaninmost

nations.ByfundingandstaffingtheCongressionalBudgetOffice,theCongressional

ResearchService,andtheGovernmentAccountabilityOffice,congressgreatlyincreasesits

capabilitiesanditcanthuscounterbalancetheabilitiesoftheexecutivebranch.

1.3.3 The Capacity of Politicians Affects the Amount of Delegation

HuberandShipanhypothesizethatcapacityofpoliticianstowritedetailedstatues

affectswhethertheydelegate.63Thiscanbebrokenintotwopieces.Oneisthatifthe

institutionalcapacityandresourcesareless,thatdelegationwillincrease.Theotheristhat

62Wilson,Woodrow.CongressionalGovernment.1885.63Huber,JohnD.,andCharlesR.Shipan.DeliberateDiscretion?:TheInstitutionalFoundationsofBureaucraticAutonomy.CambridgeUniversityPress.2002.

35

iftherequisiteexpertiseistobefoundincongresstodealwiththeissueareaefficiently,itis

lesslikelytodelegatethaniftheexperienceislacking.TheUnitedStatesCongresshas

significantinstitutionalresourcescomparedtootherlegislativebodiesaroundtheworld.

Howevercongressdoesnothavedeepknowledgeoffinancialmattersandneededexpertise

todealappropriatelywiththecrisis.Congresswashavingdifficultypassingbillsandthe

majorityofitstimeandenergywasdirectedtohealthcarereformandthatmeantthatthe

throughputandattentionthatcouldbededicatedtodealingwiththecrisiswaslimited.

1.3.4 More Authority will be Delegated to the Executive Branch in Informationally Intense Issue Areas

EpsteinandO’Halloraninvestigatedwhetherintenseissueareas,whichhavemore

politicaluncertaintyforpoliticians,leadtomoredelegationtotheexecutive.64Thethought

behindthishypothesisisthatpoliticianswouldnotwanttoriskmakinganactionthatwould

laterturnouttobeapoliticalliabilityandthisismorelikelyintheseissueareas.Politicians

tendtoberiskadverseandaremoreconcernedwithavoidingblamethantakingcreditas

theformercanhurtmorethanthelattercanhelp.Moealsoarguedthatpolitical

uncertaintyaffectedpolicyformation.65

1.3.5 Complex policy areas lead to more delegation

EpsteinandO’Halloranalsolookedintowhethermorediscretionwillbedelegatedto

theexecutiveincomplexwhenreportedbycommitteesininformationallyintensepolicy

jurisdictions.66Thiswouldseemintuitivesincemorecomplexissueareasrequirespecialized

knowledgebeyondthatwhichcongresshas.Financeandtheeconomicdecisionsinvolved

indealingwithacrisisarecomplexpolicyareas.

64Epstein,DavidandSharynO’Halloran.DelegatingPowers:ATransactionCostPoliticsApproachtoPolicyMakingunderSeparatePowers.CambridgeUniversityPress,1999.

65Moe,Terry.“ThePoliticsofBureaucraticStructure”inPrinciplesandPracticeofAmericanPolitics:ClassicandContemporaryReadings.5thEdition.CQPress.2012.Pg.332.66EpsteinandO’Halloran.1999.

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1.3.6 Where this Paper Fits in to the Literature

Thispaperseekstoinvestigatetheuseofdelegationinresponsetoafinancialcrisis.

Thispaperisthefirstindepthinvestigationoftheuseofdelegationincreatingpublicpolicy

inresponsetothe2008financialcrisis.Itisoneofthefewempiricalstudiestoinvestigate

thecommontheoriesofdelegationsuchastheabdicationhypothesisandtheonlyoneto

investigatethecreationofpolicyincrisissituations.Theunderstandingofthecreationof

policyduringandinresponsetocrisesisimportantbecausesignificantpolicychangesare

morepossibleduringtheseperiodsthantheyareinperiodswithoutcrises.Italsoisworth

investigatedactualpolicycreationtoseeifitmatchedupwiththeresultsthatwouldbe

expectedbyvarioustheories.

Thepaperalsoseekstoinvestigatethedifferentconstraintsusedandthewaythat

delegationisstructuredinresponsetothecrisis.Thespecificsofdelegationareimportant

forunderstandingthereasonforthedelegation,theprobableeffectsofthedelegation,and

whetherpolicycouldbecreatedtobemoreeffectiveandefficientandleadtobetter

results.

1.4ExistingFramework

Whilemuchofthispaperfocusedonspecificlawsandthedelegationthey

contained,theseactsdonottakeplaceinavacuum.Therewereinplacesomelawsthat

werefarrangingandaffectedtheamountordetailsofdelegationandwhichsetthepolitical

climateandstructuralframeworkforfuturedelegation.Oneofthemostimportantandfar

reachingofthesebillsisTheAdministrativeProcedureAct(APA).67TheAPAsetsouta

numberofrulesforexecutiveagenciesandthuseffectivelylimitsthepowerofthese

agenciesandtheexecutivebranch.Itconstrainsthepresidentandtheagencies’freedomof

actionandensuresthatactionsareinthedesireddirectionthatcongresswouldlikethemto

67Pub.L.79-404,60Stat.237

37

take.TheAPAcameaboutduringtheperiodofincreaseddelegationandpowertothe

executivebranchthatcametopasswithFranklinRoosevelt’sNewDealefforts.Thisledto

congressputtinginplacetheAPAasaframeworkfortheuseofthispowerthatcongress

hadstartedtodelegatetotheexecutivebranch.Thisviewthatthisnewconcentrationof

powersneedstobelimitedwasevensupportedbythepresident.Rooseveltfeltthat

creatingtheseagenciesandvestinginthempowersofdifferentbranchesofgovernment,

“threatenstodevelopafourthbranchofgovernmentforwhichthereisnosanctioninthe

Constitution."68Hethusproposedastudytodeterminethebestsetofadministrativerules

andprocedurestodealwiththatriskaswellastoensuregoodandefficientgovernanceon

thepartoftheseagencies.

ThoughtheAPAwasanactofcongress,thepresidenttoocanchangethedynamics

andframeworkinwhichpowerisdelegatedbycongress.In1939,thepresidentissued

ExecutiveOrder8248,whichcreatedtheExecutiveOfficeofthePresident.Italsogreatly

empoweredtheOfficeofManagementandBudget(OMB)andchangeditsfunctionswhich

ineffectgavethepresidentgreaterpoliticalpoweroverexecutiveagencies.Inestablishing

theOMB,thisexecutiveordercallsontheOMB,“Toconductresearchinthedevelopment

ofimprovedplansofadministrativemanagement,andtoadvisetheexecutivedepartments

andagenciesoftheGovernmentwithrespecttoimprovedadministrativeorganizationand

practice…ToaidthePresidenttobringaboutmoreefficientandeconomicalconductof

Governmentservice…ToassistthePresidentbyclearingandcoordinatingdepartmental

adviceonproposedlegislationandbymakingrecommendationsastoPresidentialactionon

legislativeenactments,inaccordancewithpastpractice…TokeepthePresidentinformedof

theprogressofactivitiesbyagenciesoftheGovernmentwithrespecttoworkproposed,

workactuallyinitiated,andworkcompleted,togetherwiththerelativetimingofwork

betweentheseveralagenciesoftheGovernment;alltotheendthattheworkprogramsof

theseveralagenciesoftheExecutivebranchoftheGovernmentmaybecoordinatedand

thatthemoniesappropriatedbytheCongressmaybeexpendedinthemosteconomical

mannerpossiblewiththeleastpossibleoverlappingandduplicationofeffort.”69This

68Roosevelt,FranklinD.“MessagetoCongressRecommendingReorganizationoftheExecutiveBranch”January12,1937.69ExecutiveOrder8248SectionII2.Subsectionsc,d,e,h

38

clearlyenablesthepresidenttodeterminethecourseofactionsbeingpursuedbythe

agenciesandtobetterguideandcontroltheseorganizations.

TheExecutiveOfficeofthePresidentissometimesviewedasworkingforthecurrent

presidentratherthanthepresidencyingeneral.Itisapoliticizedandpartisanbodythathas

accumulatedpowersthatusedtobelongtocongress.Itwasgiventheepowersdespitethe

factthattheExecutiveOfficeofthePresidentisnotasreadilyanswerabletocongressoras

controllablebyitasotheragenciesare.Thisbodyhasgrownsubstantiallysinceitsfounding

withtheReorganizationActof1939.70VeryfewmembersoftheExecutiveOfficeofthe

PresidenthavetobeconfirmedbytheSenateandeventheheadoftheorganization,the

president’sChiefofStaffdoesnotneedtobeconfirmed.ThisallowstheExecutiveOfficeof

thePresidentsignificantfreedomfromcongressandgivesthepresidentconsiderablesway

overtheoffice.

TheAPAhelpedsolvepotentialproblemsthatcouldoccurduetoinformation

asymmetryandhiddenactionsoractors.TheAPArequirestheagencyandotherpolitical

actorsposttotheirintentionsandgivecongressnoticeoftheirintendedactions.Thisgives

congressfirstmoveradvantageandallowsthemtogaininformationandevaluatethe

politicallandscapetobettercontroltheagencyanddeterminethepotentialpositivesand

negativesoftakinganactiononanissue.

AnotheractthatchangedtheunderlyingframeworkofdelegationisTheBudget&

AccountingProceduresActof1950whichPresidentHarryS.Trumandescribedinhissigning

statementas,"themostimportantlegislationenactedbytheCongressinthebudgetand

accountingfieldsincetheBudgetandAccountingAct,1921.”Whilethisactprimarily

createdrulesandstandardsastohoworganizationsdidtheirbudgetingandaccounting,it

byextensionincreasedfinancialcontroloftheseorganizations.Thishelpedthepresident’s

abilitytocontroltheseorganizationsandhelpedincreasetransparencyandchangedthe

operatingproceduresoftheseagencies.LaterinPresidentTruman’ssigningstatementit

statesthiswhenitsays,“ThebudgetprovisionswillenablethePresidenttopresentthe

financialprogramoftheGovernmentinsimplerandmoremeaningfulterms.Itwillprovide

thebasisforabetterevaluationofGovernmentprogramsandactivitiesintermsofwhere

70Pub.L.76-19.

39

thefundscomefrom,thepurposestowhichtheyaretobeapplied,andthecosts

involved.”71

Temporalbindingofcongresscanbeusefulforcongressasitcanensurethatcurrent

preferencesareenshrinedinfuturepolicypreferencesandcongresscanensurethatpolicies

areenactedthatallowforbetterpublicpolicy.Thiscanbestbeaccomplishedbydelegating

thepowertomakeandalterpolicytotheexecutivebranch.Ithasbeenshownthatinternal

delegationtocongressionalcommitteesandtheestablishmentofrulesisnotabletobind

futurecongressessinceifthewishesofcongresschange,thenewcongresscansimplyundo

orignorethestepstakenbypriorcongressestoconstraintheiractions.Examplesofthis

canbeseenintherepealofGramm–Rudman–HollingsBalancedBudgetAct,72whichhad

beencreatedtostopfuturecongressesfromexcessivedeficitspending.Ultimatelyafuture

congressdecidedthatitdidnotliketherestrictionsonspendingnordiditapproveofthe

sequesters,orautomaticspendingcuts,thatwereimplementedwhenthedeficitspending

exceededpredefinedlevels.Likewisetheempowermentofthehouseappropriations

committeetodefendthetreasuryfromclaimscomingfromothercongressionalcommittees

wasasignificantforceintrimmingspending,buteventuallycongressoverturnedthistrend

anddisempoweredthecommitteeandspendingincreasedasthenewcongresswanted.

MostU.S.Stateshavetheconceptofseparationofpowersandhavedistinct

branchesofstategovernmentwithseparatepowersvestedineachbranch.Mostalsohave

aconceptofdelegationandallowthedelegationofatleastsomepowerandauthorityfrom

thelegislativebranchtotheexecutivebranch.Statesenforcethedelegationdoctrinemore

strictlyandstatecourtsarefarmorelikelytostrikedowndelegationsofpowerfromthe

legislativebranchtotheexecutivebranch.

Atthefederallevel,delegationhaseffectivelybecomethelawoftheland,however

someSupremeCourtjustices,lawmakers,andlawscholarshaveseencontinuedvalueand

importanceinthenon-delegationdoctrine.ThisrangesfromJusticeRehnquist’sopinion

71Truman,HarryS.“StatementbythePresidentUponSigningtheBudgetandAccountingPowersAct.”FromPublicPapersofthePresidents:HarrySTruman1945-1953.September12,1950.72Pub.L.99-177

40

offeredinthecaseofAFL-CIOv.AmericanPetroleumInstitutetostatementsmadeby

JusticesThomasandScalia.73

Theprevalenceofdelegationhasnotbeenduetoachangeinthelegalviewofthe

constitutionsomuchasithasbeenduetothenecessitiesofalargergovernmentthatneeds

toperformmorefunctions,theresultsofalargernation,andthecomplexitiesofnewpolicy

areasandarapidlychangingworld.Thepragmaticneedsofgovernmenthaveledtoavast

increaseintheamountofpowerdelegatedtotheexecutivebranch.Despitetheseparation

ofpowers,thissortofdelegationfromonebranchtoanotherisnottotallyinoppositionto

theintentionsandviewsoftheframersoftheconstitution.Thiscanbeseenin#48ofThe

FederalistPaperswhereJamesMadisonarguedthatthebranchesofgovernmentshouldnot

becompletelyseparated,butshouldbeinterconnected.Theunderlyingpurposeofthe

separationofpowerswastoavoidexcessivecentralization,whichcouldleadtotyranny.If

delegationisnotathreatofexcessiveconcentrationsofpowerandtheappropriatechecks

andbalancesaremaintainedtoassurearepresentativegovernmentthatworksforthe

peoplethenthisthreatofdelegationisminor.Thisexplainsthefocusondelegationhaving

atintelligibilityprinciple.

Besidesthelegislativeframework,thereisalsoanexistingframeworkofpolitical

actorsandinstitutions.Congressionaldelegationisnotaunilateralaction.Evensetting

asidethetwohouses,competingpoliticalparties,anddifferingconstituenciesandlaw

makers,onemusttakethepresident’swishesintoeffect.Thepresidentholdsvetopower

overallbillsandjointresolutionsandthuscanwieldconsiderablepoweroverhowcongress

approachesaproblem.Heneednotdirectlyvetoalaw,butcanusethispoweralongwith

hisotherpowersincludinghisbeingthefaceofthegovernmenttobargainforhispreferred

solutionortrytogettractionforaviewthatheapprovesof.Furthermorewhenexecutive

orders,signingstatements,impoundment,andthepresident’scontroloverthe

administrationcomeintoplaycongresstypicallymakessomeefforttoaccommodatethe

wishesofthepresident.Thepresident’sinterestsdivergefromthoseofcongresswhenit

comestotheissueofdelegation.Thepresidentalsohasdifferentmotivatingfactorsandis

concernedaboutissuesbeyondjustre-election,particularlyifthepresidentisinhistheyare

intheirsecondtermandthuscannotrunagainduetothelimitonpresidentialtermsthatis

73448U.S.607(1980)

41

imposedbythe22ndConstitutionalAmendment.Thuswithdifferentmotivationsand

payoffsthepresidentwillhaveadifferentsetofpreferenceswithregardtodelegation

whichhewilltrytoimposeontheprocessbyusingthetollsinhispower.Apresidentmay

wanttheadditionalpowerandauthoritygrantedtotheadministrationthroughdelegation

toanexecutiveagency,howeverthereisthepotentialforanunpopularlawbeingcreated

byoneoftheseagenciesandthepresident,fairlyornot,takingblameforit.Thusthe

presidenttoowillbeconcernedwithmitigatingtheserisks.Aclearexampleofthiswas

PresidentGeorgeH.W.Bushwhoprohibitedexecutiveagenciesfromcreatingnewlaws

duringthe90-dayperiodprecedingthe1992elections.

WhilebothCongressandthePresidenthavesomegeneralpreferencesonthetopic

ofdelegation,muchisdeterminedbythesituationandbyexamininginwhatissuesthey

tendtodelegateandwhichtheydon’tonecanlearnmoreaboutthistendency.For

instance,theminimalamountoftaxauthoritythathasbeendelegatedhintsthatcongress

likestocontroltheabilitytocreatethelawsthatgoverntaxesastheseenablemembersof

congresstoaddtaxbreaksforpowerfulconstituentsthatmayprovegratefuland

reciprocateinsomemannerthatwillhelpinacongressionalreelection.Likewisethe

structureandmannerofthedelegationcanvaryterrificallyandwithcompetinginterests,

differinggroupswillpreferdifferingmethodsandstructuresofdelegation.Bystructuresof

delegationthispaperreferstotheconstraintsusedandthepartiestowhompoweris

delegatedandhowitisoverseenaswellashowmuchpowerisdelegatedandforwhat

purposes.

Alongwiththedifferingviewsofdelegationheldbythoseinthelegislativebranch

andthoseintheexecutive,thereisalsoadisparityofviewsbetweenthepoliticalparties.

Thepartieshavedifferingviewsofkeyissuessuchastheroleofgovernmentanditsproper

size.Thesehavebeenratherconsistentthoughtheyearsandthistoowilllikelyaffectthe

actofdelegation.Republicanshavetypicallybeenmoredisposedtowardssmaller

governmentandfewerregulationsthanhavetheDemocrats.Thismaymakethe

Republicanslesslikelytocreatenewagenciestodealwithpolicyissues.

Somehavevieweddelegationasanactioninwhichthemainquestionsofpolicythat

relyonjudgmentsregardingbroadpolicydecisions,morals,orthegoalsofthegovernment

arebeingdonebycongresswhilethepowerdelegatedaretospecializedexpertsor

technocratsthatactonthesebroadpolicyguidancewithtargetedactionsthatenactthese

42

maingoals.However,inpracticethisdoesnotappeartobethecase.Lawsthatrelyon

delegationarenotself-implementingbutratherrequiresignificantdiscretionofagenciesto

makedeterminationstothebestcourseofactionsandnotmerelydeterminationsoffacts.

Delegationcanbesetforthwithgoalsthatgiveguidanceonhowtobalance

prioritiessuchaswhentheFederalReserveBoardwasgivenresponsibilityto,“promote

effectivelythegoalsofmaximumemploymentandstableprices”.74Congresscouldhave

giventheFederalReserveasinglefocussuchaskeepinginflationincheck,butitchoseto

setforthtwocontrastinggoalsthattheFedcouldthenbalanceagainsteachother.Often

though,aspecificendgoalisgiventoanagencywhichisinsomecasesnotachievablewith

thepowerandresourcesassignedtotheagency.Thiscanleadtomembersofcongress

implyingtotheirconstituentsthatthereisaneffectivemethodofdealingwithanissuethat

isnotbeingproperlydealtwithandallowstheagencytotaketheblamefornotmeeting

goalsthatweresetforthforthem.Thishastheeffectofbreakingthelinkbetweencause

andeffectinpeople’smindssothattheylosesightofthetradeoffsinlegislationandbelieve

therearequickfixestobehasjustbyassigningtheproblemtosomeagency.Meanwhile

lawmakersgainbycastingblameasthisappearstothepublicasthelawmakers

championingthepeopleagainstthebureaucracyandcombattinggovernmentwasteand

inefficiency.Thiscanleadtoadeceptionofvotersthatmakesmakingtoughdecisionsand

facingthenation’sproblemsevenmoreofachallenge.Thiscanalsoleadtoself-deception

wherelawmakersunderestimatethecostsofdealingwithaproblemanddonottakeinto

accounttheaspectsoflawsthattheydonotsee.Schoenbrodsuggeststhatthishelped

exacerbatetheSavingsandLoanCrisis.75

Delegationcanhavecontrastingeffectsonthepublic’sviewofgovernment.Itcan

bothincreaseanddecreasethepublic’sperceptionoftheeffectivenessandresponsiveness

ofgovernment.Whileperceptionisnotparamountandcandifferwidelyfromtheactual

facts,itisanimportantcriterionindeterminingthevalidityofgovernment.Peoples’views

ofthedemocraticallyelectedcongressreflecttheirsenseofthegovernment.

Anincreaseinthenumberoflawscanleadtoasocalled“nannystate”andonein

whichgovernmentoverstepswhatitdoeswellandimpingesonotherareas.Government

canbeviewedasprovidingbenefitbyprovidingpublicgoodsandkeepingindividualsfrom

74FederalReserveAct.Pub.L.63-43.Section2A.75Schoenbrod.128.

43

hurtingeachother.Otherareasareperhapsnothandledwellbygovernmentandoftencan

consistofcongressdolingoutrewardstopoliticallyconnectedindividualsfromthosewith

lesspower.Thisbecomesrentseekingbehaviorandoftenincludestransfersthatare

inefficientorwhichwouldgenerallybeconsideredtobenotfair.

Thenegotiationstakeplacewithinacertainpoliticalframeworkandrespondtothe

structureofpowerbetweenvariouspoliticalplayers.ThestructureoftheHouse’srulesisan

importantfactorinthatitgivesthemajoritypartyintheHouseadditionalcapabilityto

controlthebodyandchangesthecapabilitiesandpolicypreferencesoftheHouseasa

whole.Thepartyinpowerchangestheserulestomeettheirshort-terminterestsrather

thanlong-termpartisaninterestortheneedsofthehouse.76Besidesrules,themajority

partyhascontroloverareassuchascommitteeassignmentsanddischargepetitionsand

thesetooalterthepoliticalplayingfieldinwhichnegotiationstakeplace.

Dividedgovernment,suchaswasthecaseintheseduringthecrisis,leadstolower

discretionforboththeexecutiveandcongressionalbranch.Delegationfromthelegislative

branchunderdividedgovernmentleadstothedelegationtoactorsthatarefartherfrom

executivepowerandarefreerandwithgreaterdiscretion.77

Delegatingpowertothosemoredistancefromexecutivepowerallowsthepowerto

bewieldedtoagreaterextentbythebureaucracy.Thegoalsofseniormembersatthe

agencydifferfromthoseofmembersofcongress.Theyarehappierwiththestatusquoin

termsofcultureandpoliticalcontinuitywhereascongresswantstoensureresponsiveness

andcontrol,whichwouldhelpthemgetvotes.Theheadsoftheagencieshavetheirown

agendathatcanbetoincreaseorsafeguardthepoweroftheirfiefdomandthuscancome

intoconflictwithcareerbureaucratsatagenciesaswellaswithcongress.Agencyheads

alsohaveamuchdifferenttimehorizonthancareeremployeessincepoliticalappointees

arenotaroundforverylongandhavegoalstheywanttoaccomplishinashorttime.

Agentsfortheirpartmaywanttogainmorepowertobetteraccomplishtheirown

goals.Thereareanumberofmethodsbywhichanagentmayaccomplishthis.Agentscan

76Binder,Sarah.“ThePartisanBasisofProceduralChoice:AllocatingParliamentaryRightsintheHouse,1789-1990.”AmericanPoliticalScienceReview.Vol.90,No.1(Mar.,1996),pp.8-20.77Epstein,DavidandSharynO’Halloran.DelegatingPowers:ATransactionCostPoliticsApproachtoPolicyMakingunderSeparatePowers.CambridgeUniversityPress.1999.

44

seektohideboththeirintentionsandtheiractionsfrommembersofcongress,the

president,andothersthatseektocontrolthem.Thiscanimprovetheagent’sfreedomof

action.Inaddition,thoseagentsthataresupposedtoworkindependentlycanformacartel

withotherexecutiveagenciesandthepresidentwhichcanhelpeachotherandkeeppower

awayfromcongresssothattheyareabletohavefreedomofaction.

Manyresearchershaveclaimedthatoverthelast100yearstherehasbeenbyin

largeanincreaseinthepowerofthepresident.Whiletheremaybeperiodsofreversion

suchaswhencongressasserteditspowersinthe1970sandattemptedtoplacecheckson

presidentialunilateralism,theseindividualswouldarguethat,“takenbyandlarge,the

historyofthePresidencyisahistoryofaggrandizement.”78OrinThomasCronin’smore

recentassessment,“foralmost150yearstheexecutivepowerofthepresidencyhassteadily

expanded”.79

Thetendencytodelegateisrelatedtoaconvergenceofinterestsandbeliefsonthe

partofthedelegatorofthepowerandthepersonorbodywhoisdelegatedto.Ogulfound

that,“Acongressmanofthepresident’spoliticalpartyislesslikelytobeconcernedwith

oversightthanamemberoftheoppositionparty.”80Thisisnottosaythatdelegation

removescongressfromhavinganyroleinpolicycreation,butittendstorelegatecongress

totheroleofperiodicoverseer,whichgivescongresslesspowerandisanareainwhich

congresscanstruggletomakeamark.

Governmentstypicallydealwithcrisesintwophases.Onedealswiththeimmediate

issueandtriestoputaBand-Aidonthesituationandtrytostaunchthebleeding.Itworks

tostopthecrisisfromgettingworseandtriestobegintoimprovethesituation.Thesecond

phasetriestotakestepstostopasimilarcrisisfromhappeninginthefutureandsolvingany

systematicweaknessesandgivingthegovernmenttheabilitytodealwithsimilarcrisesin

thefuture.Thesetwophasesarenotnecessarilysequentialintime.Thereisoftenalater

phasethattriestoundothetemporaryextremeactionsthatweretakentodealwiththe

crisis.Crisis,thoughtheymaybeseenfaroff,aretypicallyacuteinthatproblemsbuildfast

78Corwin,EdwardS.ThePresident,OfficeandPowers,1787–1957.NewYorkUniversityPress.1957.238.79Cronin,Thomas.InventingtheAmericanPresidency.Lawrence,KS:UniversityofKansasPress.1989.204.80Ogul,MorrisS.CongressOverseestheBureaucracy.UniversityofPittsburghPress.1976.19-22.

45

andthusthecrisismustbedealtwithquicklyandoftenwithlittleplanninginplacealready

onhowbesttoapproachtheproblem.

Crisesnecessitateanincreaseintheamountofactionneededinordertodealwith

thecrisisaswellasanincreaseinoperationaltempoandspeedatwhichpublicpolicymust

becreatedandgovernmentactionsmustbetakeninordertodealwiththecrisis.Thevery

natureofacrisisanditseffects,whichareoutofthenormalstreamofevents,openupthe

governmenttotakeextraordinaryactionsinresponsetorareandmajorevents.The

governmentthusincreasesthescopeandbreadthofactionsthatittakesandwilltakesteps

thatitwouldnottakeinlessdirecircumstances.Thisreadinessofthegovernmentto

increasetheusesofpolicyandtheareasinwhichitpertainsareconjoinedwithawillingness

andevenaneagernessofthepopulaceatlargetoincreasetheintensityandscopeofits

actions.Peopletypicallyclamorformoregovernmentinterventionandactioninthemidst

ofthecrisisandseethegovernmentasthebodyresponsibletoresolvethecrisiswhereasat

othertimes,thepopulacemaylookmoretoprivatecitizens,nonprofits,andthemarketto

addressissuesofeverydayconcern.Individualsarealsomoreunderstandingofactions

whichimpingeontheirindividualrightsorwhichadverselyaffectthemduringacrisis.They

willgivethegovernmentadditionalauthorities,aspeoplearewillingtomakeshort-term

sacrificesforlong-termstability.Thereisarallyroundtheflageffectinmanycrisesthatcan

silencethevoiceofdissentandallowforeasierpolicycreation.81Thereisalsomore

incentiveforthoseinthegovernmenttotakeactionasitisexpectedofthemandtheywill

beelectorallyrewardedfortakingactionandappearingtobeactivelyengagedinaddressing

thecrisis.

Delegationcanbeaneffectivemethodofdealingwithcrises,butcanalsohavesome

adverseorunintendedeffects.Oneoftheseeffectsisthatagenciescreatedtodealwitha

crisisorconcernmaycontinuepastthepointwheretheyareneededandbecomeencrusted

aspartofthebureaucracy.Alternativelytheactionsoftheagentmayovershootthetarget

andbeexcessivelyreactionarysothatitendsupbeingpoorlongtermpolicyandmayeven

leadtootherfurthercrises.Theexigenciesofthedaymaynothavemuchincommonwith

81James,PatrickandJohnR.Oneal.”TheInfluenceofDomesticandInternationalPoliticsonthePresident'sUseofForce.”JournalofConflictResolution.June1991vol.35no.2,pp307-332.

46

thesustainedneedsofthenation.Thisriskisincreasedduetothefactthatdelegation

allowsformorevigorousgovernmentalaction.

Toallowdelegationtoprovidebenefitswhiledecreasingthepotentialnegative

effectsofbroaddelegation,congressmuststructurethedelegationintelligentlyandmake

suretouseconstraintssuchassunsetprovisionsorlimitationsonpowertobestensurea

desiredresult.Theformandmannerofthedelegationcantellusagreatdealabout

congress’goalsandimplicitassumptions.Likewisethepoliticalprocessthatisusedto

producethedelegationcanalsoletusknowhowthedelegationisviewedandwhetherit

meetspoliticalends,ideologicalends,orisdesignedtoimprovethestateofthenationand

itsabilitytomeetthecrisis.Thepoliticalprocessthusalsoenablesustotesttheoriesof

delegationsuchastheabdicationhypothesis,whichstatesthattheprimaryreasonto

delegateistohelpindividualmembersofcongressachievetheirgoals,ofwhichbyfarthe

mostimportantformembersofcongressisreelection.

Economiccriseshaveaparticulardynamicthatothercrisessuchaspoliticalcrises

maynot.Citizensmayviewtheadministrationasresponsibleforeconomicproblemsandas

suchtheoppositionpartymaynotfinditintheirpoliticalinteresttohelptakeactionsto

stimulatetheeconomyorhelptheshort-termeconomicpicture,particularlyifanelectionis

approaching.Theoppositionwouldtendtojustifytheirinactionandoppositionforother

reasonssuchasideologicalreasonsorbyquestioningtheefficacyoftheproposedaction.

AnexampleofthisistheRepublicanpushforactionsthattheyarguedwerenecessaryfor

longtermfiscalresponsibility,butwhichwouldposearisktotheshorttermeconomic

turnaround.ThepartyincontroloftheWhiteHousebycomparisonwouldbenefitfrom

short-termmovesthatwouldimprovetheeconomyintheshorttermdespitetheirlong-

termcosts.Theythepresidentandtoalesserextenttheadministrationwilllobbyforthese

short-termgoals.

Economiccrisesdonotcompletelystopotherpolicyissuescomingup,butthemere

factoftherebeingacrisiscanlargelysettheagenda.Nobodywantstobeseenas

sidetrackingapotentialsolutionornotrespondingtotheneedsofthenationandthusthe

spaceforpolicycreationinotherareasissmall.Itneverfullyvanishesthoughasthenation

alwayshasmultiplecompetingprioritiesevenwhenfacedwithmassivecrises.Duringthe

47

GreatDepression,itemssuchastheIndianReorganizationActandthe21stConstitutional

Amendmentrepealingprohibitionwerepasseddespitethefactthattheywerenotdirectly

relatedtotheeconomiccrisisaffectingthenation.Likewise,duringthe2007financialcrisis

otherprioritiessuchasdealingwithterrorismcompetedwiththeeconomyforspaceonthe

legislativeandexecutiveagendas.Delegationcanhelpthegovernmentaddressmany

prioritiessimultaneously.

Theagentthatcongresschoosestoimplementitsplanspointstocongress’

intensionsanditsgoals.Theamountoffreedomofactiongrantedtoanagentis

symptomaticofwhethercongressfeelscomfortablewiththeagentandhowtheywantto

balancethetradeoffbetweencontroloftheagentandtheabilityoftheagenttoenact

quick,efficientchangeinamannerthatcanbesthandlespecificsandchangingsituations.

Criseschangetheactionsofpoliticalactors.Thedecisionsmadeduringcrisesare

morecriticalandtimesensitive.Theyarealsotypicallyhigherprofileandhavemoreofa

spotlightandadifferentmixofconstituentsconcernedwiththeactionsoflawmakers.

Ratherthanthetypicalpoliticalenvironmentwhenthosewhofollowtheactionsofcongress

areaselectfewpoliticalenthusiastandthosesuchaslobbyistsandpressuregroups

intimatelyintertwinedinthepoliticalprocess,crisesoftenraisetheawarenessoftheissue

inlargeswathsofthepopulace.Thisleadstoadditionalpressureonmembersofcongress

tobeseenactingontheissue.Thiscanleadtolawmakersneedingtobeseentakingsome

actionandoftenleadtothepoliticalneedtoembracepopulismratherthatrationaldecision

makingorembracingeliteopinionsandwiththeshortenedtimeframeitlimitsrational

decisionmakingasalltheinformation.Italsomuddiescalculationsofpoliticalexpediency,

asnewstakeholder’sopinionsneedtobetakenintoaccount.Thesenewpressureson

decision-makingcanleadtodelegationbeingagoodoptiontoensuresensiblepolicy

makingundertheseconditionsthatarenotnecessarilyconducivetogoodpublicpolicy.

Delegationcanhelpinthisregardbyallowingmembersofcongressandthe

presidenttopubliclyspeakandsupportpopulistpointsofviewandpasslawsthatseemto

enactthepopularmeasuresquicklyduringthecrisis,buttocrafttheformofthebilltoallow

checkstobeputintoplacetoensurethattheproperamountofinformationiscollected

beforeactionismade,andthatthedecisionismadebythosewithexpertiseintheareas,to

48

ensurethatrash,shorttermmeasuresarenottakenthatwillcauseotherproblemsorlead

topoorlongtermeffects.Oftendelegationsaredesignedtolookacertainwaythatis

politicallyusefulwhilebeingdesignedtogiveminimalrealpower.Proceduralmethods

takenbythecongressandthepresidenttofurtherweakentheseactsoftensecretly.

ExamplessuchastheCleanAirActallowedpoliticianstotakeapositionthatwouldhelp

thempoliticallywhilenotrequiringthemtoactuallytotaketheactionstheyespouseand

oftentoforestallthesebytheirpretenseofaction.82Asstated,thereisevenmorecausefor

politicianstodosoduringacrisis.

Afiscalcrisisisdistinctfromothercrisesinsofarasthereareuniquepressuresat

playandtheviewsofindividualsarequitestrongandpolarizedonfinancialissuesastheir

livesaretypicallyquiteimpactedbythegovernment’sfiscaldecisionsandtheeconomic

stateofthecountry.Furthermoretherearesignificantdifferencesofbeliefsonwhatare

appropriategoalsforthecountrywithregardtofinancialpolicy.Republicansand

Democratshavedifferentpartyplanksanddifferentpopulationsfromwhichtheygettheir

support.Theythushavedifferentpoliticalaimswithregardtofinancesandthismeansthat

thoughtheybothwillworktogethertoavertandmitigatefinancialcrises,thepreferred

mannerandmethodofactionsaswellastheendstatetheyendeavortoachieve.Thiscan

makecomingupwithpolicytoavertthecrisesatwoplayerBattleoftheSexesgamein

whichbothsideswantactiontakentominimizethecrisisandthushavereasontowork

togetherbutalsohaveopposingpayoffsthatleadthemtobargainhardfortheirowngoals.

Whilethisistrueinothercrises,thosesuchaswarscanleadtolessdivisionbetweenthe

factionsincongressandmoreagreementonhowtohandlethecrisis.

Anotherfactoraffectingeconomicpolicymakingisthatthecommoncitizendoesnot

haveastronggraspofeconomictheoryorcompetingschoolofeconomicthought.The

actionstakenbythegovernmentthuscanoftennotbejudgedontheirmerits,butopinions

arelargelyformedbasedontheposturestakenbypoliticiansandthecasesthattheymake

tothepublicthroughthemediaandothermethods.Thismakescalculationsofthepolitical

benefitofpotentialcongressionalactionmoredifficultforlawmakerstojudgeandincreases

theriskinvolvedwithbeingseeneitherpushingforanactionorforestallingaction.In

82Schoenbrod.

49

addition,theiractionswilllikelybeviewedintwotimeframes:thecurrentandthefuture.

Inthemoment,congressmightneedtobeseemtakingdecisiveaction,howevertheywant

toinsurethatitwillnotbeapoliticalliabilitylaterintheircareerandtheyrealizethatoften

individualswilljudgeactionsverydifferentlywhenunderthestressandimmediacyofcrisis

thantheywilloncethecrisisisabatedandcanbejudgedcalmlyandrationally.Inaddition,

oftenthestepstakenbycongresscanforestallacrisisiftakenearlyenoughandthiscan

leadtotheproblemofthefullbruntofthecrisisnevercometobeing.Inthesecasesthe

fast,efficient,andprescientcongresscanbethoughtlesswellofsincethecrisiswasnot

apparenttoallandthustherearetimingissuesrelatedtodealingwithacrisis.Anexample

ofthiswastheTroubledAssetReliefProgram,whichwasviewedbymanyeconomistsatthe

timeasbeingcriticaltoforestallwhatcouldbeacatastrophiccollapseoftheentirefinancial

system.Congresstookextraordinarystepstoaddressthisriskandbymanyaccountsstaved

offafarmoredireandprotractedsituation,butbydoingsotheneedforthisandother

stimulusmeasurewasnotseenbyvoterswhoinsteadfocusedontheunpopularprovisions

inthesecongressionalactionssuchastheapparentbailoutofrichbankersandprivileged

othersinthefinancialindustry.Furthermoretheseactions,whichwereunpopulareven

whentheywerefirstbeingmade,appearedtoimplythatcongresswashelpingpolitically

connectedindividualsattheexpenseofthesocalledeverymanandthatprofitsunfairly

accruedtotheindividualswhilelosseswerebornebysocietyasawhole

Thereareafewcommonrepeatingpatternsforeconomiccrises.Theseoften

containcommoncharacteristicssuchasaweakeningofconfidenceintheeconomicsystem,

adecreaseintheconsumersentiment,andinefficientlyutilizedresources.Theyalsofall

intoafewcommoncategoriessuchasperiodsofhighunemploymentorrecessions.

However,thereisagreatdealofdifferencebetweeneachcrisisandthecauses,responses,

andeffectsofthecrisis.SincetheGreatDepressionsince,whendelegationreallybeganto

becommonlyusedasapolicymakingtool,therehavebeenaseriesofeconomiccrisesthat

haveprecipitatedactionsbycongressanditsagentstodealwiththecrisesandtakeactions

theybelievewillstrengthenthenation.AlongwiththeGreatDepressionandthesevere

recessionofthe1930sthatfollowedit,examplesofcrisesincludethesocalledNixonShock,

thesevereinflationduringthe1970s,therecessionbetween1973-1975,theSavingsand

loancrisis,SocialSecuritydepletion,andthefinancialcrisisbeginningin2007.

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Thesecrisescanbecausedbypreviousactionsofcongressandcanbeexacerbated

bycongressionalinactionorpoorlythoughtoutresponses.Thisisoneofthereasonsthat

investigatingdelegationissuchanimportantarea.Ifshortsightedactionofcongresslead

tolongtermproblemsandsowstheseedsoffuturecrisesthismightbeoneargumentfor

delegationtoanagencyoranindependentbodyasthesewouldbebetterabletoadjust

courseovertime,giveittheappropriatelastingfocusandattention,wouldhavealonger

periodinview,andlesspressuretoactquicklyevenifthepropercourseofactionisnot

clearandtheactionsthatarebeingcalledforarenotbeneficial.Delegationcanalsobe

usefulbecauseitallowscongresstodeflectcertaincallsforimmediateactionandallows

congresstocometoadecisionwhenfactionswithincongresscanagreeonageneralgoal,

butnotonthespecificsorhowtoproceed.Thiscanhelpsolvepoliticallyintractable

situations.

Therearealimitednumberofviablepoliticalpossibilitiesthatcanbeachievedwith

thepoliticalfactionsinplay.Withinthosethatareachievable,actorswilltrytoachievea

resultthatismostcongruentwiththeirgoalsorthegoalsthatcanbeachievedbyworking

alongwithothersinapartyorothergrouping.Thepresidentisapowerfulcomponentin

thesystemandinacrisisheoftenuseshisroleandspeakstothepublicinordertoinitiate

proposals.Inthesemoments,peoplearemorelikelytolooktothepresidentthanto

congressortotheirmembersofcongress.Thepresidentisabletousethispoweralong

withhiscontroloverthebureaucracytosettheagenda.Thiscanconsistofworkingtoshift

popularopinionandpreparethewayforcertaindesiredpoliticalactions,bringing

prewrittenproposalstocongressandhavingalliedcongressmemberssubmitit,ormaking

proposalswithcertainprovisionsandtherebytryingtoconvinceormaneuvercongressinto

doingasthepresidentproposes.Healsohasfirst-moveradvantageinsofarasthecabinet

andagenciesthatthepresidentcontrolscanquicklytakestepstoaddressissuesasthey

arrivewhereascongressionalprocessescantakeaconsiderableamountoftimeasabillhas

topassbothhouses,gothroughcommittee,havebothhousespassthereconciledversion

andhavethepresidentsignitandthiscanevenbesloweddownifthepresidentvetoesa

billorifcongressisnotinsession.

Aspartofthelawmakingprocessthetwohouseshavetopassidenticalversionsof

thebill.Thisensuresthatthetwohouseshavetoagreeonwhatstepstotake.Thiscan

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leadtobargainingbetweenthetwohousesastherearedifferencesbetweentheaverage

voterintheHouseofRepresentativesandintheSenatedueinlargeparttothedifferences

betweenthestructuresofthetwohouses,suchasthesize,thearearepresented,thelength

ofthevotes.TheSenateforistypicallyviewedasbeingmorecivilandcentristscompared

tothemorepartisanHouse.Thetypicallyexplanationforthistraitisthatbecausethe

Senateissmallerandhaslargerdistrictsitavoidsexcessivepartisanshipdueto

gerrymanderingandpeople’sself-selectionofwheretolivebasedonfactorsrelatedto

worldvieworpolitics.Thehousesalsomaybeundercontrolofdifferentpartiesorfactions

withvastlydifferentgoals.Thiscanleadtoastalematewherethehouseshavetrouble

passinglegislationthoughbothwouldprefersomelawispassedtodealwiththecrisis.

Congresswilltrytoselectanagencywithanareaofexpertiseandgeneralauthority

overtheareaonquestion.Thislimitsthenumberofchoicesthatcongresscanuseforthe

delegation,howeverthereisoftenabitofoverlapbetweenagenciesaswellasofficesand

departments.Congress,however,hasmultiplechoicesofwhotodelegateto.Inaddition,

congressalwayshastheprerogativeofmakinganewagency,office,orbureau.Thisoption

canbeusedtofurtherisolatetheagencyfromoutsideinterferenceandhelpensureits

independence.Itcanalsobeusedtofocustheorganization.Ifanofficeiscreatedinsidean

existingagencyorthenewtaskisgiventoanexistingentitythiscanleadtothemhaving

contrastinggoals.Ifcongresswantsemphasisplacedonanissueitwillsettheagencythat

overseestheissueareaapartsothatitwouldremainapriorityovertime.Theseparationof

thesegoalsfromotherlargergoalsofabiggerorganizationisimportantfortheissueorgoal

toremainrelevantandtocontinuetobegivenpriorityputonovertime.Commongroup

dynamicstheoriessuchasTuckman'sGroupDevelopmentModeldiscusstheamountof

timebeforeagroupsuchasaboardworkwelltogether.83Theysuggestthatittakesawhile

foraboardtobepreparedtoaddressanissueandthusthatcreatinganewagencyisagood

methodforaddressingissuesthatarenotpressingandcanbehandledinthefuturewhile

immediatewhereasnear-termsolutionsarebesthandledbyagenciesalreadyinplace.

Delegationstothepresidentarealsoverycommon.Thesecantaketheformof

explicitdelegationsinwhichcongresspassesabillthatvestsresponsibilityforadecision

83Tuckman,BruceW.andMaryC.Jensen.“StagesofSmall-GroupDevelopmentRevisited”GroupOrganizationManagement.Vol.2,No.4.December1977.

52

withthepresident.Alternativelytherecanbeanimplicitdelegationinwhichcongress

allowsthepresidenttomakeadecisionandhandleasituationwhichcongresshasformal

authorityover.

Congresshastriedtochangetheframeworkonmultipleoccasions,meetingwith

mixedsuccess.Inthe1970scongresspassedanumberofconstraintstryingtolimitthe

powerofthepresident.AnexampleistheCase-ZablockiAct,whichwaspassedin1972,and

aimedatlimitingthepowerofthepresidentuseofhisabilitytoagreetoexecutive

agreements.Theactrequiredthatallexecutiveagreementsmustbesubmittedtothe

Senate.Thiswouldallowcongresstotakeappropriateactionwithregardtoexecutive

agreementsiftheydidnotfeeltheseagreementswerebeneficial,butinpracticecongress

doesnotfollowupontheseandthepresidenthasprettymuchfreereignoversuch

agreements.Inadditiontheexecutiveagreements,whichthislawrequiresaresubmittedto

theSenateForeignRelationsCommitteewithinsixtydaysofbeingexecuted,arequiteoften

slowtobesubmittedtothesenate.Inpracticeonlyhalfofallexecutiveagreementswere

submittedtotheSenateatall.84

SimilarlytheWarPowersAct,whichwaspassedin1973,wasareactiontothepower

ofthepresidenttoeffectivelyenterorexitawarandcommitAmericantroopswithout

congressionalinvolvement.However,onceagainpresidentshavenotfeltconstrainedby

thisactandhavelargelycontinuetoasserttherighttounilateralactionduetonational

needandduetothepresident’sroleasCommander-In-Chief.Presidentsseemtohave

soughtcongress’blessingsforactionswhentheyknewtheywouldreceiveit,butwere

preparedtoworkwithoutcongressotherwise,muchastheU.S.willusetheUnitedNations

toaddvaliditytoitsactions,butdoesnotfeelitselfconstrainedtoinactionifitisunableto

convincetheUnitedNationstotakeaction.

Likewise,the1974BudgetandImpoundmentControlAct,soughttoblockthe

impoundmentsthatNixonhaddonetoshapepolicyandundercutcongressionalactions.It

hadsomesuccessinthiscoregoal,butpresidentshavecontinuedtohavesignificant

84Caruson,Kiki.“InternationalAgreement-MakingandtheExecutive-LegislativeRelationship.”PresidencyResearchGroupReport25(fall2002).23.

53

discretioninthisarenaandoftenusetoolssuchasrescissionstomuchthesamepurpose.85

Thustheactualconstraintsonpresidentialpowerwereonlyslight.

AnotherlawpassedbythecongressduringthisperiodwastheNationalEmergencies

Act86thatwaspassedin1976.Itwasdesignedtostopthepresidentfromabusingthe

presidentialpowertodeclareastateofnationalemergencyandtherebygranting

himself/herselfandtheexecutivebranchextraordinarypowerssuchastherighttosuspend

habeascorpus.Theactsoughttogivecongressavoiceintheprocess,todefinewhat

constitutesanationalemergency,andtoprecludethepresidentfromcallinganextended

stateofemergencywhenthisactionwasnotactuallyneeded.Thelawplacedsomelimits

onthepresident’sabilitytoissueemergencies,butonceagaininpracticethepresidenthas

considerableleewayinthisareaandhashadfewactuallimitationsonhispower.Themost

obviousindicationofthisbeingthefactthatfromSeptember14th2001throughthetimeof

thiswritingin2014therehasexistedastateofemergency.Duringthisperiodthathas

lastedmorethanadecade,thepresidenthasheldandexercisedsignificantlyincreased

powersoverwhatwouldbeavailabletothepresidentifastateofemergencydoesnotexist.

2. PolicyCanBeCreatedAtManyLevels

2.1 Direct Congressional Action

Whilethereismorevarietyofactionandproceduraloptionsopentothepresident

andthebureaucracythantherehadbeenpreviously,muchpolicyisstillenactedthrough

thetraditionalmeansofcongresspassingabillanditbecomingalaw.However,evenwith

directcongressionalactionthereisvarietyasabillcantakevariousroutesonitswayto

becomingalaw.Theprocessabillgoesthroughtobecomealawaffectsthecontentofthe

resultinglaw.ForinstanceifabillgoesthroughmultiplecommitteesintheHouseof

Representatives,itwillpotentiallybedifferentthanifthepolicyonlywentthroughoneor

thanifithadbeenifitwasnotsenttoacommittee.Thesechangesarenotsolelydueto

85Shull,StevenA.2006.86Pub.L.94-412

54

thepreferencesandsuggestionsthatthecommitteehas,butduetofactorssuchaschanges

inthecoalitionsthatwillberequiredtopassthelaw.Duringacrisis,directcongressional

actionbecomeslessidealfordealingwiththeimmediateconsequencesofthecrisis,but

becauseofcongress’uniqueabilitytoissuepubliclawsitcontinuestoplayapartevenifit

worksmorecloselywiththeexecutivebranchtodeterminenecessarypolicychanges.It

alsoplaysabigroleindealingwithlessimmediateconsequencestocrisesandmakingsure

thatlawsareinplacetoavoidordealwithsimilarcrisesinthefuture.

Themainpiecesoflegislationduringthisperioddealingwiththiscrisiswerethe

EconomicStimulusActof2008,Housing&EconomicRecoveryActof2008,Emergency

EconomicStabilizationActof2008,AmericanRecovery&ReinvestmentActof2009,Helping

FamiliesSaveTheirHomesActof2009,FraudEnforcementandRecoveryActof2009,Dodd-

FrankWallStreetReformandConsumerProtectionAct,andtheBudgetControlActof2011.

Whiletheseseemlikesizablelegislativeaccomplishments,manyoftheseactsdidlittleto

setpolicyandmostlydelegatedpolicycreationandininstanceswherepolicywassetitwas

largelyjusttobeseentobedoingsomething.

2.1.1DraftingofBills

Publicsupportcanleadtoacceptanceofapolicy.Occasionallyacallforapolicycan

comefromthegrassrootsandthenitisoftenpromotedbyaninterestgroupand

championedandsubmittedbysympatheticmembersofcongress.Inacrisistherewilloften

becallsforpopulistactions.Thetimeisoftentooshortandthepaintooacuteforadeep

investigationofcausesandeffectssotheelectorateexertspressureforshort-term

solutions.Likewisetheelectorateiseasiertoleadastheyarelookingforacourseofaction

thatwillamelioratethesituationandifapoliticianputsforthaproposalthattheysaywill

improvethesituation,thepublicwillmorereadilygoalongwithhisproposal.

BillscanbedraftedbytheExecutiveOfficeofthePresident,bycongress,byagencies

orothers.Theentityinitiallycreatingthebillhasconsiderableabilitytoshapethebilland

decidewhatoptionswillbeavailabletopolicymakersordiscussedinthepublicdiscourse.

Thispowerisgreateriftheentityhasthepotentialtogopublicandframethepolicy,

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increasethesalienceoftheissue,ortogainacceptancefromthepublic.Inacrisisthe

periodforpublicdiscourseisshortenedandsothefirstproposalthatgainsthepublic’s

attentionhasamajorlegupingettingpassed.Thisusuallywillgivethepresidentan

advantageandthusincreasehisabilitytoimplementchangesasheseesfit.

TheSpeakeroftheHouseandothercongressionalpowerbrokersmakedecisionsas

tohowthebillbecomesalaw.Issuessuchaswhichhouseofcongressthebillstartsin,

wheninthesessionthebillgoestothefloor,therulesthatthebillisevaluatedunder,and

whichcommitteesreviewthebillaffectthelikelihoodthebillswillpass,whatactionswillbe

takenbypoliticalactors,theprovisionsofthebill,andtheblameorcreditforitspassage.

Therearemanyoptionsthatpoliticalactorscanusetomeettheirgoals.Partiesare

onesuchtoolthatcanbeusedforachievingpoliticalgoalsorsocietalends.Theseareused

becausetheyareaneasierandmoreeffectivetooltowieldthanothertoolsandbecause

thereisalongprecedentoftheiruse.Thepartycanbeabrandthatapoliticiancanuse.

2.1.2ReasonsforDirectCongressionalAction

Directcongressionalactionisperhapsstillthedefault,statusquooptionavailableto

membersofcongress.Itgivesmembersofcongressthemostcontroloverpolicyandthus

letsthemenacttheirpolicypreferences.Thiscanalsoincludeporkbarrelpoliticsinwhich

thebillcanbecraftedinsuchawayastoprovidebenefitsforkeyconstituencies.Thiscan

increasethepopularityandlikelihoodofelectionofmembersofcongressthatgetthebill

passed.Passinglegislationalsoallowsforcreditclaimingbymembersofcongresssothat

theycanturnpopularactionsintoelectoralgoodwill.

Formembersofcongress,themainalternativetodirectcongressionalactionthatis

availabletothemisdelegation,whichtypicallyincludesdelegatingtoeitherthepresidentor

toexecutiveagenciesthatthepresidentisnominallyinchargeof.Whenthepresidentand

congressareofdifferentpartiesthismeanscedingsignificantpowertothepresidentoran

agentthathelargelycancontrol.Whilecongresscandesignthedelegationsothatcongress

continuestohavepoweroveranagency,thepresidentbyvirtueofhispositionand

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resourcesthathecancalltobearcanreadilycompetewithcongresstocontrolagencies

thataregivenpower.Whenpowerisdirectlydelegatedtothepresident,congresshaseven

lesscontroloverthedelegatedpower.Inacrisiscongressdelegatesmorepower,butthey

willtendtostructurethedelegationinwaysthatmeetthepoliticalneedsofcongress.

Congressisoftenlobbiedbyotherpoliticalactorstopasslaws.Thisisparticularly

trueinacrisisorwhenthepresidentistryingtogetamajorinitiativeenacted.The

presidentcanusetacticssuchasgoingpublictoconvincelawmakersthatitmakessenseto

supportabill.Thepresidentframesanargumentandmakesapubliccasetothenationin

hopesthattheiracceptanceoftheideawillconvincethelawmakerstoseethechangeis

supportedbytheirconstituentsanditisinthebestinterestsofthelawmakerstogoalong

withthepresident’sproposedlegislativeagendaorpublicpolicypreferences.Duringacrisis

whenchangesinpolicycanbemoreextremethereismoreatstakeandthusmorereason

forpoliticalactorstolobbyfortheirposition.

2.1.3TypesofCongressionalAction

Congress’mainmethodofcreatingpublicpolicyisbypassingabillthatgetsenacted

andbecomesalaw.Thismethodofpolicycreationmakesthepolicydecisionsofcongress

legallybindingandthisaccountsformostoftheofficialactionsofcongress,howeveritis

nottheonlyoptionavailabletocongressandinsomesituationsmaynotbethebest.Bills

maybeprivatebillsorpublicbills,theformerofwhichaffectsaspecifiedindividualorentity

whilethelatterisbroadlyapplicableandcreategeneralizablepublicpolicy.

Besidesbills,congresshastheoptionofissuingjointresolutions,concurrent

resolutions,andsimpleresolutionsaswellastakingotheractionssuchasholding

conferences,ratifyingtreaties,orgoingpublic.Ofthethreetypesofresolutionslisted

above,themostpowerfulpolicycreationtoolisthejointresolution,whichunliketheother

twotypesofresolutionsisabletocreatelegallybindingpubliclawthathasasmuchforceas

thepassageofabill.Intheirformandintheirprocessofimplementation,jointresolutions

arealmostidenticaltobills.Bothhousesofcongressmustpassthem,thoughnot

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necessarilyatthesametime,andgenerallybothrequirethepresident’ssignatureora

2/3rdsmajorityofapresidentialveto.

Congressalsohastheoptionoftakingnoactionandallowinganothergovernmental

bodytotakeactionandrelegatingthedecisiontolatercongressesortoanotherbody

effectivelydelegatingthedecision.Takingnoactioniseffectivelyapolicydecision.Thisis

truebothduringcrisisandatothertimes,butduringcrisesthereisanevengreater

inclinationforcongresstoallowthepresidentoranagencyheadtoseepolicy.

2.2 Delegation

ContrarytotheviewthattheAmericanpublichaslonghadofU.S.Congresspersons

asbeingpowerhungryindividualsthatalwaystrytogainmorepowerandauthority,since

the1930s,theU.S.congresshasconsistentlydelegatedmuchoftheirlawmakingpowerto

others.Thisphenomenonisstillinaccordancewiththebeliefthatlegislatorswillrefuseto

cedepowertodelegateunlessconvincedthatthebenefitsoutweighadverseagency

action.87

Theframersoftheconstitutionbelievedthatthebrancheswouldjealouslyguard

theirpowersandwouldactivelystriveforself-aggrandizement.AsJamesMadisonsaidin

theFederalistPapers,“Ambitionmustbemadetocounteractambition.”88Hefeltthatthe

naturaldesireofthoseinpowertotrytoincreasetheirpowerwasthebestcheckon

governmentalabuse,strongereventhantrustingtothemoralsofleadersandstating,“This

policyofsupplying,byoppositeandrivalinterests,thedefectofbettermotives”.89The

foundersthuswouldbesurprisedbythetendencythatcongresshasdisplayedtovoluntarily

transfertheirpowertoanotherbranchofgovernment.

Theubiquityofdelegationtodaycontrastssharplywiththeuseofdelegationin

earliereras.Priortothe1930stherewasverylittledelegationbythecongress.Whenthe

ConstitutionalConventionadoptedtheU.S.Constitutionin1787,itseparatedtheUnited

87Fiorina1982;HillandWilliams199388TheFederalistPapers:No.5189TheFederalistPapers:No.51

58

Statesgovernmentintothreebranches:theexecutive,thelegislative,andthejudicial.

Furtheritclearlyenumeratedanddelineatedthepowersassignedtoeachofthesebranches

aswellasthosereservedforthestates.Inarticle1section8oftheconstitution,thepowers

ofcongressarelistedandinarticle1section9,theconstitutionliststhelimitsofcongress’

power.Whileovertimethereweresomeshiftsinwhichbranchexercisedcertainpowers,

therewasalmostnodelegationofauthorityfromonebranchtoanother.Whatismore,

suchdelegationwasgenerallybelievedtobeunconstitutionalasanysuchdelegationwould

contradictthepowersaslaidoutintheEnumeratedPowersclauseoftheconstitution.This

apparentcontradictionwhencoupledwiththereverencethatAmericansheldfortheir

constitutionlimitedtheattemptstodelegatepower.

Congresshasdelegateditspowertoanumberofdifferententities.Amongthose

thataredelegatedtoarethepresident,agenciesintheexecutivebranch,adhoc

commissions,statesandlocaljurisdictions,aswellasdelegationinternallytocongressional

committees.Mostcommonoftheseisthedelegationtotheexecutivebranch.Inaddition,

congressoftenwillinglytiesitsownhandsandlimitsitspowerusingmethodssuchas

indexingtoremoveunfavorabledecisionsthatitdoesnotwishtobeonrecordashaving

madesuchasvotingtoincreasetheirownsalary.Thisissimilartodelegationasitremoves

adecisionfromfuturecongresses.

Whileitmayseemtosomealmostnaturalthatasthenationgrewandbecamemore

complexthatcongresswouldtransferitsauthorityinmanyareastothebureaucracyand

thatthebureaucracywouldperformmanyoftheadministrativefunctionsthatitnow

performs,thiscourseofeventswasnotinevitable.Manyofthefunctionscurrently

performedbyvariousexecutiveagenciessuchasUnitedStatesDepartmentofHealthand

HumanServices,DepartmentofLabor,andtheDepartmentoftheInteriorhadpreviously

beenperformedbycongress.AnexampleofthisisthatinSection8ofArticleIoftheU.S.

Constitution,wherethespecificpowersofCongressareenumerated.Amongtheseisthat

congressisgiventhepowerandauthoritytofixtheStandardofWeightsandMeasures.

Congressinitiallyperformedthisrole,butlaterdelegatedthispowertotheNational

InstituteofStandardsandTechnology,anexecutiveagencyundertheU.S.Departmentof

Commerce,whocurrentlyperformthisfunction.Likewise,thecongresshadnumerous

military,fiscal,andtrade-relatedpowersthatarenowroutinelyperformedbytheexecutive

59

branch.Congressstillmaintainsthecapabilitiestoperformmanyoftheseroles,buthas

voluntarilygivenupdirectresponsibilityforthem.

Bureaucracycanbeagoodthingandanefficientwaytoadministerandgovern.

MaxWebersetsoutanidealbureaucracyinwhichthereareformalized,systematicrules

thatimpersonallyimpliedbyprofessionalpublicservantswhoperformafunctionandfeel

thatitisthemostefficientformofgovernment.Hearguesthathavingthisprofessional

classofadministratorsthathavespenttheircareersworkinginafieldenablesbetter

decisionsandleadstoanefficientgovernment.Ofcoursethisfocusonefficiencyisnotthe

onlygoalofgovernment,italsohasaresponsibilitytoensurethatitsendsarejust.Thereis

adifferenceinefficientlyachievingagoalandwhetherthatgoalismoralornot.IntheU.S.

system,congressfirstandforemostwantsbureaucratstodowhatislaidoutinlawsandto

essentiallydoastheyaretoldtodowhilepoliticianshavearesponsibilitytodecidethe

moraldecisions,determinetradeoffs,anddecideonthemajorpolicy.Thisviewingof

bureaucracykeepstheroleofcongressascentraltotheproperfunctioningofgovernment.

Tomakeananalogytosteeringaboat,congressfeelsthatitshouldactasanavigator

settingacoursewhilethebureaucracyshouldactashelmsmanandmakethemaneuvers

andsmallcoursecorrectionsrequiredtofollowthecourseordestinationthatwaslaidout.

Thispaperwilllargelyignorethemoralissuesrelatedtothecontentofthepolicyas

wellaseffectivenessissuesexceptwheretheserelatetothescopeormeansofpolicy

creation.Thispaperinvestigatestheprovisionsofspecificlawspassedandpoliciescreated

onlyinsofarastheseareaffectedbythemannerthatthepolicyiscreatedorastheyvary

duetotheenvironmentalfactorofacrisisbeingpresent.Thispapertriestotracethecause

ofpolicy,butitisdifficulttofullyattributeresultsandresponsibilitiestoindividualsoreven

tobodiesbecauseofthecomplexpoliticalprocesshastoomanyvariablesandthereis

alwaysinformationthatisnotavailableortoosubjectivetoanalyze.

Delegationisoftenefficientandusefulatleastforlawmakersandthushasbecome

increasinglycommon.Todayitisapracticalrealitydespitetheapparentconstitutional

prohibitionsagainstitsuse.GarryLawsonstatesitwellwhenhesays,“Nooneseriously

doubtstheoutcomeofashowdown,inanyauthoritativeforum,betweentheConstitution

60

andthemodernstate.Quitesimply,thenationhaschosenadministrativegovernanceover

aConstitutionthatwasdesignedpreciselytopreventanysuchoutcome.”90

Whilesignificantpowerisdelegatedtotheexecutivebranchthisdoesnotmeanthat

thepresident,theheadoftheexecutivebranchisabletowieldthispower.Statistical

analysishasfoundthatexecutivebranchpreferencesvaryfromthepresidents’.

Furthermoretheagencythatreceivespowerwilloftenseektokeepthispowerforitselfand

fortheirownneeds.AsLowistates,“parcelingoutpolicymakingpowertothemost

interestedpartiestendsstronglytodestroypoliticalresponsibility.Aprogramsplitoffwitha

specialimperiumtogovernitselfisnotmerelyanadministrativeunit;itisastructureof

powerwithimpressivecapacitiestoresistcentralpoliticalcontrol.”91

Whiletheremaybethosethatviewthesourceofrulesandregulationsas

unimportantandamundaneissuewithlittleeffectonthenation,thesourceoftheserules

andhowtheyaremadehassignificanteffectsonthecontentoftherules.Differentpolicy

outcomesarelikelytobeachievedthroughdelegationthanwouldbeifcongressdecided

theissues.Theserulesandregulationsroutinelyaffectthelivesofthosethatliveandwork

intheUnitedStatesandfrequentlyeventhoseabroad.Inaddition,therootofthe

legitimacyofthegovernmentthatisinplaceiswrappedupinthemethodofdetermining

policyaswell.AsJohnAdamssaid,“Asagoodgovernmentisanempireoflaws,thefirst

questionis,howshallthelawsbemade?”92

Whilecongresshaslongestablishedagenciesthatperformspecificfunctions,there

isavastscopeofdifferencebetweenanagencyperformingafunctionprescribedforitby

congressandoneonitsowninitiativecreatingfarreachingpublicpolicyandlaw.Examples

oftheformerofthesearetheUnitedStatesPostalServicedeliveringmailortheInternal

RevenueServicecollectingtaxes.Whiletheydohavesomediscretionsuchasonwhat

modeoftransportationtousetobestdeliverthemail,theydonothavetheabilityto

impingeonpersonallibertiesorchangethecentralpoliciesofthenation.Manyofagencies

90Lawson,Gary.“DelegationandtheConstitution”RegulationMagazine.CatoInstitute.Vol.22,No.2.Summer1999.91Lowi.59.92Adams,John.“To Hon. John Penn 1776”. 1776.

61

anddepartmentshavesignificantdiscretionthatallowedthemtoplayabigpartduringthe

recentfinancialcrisisandduringotherpastcrises.

Whilemuchoftheliteratureinvestigatingpoliticaldelegationfocuseslargelyonthe

motivationofthosewhoaredelegatingpower,thosethataredelegatedtooftenbenefit

fromthepowerthatisdelegatedtothem.Itgivesthemgreaterauthorityandimportance

whicharemuchsoughtafterinpoliticalcircles.Thepresidentinparticularisoftenviewed

asseekingadditionalpowersasthiscanallowhimtoaccomplishmore.SenatorByrd

expressedthisviewthusly,“Fordecades,PresidentialAdministrationshavesoughttowrap

theirfingersaroundthepursestrings,pushawaytheCongress,andignorethe

Constitution.ItdoesnotmatterwhichAdministration.Itdoesnotmatterthepoliticalparty

ofthePresident.Whatmattersisnothingmorethanrawpower.Congresshasit.The

ExecutiveBranchwantsit--andwilluseanyexcusetogetit.”93

Powercanbeexplicitlydelegatedtothepresidentorclaimedbythepresidentin

whatisessentiallyanimplicitdelegation.Considerabledeferenceisgenerallygivenby

congresstothepresidentandthisisevenmorethecaseduringacrisis.Thustheactions

thatthepresidenttakesaregenerallynotoverturnedbycongress.Thejudiciarylikewise

rarelyoverturnsthepresidentorthebureaucracy’sactions.

Oftentheshapingofpolicyconsistsofmultipleactionsbymultiplepoliticalactors.

Anexampleofthisisthatexecutivebranchactioncanalsoservetoblazeatrailbyusing

executiveorderstoleadthewayforfuturecongressionalaction.Shullgivesanexampleof

thiswithExecutiveOrderssuchas#11063servingasaprecursortotheFairHousingActof

1963.94Kerwinstatesthatthebureaucracyalsooftentakesactionandmakespolicychoices

thatarethenfollowedupbyanexecutiveorderissuedbythepresident.95

Theformationofpolicybecomesmorecomplexinthatitisnotconductedina

vacuum,butisdependentontheprevailingpoliticalenvironmentandtheseactorswillthus

seektochangethepoliticalenvironmentfortheirownends.Forinstance,theframingofa

93Byrd,SenatorRobert.U.S.CongressSenate.ProtectingtheConstitutionalAuthoritiesofCongress,108thCongress,1stSession,149CongRecS5397,April112003.94Schull.10.95Kerwin,Cornelius.Rulemaking:HowGovernmentAgenciesWriteLawandMakePolicy.Washington,DC.CQPress,2003.

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politicalissuehassignificanteffectonthepolicythatisadoptedandthepresidentoftenis

theonethathasthemostpowerovertheframingofanargumentandtheshapingofa

response.Thisisespeciallytrueinacrisiswherethepubliclookstothepresidenttoset

nationalpolicyandtakeaction.Crisesalsomakethepublicpaymoreattentiontotheissue

andthusmakeiteasierforthepresidenttoshapeopinion.Thepresidentalsohasawider

arrayofpolicyoptionsavailabletohimatsuchtimes,becausethepublicfeelsthat

extraordinarymeasuresmayneedtobetakentodealwiththeextraordinarycircumstances

threateningthenation.Thepresidentisaccordedfarmoremediacoveragethananyother

politicalactorandifhewishestofocusthatattentiononanissueoraproposalofhisit

enableshimtoshiftmanyopinionsoftenbeforetheyheartheopposingsideontheissue

andhavestartedtomakeopinions.Thisabilityisevengreaterinlightofdiminishingpublic

trustinmembersofcongresssinceitistougherforanopposingpoliticalactortolayoutan

alternativethathasbroadnationalsupport.

Thereareotherfactorsthoughsuchasstructuralfactorswhichaffecttheamountof

delegationbetweenthebranchesandtheuseofconstraints.Amongtheseisthechangein

powerofcommitteechairmen.NormanOrnsteinstatesthat,“Anydescriptionof

congressionalchangeinthe1970sbeginswithdecentralization.”96Thisdecentralization

leadstoindividuallawmakershavingmoreabilitytotakeactionstorepresenttheir

individualpreferencesandthustheirvotesshouldbetterreflecttheirviewsondelegation.

Amongotherchangesthepowerandautonomyofthesubcommitteesandtheir

chairpersonsgreatlyincreasedinthe1970s.Thisincreasedthenumberofpoliticalactors

withcontroloverlegislationandhelpedleadtoincreaseinoversightcommitteesand

oversightingeneral.Thisfunctionbeinginplacegreatlyaffectsthewillingnessofcongress

todelegatepower.Thusthe1970susheredinaperiodinwhichtherewasanewnormal

withregardtodelegation.

Mostdelegationperformedbycongresscomesintheformofbillsthathave

delegationprovisionsthatpassbothchambersofcongressandbecomelaw.Therearea

widevarietyofareasinwhichcongresschoosestousedelegationandtherearefewifany

areasstilluntouchedbythetrendtowardsdelegationthatemergedinthelast75years.

96Ornstein,NormanJ.“TheHouseandtheSenateinaNewCongress,”inThomasE.MannandNormanJ.Ornstein,eds.,TheNewCongress.378.

63

Thereare,however,somegeneraltrendsinwheredelegationismorecommonlyfound.

Amongsttheseislegislationincertaincomplexissueareassuchasscienceandtechnology.

Delegationhasbecomeacommonplacemethodusedbycongresstoaddressanissue.

Congressdelegatesitslegislativepowersmosttypicallytotheexecutivebranch.Thiscan

taketheformofgivingauthoritytothepresidentortoanexecutiveagency.Moreoften

thannotthepowerendsupinthehandsofthebureaucracy,whichhassomechecksonits

authorityfromcongressandthepresident.Thelawsoftengivetheauthoritytoactand

effectivelylegislateorregulate,butincludeconstraintsupontheactionsoftheagencies.

Delegationcanallowforcongresstodealwithshort-termcrisesthroughdelegation.

Congressisadeliberativebody,butoftenitsstructuretendstomakeitslowtoadaptto

changeandduringacrisisthiscanbealiability.

2.2.1HistoryofDelegation

Delegationhasincreasedovertheyearsashasthefederalgovernment.In1835,

AlexisdeTocquevillewrote,“Thenationparticipatesinthemakingofitslawsbythechoice

ofitslegislators,andintheexecutionofthembythechoiceoftheagentsoftheexecutive

government;itmayalmostbesaidtogovernitself,sofeebleandsorestrictedistheshare

lefttotheadministration,solittledotheauthoritiesforgettheirpopularoriginandthe

powerfromwhichtheyemanate.”97Thisshowshowsmallthegovernmentand

bureaucracywereatthetime.Mostwouldfindthisstatementtonolongerbethecasein

contemporaryAmerica.

Thesizeofthebureaucracyhasgrownovertime.Thiswasnotsolelyduetothe

increaseintheamountofdelegationoritsacceptancebytheSupremeCourt.Aroundthe

turnofthe20thcenturytherewasanascendancyoftheRepublicanreformerswho

advocatedascientificmethodofgovernanceandpublicadministrationthatwouldleadto

betterresults.Thiswasinpartareactiontotheabuseofpowerandthreatstoindividual

97DeTocqueville,Alexis.DemocracyinAmerica.Walker.1847.Pg.59.

64

libertiesthathadbeenperpetratedbysomepoliticians.98Thisalsoledtochangestothe

bureaucracysuchasthereplacementofthespoilssystemwithamorewithamore

meritocraticsystem.Inthespoilssystemthewinnerofanelectionplaceskeypolitical

supportersinpoliticaljobsasarewardfortheirsupport.Some,suchastheMugwumpsand

muchofthepopulation,viewedthisingeneral,asacorruptandinefficientsystemwhoin

responsewantedcivilservicereform.Thoseadvocatingthischangesawitasachangethat

wouldallowdisinterestedexpertstoadvanceandmakedecisionsandtherebyimprove

governanceanditsapprovalwasinpartduetoPresidentGarfield’sassassinationbya

scornedspoilsjobseeker.

AspartofthissametrendwasthePendletonCivilServiceReformActthatenshrined

thechangesthatmeritshouldbethedeterminateofwhoreceivesjobsanddisallowed

otherpersonnelmovesbasedoffofpoliticalreasons.AtthetimeofthePendletonCivil

ServiceReformActonly10%percentoffederalgovernmentworkerswerecivilservantsand

thuswouldbecoveredundertheact.Howeverbytheturnofthecenturythevastmajority

offederaljobswerecivilservicejobswherecivilservicejobsaredefinedas,"allappointive

positionsintheexecutive,judicial,andlegislativebranchesoftheGovernmentoftheUnited

States,exceptpositionsintheuniformedservices."99

AnimportantpartofthePendletonCivilServiceReformActwasthecreationofthe

UnitedStatesCivilServiceCommission,whichwasathree-membercommissionthatfrom

1883to1977administeredthefederalcivilservice.Thisboardinpartensuredthechanges

intheactthatdepoliticizethebureaucracyaswellascreatingcertainrulestoensurebetter

governancesuchasexamstoqualifyforcertaincivilservicepositions.Thisboardwas

designedtobeanindependententitythatcouldoverseethebureaucracyandwouldbe

apartfromthepresidentandhisgoalstohelpensurepoliticalneutrality.

Anumberofcasesquestionedtheuseofdelegationoflegislativepower.The1921

SupremeCourtcaseofUnitedStatesv.L.CohenGroceryCo.,100thecourtstruckdowna

statutethatcriminalizedpricegougingonnecessities.Theopinionofthecourtjustifiedthis

98Schoenbrod.32.995U.S.C.§2101100255US81

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bystatingthat,"CongressalonehaspowertodefinecrimesagainsttheUnitedStates.This

powercannotbedelegatedeithertothecourtsortothejuriesofthiscountry."

The1920caseofKnickerbockerIceCo.v.Stewart101andthe1924caseWashington

v.W.C.Dawson102struckdownstatutesonthebasisthattheyhaddelegatedfederal

legislativepowertostatelegislatures.AsthecourtfoundintheKnickerbockercase,“The

subjectwasentrustedtoittobedealtwithaccordingtoits[congress’]discretion—notfor

delegationtoothers.TosaythatbecauseCongresscouldhaveenactedacompensationact

applicabletomaritimeinjuries,itcouldauthorizetheStatestodosoastheymightdesire,is

falsereasoning.Moreover,suchanauthorizationwouldinevitablydestroytheharmonyand

uniformitywhichtheConstitutionnotonlycontemplatedbyactuallyestablished—itwould

defeattheverypurposeofthegrant…Congresscannottransferitslegislativepowertothe

States—bynaturethisisnon-delegable.”

Oncethequestionofwhethercongresscoulddelegatepowerwassettled,the

questionofwhetherthecongressshoulddelegatepowerarose.Forthepresidentand

muchofcongress,theyviewedtheanswerintheaffirmativeandsawmanybenefitsto

delegation.

2.2.2LegalFramework

Article1oftheUnitedStatesConstitutionexplicitlystatesthatalllegislativepowers

ofthegovernmentresidewiththecongress.Thenon-delegationdoctrine,prohibitingthe

delegatingofonebranches’powersaslaidoutbytheconstitutiontoanotherbranchwas

viewedasanironcladprohibition.Montesquieuwhohelpedshapetheviewsofmanyof

theframersoftheconstitutionproclaimedthat,"Therecanbenolibertywherethe

legislativeandexecutivepowersareunitedinthesameperson,orbodyofmagistrates".103

Byseparatingthepowersofgovernmentintothreebranches,thegovernmentcanhelp

ensurethatthistyrannyorabuseofpowerdoesnotcometofruition.Eventuallyovertime

101253U.S.149(1920)102264U.S.219(1924)103Montesquieu,Baronde.TheSpiritoftheLaws.1748.

66

theSupremeCourtdecidedthatlimiteddelegationwasallowablesolongasCongressused

aclearintelligibleprincipletoguidetheexecutivebranchagency.Theconceptisthatbasic

delegationwasanimpliedpowerofcongresswhichthoughnotexplicitlystatedinthe

constitutionwasimpliedasameanstoallowforcongresstoactuponitsexplicitlylaidout

powers.Thuscongress,inkeepingwiththeNecessaryandProperclauseintheU.S.

Constitution,coulddelegatesolongasitwasmerelycharginganagencytoworkonits

behalfanditgivesclearrulesandguidancethatlimittheauthorityoftheagencyperforming

thework.Thiswasamajorconstraintthatinitiallyeliminatedalmostalldecisionmaking

authorityfromtheagentthatwasdelegatedto.Thustherewassolittlediscretionleftin

thehandsoftheagentthatiteffectivelyhadnopowerdelegatedtoit,butmerelycarried

outorders.TheU.S.SupremeCourtupheldthisdivisionbetweenthebranchesandruled

thatdelegatinganypowerthatincludeddiscretionoftheagenttoactontheirownrather

thanmerelyinterpretinglawswasnotacceptable.ThiscanbeseeninCargooftheBrig

Aurorav.UnitedStates.104OvertimetheSupremeCourtbeganallowingdelegationwith

continuallylessspecificandmoreopen-endedguidance.

EvenintheearlycaseofWaymanv.Southardfrom1825,105ChiefJusticeMarshall

said,“thatthereissomedifficultyindiscerningtheexactlimits,”andfurtherstatedthe

opinionthat,“thepreciseboundaryofthispowerisasubjectofdelicateanddifficult

inquiry,intowhichacourtwillnotenterunnecessarily.”Thespecificplacewherethelineis

drawnhasshiftedovertheyearswiththegeneraltrendbeingtowardsfewerrestrictionson

delegation.Inthecurrentlegalenvironmentalmostanycaseofdelegationwillbeaccepted

ifthereisevenasmallpieceofguidanceincludedintheaccompanyinglegislation.

Thisprohibitionhoweverbegantosoftenwiththeprogressivemovementduringthe

beginningofthe20thcentury.AnexampleofthisisUnitedStatesv.Grimaud,106inwhich

theSupremeCourtinasplitdecisionupheldaninstanceofdelegationfromthecongressto

theSecretaryofAgriculturedisagreeingwiththedefendant’sclaimsthat,“thattheActsof

Congressmakingitanoffensetoviolaterulesandregulationsmadeandpromulgatedbythe

SecretaryofAgricultureareunconstitutional,inthattheyareanattemptbyCongressto

104TheAurorav.UnitedStates:11U.S.382(1813).10523U.S.1(1825)106220U.S.506(1911)

67

delegateitslegislativepowertoanadministrativeofficer."andinsteadfindingthatthe

delegationwasconstitutional.

Delegationhadbeenallowedifthepowerdelegatedwasminorandtheagency

merely“filledupthedetails”.AnexampleofthisisInreKollock107,wherecongress

approvedofthedelegationofsettingcertainspecificsofregulationofoleomargarine

manufacturerssincethemajordecisionsaboutthedelegationhadalreadybeendecidedby

thecongress.

AnotherkeycaseinthehistoryofthedelegationdoctrineisButtfieldv.Stranahan.108

Inthiscase,theSupremeCourtallowedSecretaryofTreasurytousepowersdelegatedto

himbythecongress.Thisprecedentofthiscaseexpandedthesituationsinwhichpower

canbedelegated.ThisincreasedthescopethatwasallowedbyFieldvs.Clark,which

allowedtheexecutivebranchtodetermineafactthatinturnaffectedthelegislative

consequences.InButtfieldv.Stranahan,theSupremeCourtwentsofarastoallowthe

executivebranchtocarryoutapolicythathadbeenpreviouslydeterminedbyanactof

congress.

TheincreaseinthetypesofdelegationsfoundallowablebytheSupremeCourtcan

beseenin1928caseofJ.W.Hampton,Jr.&Co.v.UnitedStates,109inwhichthecourt

allowedthedelegationdespiteitbeingoutsidethetypicalrestrictionsondelegation.Inthis

case,thecourtgaveitsapprovalinaunanimousdecision,andruledthattheTariffActof

1922whichgavethepresidentconsiderableleewayinsettingtariffrates.Thecourtruled

thatdelegationwasallowableandlimitedonlyby,“commonsenseandtheinherent

necessities”.ChiefJustice,andformerpresident,Taftgoesontosaythat,“Thefieldof

Congressinvolvesallandmanyvarietiesoflegislativeaction,andCongresshasfoundit

frequentlynecessarytouseofficersoftheExecutiveBranch,withindefinedlimits,tosecure

theexacteffectintendedbyitsactsoflegislation,byvestingdiscretioninsuchofficersto

makepublicregulationsinterpretingastatuteanddirectingthedetailsofitsexecution,even

totheextentofprovidingforpenalizingabreachofsuchregulations.”

107165U.S.526(1897)108192US470(1904)109276U.S.394(1928)

68

InthecaseofJ.W.HamptonJr.&Cov.UnitedStates,ChiefJusticeTaftlaysoutthe

separationofpowersandtheideaofnon-delegationthusly,“TheFederalConstitution...

divide[s]thegovernmentalpowerintothreebranches....[I]ncarryingoutthatconstitutional

division...itisabreachoftheNationalfundamentallawifCongressgivesupitslegislative

powerandtransfersittothePresident,ortotheJudicialbranch,orifbylawitattemptsto

investitselforitsmemberswitheitherexecutivepowerorjudicialpower.Thisisnottosay

thatthethreebranchesarenotco-ordinatepartsofonegovernmentandthateachinthe

fieldofitsdutiesmaynotinvoketheactionofthetwootherbranchesinsofarastheaction

invokedshallnotbeanassumptionoftheconstitutionalfieldofactionofanotherbranch.In

determiningwhatitmaydoinseekingassistancefromanotherbranch,theextentand

characterofthatassistancemustbefixedaccordingtocommonsenseandtheinherent

necessitiesofthegovernmentalco-ordination.”Inaddition,thecourtstatedthat,“Thereis

onlyonecommissiontowhichdelegationofthatauthoritycanbemade.Thatisthegreat

commissionoftheirownchoosing,theCongressoftheUnitedStatesandthePresident.Itis

theonlycommissionwhichcanbeheldresponsibletotheelectorate.”Thisisconsistent

withlongstandingviewsoftheideaofchecksandbalances.

Thisdifferedagreatdealfromthefewearlyinstancesinwhichthecongresstriedto

delegatepowerweregenerallybroughtbeforetheUnitedStateSupremeCourt.The

SupremeCourtoverturnedmanyoftheseattemptsatdelegationthoughtheygenerallydid

sowithoutactuallyreferringbacktotheissueofdelegationwhendecidingthecases.

Rathertheypreferredtousemoretechnicalquestionswithanarrowerscopetobasetheir

determinationsupon.Thiscontinuedtobethelawofthelanduntilthe1930swhenthe

GreatDepressioncausedFranklinRoosevelttobeinoppositiontotheSupremeCourtover

thisissue.DuringtheGreatDepression,FranklinRooseveltwantedcongresstogranthim

andtheexecutivebranchadditionalpowerswithwhichtodealwiththeseverecrisisthe

nationwasfacing.WhilebothhousesofCongresswereroughlysplitbetweenthe

DemocraticandRepublicanpartiesbytheendofPresidentHerbertHoover’sterm,

Rooseveltcametopowerwithlargemajoritiesinbothhouseswithover61%oftheSenate

and71%oftheHouseofRepresentatives.Thuscongresswasinclinedtoyieldsomeoftheir

powertothepresidentsothathecouldundertakehisnewdealagendaanddealwiththe

severefinancialproblemsthatthenationwasfacing.

69

TheSupremeCourtinitiallywasopposedtothisdelegationofpowerandfollowedin

thetraditionofpreviousSupremeCourtrulingssuchasUnitedStatesv.ShreveportGrain&

ElevatorCo.110andFieldv.Clark111,inwhichthecourtruledthattheconstitutionprohibited

congressfromdelegatingitsauthority.AtstakeintheFieldv.Clarkcase,waswhetherthe

presidentwasgivenauthoritytotemporarilyreinstituteadutyontheimportofsugarand

othercommodities,“forsuchtimeasheshalldeemjust”inresponsetoothernations

imposingdutiesonU.S.products.Thiswasviewedasadelegationofpowerfromcongress

tothepresident.AswasstatedbytheSupremeCourtinthatcase,“ThatCongresscannot

delegatelegislativepowertothePresidentisaprincipleuniversallyrecognizedasvitalto

theintegrityandmaintenanceofthesystemofgovernmentordainedbytheConstitution.”

Andthedelegationwasruledunconstitutional.

DelegationbecameakeytopicduringtheGreatDepression.Duringthisperiod,

PresidentRooseveltarguedformoredelegationtotheexecutivebranchtodealwiththe

financialchallengesfacingthecountry.However,theSupremeCourtwasinitiallyunwilling

toapproveofRoosevelt’sdesiretochangethestatusquoandallowformoredelegation.In

1935,theSupremeCourtruledtookatacaseregardingtheregulationofthepoultry

legislation.SchechterPoultryCorp.v.UnitedStates,112theSupremeCourtunanimously

ruledthatthedelegationinvolvedviolatedthenon-delegationclause.Theissueatquestion

wasnotsolelythepoultryindustryoreventheuseoftheCommerceClausethatwasruled

tohavebeenviolated.RathertheSupremeCourtwastargetingRoosevelt’sNational

IndustrialRecoveryActandeffectivelyoverturnedthiskeypartofRoosevelt’sNewDeal

agenda.Despitetheunanimousruling,therewasapoliticalfactorinplayas2/3rdsofthe

justiceswereappointedbyRepublicanpresidents113thatdisapprovedoftheaimsofthe

Democrat,Roosevelt.Inadditiontheviewofjurisprudencewasshiftingatthisperiodand

manyoftheoldguardservingonthecourtatthetimeweremorehostiletoRoosevelt’s

proposalthanlaterjudgeswouldbe.

110287U.S.77,85(1932)111143U.S.649,692(1892)112295U.S.495(1935)113Hughes,VanDevanter,Sutherland,Butler,Stone,Cardozo,Roberts

70

ThisrulingfollowedsimilarlegalsetbacksforNewDeallegislationsuchasPanama

RefiningCo.v.Ryan,114inwhichinanarrowdecision,sectionsoftheNationalIndustrial

RecoveryActwerestruckdownduetoimproperdelegation.TheSchechterdecisionalso

ledtoanumberofotherlegaldefeatsfornewdeallegislation.Anexampleofthisisthe

Carterv.CarterCoalCo.115,inwhichtheSchechtercasewascitedasaprecedent.In

responsetotheactsofdelegationsthatmadeupmuchoftheNewDeallegislation,the

SupremeCourtJusticeBrandeistoldtheAssistantGeneralCounseltothepresidentand

closepresidentialadvisor,ThomasCorcoran,"Thisistheendofthebusinessof

centralization,andIwantyoutogobackandtellthePresidentwe'renotgoingtoletthis

governmentcentralizeeverything.It'scometoanend."

WhilemuchoftheHughescourtwaspredisposedtoopposethesecases,even

justicesthatwouldtypicallybemoresupportivetowardsRoosevelt’sagendaquestionedthe

amountofdelegationinNationalIndustrialRecoveryAct(NIRA).ForinstanceSupreme

CourtJusticeCardozowhilereviewingthesecases,opposedNIRAdownas,“delegation

runningriot.”116NIRAallowedthepresidentthepowertoregulatenumerousaspectsof

industryandthesepowerswereusedinpracticebyPresidentRoosevelt.Similarlytheuse

oftheAgriculturalAdjustmentActgavethepresidentconsiderablepowerstoregulate

agriculturewhichatthetimeaccountedforalargepartoftheeconomy.

AftercontinuedbattleswiththeSupremeCourt,Rooseveltattemptedto

outmaneuverhiscriticsintheSupremeCourtbyincreasingthenumberofjudgesonthe

SupremeCourtandtherebypackingitwithjudgesthatwouldbemoresympathetictohis

viewpoint.ThenumberofSupremeCourtjusticesisnotexplicitlylaidoutinthe

constitutionbutratherwasdeterminedbycongressionalstatutesthathavechangedthe

numberofjusticesovertime.Hewasunabletoaccomplishthisaimduetoacoalition

consistingprimarilyofcongressionalRepublicansandSouthernDemocratswhosuccessfully

thwartedtheJudicialProceduresReformBillof1937thatcontainedRoosevelt’sproposal.

HowevertheattemptchastenedtheSupremeCourtandafterRoosevelt’sappointmentof

HugoLafayetteBlackfollowedshortuponbyhisappointmentsofStanleyFormanReed,

114293U.S.388(1935)115298U.S.238(1936)116ConcurringwiththerulingonA.L.A.SchechterPoultryCorp.v.UnitedStates,295U.S.495,553(1935).

71

WilliamOrvilleDouglas,andFelixFrankfurterbyearly1939,theSupremeCourtbeganto

betteralignwithRoosevelt’sgoals.

WithRoosevelteventuallyabletoprevail,significantauthoritypassedtothe

executivebranch,whichcanbeseenintheproliferationofthelargenumberofNewDeal

agenciesthatcameintobeingatthattime.Mostofthesehadverylimitedcongressional

guidanceandlargelylackedadrivingintelligibilityprinciple.Sincethe1930s,therehasbeen

acontinuousincreaseintheamountofdelegationandmostoftheseinstanceshavevery

limitedintelligibilityprinciplesandmakelittlepretensetoneedingthis.Delegationwasfirst

allowedtodealwithcrises.ThelongdurationoftheGreatDepression,WorldWarII,and

theKoreanWarwhichfollowedshortlyafter,hasledtodelegationfromthelegislative

branchtotheexecutivebranchandthegrowthinexecutiveagenciesthatwenthandand

handwithtobecomefirmlyentrenchedasawayofrunningthecountrybythetimethese

criseshasallsubsided.

ThefloodgatesofNewDeallegislationanditsaccompanyingdelegationopenedwith

theNationalLaborRelationsBoardv.Jones&LaughlinSteelCorporation,117inwhichthe

SupremeCourtina5-4splitdecisionupheldtheNationalLaborRelationsActas

constitutional.Thisallowedformoredelegation.Italsoallowedforadditionalpowersof

thefederalgovernmentundertheCommerceClause,inwhichinthewordsofChiefJustice

CharlesEvansHughes,“Althoughactivitiesmaybeintrastateincharacterwhenseparately

considered,iftheyhavesuchacloseandsubstantialrelationtointerstatecommercethat

theircontrolisessentialorappropriatetoprotectthatcommercefromburdensand

obstructions,Congresscannotbedeniedthepowertoexercisethatcontrol."Thisincrease

inthepowerofthefederalgovernment,whileinitiallyvestedinthelegislativebranchhas

overtimeledtosignificantnewpowersbeingdelegatedtofederalagencies.

Thusonecanseethatinresponsetocrises,themethodbywhichpolicyiscreated

waspermanentlyshiftedinthe1930sandtheeffectofthosecrisesstillshapesourpolitical

systemtoday.AsSchickstates,“TheNewDealandWorldWarIIchangedtherelationship

betweentheexecutiveandlegislativebranchesandmadethepresidentchiefexecutivein

hisownright,notmerelyastheagentofCongress.Thesecriticaleventsfueledan

117301U.S.1(1937)[1]

72

enormousexpansionofthefederalgovernmentandaredistributionofpowerbetweenthe

twobranches.”118

Theincreaseindelegationhadarevolutionaryeffectontheseparationofpowers

betweenthebranchesofgovernment.EvenFranklinRoosevelt,amajorproponentand

impetusforthisincreaseindelegationtotheexecutivebranch,assertedthatgrowthofthe

bureaucraticstate,"threatenstodevelopafourthbranchofgovernmentforwhichthereis

nosanctionintheConstitution."119

Whiletheinitialtransfersofpowerwereatthebehestofthepresident,thisincrease

ofpowertotheexecutivebranchwasnotapowergrabbytheexecutivebranch,but

fundamentallyreliedonthewillingnessofcongresstocedethispowertotheexecutive

branch.AsJohnBoltonpointsout,“Moreambitiousattemptsoftheexecutivetoact

withoutcongressionalsupporthavebeenuniformlyandemphaticallyrejectedbythe

SupremeCourt,asinthecasesconcerningPresidentHarrySTruman’sseizureofthe

nation’ssteelmillsandPresidentRichardM.Nixon’ssecretWhiteHousetape

recordings.”120InthecaseofYoungstownSheet&TubeCo.v.Sawyer,121whichJohnBolton

wasreferringto,SupremeCourtJusticeBlackstatedthat,“ThePresident'spower,ifany,to

issuetheordermuststemeitherfromanactofCongressorfromtheConstitutionitself.

ThereisnostatutethatexpresslyauthorizesthePresidenttotakepossessionofpropertyas

hedidhere.NoristhereanyactofCongresstowhichourattentionhasbeendirectedfrom

whichsuchapowercanfairlybeimplied.”SincethiscasetheSupremeCourthascontinued

tobeabulwarkagainstunilateralencroachmentbytheexecutivebranchintothepowersof

thelegislativebranchandinrecentcasessuchasYoungstowninMedellínv.Texas,122Chief

JusticeRobertsindeliveringtheopinionofthecourtreferencedtheYoungstownSheet&

TubeCo.v.Sawyercasewhenhewrote,“Suchconsiderations,however,donotallowusto

setasidefirstprinciples.ThePresident'sauthoritytoact,aswiththeexerciseofany

governmentalpower,‘muststemeitherfromanactofCongressorfromtheConstitution

itself.’”

118Schick.160.119Roosevelt,FranklinD.“PresentationofBrownlowReporttoCongress”January12,1937.120Bolton,JohnR.TheLegislativeVeto.AEIPress.1987.Page8.121343U.S.579(1952)12206-984(2008)

73

Therehavebeenoccasionalchallengestothedecreaseinspecificityofthe

intelligibilityprinciplesallowedindelegation.TheD.C.CircuitruledthattheEPA’s

implementationoftheCleanAirActviolatedtheintelligibilityprinciple.TheSupremeCourt

lateroverturnedthisruling,butitshowsthelegalityissueisstillanactivequestion.In

addition,inAFL-CIOv.AmericanPetroleumInstitute,123theSupremeCourtruledthatthe

regulationbyOSHAwhichwasinquestioninthecasewasnotallowableinthatcongressdid

notprovideanadequateintelligibilityprincipal.Morerecently,inClintonv.CityofNew

York,124theSupremeCourtruledthattheLineItemVetoActof1996whichdelegatedtothe

presidentthepowertounilaterallyamendlaws,wasunconstitutionalasitviolatedthe

PresentimentClause.Howeverthetrendtowardsprogressivelymoredelegationhas

continued.

Theneteffectofallthisdelegationisthatagenciesarenowcreatinglawandsetting

policy.Therearethreetypesoflaws:thelegislativelawcreatedbycongress,the

administrativelawscreatedbyanorganization,andcommonlawcreatedthroughthe

congress.Thereisnodifferenceinthevalidityofthesethreetypesoflawsasfarasthelaw

isconcerned.Whatismore,bothlegislativelawandadministrativelawaretoolsthatcan

anddogetusedtocreatepublicpolicyonbehalfofthenation.

DelegationitselfappearstoruncontrarytoArticle1Section1oftheUnitesStates

Constitution.ThatsectioncontainsthesocalledVestingClausethatstatesthat,“All

legislativePowershereingrantedshallbevestedinaCongressoftheUnitedStates,which

shallconsistofaSenateandHouseofRepresentatives.”Thisclearlylaysoutthatall

legislativepowersresideincongressandwasinitiallyinterpretedasdisallowinglegislative

powerstobeexercisedbyexecutiveagenciesthathavebeendelegatedsuchpowersby

congress.Itwasfeltthatinmanycasesofdelegation,thefundamentalpowersdelegated

werelegislativeratherthanexecutiveandthuswereexpresslyforbiddenbythetextofthe

constitution.ThisinterpretationwasoftensupportedbytheSupremeCourtwhointhecase

ofShreveportGrain&ElevatorCo.,125said,“thelegislativepowerofCongresscannotbe

delegated”.

123448U.S.607(1979)124524U.S.417(1998)125287U.S.77,85(1932)

74

InthecaseofWaymanv.Southard,126ChiefJusticeMarshallarguedthatrule-making

powerwasalegislativefunction.Thusdelegationcouldnotbejustifiedbymerely

proclaimingthattheregulationsandrulespropoundedbyagenciesaremerelytheexecutive

branchperformingexecutivefunctions.Whiletheexecutivebranchisvestedwiththe

powertocarryoutandenforcethelaw,thecreationoflaw,evenadministrativelaw

remainsalegislativepower.

Asubsetofdelegationinwhichcongressgivesawaysomeofitspoweriscontingent

legislation.Inthissortofdelegation,congressdeterminesactionstobetaken,butgivesthe

executivebrancharoleinwhichitoftentriggerstheseactionstotakeeffectthroughthe

actionsordeterminationsoftheexecutivebranchactor.AnexampleofthisisTheBrig

Auroracase.127Inthis1813SupremeCourtcase,congresslegislatedthatafterthe

expirationofrestrictionsonBritishtrade,thattheywouldbereinstatedunlessthepresident

madethedeterminationthatBrittanhadceasedtoviolatetheUnitedStatesneutrality.In

thissituation,whethertheserestrictionswentintoplaceornotwerecontingentupon

presidentialaction.Therehavealsocasesbeencasesinwhichcontingentdelegationwas

upheldwherethecontingencyrestedupontheactionofprivateindividualsorgroups.Thus

thoseaffectedbycongress’legislationareabletochangetheeffectsofthelegislationand

haveauthorityessentiallydelegatedtothemduetothisprivilegedpositionasapolitical

actor.

Delegationismorecommonandviewedmorefavorablyinthecourtsincertain

policyareassuchasthosethatareviewedasbeingsharedareasofpolicycreationforthe

executiveandlegislativebranchesoronesinwhichthepresidentisviewedtohaveprimacy.

Anexampleofthisisforeignaffairsinwhichthepresidentistypicallyviewedashaving

primacy.ThiscanbeseeninUnitedStatesv.Curtiss-WrightExportCorp.,128inwhichthe

opinionofthecourtstates,“Ininternationalrelations,thePresidentisthesoleorganofthe

FederalGovernment.Inviewofthedelicacyofforeignrelationsandofthepowerpeculiar

tothePresidentinthisregard,Congressionallegislationwhichistobemadeeffectiveinthe

internationalfieldmustoftenaccordtohimadegreeofdiscretionandfreedomwhich

12623U.S.1(1825)12711U.S.(7Cr.)382(1813)128299U.S.304(1936)

75

wouldnotbeadmissibleweredomesticaffairsaloneinvolved.Themarkeddifference

betweenforeignanddomesticaffairsinthisrespectisrecognizedinthedealingsofthe

housesofCongresswithexecutivedepartments.”Thuswhiletherulesthatgovernwhat

kindandamountofdelegationareacceptableareforthemostpartnotdependentonthe

specificissuetobedecided,therearecertainprivilegedareasinwhichcourtshave

determinedthatmoreleewayisneededandcanbegivenbecongresstothepresidentor

otherpartsoftheexecutivebranch.

Anotherareainwhichthepresidentandthecongressshareresponsibilityis

oversightofthemilitary.TheUniformCodeofMilitaryJustice(UCMJ)givesthepresident

considerablepowerovertheadministrationandrunningofthemilitary.Thiswasupheldin

acourtdecisioninLovingv.UnitedStates,129whichallowedthisdelegationofthepowerto

determinethestandardsforthemilitarytoimposecapitalpunishmentfromthecongressto

thepresident.Asthecourtconcludedinthiscase,“ThePresident'sdutiesasCommanderin

Chief,however,requirehimtotakeresponsibleandcontinuingactiontosuperintendthe

military,includingthecourtsmartial.Thedelegatedduty,then,isinterlinkedwithduties

alreadyassignedtothePresidentbyexpresstermsoftheConstitution,andthesame

limitationsondelegationdonotapply,"wheretheentityexercisingthedelegatedauthority

itselfpossessesindependentauthorityoverthesubjectmatter.”Thustheconjoiningof

presidentialandcongressionalpowerchangetheacceptabilityofdelegation.

Converselyithasbeenfoundthatsomeareasrequireahigherstandardfor

delegationsuchaswhenthereisdirectimpactontherightsofthepeople.Anexampleof

thisisKentv.Dulles,130inwhichtheStateDepartment’srestrictionoftherighttotravelin

thiscasewasfoundtobeaninfringementuponpersonallibertyandruledthattheSecretary

ofStatehadexceededtheauthoritydelegatedtohimbythecongress.

BesidesArticle1oftheU.S.Constitution,delegationmustbeinaccordancewithall

othersectionsoftheconstitutionaswellforittobeconstitutional.Oneareainwhich

delegationmaynotbeinstrictaccordancewiththeconstitutioniswithregardstodue

processoflaw.TheFifthAmendmentlaysoutthatthegovernmentmaynotdoharmtothe

129517U.S.748(1996)130357U.S.116(1958)

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life,liberty,andpropertyofacitizenwithoutdueprocessandthisisonceagainreaffirmed

intheFourteenthAmendment.Thusifdelegationdoesnotprovidefordueprocessorisnot

inkeepingwiththistenantitwouldnotbeconstitutionalforittoimpingeonlifelibertyor

property.Bymeredintofbeingaregulationuponactionmanyagencyregulationsand

piecesofadministrativelawarebytheirnatureimpingementsuponliberty.Thustoassure

ourselvesoftheconstitutionalityofthesecasesofdelegationthispaperinvestigates

whetherdelegationcomplieswithsubstantiveandproceduralprovisionsdueprocess.This

proceduraldueprocesscantaketheformofinformingthosewhoserightswillbelimitedor

whootherwisewillbeadverselyaffectedbyanadministrativelawtobeinformedpriorto

thelawtakingaffectandallowingtheaffectedpartyorpartiestohavelegalrecourseto

challengethelaw.Substantivedueprocessstopsthegovernmentandinthiscasethe

agencyorentitythathasbeendelegatedpowerfromimpinginguponanyfundamental

rightsgrantedintheconstitutionsuchasthosegrantedintheBillofRightsaswellas

unenumeratedrightsthatareviewedasfundamentalsuchasprivacyorself-dignity.

2.2.3TypesofDelegation

Therearemanytypesofdelegationeachwiththeirowncharacteristics.Manyof

thesetypesofdelegationareformsofexplicitdelegationtoothergovernmentalentities

suchaswhencongresspassesabillthatcedesitspowertotheexecutivebranch.However,

thereisalsoimplicitdelegationwhentheexecutivebranchassertsapowerthatwas

specificallyreservedforcongressandwhichcongressdoesnotquestion.Thisisdelegation

ofpowerbecauseoneentity,thecongress,hasitspowertransferredtoanotherentity,the

executivebranch,andneitherbodyperceivesacompellingneedtostopthistransferof

power.

Inthedelegationprocess,therearealsomultipletypesofagentsthatcanbethe

recipientsofdelegatedauthorities.Amongthesepotentialagentsarethepresident,adhoc

commissions,cabinetmembers,andexecutiveagencies.Thelattercategoriesincludessuch

organizationsasdepartments,independentregulatorycommissions(e.g.Securityand

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ExchangeCommission),agenciesintheExecutiveOfficeofthePresident(e.g.Officeof

ManagementandBudget),andindependentagencieseachwithdifferinglevelsofauthority

andfreedomfromcongressandthepresident.

DepartmentssuchastheDepartmentofDefense(DOD)aretypicallylarge

organizationsrunbymembersofthepresident’scabinet.Duetothefactthatexecutive

agenciesareheadedbycabinetmemberswhoserveatthepleasureofthepresident,they

tendtobemorecommittedtothegoalsofthesittingpresident.Theywouldthusbemore

likelytobewhomthepresidentfavorshavingpowerdelegatedtointheeventofacrisis.

Independentagencies,suchastheOfficeofPersonnelManagement,arethose

organizationsthatareseparatedfromtheday-to-dayoversightoftheexecutive

departments.Thus,theyarenotheadedbymembersofthepresident’scabinet,butrather

arerunbyagencyheadswhoareharderforthepresidenttodismiss.Therefore,these

agencieshavemorefreedomofactionfromthecongressandarelesstiedtothepresident’s

agenda.Furthermore,theseagenciesareoftenledbyaboardorcommissionratherthana

singleleader.Theboardmembersorcommissionersservelongertermsthatareoften

staggeredsothatapresidentcannotstacktheagencywithhisownpartisans.Inaddition,

manyoftheseagenciesarestructuredsothattheirboardmustbebipartisan.Congressalso

islimitedwithregardtowhatactionitcantaketoinfluenceindependentagencies.For

example,itcannotappointcommissioners.Inaddition,membersofcongresscannotserve

ascommissioners,ortakepartintheremovalofcommissionersexceptthroughthe

impeachmentprocess.Thisisolatesandprotectstheseorganizationsfromcongressand

thuscongresshaslessabilitytooverseetheseorganizations.Thiscanaffectcongress’

willingnesstodelegatetoagencies.Overallsignificantpowerhasshiftedtoagencies.

Agenciesdonotjustholdhearingsinwhichtheymakejudicialdecisionsandpotentiallydole

outpunitivepenalties;theyalsodecidewhichcasestohavehearingson.Thisprosecutorial

powerstrengthensthejudicialpowerthattheagentshold.

Thesetypesofagencieshavedifferingcapabilities,inclinations,andpolitical

relationsandthereforesomearebettersuitedforparticularsortsofdelegationthanothers.

Duetotheirnatures,someareinnatelymorelikelytobetrustedbycongresswithgreater

delegatedauthorityandfewerconstraints.Likewise,thereasonsfordelegationwilldiffer

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betweendifferentagenciesandconsequentlydelegationstodifferentactorswillleadto

varyingresultsbytheverynatureoftheagencydelegatedtoregardlessoftheirpolicy

specialties.Thisisalsotruewhenthedelegationistoactorsotherthanagencies.

Delegationneednotbetoothernational-levelpoliticalactors.Itcanalsobeto

individualstates,localgovernmentsoreventoprivatelyownedentities.Forinstance,the

EnergyPolicyActof2005grantedauthoritytoanon-governmentalnonprofitorganization,

theNorthAmericanElectricReliabilityCorporation,tocreatemandatorystandards

governingtheoperationandaccreditationofelectricpowersystems.Therehavebeen

casesinwhichdelegationtotradegroupsandotherprivateentitieshavebeenoverturned

bytheU.S.judicialsystemsuchasCarterv.CarterCoalCo.,131whichfoundtheBituminous

CoalConservationActasbeingunconstitutionalinnature.Typicallythough,thecasesthat

havenotuphelddelegationhavebeenoverturnedonothergroundsthanthespecific

delegationitself.

Onetypeofimplicitdelegationisgivingthepresidentadvisoryorfirstmoverrolein

thecreationoflegislationandothercongressionalpowers.Thishasbeendoneinareas

suchasdevisingthebudget,wardeclarations,andtreatycreation.Thoughthepresident’s

actionscanbecountermandedorignoredbycongress,thispowertoactfirstoftenallows

thepresidenttoeffectivelycontrolthepolicybeingmadeandistherebydelegation.Inthe

wordsofSundquist,“anydelegationtotheexecutiveofauthoritytoactonmatterson

whichtheCongresshascustomarilyactedisashiftinpowerfromthelegislativetothe

executivebranch.EvenifCongressdelegatestothepresidentnomorethanthe

responsibilitytorecommend,totheextentthattherecommendationsarenotseriously

reviewedandthereforebecomecontrolling,theexerciseofgovernmentalpowerhasmoved

betweenthebranches.”132Thesumtotalofallthisdelegationisastrengtheningofthe

executivebranchandanincreasingofpresidentialpower.AsHuntingtonstates,“the

initiativeinformulatinglegislation,inassigninglegislativepriorities,inarousingsupportfor

legislation,andindeterminingthefinalcontentofthelegislationhasclearlyshiftedtothe

131298U.S.238(1936)132Sundquist,JamesL.TheDeclineandResurgenceofCongress.BrookingsInstitutionPress.1981.12

79

executivebranch.”133Thisfirstmoverpowerisusedtothefullestbypresidentswhenfaced

withacrisisandmagnifiestheirotherpowers.

2.2.4PrincipalAgentTheory

Inprincipalagenttheory,aprincipaldelegatesauthoritytoactontheirbehalftoan

agent.Inthecaseofcongressionaldelegation,theprincipalisthecongressandtheagentis

theagencyentrustedwiththeauthoritythatcongressisdelegating.Congressitselfisan

agentactingonbehalfofitsconstituents,thepeople.Eventhispictureisamajor

simplificationascongressismadeupoftwohouseseachcomprisedofnumerous

individuals,whointheU.S.politicalsystemwithrelativelyweakparties,areeffectivelyfree

agentswiththeirowngoals.Furtherascongress’membershipandagencyheadschange

overtimetheagentsandprincipalsarecontinuallyevolvingandchanging.Inaddition,

complicatingthispictureistheroleofthepresident.Thepresidenthasaprivilegedposition

inthissystem.

Manyscholarlyworksattemptingtodescribetheactionsofcongressindelegating

awayitspowerhavereliedonprincipal-agenttheory.134Theseworksoftencometo

differingconclusions.Typicallytheysimplifythesituationandpresumeasingleprincipal

andagenttoaccordwiththeresearchoftheconsequencesofaprincipalagentsituation.

Thisgivesageneralframeworktoinvestigatethephenomenaofcongress’willingnessto

delegateactionsandtheconstraintsitplacesonitsagent,butitignoresmuchofthe

interlockingsystemofactorsandthusitsconclusionsmustbebroughtintoquestion.

Thereisatradeoffbetweenbetteragencyleadershipbytheagentandincreased

responsivenessfortheprincipals.Astrongagencyheadwillbeabletoleadtheagency

betterthanaweakoneandamoreencompassingdelegationofauthoritytotheagencyis

alsolikelytoattractstrongercandidatestotheposition,howeverastrongagencyheadwill

tendtobelessresponsivetoboththecongressandthepresident.Responsivenessis

133Huntington,SamuelP.“PoliticalDevelopmentandPoliticalDecay.“WorldPolitics,Vol.17,No.3(Apr.,1965).134KiewietandMcCubbins.1991.

80

importantforcongressasitenablescongresstodocaseworkandhelpsensuretheagency

doesnotdeviatefromcongress’wishes.Thepresidentalsobenefitsfromagency

responsivenessasitcanimprovetheperceptionofhisabilitytoleadthegovernmentand

canhelphimorherimplementnewpolicy.

Theprincipalhastheobjectiveofcontrollingthosetowhomtheydelegatepower.

Theythuswilloftenneedtocreatearewardandpunishmentsystemtoensurethatthose

withthedelegatedpowersareincentivizedtoactinwaysthattheagentwouldwantand

havetheirinterestsalignedwiththoseoftheagent.

Institutionsandmethodsofcreatingpolicyareusedtoprovidebenefittopoliticians

thatbuiltthem.Thiscanbebyminimizingpoliticalrisktoriskadversepoliticians,

channelingbenefitstokeyconstituencies,orimprovingperceptionsofpoliticians.Thegoal

oftheagentisnotalwaystocreatethebestpolicyforthenationortheirelectorateand

thuswhatoversightthatcongressprovidesmightbegearedtowardskeepingtheagenton

theirownagendaandgoalsratherthanontheagentsortheelectorate’s.

Principal-agenttheoryhasoftenusedbeenusedtoanalyzecongress’delegationof

authoritytothebureaucracy.Thistheoryhoweverisoverlysimplisticasthereareatleast

twoprincipalsinthiscase:thecongressandthepresident.Thebureaucracyactsatthe

behestofboththecongressthatinitiallygrantstheauthoritytotheagencyaswellasthe

presidentthatheadstheexecutivebranchtowhichexecutiveagenciesbelong.Boththe

congressandpresidentareinterestedincontrollingtheactionsoftheagencysothatit

correspondstotheirpreferredcoursesofaction.Theagencyanditsleadershoweverhave

theirowngoalsandwishtomaintaintheirfreedomofaction.Thusthereisaninterplay

betweenthesethreeactorswhowishtoeachgettheirwayandwhichthusconsequently

mayhaveincentivestoplaytheotherorganizationsagainsteachother.Likewisetheymust

takeintoaccountthedesiredoutcomesoftheotherentities.Thusthewillingnessofthe

congresstodelegateauthoritytoanagencyandtheconstraintsthatitusesaredependent

onthepresident’spartyandpriorities.Likewise,conflictbetweenthepresidentandthe

legislativebranchwillleadtolessdelegation.

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Thisleadstoamultifacetedpoliticalsituationinwhichactorsmustestimatethe

policypreferencesandabilitytoenactchangesofotherpoliticalactors.Likewiseeven

withincongresstherearedifferentfactionsandfurthermorecongressandthepresidentwill

changeovertime.Thecurrentcongressisawarethatitmayhavedifferentpreferences

thanafuturecongressandthusmaywishtohandcufffuturecongressestofollowthe

existingcongress’preferences.Oftenaswitchinthepartyincontrolofcongresschanges

theactionsofcongressanditsrelationtotheagencyitdelegatedto.Theyalsoareawareof

thefactthatpresidentschangeovertimeandthustheymustfactorthisintotheircollective

decisionmaking.Thuscongresssometimefindsitinitsbestinteresttolockinthestatus

quo.Thiscanbeachievedmanyways.Oneoftheseisrelyingonthebureaucracy.Typically

bureaucracylikestodefendthestatusquoandresistschangefromtheheadoftheagency,

thepresident,orcongress.Becauseagenciesdonotturnonadime,congresscancounton

delegationstoanagencytocementitswishes.

Gaugingintentionscanbedifficult.Oftenwhatisstatedpubliclyisnotthewhole

pictureoranactor’strueintensions.Evencongressmayhavedifferinggoalsduringthe

policyformulationandlegislationphasesasitdoesduringpolicyimplementation.Itcanuse

legislationasasignalingmethodthoughitmaywishtosignaldifferentpolicypreferences

andactionsthanitinfacthas.Congresscanthusunderthecoverofbureaucraticactionand

theobscurityanddisinterestintheprocessthatthisengenders,ensuretheirtruepolicy

preferencesarefolloweddespitetheirstatedintensions.

Theprincipalswillvaryinrelativepowerandinotherattributesthatwillaffecttheir

abilitytoshapeagencyactions.OnewaytothinkofthisisNeustadt’sdescriptionof

presidentialpowercomingnotjustinnatelyfromhispositionbutalsofromtheperception

ofthepresidentbothbycongressandagentsandbyhowtheyjudgethepopulaceatlarge

toviewthepresident.Ashestatesit,“EffectiveinfluenceforthemanintheWhiteHouse

stemsfromthreerelatedsources:firstarethebargainingadvantagesinherentinhisjob

withwhichtopersuadeothermenthatwhathewantsofthemiswhattheirown

responsibilitiesrequirethemtodo.Secondaretheexpectationsofthoseothermen

regardinghisabilityandwilltousethevariousadvantagestheythinkhehas.Thirdarethose

men'sestimatesofhowhispublicviewshimandofhowtheirpublicsmayviewthemifthey

dowhathewants.Inshort,hispoweristheproductofhisvantagepointsingovernment,

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togetherwithhisreputationintheWashingtoncommunityandhisprestigeoutside.”135

Thusdifferentpresidentswillbeatvaryingpowerdifferentialswithregardtocongressand

willthushavegreaterorlessinfluenceonagencyheads.Similarlyovertimeasthepolitical

fortunesofapresidentwaxandwaneandperceptionsofthejobheorsheisdoingshift,the

presidentwillfindarelativestrengtheningorweakeninginhispowertoinfluenceagency

staffwhencomparedtotheseabilitiesofcongress.

EvenacceptingKernell’shypothesisthatpresidenthaveshiftedtomoreofa

confrontationalratherthanabargainingapproachtoachievetheirendsandinfluenceother

politicalplayers,136onecanstillseethatthepresident’spoliticalstrengthandconsequent

abilitytoprevailinhisappealwillbeheavilydependentonperceptionsofhim,hispotential

strength,andperceptionsofhowothersviewhim.Andevenunderthisnewerhypothesis,

theassumptioniskeptthatthepresidentdoesnothavecoercivepowertoforcehis

prescribedcourseofaction,butrathermustworkwithandinfluenceotherstoachievehis

ends.Itcanbeseenfromthisthateventhoughthepresidentmaytechnicallyleadthe

executivebranchthatinsomeinstancesthepresidentmaynothavesignificantcontrolover

agencyheadsandmayneedtoenlistotherssuchascongresswhenattemptingtoassert

authorityoveragencies.

Interestgroupsalsobattletoguideagencyactionsandshapepolicy.Theylobbythe

agency,congress,andthepresident.Oftentheytargettheirlobbyingtowheretheyfeel

theywillgetthemostbenefitfortheirexpenditures.Thiswilloftenleadthemtolobbythe

agencyheadorcongressmembersonthecommitteethatoverseestheagency.Thusthey

canaffectthesystemaswell.Insomecasestheymaywanttoweakenagenciesand

decreaseitsabilitytoenactchangeorperformitsduties.TerryMoelaysthisoutsaying,

“Opponentswantstructuresthatworkagainsteffectiveperformance.Theyfearstrong,

coherent,centralizedorganization.Theylikefragmentedauthority,decentralization,

federalism,checksandbalance,andotherstructuralmeansofpromotingweakness,

confusion,anddelay.”Helatergoesontosumupbystatingthat,“oppositiongroupsare

135Neustadt,Richard.PresidentialPowerandtheModernPresidents:ThePoliticsofLeadershipfromRoosevelttoReagan.NewYork:FreePress,1990.P.150.

136Kernell,Samuel.GoingPublic.CQPress,2006.

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dedicatedtocripplingthebureaucracy.”Clearlythisconjectureimpliesthatfactionsdonot

alwaysstriveforefficiencyandthusthatagenciesarenotperfectlyrational.Inaddition,

membersofCongressandagenciescareaboutspecificpartsofthebureaucracywhereas

thepresidentwouldwanttheentiregovernmenttorunbetterandtobemorerational.

Furthermore,“thepresidentwilltrytoensurethatagencybehaviorisconsistentwith

broaderpresidentialpriorities.”137

Thepresidentandcongressbothtrytoshapeinstitutionstogivethemselvesalasting

politicaladvantage.Thepresidentforhispartbenefitsfromacentralizationofpowerand

thetendencyofcongresstodelegateitsauthoritytotheexecutiveagency.Thepresident

thuswilltrytoreinforcethesetrendsandfurthercentralizepowerifpossible.Startingwith

FranklinD.Roosevelttherewasashiftinthepresident’sactionsasthepositionbecame

morepoliticizedandinreactionasthepresidentattemptedtostrengthenhispositionby

shapingandstampinginstitutionstoallowgreaterleverageoverpolicymakingthrough

actionssuchascentralizingpolicycreationandpoliticizingtheappointmentsofagencystaff

toensurehispreferences.Thenaturalresponseofcongresstowardsthepresident’s

consolidationofpowerwouldbetostrengthenitsownpositionandtotakestepstoweaken

thepresident’snewpowerbase.Thestructureofthepoliticalenvironmentcanshapethe

interplayofthepoliticalactorsindomesticpoliticssuchasthesejustassharplyasa

multinationpowerdynamicsguidestheactionsofnation-states.Thepresidentdoesnot

solelyseektogainpowertoenactpersonalpolicypreferences,buthasothergoalssuchas

reelectionandcarvingoutanimpressivehistoricallegacyandthesegoalsalsogivepresident

causetotrytoincreasehisinfluenceoverthebureaucracyandhisleverageoverother

politicalplayers.Foronethingthisstrengthisviewedas“presidential”andalsoitcanbe

usedtofurtherthesegoalsbyenablingthepresidenttoachieveorappeartoachieve

popularinitiatives.Thepresidentisjudgedbymanyfactorsandamongthesehisabilityto

functionasalegislatorandgetproposedlawspassedandasanadministratorinhisrole

overseeingandleadingthebureaucracy.

Withmultipleprincipals,itisoftenincongress’interesttoprotecttheiragentsfrom

executivecontrolbylimitingaction,bystrengtheningthem,andgivingthemstructural

137Moe,Terry.“ThePoliticsofBureaucraticStructure”inPrinciplesandPracticeofAmericanPolitics:ClassicandContemporaryReadings.5thEdition.CQPress.2012.Pg.332.

84

advantagessuchthattheagencyheadortheorganizationwillhavetheabilitytoresistthe

president.Therecanalsobeattemptstochangetheclimateorcultureofanorganizationto

resistexecutiveinterference.ThisgoeshandinhandwithMoe’sargumentthatbyinstilling

acultureofprofessionalisminanagencythatthiswillbuttresstheagencyandenableitand

encourageittobetterresistoutsideinterference.138

Inaddition,otheragenciessuchastheappropriationscommittee,thesocalled

guardianofthetreasury,canhaveabigeffectonactionsoftheagency.Thoughittypically

doesnothavealargeeffectontheinitialdelegationofpower,throughitscontroloffundsit

cangreatlyaffecttheabilityofanagencytoperformthetasksassignedtoitanditsabilityto

overreachortoperformactionsnotapprovedofbycongress.Likewisethebudget

committeeandanumberofsubcommitteescanaffectthecourseofdelegationandthe

actionsoftheagent.

Thepresidenthasmultiplewaystocontrolagencies.Hehasthepowertoappoint

andremovetheheadandseniormembersoftheagency,hehastheabilitytorestructure

theexecutiveagencyandthiscanexertconsiderablepressureonagenciesandalso

decreasetheimportanceofanorganization.

Congressforitspartcanthreatentoeliminateanagencyorprogram.Thisnuclear

optioncanhelpkeeptheagencydoingcongress’will.Likewisethepresidentunderthe

ExecutiveReorganizationActcanreorganizetheexecutivebranchandcollapseormove

functionstoeithermitigateunwantedbehaviororasapunitiveaction.Whilethisneedsthe

approvalofcongress,itisapowerfultoolthatthepresidenthasathisdisposal.

ThepresidentandtheOfficeofManagementandBudgetalsoevaluatethebudgets

ofagenciesandhecantakeinformalactionorformalactionstocurtailagencybehavior.

Beyondhisorherabilitytopersuadeandexactpoliticalleveragetoswayanagency’s

actions,heorshecanalsoissueanexecutiveorderthatdirectlydirectsanagencyorits

staff.

Thepresidentcaninfluencethingsthroughbargainingandtradingfavors.Heis

neededbymanyandisabletotradethisneedfortheabilitytoinfluenceothers.Neustadt

138Moe.1989.

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arguesthattherearemanythingsexpectedofthepresidentthatarenotstrictlywithinhis

controlorlegalpowers.However,hemusttakestepstofulfilltheserolesthatthepublic

expectsofhim.Theseareasincludetheeconomicsinwhichthepresidenttraditionallyhas

littlepowertoaffectresults.Therearecompetingfactionsthateachtrytogettheirideas

enacted.Alsothepubliclookstothepresidenttobealeaderandsohemustcomeupwith

plans,trytosetanagenda,andgethisproposedsolutionenacted.Poweristheabilityto

enactchangesandgetpeopletodowhatiswanted.Commandingcanbeusedinsome

situationsandpersuadingcanbeusedinothersituations,buteachhasitsplaceandcertain

situationsinwhichitismostappropriate.Hispowertopersuadeisbolsteredbysuccess,

popularity,andstrength.Thepresident’sreputationshapeshowheisperceivedandhow

othersdealwithhim.ThisisaffectedbothbytheopinionsofhiminWashingtonaswellas

thoseinthecountryasawhole.Strongpopularitycanhelpstopresistanceandbuild

consensusforthepresident’splans.Thepresidentmustusehispowerefficientlyand

ensurethathisopinionstaysstrongsohewillcontinuetobeabletoinfluencepolicy.The

presidentcanpersuadethecongress,interestgroups,thepublic,andagencies.

Thepresidentcanalsotakestepstoshapetheinstitutionsandpoliticalclimate

aroundhim.Theseareneitherstaticnorstableandhisactionsarecapableofaffectingitin

anumberofwaysbothintentionallyandunintentionally.Theexistinginstitutionalstructure

affectsitsactionsandsothepresidenthastotakethoseintoaccountandtriestomodify

thosetoallowforbetterresults.Thiscanbebroughtaboutthroughthecreation,closure,

andmodificationofagenciesandotherentities.Itcanalsobedonethroughchangingthe

relationsbetweenentitiessothatoneinfluencesanotherinwayspositivetothepresident’s

goals.Thepresidentalsobenefitsbycentralizingdecisionmakingaswellaspowersothat

hehasmorelevershecanpresstogethispolicyenacted.Implementationofaspecific

policyisnottheonlygoalofthepresident.Hetypicallyalsowantsanefficientgovernment

aswellasonethatisresponsiveandthathecancontrolinatimelyfashion.Hethusalso

willattempttoachievethesegoalsaswellsincetheyreflectpositivelyonhimandleadtoa

bettergovernment.Thepresidentbyhimselfisunabletocompletelyreshapethese

institutions,andevenwithhisattemptingtopersuadecongresstherearelimitationstothe

scopeofthechangethatispossible.Suchdividedgovernmentcanencourageinter-branch

governing,whentheroleofcreatingpolicybecomesamultipleentityaffair.

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Congresshoweverdoesnotalwayscarethatdeeplyaboutthedetailssincetheseare

typicallynotinthespotlightofthepubliceye.Makingthecommonassumptionthat

congressmembersarerationalactorsandthattheirmaingoalisreelection,theyoftenhave

littlereasontofocustoointentlyorspendtoomuchpoliticalcapitaloncurbingfuture

actions.

Theheadofanagencyhasmanygoalsthattheywishtoachieve.Amongtheseare

increasingtheirdiscretionarybudget,protectingthesizeoftheirfiefdom,andincreasing

theirpower.Thustheagentwillseektomaximizethesebeforeworkingontheprioritiesof

thepresidentandcongress.However,realizingthis,congressandthepresidenttrytoalign

thesegoalswiththeirgoalsandcangiveabiggerbudgetasarewardforapprovedof

behaviororthreatencutsforanintractableagencyhead.Inadditionthosewhoworkforan

agencyhavemoreknowledgeabouttheiractionsaswellasaboutcausesandeffectsof

policy.Thiscanleadtoanagentfeelingthattheyknowbetterthantheprincipalabout

whatisthecorrectcourseofactiontotake.

Anagencycangobeyondcongress’intentionsthatwereimplicitinthebillthat

delegatedpower.AsNiskanenargues,theagencyisoverseenbyacommitteewhose

memberscaremoreabouttheissuethancongressingeneral,arehappierwithincreased

agencyaction,andaremorewillingtopursueanincreasedbudgetforagenciesthey

overseethanthemedianfloorvoter.139Alsoduetothecostsofoversight,membersof

congresswilltendtofreerideandunderproducethecommongoodofoversightandgood

governance.Thisonlyaddstothealreadydifficulttaskofoversightinwhichthereisan

asymmetryofdatathatgivestheagencybeingoverseenseveralkeyadvantagesoverthose

overseeingthem.Thislackofoversightcontrastswiththetragedyofthecommonsofthe

pooloffederalresourcesavailabletofundorganizations.Deficitspendingisanatural

consequenceofmembersofcongressreceivinglittlebenefitfromdecreasingspending.

Timeisanotherfactorinanalysisoftherelationbetweentheprincipalsinvolved.It

changestherelationsbetweenthepoliticalactors,thegoalsofthepoliticalactors,andthe

actorsthatareinvolvedinthesystem.Itisanothertypeofuncertaintyofwhichthereare

139Niskanen,WilliamA.“BureaucratsandPoliticians.”JournalofLawandEconomics.18(December):617-43.1975.

87

numerousdistinctcausesparticularlyinasystemcomposedofthecounterbalancingof

numerouscompetinginterests.Manyactorssuchasagencyheads,whethercareer

professionalsorpoliticallyappointed,seektominimizetheirpoliticaluncertainty.House

ruleschangeasaresultofshorttermpoliticalgainnottoimproveefficiencyandthis

tendencyofthepoliticalframeworktochangeisariskofkeepingpolicydecisionswith

congress.140Manyinitiativestakemanyyearstoimplementandtheresultsofthepolicy

maynotbeclearforasignificantperiodwhilecostsofthepolicymay.Thiscanmakeit

difficultforcongresstocreategoodpolicy,asitisliabletochangeapolicybeforeitbears

fruits.Examplesofthissortoflongtermpolicydecision,istheadoptionandfosteringofa

technologysuchasgreentechnologies,achangeinmethodologyofeducation,a

transportationpolicy,oraborderpolicy.

Thereareanumberofwaysthatcongressorthepresidentcanattempttoguidean

agency.Amongtheseareconstraints,empathy,threat,reward,structuralmeans,and

culturalmeans.Theagencyforitspartcanresisttheseandpushbackinanumberofways.

Thecanincludebringingtheirviewstothepublicbyharnessingthemedia,byworkingwith

interests,orbyplayingoneprincipalagainstanother.Theyalsosometimesemploya

strategyofstrategicavoidanceinwhichtheagentignoreswhattheprincipalsays.

Whiledelegationcanimproveefficiencyandefficacysuchaswhenamanhiresa

lawyertodefendhimratherthandefendinghimself,therearetwotypesoflossesthatare

intrinsictodelegation.Thefirstoftheseisagencyloss,whichoccursduetoamisalignment

ofthegoalsoftheagentandtheprincipal.Inordertorectifyagencyloss,theprincipalhas

totakeactionssuchasoversightandthistoocanleadtothesecondtypeofloss,whichis

inefficiencyofhavingtoperformtheseactionsandoversight.Thisisknownasagencycost.

AnexampleofagencylosswastheearlyhistoryoftheOfficeofInformationand

RegulatoryAffairs(OIRA),whichwasestablishedbythePaperworkReductionActof1980as

anofficewithintheOMB.141OIRAwasdesignedtomanageandoverseehowthe

governmenthandledinformation.HoweverthroughtheuseofExecutiveordersOIRAwas

140Binder,Sarah.“ThePartisanBasisofProceduralChoice:AllocatingParliamentaryRightsintheHouse,1789-1990.”AmericanPoliticalScienceReview.Vol.90,No.1(Mar.,1996),pp.8-20.

141KiewietandMcCubbins.1991.P.180.

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directedtoconductcost-benefitanalysesofregulationsproposedbygovernmentagencies

andbecameacentraloverseerofotheragencieswiththepowerstoconducthearingsand

otherdatacollectionandanalysisinordertogaugethedesirabilityoftheproposed

regulation.142Inpractice,OIRAuseditsprivilegedpositionasacentraloverseerof

proposedrulesandregulationstoforestallproposedpiecesofadministrativelawthat

thoughpopularwiththedemocraticallycontrolledcongressanditssupporters,runcontrary

tothepolicygoalsoftheRepublicanadministration.Thuscongresscreatedanagencyto

improvetheeffectivenessofgovernmentandayearlaterthenewagencysubvertedits

missionandbegantoruncontrarytothewishesofcongress.Iteffectivelyallowedfora

backdoorvetoofregulationsandrulesproposedbyagencies.

ItwasnotmerelyOIRAthathadgainedthispower,butalsoinlargepartthe

president.ThepresidentisabletoexertconsiderableinfluenceontheExecutiveOfficeof

thePresidentandbyextensionOIRAthatispartoftheExecutiveOfficeofthePresident.

Thisallowedhimtopursuehisownagendaandcurtailgovernmentactionswithwhichhe

disagreed.Ultimatelythecongresswasabletoreelintherogueagencybycuttingoff

agencyfundingandlaterbypassinglegislationthatmadetheheadofOIRAsubjectto

Senateconfirmationandbyrestrictingtheuseoffundstobehaviorthatcongressfound

unobjectionable,butithasbecomeausefulpresidentialasset.

Thisshowshowoversightandconstraintscanbeusedbycongresstokeepagencies

betteralignedandintunetothegoalsofcongressandtherebytodecreasetheagencycosts

thatcanoccurduetodelegation.OIRAshowedhowagovernmentalentitycanbeusedto

decreasetheeffectivenessofanothergovernmentalentityandtherebyleadtopolitical

gainsforsomesetofpoliticalactors.WhiletheblatentnessofOIRAsactionsdecreased

subsequenttocongressespassinglegislationtocurbOIRA,therehavecontinuedtobe

executiveordersthathaveledtotrendsinwhichduringRepublicanpresidenciesthe

caseloadofOIRAisincreasedandthisaddsadditionalworkloadandconstraintstothe

agenciesoverseen,whereasduringDemocraticpresidenciesthenumberofregulations

reviewedhasdecreased.ThisseemsinkeepingwiththegeneraltrendofRepublicansbeing

142ExecutiveOrder12291andExecutiveOrder12498

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moreopposedtoregulationthandemocratsandthushelpinglimittheamountofnewrules

andregulationsbyusingOIRAasatooltolimitthisamountofregulation.

ThepresidentcantrytocontroltheagencyactionsbyusingOfficeof

InformationandRegulatoryAffairs(OIRA)andothertoolstoguideagencies.OIRAis

designedtobeaclearinghousefornewproposedregulationandthuscantrackagency

actionsandbringtheinformationtothepresidentandhissurrogates.In2001,OIRAbegan

sendingout“PromptLetters”whichdonothavetheforceoflaw,butareatooldesignby

theOIRAadministratorJohnD.Grahaminordertodirectagenciestofocusonaspecific

area.

Agencieshavemanyotherinfluencessuchasrecommendationsfromcongressional

committees,anyoftheroughlyonethousandFederalAdvisoryCommittees,andthevast

numberofinterestgroups.Corporations,individuals,nonprofits,tradeandlaborgroups,

andcountlessothershaveaninterestinagencyactionsandthushaveareasontotryto

influenceitsactions.

Inadditiontothedirectprincipals,agenciesarealsogreatlyaffectedbythosethat

canaffectthoseprincipals.Examplesofthesecanbeothercountries,powerfulindividuals,

orspecialinterestgroups.Moearguesthatinterestgroupsarepivotaltohowagenciesare

shapedduetothepowerthattheyexertoncongress.143

Thenatureofdelegationisdeterminedbywhethertherelationsbetweenthe

Principalandtheagentareclearlyestablishedanddefined.Oftenlawsarepassedthatgive

agenciesconsiderablelatitudeorinwhichtheagencyassertsthattheyhavepowersunder

theact.Lawscanbereadliterally,canbeinterpretedastotheintensionsofthecreatorsof

thelaw,orinterpretedhowtheagencybelievesisnowbestforthecountry.Thiscangive

anagencyconsiderablefreedomofactioninsomecases.

Thedynamicbetweenagentandprincipalchangesifthereisarepeating,continuous

relationshipbetweenthetwo.Inthecaseofagenciesandthelawmakersthisistypicallya

weakrelationship.Withinitssphereofexpertiseandauthority,theagencytypicallytakes

theleadandsetspriorities,takinginitiativesanddecidingonrequiredactionasitseesfit.

143Moe.2012.

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2.2.5OtherMethodsofAnalysis

Therehavebeenmanyothermethodsofmodelingandanalyzingdelegation.There

isanarrativeapproachthatlooksitsspecificforcesandfactorsandtriestodetermine

causesandeffectsbasedonlookingatthespecificsandthengeneralizingtheseresults

basedoffoftheiruniversalityorthefactthattheyappeartohavebeenrepeated.

Delegationhasalsobeenviewedthroughthelensofgametheory.Theinteraction

amongactorsisreoccurringandthuscannotbemodeledaccuratelybyasinglegametheory

game.Insteaditmustbeviewedasamultiplayerrepeatedgame.Forsimplicity’ssakea

threedimensionalmatrixcanbecreatedinwhichtheagencyhasoneplayandsetof

payouts,thecongresshasonesetandthepresidenthasone.Theresultingpayoutforeach

ofthesecomesoutoftheinterplayamongstthese.

2.3 Unilateral Executive Action

Thepresidentwaslongviewedasrelyingprimarilyonthepowertopersuade,144but

inrecentyearstherehasbeenashiftininvestigatingthepowerofthepresident.Those

suchasMoeandHowellhavelookedintotheunilateralpowersthatthepresidenthas.145

Thesepowersareusedconsiderablymorethantheywereeven100yearsagoandareakey

characteristicofthemodernpresidency.Thesepowersaregenerallynotlaidoutinthe

constitution,butpresidentshavearguedthesepowersareimpliedbyitandbynowhave

becometraditionalpowersofthepresident.Manypresidents,suchasRooseveltandNixon,

triedtotakestepstostrengthentheroleofthepresidentasthisallowedthemtoachieve

moreoftheirpolicygoals.Theunilateralactionsofthepresidentcomeinalargenumberof

formssuchaspresidentialdirectives,executiveorders,executiveagreements,presidential

memoranda,presidentialproclamations,signingstatements,andimpoundment.Thetypes

144Neustadt,RichardE.PresidentialPower:ThePoliticsofLeadershipfromFDRtoCarter.NewYork:Macmillan.1980.145Howell.2003.

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ofpresidentialunilateralactionlistedaboveallhavethepowertoaffectpolicydecisions.

Therearesomeotherunilateralpowersthatthepresidenthasthatarenotabletoaffect

policysuchasthepowerofthepresidenttopardon.Thispaperfocusesononlythosetypes

ofactionsthatwerespecifiedabovewhichthepresidentcanusetoaffectorsetpolicy.

Whiletheseareunilateralactionsthatreflecttheprerogativesofthepresident,the

congresshasmechanismstostoporcountertheseactionsofthepresident.Theinteraction

betweenthecongressandthepresidentintheseinstancesisarepeatedgameinwhichthe

twoinstitutions,congressandthepresident,mustworktogetheroveratimeandthusin

thistandemjuxtapositionthesetwoinstitutionshaveconsiderableabilitytoaffectthe

actionsofeachother.Besidesshapingpolicy,theseactionsofthepresidentcanalsobe

usedtoallowforbargainingwiththecongress,tocontrolthebureaucracy,andtohelpthe

presidentandtheirpartypolitically.Thesecombinedabilitiescanchangethepolitical

landscapeallowingthepresidenttobettersettheagenda,controlpoliticalsentiment,and

shapeinstitutions.

Thepresidentcanusethesepowersnotonlytoaccomplishspecificgoals,butcan

usethemstrategicallyforawiderangeofendsandasautility-maximizer,thepresidentwill

usethesepowerswhentheyaremostbeneficialtohimandwillmosthelphimaccomplish

thegoalsthatheistryingtoaccomplish.Thisofcoursewouldincludewhenthepresident

haslessopportunitythroughothermeanstoaccomplishhisaimsbetheypolitical,policy,or

otherwise.Hewillalsochoosehistimingandscopingoftheseexecutiveactionstobest

achievethesegoalswiththeunderstoodcaveatthattheseactionsaretakeninapolitically

uncertainenvironmentthatcontinuestochange,thereareinstitutionalconstraintsthat

limitthecoursesofactionthatthepresidentcantake,andthepresidenthasincomplete

information.

Giventhoseconstraints,thepresidentisabletotakeunilateralexecutiveactions

withconsiderablefreedomofaction.146Theseactionsarealsoflexibleinthattheycanbe

tailoredtocertainneedsandcanbeeasilymodifiedorrescindedasneedschange.

Importantly,asthesetoolsenablehimtosetpolicyinsuchawayastodeflectmedia

attention,thepublicbacklashandnegativeopinionarenotthatlargeafactororconstraint

146Warber,AdamL.ExecutiveOrdersandtheModernPresidency:LegislatingfromtheOvalOffice.Boulder,CO:LynneRienner,2006.38.

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onmostexecutiveactions.Thepresidentcantakestepssuchastimingtheactionsothatit

doesnotgetcoveredbymajormediaoutlet,hecanmakeitsothattheactionscoincideand

arethusareovershadowedbyothermajorgovernmentalactionsorworldevents,andhe

canmaketheactionsvagueorindeterminatesothatthefocusontheactionsofthe

presidentisminimalasisthepoliticaloppositionandthenegativerepercussions.In

addition,mediaoutletsarelesslikelytocoversuchactionsastheyaretolegislative

accomplishmentsorpoliticalfights.Howevercongressistypicallyacutelyawareofthe

actionsofthepresidentandsothepresidentwillsometimesmakeallowancesforthe

opinionsofkeymembersofcongress’tokeephisrelationshipwithcongressonapositive

noteevenwhenhedoesnotneedtheiracceptanceofhiscurrentaction.

Notalloftheseunilateralpresidentialactionsareunpopularwithcongressthough.

Occasionallycongresswillevenstatewhenpassingabill,thattheywouldlikeanexecutive

actionexecutedinconjunctionwiththelawinordertohelpitgetimplemented.Inthiscase

thepresidentandcongresswouldbeworkingtogether,butinmanycasesthepresidentand

congressdonothavethesamegoals.Inthesecasesthepresidentmustmakeacostbenefit

analysisofthetradeoffsbetweentakingactionhimself,workingtogetcongresstopassthe

bill,ortakingnoaction.Evenincasesinwhichcongresscanbelobbiedbythepresident

andconvincedtopassalawitselfratherthanthepresidentissuinganexecutiveorderor

takingsimilaraction.However,itcanbefarcostlierpoliticallyforthepresidentifthebillis

enactedbycongressbecausethepresidentoftenhastouseasignificantamountofpolitical

capitaltogetabillthroughcongresswhereasifheinessenceenactsithimself/herself,the

presidentcansavethatpoliticalcapitalanduseitlaterforotherpurposes.Ontheother

handtherecanbesignificantpoliticallossesifthepresident,usinganexecutiveaction,tries

topushthroughpolicythatcongressopposes.

Unilateralexecutiveactionscanalsobeacommunicationdevicetosignalpolicy

changestocongressandthebureaucracy.Itcansignalpolicydirectives,the

administration’sresolveandintensions,andagendaaswellastheactionitexpectsfrom

Federalagenciestosupportthisaim.Thiscanalsoboostthevisibilityofthepresident’s

policyproposals.Presidentswanttheirplacetobecentralinthepolicymakingprocess

ratherthansimplytryingtoconvincecongressoftherightnesshisproposalsandusing

executiveactionscanhelpdothis.

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Differenttypesofexecutiveactionsareusefulindifferentpolicydomainsandthus

thepresidentusesdifferenttypesofexecutiveactionsfordifferentneeds.Executive

agreementsareusefulforforeignpolicyanddefense,whileothertoolssuchassigning

statementsandexecutiveordersareusefulformanipulatingdomesticpolicy.

Thepresidenthasaveryshortperiodinwhichtoaffectpolicy.Thiswindowmeans

thatthepresidentmustprioritizehisgoalsandworkonthosethatmattermosttohim.

Obamadecidedtofocusonhealthcarereformashissignaturelegislativeachievementas

opposedtoaddressingthechronicweaknessintheeconomicmarket.Helikelybelieved

thatactiononhealthcarewouldbefastandthenhewouldbeabletofocusonother

prioritiesliketheeconomy,butduetosolidoppositionandstrongpartycohesionofthe

minorityparty,Republicans,thehealthcareproposalendeduptaking14monthstogethis

enacted.Bythatpointinhistermthehoneymoonperiodwasoverandthepresidentfaced

aunifiedoppositioninalmostallhisproposalsandthiswouldonlyintensifyeightmonths

laterwhentheRepublicanstookcontroloftheHouseofRepresentativesinthe2010

elections.Theeconomyhadworsenedbythatpointmakingthechallengeofresolvingthe

crisismoredifficult.Thepresidenthadalsousedupalotofpoliticalcapitalandhis

popularityhadfallenduringthisperioddecreasinghispowertoenactchange.Italso

allowedthepresidenttobeattackedwiththeaccusationofhavingdonenothingaboutthe

economy.Thedepthofthecrisismadeitunpopularforthepresidenttobeseenasignoring

theeconomiccrisis.Hebegantouserhetorictomakehisproposalsmoreacceptable

whereastheRepublicansbegantoseehowtheycouldusetheweakeconomyasamajor

issuewithwhichtoassailObamaandweakenhisadministrationandhisreelection

potential.

Presidentsareconstrainedbythelaw,buttheyalsoshapethelaw.Onecannot

judgeapresident’sabilitytoactbytheformalpowersoftheofficealone.Inthecurrentera

Presidentsdonottypicallylistthespecificsourcesofpowerthatenabletheirunilateral

actionasthisallowstheiropponentstoquestionthebasisforpresidentialactionmore

easily.Rathertheyassertapowerandwhentheydolistthesourceoftheirauthority,the

onlylistvaguesources.

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AsMayerpointsout,thereisan,“expectationthatpresidentswouldpreparea

comprehensivelegislativeagenda,whichbecamecommononlyinthetwentiethcentury”.147Thisexpectationisamajorpressureuponthepresident’sactionsandfitsintothe

president’swishestohaveanopenfieldofactionsotheycanpresstheiragendainallareas

ofpotentialpoliticalaction.Thisdesiretomoveinnumerousareasleadsthepresidentto

needanumberofdifferentpoliticalandlegislativetoolsbecausepassinglawsinthenormal

mannerissoslowandthebarforactionissohigh.

Thepresidentisabletouseunilateralactionsandhispowertocontroland

restructuretheexecutivebranch.Thisgavehimsignificantcontroloverthegovernment

actionsandallowedhimtoleadthemandguidetheiractions.Theycanshapethe

institutioninoneactionratherthanfightaseriesoflittlebattles.Thereisstillconfrontation

overcontrolofthebureaucracy,butthepresidenthadadvantagesthatenabledhimtowin

mostofthesebattles.

Ithasbeenarguedthatpresidentialpowersarenotfixed,butfluctuateaccordingto

whethertheactionsofthepresidentareinaccordancewithcongress’statedorimplied

authorizationorareinoppositiontocongress’wishesandtheactionsthatcongresshas

taken.148

Asheadoftheexecutivebranch,thepresidentnominallyhascontroloverthosein

thebranchwhoarehissubordinates.Thepresidenthasanumberoftoolsthathecanuse

tocontroltheexecutivebranchsuchasremovingagencyheadsandotherkeyseniorleaders

oftheexecutivebranch.ThecaseofMyersv.UnitedStates,149solidifiedthispowerwith

ChiefJusticeoftheUnitedStatedandformerpresident,WilliamHowardTaft,deliveredthe

opinionofthecourtwhichincludedkeyphrasessuchas,“insofarasitattemptedto

preventthePresidentfromremovingexecutiveofficerswhohadbeenappointedbyhimby

andwiththeadviceandconsentoftheSenate,wasinvalid,andthatsubsequentlegislation

ofthesameeffectwasequallyso.”

147Mayer,Kenneth.WiththeStrokeofaPen.PrincetonUniversityPress,2001.20.148Jackson,JusticeRobert.ConcurringOpinioninYoungstownSheet&TubeCo.v.Sawyer,343U.S.579(1952).149272U.S.52(1926)

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Executiveactionisgivenconsiderableleewaybythecourts.Whentheissueof

ExecutiveOrder12092,whichgavesignificantpoweroverthemanagementofgovernment

property,wasbroughtbeforethecourt,theappealscourtruledthatthepresident’suseof

thisauthoritywasallowablebecause,“whenthatviewhasbeenacteduponovera

substantialperiodoftimewithoutelicitingcongressionalreversal,itisentitledtogreat

respect...constructionofastatutebythosechargedwithitsexecutionshouldbefollowed

unlesstherearecompellingindicationsthatitiswrong.”150

Presidentsargueforexpandedexecutivepowers,particularlyduringacrisis.While

manydonotapproveofthesepowersbeforetheygetintooffice,theytendtoviewsuch

powerbetteraftertheycometopower.151PresidentssuchasLincolnandFranklinDelano

Rooseveltusedconsiderableexecutivepowerstodealwithcrises.PresidentGeorgeW

Bushbehavedsimilarlyinresponseto9/11crisisandassertedconsiderablenewexecutive

powerstodealwithit.

Thereissomejustificationtofeelthatexecutivepowersareexpandedduringacrisis.

CongresshaspassedmanylawsgivingpowersinsuchinstancesandeventheU.S.

Constitutionmakesallowancesforanexpandingofpowersduringtimesofcrisis.An

exampleistheSuspensionClausethatstates,"Theprivilegeofthewritofhabeascorpus

shallnotbesuspended,unlesswhenincasesofrebellionorinvasion,thepublicsafetymay

requireit."152WhiletheConstitutiondoesnotstatethatitisthepresidentthathasthe

abilitytosuspendhabeascorpusinsuchinstancesthatwasclearlytheassertionmadeby

PresidentLincolnduringtheCivilWar.Likewise,presidentsGrantandGeorgeW.Bushalso

usedtheconstitutionasabasisforactionwhentheytoosuspendedthewritofhabeas

corpus.

Besidestakingdirectexecutiveaction,theexecutivepowersthatthepresidenthas

andeventhosethathejustassertsthathehascanbeapowerfultoolinnegotiatingwith

thecongressandgettingthemtodowhathewants.FranklinDelanoRooseveltsaid,“Iask

theCongresstotakethisactionbythefirstofOctober.Inactiononyourpartbythatdate

150AmericanFederationofLaborandCongressofIndustrialOrganizationsetal.v.AlfredE.Kahn,Chairman,CouncilonWageandPriceStability,etal.,Appellants.,618F.2dat790.1979.151Mayer.52.152U.S.Constitution.Article1,Section9.

96

willleavemewithaninescapableresponsibilitytothepeopleofthiscountrytoseetoitthat

thewareffortisnolongerimperiledbythreatofeconomicchaos.Intheeventthatthe

Congressshouldfailtoact,andactadequately,Ishallaccepttheresponsibility,andIwill

act.Atthesametimethatfarmpricesarestabilized,wagescanandwillbestabilizedalso.

ThisIwilldo.ThePresidenthasthepowers,undertheConstitutionandunder

CongressionalActs,totakemeasuresnecessarytoavertadisasterwhichwouldinterfere

withthewinningofthewar.Ihavegiventhemostthoughtfulconsiderationtomeetingthis

issuewithoutfurtherreferencetotheCongress.Ihavedetermined,however,onthisvital

mattertoconsultwiththeCongress.”153

Heessentiallygivescongressanultimatumandsaidthatifitdidnotmeethis

demandsthathewouldclaimthispowerandonhisownhewouldperformthesameaction

heisrequestingofcongress.Congresshadlittlechoicethenbuttoacquiescetohis

demands.Whilethepolicyresultmaynothavebeenintheinterestsofcongressitdidallow

congresstokeeptheprestigeandpowerofitselfasaninstitutionintact.

Thepowerdivisionbetweenthebranchesofgovernmentisalwaysinfluxanditisup

tocongresstocheckpowergrabsfromthepresidentlesttheybecomeapermanenttransfer

ofpowerfromthelegislativebranchtotheexecutivebranch.Presidentshavecontinually

triedtoincreasetheirpowersasthisbetterenablesthemtoaccomplishtheirpoliticaland

personalgoals,butcongressisoftenpassiveinstoppingthatpracticeandprotectingtheir

politicalturf.Thecontinuedusageofapower,evenonethatperhapsdoesnotrightfully

belongtotheexecutivebranch,givesmorevaliditytofutureusesofsuchpowers.Louis

Fisherdescribesthisphenomenathusly,“Theboundariesbetweenthethreebranchesof

governmentarestronglyaffectedbytheroleofcustomoracquiescence.Whenonebranch

engagesinacertainpracticeandtheotherbranchesacquiesce,thepracticegainslegitimacy

andcanfixthemeaningoftheConstitution.”154KennethMayertracedthefoundationof

thisacquiescencedoctrinetothe1915SupremeCourtcaseofUnitedStatesv.MidwestOil

Co.155EdwardS.Corwinvoicedtheviewthusly,"WhattheConstitutiondoes,andallthatit

does,istoconferonthePresidentcertainpowerscapableofaffectingourforeignrelations,

153Roosevelt,FranklinD.SpeechBeforeCongress.September7,1942.154Fisher,Louis.AmericanConstitutionalLaw.NewYork:McGraw-Hill.1990.220.155UnitedStatesv.MidwestOilCo.-236U.S.459(1915).

97

andcertainotherpowersofthesamegeneralkindontheSenate,andstillothersuch

powersonCongress;butwhichoftheseorgansshallhavethedecisiveandfinalvoicein

determiningthecourseoftheAmericannationisleftforeventstoresolve."156

Thepresidentisnottheonlyonewhocanusepresidentialpower.Thepresident

hadlonghadothersintheadministrationactonhisbehalfusinghispowersandCongress

formalizedthisabilityofthepresidentwhenitpasseditpassedthePresidential

SubdelegationActof1950.157Furthermorethepresidencyasaninstitutionincludesmore

thanjustthepresident,butalsoincludestheExecutiveOfficeofthePresident,whichthe

presidentandthecongresshavevestedwithpower.

Congresshastakenactionstolimitthepresident’scontroloverthebureaucracy.

Thisincludedanamendmenttoa1944appropriationsbillthatanyagencycreatedby

executiveordercouldbefundedformorethanayearwithoutthecongressspecifically

appropriatingfundingfortheagency.158Thisactionmakesitdifficultforthepresidentto

restructureorgrowtheexecutivebranchwithouttheacceptanceofcongress.

Thepresidenthastheabilitybothtosetthelegislativeagendaandenactchangesin

onefellswoop.AsBaronandothershavearguedthereisstrategicadvantagetomoving

firstinagendasetting.159Amongotheradvantagesitallowsthepresidenttogaugethe

popularityoftheactionandperformcredittakingifitwaswellreceivedandmitigationifit

wouldbeunpopulargenerallyoracrosscertainsegmentsofthepopulation.Thepresident

isoftengivencreditorblamefortheactionsofgovernmentregardlesswhoinitiatesthem,

howtheyarepassed,orthemethodsusedtogetthepolicyenacted.Thusthepresident

gainsbygettingmorepiecesofpolicyormorecomprehensiveenactedparticularlywhenit

ispopularpolicy.

Individuallegislatorshavefewifanyunilateralpowersandmustconvincetheir

colleaguesandotherpoliticalactorsinordertogettheirdesiredpoliciesenactedwhereas

thepresidenthastheabilitytoenactlegislationwithoutrallyingacoalitionandworking

156Corwin.1957.157SchubertJr.,Glendon.“ThePresidentialSubdelegationActof1950.”13JournalofPolitics.1951.647.15858Stat387159Baron,David.“ADynamicTheoryofCollectiveGoodsPrograms.”AmericanPoliticalScienceReview90(2):1996.

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withothersoreventheabilitytopersuade.Howellarguesthattheseunilateralpowersare

notformalpowerssincetheyarenotdelineatedintheconstitution,butneitherarethese

powerscomingsolelyfromthepresident’spersonalityorpersonalqualitiesasthesepowers

havebeenexercisedfordecadesandhavebeenexercisedbynumerouspresidents.They

aremoresimilartoinstitutionalpowerswhichhaveincreasedordecreasedovertimeand

areaffectedbytherelativepowersanddispositionofthevariousbranches.

Howellsumsuptheuseofunilateralexecutiveactionbysaying,“Whencongressis

weakandthejudiciarylenient,presidents’powersofunilateralactionflourish;when

Congressisunifiedandstrongandthejudiciarytakesarestrictedviewofpresidential

power,presidentscanaccomplishrelativelylittle.”160Thepresidentcansometimestake

stepsthatexceedthepowersthattheconstitutionorcongresshavespecificallygivento

him.Lockedescribesthisassaying,“ThereisalatitudelefttotheExecutivepower,todo

manythingsofchoice,whichtheLawsdonotprescribe.”161

2.4 Interrelations between the Branches

Proposalsputforwardbythepresidentareoftenproposalsthathadpreviouslybeen

submittedtocongress,butwhichhavenotbecomelaw.Oftenthepresidentwillnotforma

wholelegislativeagendafromscratchonhisown,butwilltakeideasorevenentirebills

fromthevastarrayoflegislativeitemsthataresubmittedtocongresseachyear,butarenot

addressedorotherwisefailtobecomelaw.Thiscanalsoleadtotherealreadybeinga

contingentofsupporterstothebillevenbeforethepresidenttriestolobbycongresstopass

thebill.AsMarkPetersendescribesit,CongressandthePresidencyaretandem

institutions.162Theyareintertwinedandtheactionsofoneaffectstheactionsoftheother

andbothaffecttheshapeoflegislation.Thepresident-centricviewoflegislationviewsthe

presidentaswagingabattletogetkeypiecesofhisagendapassedandheistobejudgeda

successifforthemostparthesucceedsinthisendeavor.However,thisneglectstheroleof

160Howell,WilliamG.2003.176.161Locke,John.TwoTreatisesofGovernment.CambridgeUniversityPress.1988[1689].375.162Peterson,MarkA.LegislatingTogether:TheWhiteHouseandCapitolHillfromEisenhowertoReagan.Cambridge,MA:HarvardUniversityPress.1990.

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congressandmerelyrepurposesitasafieldofplayratherthantheprincipalgovernmental

bodyempoweredtocreatelegislation.Whilethepresidentcanfindsurrogatesincongress

toraisebillsthathewantspassed,congresshasevenmoreabilitytosetthelegislative

agendaandseethroughmajornewlaws.Thepresidentandcongresshaveacomplex

relationshipthatcanshiftfrombeingcooperativetoadversarialbasedonanumberof

factors.ThisisthesituationRichardNeustadtreferstowhichhedescribestheideaoftwo

separateinstitutionssharingpower.163Thisbecomesmorecomplexwhenonelooksatthe

numberoffactionsorevenindividualsincongressthatcannotjustbeaggregatedasamass,

buteachhavetheirownopinionsoflegislationproposed.Thepresidentcantakeanumber

oftackswithregardtopushinganagenda.

Oneextremeisthatapresidentcantrytoforceanagendathroughcongressandnot

workwithcongresstovetideasforwhattheyfindacceptable.Anexampleofthiscanbe

seeninthefirsttwoyearsoftheCarterpresidencywherehisviewoftheessential

correctnessofhisproposalsandhisnewnesstoWashington,D.C.causedhimandhis

administrationatfirsttotrytounilaterallysetthelegislativeagendawithoutinputfrom

congress.Thisledtoanumberoffailedefforts.

LyndonBainesJohnsonontheotherhandwasveryfocusedoncongressandtriedto

taketheiropinionintoaccount.Hehadsomesuccesses,howeverthereistheriskthatthe

billswillbesowatereddownthatlittleofthepresident’sagendaremainsandthatcongress

essentiallydictatesitswishes.Therearelimitstowhattheycandoaloneandthistiesthe

presidentandtogetherandthisgenerallyprecludesascorchedearthpolicyofnegotiating.

Besidesactivelyopposingthepresident,congressalsohasthestrategicoptionofignoring

thepresident’sproposal.Timesensitivitycausesmostbillstofail.Congressneedonly

ensurethatthepresident’sproposaldoesnotpassbothhousesbytheendoftheyearand

theycansidetrackhislegislativeproposals.Billscanbekilledincommittee,inconference,

byafloorvote,orbytheendofthelegislativesession.Theoppositionhassignificantpower

tostopvotesitdisapprovesof.Thepresidenthoweverhassignificantbargainingpoweron

certainkeyissuesandhasspoilstodoleoutandcanalsotradeoffunrelatedbillssoasto

achievehisdesiredends.

163Neustadt.1990.

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Therelationshipbetweencongressandthepresidentisdeterminedbyalarge

numberoffactorssuchasthepersonalities,parties,andlengthoftimeinofficeofthe

politicalactors.Anotherfactorthatcanhaveaconsiderableeffectiswhetherthepresident

isperceivedtohaveamandate.Ifapresidentwaselectedbyalargemarginorwithaset

agendathatispopularhehasmoreabilitytogetlegislationpassed.Whenthepresidenthas

amandateorispopular,congressismoreinclinedtoallowthepresident’sprerogativeof

suggestinglegislationandismorewillingtotakeuphisproposalandsupport.Thesameis

trueearlyinthepresident’sterm.Inthishoneymoonperiodthepresident’spopularityis

highandhehasnotexpendedmuchpoliticalcapitalormadeenemies.

Anothermajorfactorthataffectstherelationshipbetweentheexecutiveand

legislativebranchesisthestructureoftheinstitutionsthemselves.Forinstance,acongress

withmuchmorecentralizedpowerallowsforthepresidenttodealwithjustafewkey

leadersandpushthroughlegislationbynegotiatingwithjustafewmembers.Themore

decentralizedcongressoftodayallowsmoreplayerstobeinvolvedinthecraftingof

legislation.Thischallengeforthepresidentisbolsteredbythefactthatcongresshasmore

resourcessuchasbiggerstaffsandsupportingagenciesandthuscanbetterputforth

competingproposals.Theinstitutionofcongresshasbeenstrengthenedbyactssuchasthe

BudgetandAccountingActof1921164andbytheincreaseinstaffsofcommitteesand

members.Thismakesmembersofcongressmorecompetitiveinthelegislativearenaand

thuslesswillingtoadoptthepresident’sproposals.Someofthechangesthathave

decentralizedpowerarerestrictionsthatamemberoftheHouseofRepresentativescannot

chairmorethanonecommitteeandtheshifttostrengthensubcommitteesatthedetriment

tothepowerofcommitteechairs.Therehavebeensometendenciestowardcentralization

ofpowersuchasarenewedabilityofHouseleadershiptousetheRulescommitteeto

supporttheirinitiatives,howeveroverallcongressandinparticulartheHouseof

Representativeshaveafarmoredecentralizedpowerstructurethantheydidbackinthe

early1970sbeforemanyofthesechangescameabout.

Presidentscanalsolobbyorpressurecongressintoimplementingtheirpreferred

policies.Presidentsuse“goingpublic”asatechniquetopushtheirpolicybyutilizingpublic

164Pub.L.67-13.

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pressurewhichheattemptstofocusoncongressinanticipationthatitwillhelpachievehis

desiredactionsfromcongressandwillshapepublicopinionaboutthepolicy.“Going

public”canaffectpublicopinioninthecurrentcontextandallowforchanges,butcanalso

laythefoundationlongtermfortheadoptionofthetechnologyandtheincorporationof

theirviewpointsintothepublicviewoftheissueevenaftertheirtermisover.165Thiscan

leadtothesepoliciesbecomingentrenched,whichisidealforthepresident.Kernell

howeverarguesthatgoingpublicisnotcostless.Healsoviewsgoingpublicasbeingin

oppositiontotheuseofinter-branchbargainingandarguesthatitismostlyofathreatfor

noncompliance.Thatassertionislikelynottotallytrueas“goingpublic”isnotsolely

punishmentfornoncompliance,butservesotherpurposesaswell.Healsoarguesthatit

canmakethoseinvolvedlessflexiblebecausetheyeffectivelymustpostureandmakeacase

inpublicandthushavelessroomtogivewhennegotiatingandthusgoingpublicmakesit

harderforthetwosidestonegotiate.Goingpublicisparticularlyeffectiveifitcanbedone

asanoutsiderormanofthepeoplerailingagainstcongressionalandgovernmentalinaction.

PresidentObamawaswellplacedtodothisatthestartofhistermandhadsomesuccesses

withthistactic.

Aspowerhasdevolvedfrompartybossesandchairmendowntoevenfreshman

congresspersons166andwiththedecreaseinpartyloyaltyorcohesion,congresshasmoved

towardspluralisminwhicheachindividualisapoliticalpowerthanmustbedealwithand

whohastheirowngoalsthatmustbetakenintoeffect.Thissituationmakesnegotiation

toocomplex,asitishardtonegotiatewithmanyindividualswiththeirownendsandkeep

themontheranch.Howeveronecannotgopublictoooftenandbecomeoverexposedso

thattheirfuturemessagesdonothavemuchpower.Alsothepresidentdoesnotwantto

risklosingthesepublicbattles.Inaddition,goingpubliccanlookdesperatesinceifthe

presidentcouldaccomplishtheirmeanswithoutthisextraordinarysteptheyusuallywould.

InthewordsofNeustadt,"EffectiveinfluenceforthemanintheWhiteHousestems

fromthreerelatedsources:firstarethebargainingadvantagesinherentinhisjobwith

whichtopersuadeothermenthatwhathewantsofthemiswhattheirownresponsibilities

requirethemtodo.Secondaretheexpectationsofthoseothermenregardinghisability165Kernell.2006.

166Huntington,SamuelP.“CongressionalResponsestotheTwentiethCentury“inThePoliticalEconomy.P180-202.1984.

102

andwilltousethevariousadvantagestheythinkhehas.Thirdarethosemen'sestimatesof

howhispublicviewshimandofhowtheirpublicsmayviewthemiftheydowhathewants.

Inshort,hispoweristheproductofhisvantagepointsingovernment,togetherwithhis

reputationintheWashingtoncommunityandhisprestigeoutside.APresident,himself,

affectstheflowofpowerfromthesesources,thoughwhethertheyflowfreelyorrundryhe

neverwilldecidealone.Hemakeshispersonalimpactbythethingshesaysanddoes.

Accordingly,hischoicesofwhatheshouldsayanddo,andhowandwhen,arehismeansto

conserveandtapthesourcesofhispower.Alternatively,choicesarethemeansbywhich

hedissipateshispower.Theoutcome,casebycase,willoftenturnonwhetherheperceives

hisriskinpowertermsandtakesaccountofwhatheseesbeforehemakeshischoice.A

Presidentissouniquelysituatedandhispowersoboundupwiththeuniquenessofhis

place,thathecancountonnooneelsetobeperceptiveforhim."167

Publicpolicyisgenerallythecreationofmultiplepoliticalactorsandtypically

involvesactorsbothfromtheexecutivebranchandfromthelegislativebranch.The

interactionbetweenthosetwobranchesgreatlyshapesthepolicythatisultimatelycreated.

Thisinteractioncanrelyonpersonalfactors,buttypicallyalsohasmanystructuralfactors

thatleadundercertaincircumstancestospecifictypesofinteractionandthuswhichshape

policyincertainsystematicways.Overtimethebrancheshavedevelopedstrategiesfor

dealingwiththeotherbranchthathelpthemmaximizetheirutility.

Amongthesestrategiesavailablearepubliclycommittingtoapolicy.This

commitmentwouldentailstakingoutapositiononanissueandpubliclycommittingtoitas

awayofeliminatingfuturealternativecoursesofactions.IngbermanandYaoarguethat

thepresidentcanbetterachievehisdesiredresultsbycommittingtoaspecificpolicy.168

Thiscanhelpthepresidentensurethatcongresswillaccommodatehis/herpreferences

sincehehasvetopoweroverthepolicyandifcongressdoesnotmaketherequisite

allowancesforhispreferences,thepresidentwillvetothebillandcongresswilllikelynot

getanyofwhattheywanted.Oftencongresswillnotevenattempttopassabillthatthe

presidentdoesnotwantsincehewillbeabletoblockitanditisdifficultforcongressto

overridethevetointoday’spartisanclimate.Thepresidentcancommittoapolicyand167Neustadt.1990.Pg.150.168Ingberman,DanielandDanielYao.“PresidentialCommitmentandtheVeto.”AmericanJournalofPoliticalScience.Vol.35,No.2(May,1991),pp.357-389.

103

makeitknownthathehasfixedviewsonanissuebygoingpublicandstatinghisposition

on-the-record.Hecangoevenfurtherbystatinganunwillingnesstowaverfromthat

position.Thisabilitytogopublicanduseacommitmentstrategyisgreaterinthecurrent

erainwhichpressconferenceandotherdirectcommunicationtechniquesareavailableto

thepresident.Thispubliccommitmentbindsthehandsofthepresidentsincehewillin

effectlosepoliticallyifhethenbacktracksandultimatelygoesagainstthepositionheearlier

wentonrecordassupporting.

Theuseofgoingpublicasamethodofpolicycommitmentisnotnecessarilyatodds

withKernell’sviewofgoingpublicwheretheactofgoingpublicisundertakenlargelyto

affectpublicsentimentwiththeintentofalteringcongress’utilityfunctionandultimately

theirvotes.169Goingpubliccananddoesserveboththesepurposesandcanhavemajor

effects.Canes-Wronearguesthatgoingpubliccanchangethepolicythatotherwisewould

beimplemented.170Thepresidentmusthaveaviewpointthatwillbepopularwithpeople

whenitisframedacertainwayifhehopestogainpoliticallyfromgoingpublic.

IngbermanandYaoviewtheuseofcommitmentthroughthetoolsofgametheory

asagameplayedbetweencongressandthepresident.171Inthisgame,congresstakesthe

roleofagendasetterwhereasthepresidentmustdecidewhethertoaccepttheagendaor

whethertovetotheproposal.Congressthustriestomakeabillmoreacceptabletothe

presidentsothathewillnotvetoiteventhoughthismayentailcongresspartingwithsome

favoredprovisionsoraddingsomethatthepresidentfavorsthatarelesspopularwith

congress.Congresscanbeforcedbythepoliticallandscapetoadapttothepresident’s

positionifthepresidenthascommittedtoapositionandremainsinflexibleaboutit.There

isapointatwhichthepresidentwillnotvetothebillandheconsidersthepolicyacceptable.

Thepresidentmayknowthatpoint,butgenerallycongressmustguessandtakethat

estimateintoaccountwhentheycraftthebillandpotentiallyerronthesideofbeingtoo

generousduetotheuncertaintyabouttheexactlocationofthispivotpoint.

Presidentshavemultiplegoalsincludingreelection,gettingtheirdesiredpolicy

outcomes,makingsuretheymaintainagoodrelationshipwithcongress,raisingfunds,and

169Kernell.2006.170Canes-Wrone,Brandice.“ThePresident'sLegislativeInfluencefromPublicAppeals.”AmericanJournalofPoliticalScience.2001.171IngbermanandYao.1991.

104

ensuringtheirlegacy.Membersofcongressalsohavesimilargoalsthatoftenareatodds

withthoseofthepresident.Thepresidenthasautilityfunctionthattakesallthesegoals

intoaccount.Bygoingpublicthisraisestheimportanceandsalienceofanissueandmakes

itmoreofafocus.Insomecasesthisiswhatthepresidentwouldprefer,suchasiftheissue

islikelytobepopularorifaspotlightisneededtopassabill.However,thereareinstances

wherethepresident’sagendawouldbebetterservedbysweepingthingsundertherugand

negotiatinginsecretwithoutthescrutinyofpublicopinionandthemediaspotlight.The

presidentalsocanframeanissueandleadtheoptionofthepublic.Hemustlookatthe

likelihoodthattheproposalwillpasswithouthisgoingpublicandwithouthiscajoling.

Goingpubliccanbedoneanumberofways.Therearestepssuchasmakingthepresident’s

weeklyaddress,thestateoftheunion,andtheregularattentiontheycommandastheytry

topushtheirpolicies.Byvirtueoftheirunitaryandsymbolicnatureoftheoffice,the

presidentgetsattentionregardingmanyoftheiractions.Goingpublicisthecasewhenthe

presidenttakesextraordinaryactionssuchasgoingontelevisionandmakingapleaforhis

viewpoint.

Dividedgovernmentcanmakegovernancemorechallenging,butnotimpossible.It

requiresmoreinter-branchandinterpartybargaining.Thetoolsusedandprocessare

different.Forinstance,vetoesareunlikelywhenthesamepartycontrolsboththe

presidencyandthecongress.Thereisapivotpointatthemajorityandthevetooverride

pointsatwhichacertainnumberoffloorvotersineachhousewilloverrideapresident’s

veto.Thusthereisnotoftenjustatakeitorleaveitsituation.Ifcongresscanpassabill,

butcannotoverridetheveto,thenapresidentialvetowouldleadtoaninefficientoutcome

andlostutilityforthemandsotheycantradeawaysomeofthatutilitytothepresidentto

convincehimnottovetoabill.Theytrytoeitherfindabillthatthepresidentdoesnot

dislikeenoughtovetooroneinwhichhehasuncertaintywhetherhisvetocanbe

overriddenandhewishestolimithislossesbycompromising.Vetoesoccurmore

frequentlyunderdividedgovernmentandduringelectionyears.

Thecongressforitspartoftenfindsitbeneficialtobeinclusiveandgetthepresident

involvedinthedecisionatanearlytimebeforethebillwascraftedorelseitmightharden

positionsandhavelessabilitytonegotiatewiththepresident.Ifthepresidentwouldvetoa

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bill,congresshastheoptionofpassingtheinitialbillthatwasproposedorelseitmakes

amendmentstoaccommodatethepresident’spreferences.Compromiseisnotalways

possible.Inasingle-issuedecisionspace,anissuecanoftenbeapproximatedonaleft-right

politicalspectrumandwhenthepresident’spreferenceforchangeinpolicyisinthe

oppositedirectionofthestatusquopointthancongress’thenthereisnotmuchgroundon

whichtocompromiseotherthanagreeingtoavoidthatpolicydimensionandkeepthe

statusquo.Ifaproposalisputforwardunderthesesituations,thehopeofthisproposalis

thattheproposalgetsenactedbydominanceratherthanthroughconcurrenceor

bargaining.Thereisuncertaintyofcourseinmostdecisionsandifthepresidenthasnot

publicizedhisviewsthentheymightnotbeknown.Inaddition,whilecountsincongressare

takenandcangenerallybeassumedtobecorrect,thevetooverridepivotpointmaychange

overtimeasopinionsandpoliticalcalculationsshift.Thoseinvolvedmustmanage

assumptionsandmaygainbyhidingormisrepresentingtheirpreferences.Thepresident

canuseavetotoencouragecongresstogivehimabetterofferthatbettermeetshisneeds.

Hecanhidehistruefeelingsaboutthestatusquo.Overtimethepresidentcancreatea

reputationforhimselfforhowheapproachesthesesituations.Hecanappeartobeatough

bargainerthatwillnotcompromisemuchandthuscausecongresstobemorewillingto

meethimmorethanhalfwaysincetheydonotthinktheywillbeabletogetabetterdeal

fromhim.Cameronclaimsthatvetobargainingtendstoleadtopolicythatismoreinthe

middleofthepoliticalspectrumandlessextreme.172Duetotheelectionprocess,onmost

issuesthecitizenryareinthemiddlepoliticallycomparedtothepoliticiansthatwere

elected.

Membersofcongresswanttobere-elected.Infact,manytheoristsand

practitionersconsiderthistobeoneoftheirmaingoals.173Tothisendpoliticiansfocuson

creditclaimingandpositiontakingasthesewilltypicallyhelpgetthemelected.Theyalso

engageinotheractionssuchascaseworkandadvertisingwiththegoalofimprovingtheir

electoralprospects.Creatingpublicpolicyisnotinitselfnecessarilyagoalofthepoliticians,

butratherameanstoanend.Creatingpublicpolicyisanancillarygoalandthuspolicy

makerswillnegotiateonthesubstanceofpolicyinordertosecuretheirmaingoals.172Cameron,CharlesM.VetoBargaining:PresidentsandthePoliticsofNegativePower.CambridgeUniversityPress,2000.173Mayhew.1974.Pg.16.

106

Thiscansometimesleadtoplayactingorcheaptalkinwhichpoliticalactorstryto

sendsignalstodonorsortheelectoratebytheirpoliticalactions.Anexampleofthisisthat

CongressandthePresidentbargaininthespotlightandwanttobeseentakingcertain

actionseveniftheydonotcorrespondwiththeirpreferenceswithoutthisspotlight.Several

oftheprogramssetuptodealwiththecrisishadminimaleffectbutseemeddesigned

insteadtobebroadlypopular.Anexampleofthisisthehomemortgagerestructuring

provisionsthatwereenacted.Theseseemtobedesignedtoappearthatgovernmentwas

workingonbehalfofMainStreetandthenation’stroubledborrowers,thoughthedesignof

theseprogramswassuchthatthenumberofpeoplethatwereabletobenefitfromthem

wascontinuallyfarsmallerthanpoliticiansstateandcertainlyfarsmallerthanthepotential

need.Thesedidhoweverallowforpoliticalcoverforbailoutsandotherprogramsthatwere

unpopularandseemedbythegeneralpublictobeprimarilydirectedtowardshelpingWall

Street.

Signalingcannotonlybeusedtoconveymessagestothepublic,butcanalsobe

usedtoconveyinformationtootherpoliticalactors.Thepartiesinpoliticsnegotiate

withoutfullknowledgeofwhatisgoingon.Thisleadsinmanysituationstoaconflictin

whichallsideswilltendtobehardbargainers.Tougherbargainingismorelikelytoprevail

innegotiationsandthosethatdosoaremorelikelytogettheirwayortoapointcloserto

theiridealpoint.Neithersideknowshowhardtheotheriswillingtonegotiate.The

willingnesstobargainhardandthepowerthisconveysostensiblycomesfrompositioning

andfromtheirhavinglesstolose.Theamounteachsidehastoloseistiedupwithhow

willingtheyaretoacceptthedefaultorstatusquoasopposedtocooperatingonadeal.If

onesidewillonlyrealizeasmallimprovementbycompromising,thiswillmakethemless

interestedinworkingtogetherwiththeothersideandthusbetterabletoextractmore

fromthem.Thesideswillthustrytosignalthattheyarecomfortablewithnoncooperation

andthattheothersidewillneedtogivemoreground.Whilethisisdone,thesidesperform

actssuchasscreeningtodeterminethetrueutilityfunctionsoftheotherside,aswellas

theirnegotiatingstrategiesandwhattheyarewillingtoaccept.Oneofthesignsthataside

cansendtoshowthattheydonotneedadealistoholdoutlongerandnotbendor

compromise.Thiscanhelpthemextractmoreinnegotiations,butitcanalsoleadtoadeal

fallingthroughevenifbothsideswouldpreferthattherebeadealandwouldbebetteroff

107

iftherewasone.Inaddition,whenthepubliceyeisonthem,eachislesswillingtogivein

andappearweak.

AnexampleofthiswasthefirstdebtlimitnegotiationinwhichtheRepublicansstuck

totheirpreferredpolicyandsaidthatanyincreaseinthedebtceilingneededtobepaired

withdeepcutsinspending.Theysignaledtheirintransigenceandunwillingnessto

compromise.Severalwentsofarastostatethattheydidnotthinkraisingthedebtceiling

wasimportantorshouldbedoneatallthoughthiswouldhavemeantthefirsteverU.S.

defaultonsovereigndebtandpotentiallyvastnegativerepercussions.Bytakingsucha

hardline,theywereabletogetanagreementfordeepercutsoutofthepresidentandthe

Democratsincongressthantheywouldhaveotherwise.However,bytakingsuchahardline

theyriskednotcomingtoadebtceilingagreementalsoledtoadowngradingoftheU.S.

creditrating.

Innegotiationstherecanbemutualintransigenceifbothsidesplayhardballandare

unwillingtoworktogether.Thiscanoccurastheyfeelthattheyarebenefittingfromtough

bargainingandpublicposturing.Theirconstituentsoftenjudgethemlesshighlyifthegive

inandtrytoworkwiththeothersidethaniftheysticktotheirpositionanddon’t

compromise.Bynotcompromisingapoliticianorgroupofpoliticianscancomeacrossboth

asnothavingprincipalsandasnotbeingeffective.TheRepublicanshavestucktoakey

platformofnotraisingtaxeswhileDemocratsstronglyresistcutsinentitlements.Thisleads

toconflictsinwhichlittlegetsdonetosolvelongtermproblems,buteachsideappearsto

bedoingwhatisrighttotheirpoliticalbase.

Theinterpretationofpoliticalactionsandconsequentlytheactionsthatapolitician

choosestotakecanvarybasedonthepartymakeupoftheirdistricts.Thepoliticiansview

ofthepolicycanchangebasedonthefundamentalparametersinthepolicysuchasthe

timingofchanges,theconcentrationofcostsorbenefits,andwhetherthereissomeone

coalescingpublicopinionaboutthatpolicy.

Trustisalsoanimportantvariableandcanaffectoutcomesofapoliticalsituation.

Thetwosidesinanegotiationneedtrusttobeabletocometoanagreementorevento

negotiateingoodfaith.TheU.S.politicalprocesshasbecomemorepartisan,clannish,and

108

ideologue-basedinrecentyearsandthisledtolessabilitytoaddresscrisesoragreeon

policy.PresidentsObamaandGeorgeW.Busharethemostdivisivepresidentsinthe

historyofAmericawhendeterminedbylookingatthepercentoftheirpartythatapproves

ofthemandthepercentageoftheotherpartythatdisapprovesofthem.174Withlittletrust

betweenthetwopartiesandincreasedpolarizationofthepoliticalsystem,theriskof

politicalpositioningasbeinganattemptscorepoliticalpointsbyoneside,makesittough

fortheothersidetotakeapoliticallyunpopularpositionincasethenegotiationwas

conductedforprimarilypoliticalreasons.Itisoftenthecasethatunpopularpoliticalactions

needtobetakenforthegreatergoodorshorttermcostsmustbeimposedforlong-term

benefitsthatwillbediscountedpoliticallyinthemindsofthevoterscomparedtothe

immediacyofthecosts.Apotentialexampleofthisfromthefinancialcrisisistheso-called

bankbailoutinwhichanunpopularvotewasviewedasnecessarytoavoidmassive

economichardship.However,despitethegreatneed,thevotewasnotpassedinitiallydue

tothetoughpoliticalstanditwouldrequire.Itwasnotuntilsignificantporkwasincluded

andkeyspecialdealswerecutthatenoughvotescouldbecollectedforthebilltopass.In

casessuchasthesewherethenatureofapolicyresponsemakesittoughforlawmakersto

enact,delegationbecomesamorecompellingoptionbecauseitallowstoughdecisionsto

bemadewithouttheunpopularpolicybeingtracedbacktoindividualelectedofficialsand

becauseitcanhelpminimizetheeffectthatshort-termpoliticshasonshapingpublicpolicy.

Thiswastheideabehindthelegislationintroducedin2009tocreateabi-partisanfiscal

commissionaswellastheSimpson-Bowlescommissionthatfollowedandwhichwas

chargedwithcomingupwithacredible,bipartisanplantocutthebudget.

Inadditiontothevotesthemselves,thepartiescompeteinareassuchasagenda

settingandstirringpublicopinioninanattempttoshapethepoliticallandscape.The

agendacanbeusedtoavoidunwantedandunpopularvotes.Italsocanbeusedtoapprove

solutionsinadefactomannerthatotherwisewouldneedtobevotedfor.Politiciansuse

toolssuchasprimingandnarrativebuildingformuchthesamepurposeandtheseaswell

willbeaspaceinwhichmultiplesidesandindividualscompete.Theconflictoverthese

areascomesfromlogicalself-interestaspoliticianscaneffectivelygetcherishedpolicyas

174Jones,JeffreyM.Obama'sFifthYearJobApprovalRatingsAmongMostPolarized.Gallup.January23,2014.

109

partofappropriationsbillitcanbeverybeneficialtoapoliticalpartywhichcanwina

politicalbattlewithoutevenfightingandriskinglookingpartisaninthemidstofacrisis.In

alsocanbeausefulendrunaroundunwantedpoliticalfightsandcanavoidunwanted

noticeandattentionontheactionsthataretaken.IntheU.S.,muchofthemediacoverage

ofpoliticsfocusesonthebattlebetweenthepartiesratherthedetailsofpublicpolicybeing

created.Thishasmoredramaandisofteneasiertounderstand.Becauseofthismedia

focus,politicianscanoftengainbydoinganendrunaroundtheopenpoliticalprocessby

achievingtheirendsmorediscretely.

Themajoritypartywhohasaninstitutionaladvantageduetohavingthemajorityof

votersinthathouseandthechairmanshipsofthecommitteescangenerallycontrolthe

agendainahouseofcongress.Inaddition,intheHouseofRepresentativestheSpeakerof

theHouseandtherulescommitteehavepowerfulagendasettingpowersandarecontrolled

bythepartyinthemajorityinthehouse.Theywillalsohaveadditionalresourcessuchas

additionalstaffabovethatoftheoppositionpartyandthisalsohelpsthepartyinpowerset

theagenda.Thepresidenthowever,evenasanoutsider,hasatleastasmuchpowertoset

theagendaastheleadersincongressduetohisvisibility.

Bicamerallegislatures,whencomparedwithunicameralones,increasestabilityand

theso-calledstickinessofthestatusquo.Theabilitytoshapepolicyincongressdependson

therelativepowerofthepartiesandhousesaswellasinstitutionalconstraints,political

views,andcohesivenessthattheycanusethistoaffecttheotherhouse.Thispowercanbe

modeledwithadividethedollargamesinceagreementorconflictisoftenalongone

dimension.Theinteractionbetweenthetwohouseshasaneffectonthecumulativeactions

ofthetwohouses,asdoesthestructureofthetwoinstitutions.Ifthereispotentialfor

gridlockinoneorbothofthehousesitcanmakedelegationorexecutiveactionmore

attractiveoptionsforenactingpolicy.

Thepresidentneverhascompletecontroloverpolicythough.Otherindividualsare

alsoabletohelpshapethegovernment’screationofpublicpolicyaswellasitsresponseto

acrisis.Evenindividualssuchasthetwo2008presidentialnomineeswereabletohelp

shapethepolicyusedtodealwiththecrisisthoughtheyhadrelativelylittleformalpoweras

individualsenators.YetwhenJohnMcCainsuspendedhiscampaigntogobackto

WashingtontohelpresolvetheissueandBarackObamafollowedsuit,theybecamemajor

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shapersofpublicopinion.175Theyactedasleadersoftheirpartyandthustheirpublic

stancescausedshiftsinpublicsentimentandintheactionsofmembersofcongressthat

supportedthem.

Inaddition,thepresidentwilloftenrelyupontrustedadvisorsorthoseinkey

positionsandallowthemtoshapemuchofthepolicythatgetsenactedduringtheir

presidency.Thepresident’ssupportforandfromhis/hisexecutivestaff,agencyheads,and

otherkeymemberofthebureaucracychangesthedynamicbetweentheexecutivebranch

andthecongressandshiftshowcrisesarerespondedto.Inthecaseofthefinancialcrisis

thepresidentsaid,“IfHankPaulsonandBenBernankesayit’sgoingtoworkandhelp

stabilizethefinancialsystem,weareforit.”176Hebackeduphisverbalcommitmentby

spendingpoliticalcapitalsupportingthepoliciesdraftedbytheFederalReserveand

TreasuryDepartment.

Policycomesaboutasaninterplaybetweenallthesepoliticalactors.Policyisnotan

indivisiblewholeburstingforthfullyformed,butratheracollectionorideasandopinions

stitchedtogetherandthespecificsofwhatiscontainsisabattlefieldfoughtoverbymany

forces.Inter-branchbargainingisoneofthemeansusedtoshapepolicy,buttherearea

greatmanymorethatcontributeaswell.

Therearebenefitsanddrawbackstohavingdifferentfactionscontrollingpolicy

creation.Amongthedrawbacksisthatthismayleadtolessbeneficialpolicyorevento

questionsofgovernmentlegitimacyandeffectiveness.Forinstance,MembersofCongress

arelimitedintheirpotentialtocraftidealpolicybytheirprovincialinterests.Inparticular,

theyrepresentonlyasmallsubsetofthenation.Thisistrueofsenators,whoonaverage

onlyrepresent1/50thofthenation’spopulation,butthisiseventruerofmembersofthe

HouseofRepresentatives,whorepresentoneof435congressionaldistricts.Thustheywill

betiedtotheirownnarrowviewpointsthoughtheywillhelpshapethepolicyofthenation

asawhole.

Presidentialinfluenceovercongresshasbeengreatestwhenthepresidenthas

higherapprovalratings.AsstatedbyRichardNeustadt,“publicstandingisasourceof

175Paulson,Jr.,HenryM.OntheBrink:InsidetheRacetoStoptheCollapseoftheGlobalFinancialSystem.NewYork:BusinessPlus.2010176Paulson.2010.296.

111

influenceforhim,anotherfactorbearingontheirwillingnesstogivehimwhathewants.”177

Thishoweverdoesnotalwaysguaranteesuccessoraneasypathtoenactchanges.Obama

cametopowerwithalargemandateafterwinning365ofthe538electoralvotesandthe

majorityoftheactualvotessoitappearedthathewouldhavesomeroomformaneuvering.

Obama’sabilitytoswaycongresswasalsoexpectedtobeatitshighestasthisisduringthe

earlypartofthepresident’sterm,theso-calledhoneymoonperiodandthishoneymoon

period’seffectmaywellhavebeenlargerduetothehistoricnatureofthepresidencyso

onemayhavesurmisedthathewouldbeabletopushthroughanumberofpolicy

proposals.Inactualitythough,PresidentObamastruggledtoenactmanyofhisproposalsat

first.

Thedynamicsofpolicycreationduringacrisisdiffersfromanon-crisissituationdue

toanumberofdistinctreasons.Inanon-crisissituationapublicdefeatofapolicythatis

putforwardcanoftenhaveaseverenegativepoliticaleffectfortheproposerofthebilland

thustheywilltrytoavoidapublicdefeatofabillthattheyassociatedthemselveswithor

whichisviewedasbeingpartoftheiragenda.Thisleadstohesitancyputtingforwardabill

thatisliabletoendinfailure.Duringacrisishowever,thereismorepoliticalrewardfor

takingactionandoftenaseverepoliticaldownsidetoholdingupaction.Thismakesthe

presidentandotherpoliticalleadersmorelikelytoputforwardproposalstochangepolicy.

Thiscanleadtocompetingproposalsthatoftentrytooutdoeachotherinaudaciousnessin

ordertohavethebackersoftheseproposalsbeseenasabraveleader.

Afterproposingapolicy,theauthororchiefproponentofthepolicy,oftenthe

president,willtrytoshepherdthepolicythroughtheprocessofadoption.Thepresident

doesnotonlytrytoconvinceindividualmembersofcongress,butessentiallybecomesthe

headofacoalitionsupportingthebill.Thecoalitionwillalsodowhattheycantoshapethe

politicalspacetohelpthebillendinabettersolution.Theadministrationhaslimitedsupply

ofresourcesincludingsuchkeyresourcesasthepresident’stimeandlegislativesupportand

solikeallrationalactorstheyusetheirresourcesinamannerthatismosteffectivefor

them.Incasesinwhichthevotewillalreadypassbyawidemargin,thereislittlereasonfor

thepresidentorhisstafftoworkhardtopushthebillexceptforcreditclaiming.Inparthe

177Neustadt,Richard.PresidentialPowerandtheModernPresidents:ThePoliticsofLeadershipfromRoosevelttoReagan.NewYork:FreePress.1990.64.

112

isabletoenactchangesbygettingpartyleadershipincongresstoagreetohisproposals.

Hecanthencountoncongressionalleadershiptoensurethattheyhavethenecessaryvotes

andtoconvincethosethatareunsure.Notallmembersarepersuadableaboutanissueso

theadministrationandcongressionalleadershipfocusesitseffortsonthosethatare.

Therearestillmanycentersofpowerinthecongress.WhileCommitteeChairmen

maynotbeaspowerfulastheywerebeforethereformsofthe1970s,theycanexert

significantcontroloverlegislation.Thisisparticularlytrueforlegislationthatfallsinthe

provinceofthecommitteeandthesedayswiththeSpeakeroftheHouseoftensendinga

billtomultiplecommittees,thecommitteeoftenhassomecontrolandinfluenceovera

largenumberofpiecesoflegislation.Billscanbekilledorbeamendedincommitteeanda

committee’srecommendationscanoftenhavesignificanteffectonshapingthefinalbill.

Duringacrisishowever,congressbecomesmoremonolithicasbillsareexpeditedthrough

congressgivingmembersofcongresslesstimetoevendeterminewhatisinthebill.The

rolesofcommitteeschangesduringacrisisandingeneralbecomelesspowerfulastime

becomesscarcerandassalienceincreases.

Thereisalsorecourseforthepresidentinthatifhecannotpushthroughlegislation,

hecanoftenachievemanyofthesameendsotherwayssuchasbyusingexecutiveordersin

whichthepresidentcanchangepolicyandtheactionsofgovernmentwithoutalawbeing

passed.Thisgiveshimsomebargainingpowerwithcongressasheisnotfullyrelianton

congressandcanthusbargainandgiveawayasmallpartofhisagendainreturnfor

congressbeingwillingtoworkwithhim.Thiscanincreasethepublic’sperceptionofthejob

thatthepresidentisdoing.Legislationalsocanbeusedtoallowforfutureexecutiveorders

andcangivethepresidentabilitytopursueaction.

Politicalactorshavedifferentviewsastowhetherbureaucracyshouldfunctionasa

coherentwhole.Thepresidenttypicallythinkssoandhasatleastnominalcontroloverthe

wholebureaucracyandendeavorstobringmuchofthepowerofthebureaucracytobear

onsomelargeorintractableissues.Whereasmembersofcongresstypicallycanexertsome

controloverpartsofthebureaucracyandagencyanddepartmentheadsarelikewiselimited

intheirformalpowertotheirownfiefdomandatbestcanworkwithothers.Committee

chairsandmanyothercongressionalleadersbenefitbythefragmentednatureofthe

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bureaucracybecauseitgivesthemcontrolovertheirspherewithoutinterferencefromthe

partyleadership.Duringacrisisthepresidentwillmakeanincreasedappealtocontrolthe

bureaucracy.Thisattempttocentralizepowercanhelpitbecomemoreresponsiveand

thusbettercapableofdealingwithcrises.

Evenwhencongressattemptstocurtailexecutiveauthorities,thepresidentcan

oftenfindwaysaroundtherestrictions.Furthermorethemereactoftryingtoimposelimits

onexecutiveprerogativecaninadvertentlycausethesepowerstobecomestrengthenedas

congressimplicitlyapprovedofpowers.Mayerdescribesthereportingrequirements

imposedbytheHughes-RyanamendmentstotheForeignAssistanceActandthe

IntelligenceOversightActin1980saying,“Themerefactthatcongressrequiredthe

presidenttoreportonsuchactivitieswasreadbythecourtsasacongressionalrecognition

ofthepresident’srighttoconductthem.”178

Onemethodthepresidenthasofincreasinghisabilitytogethiswayistogopublic

andputpressureoncongresstogoalongwithhisproposal.Itcanhelpthepresidentgethis

agendapassedortogainacceptancefromcongressparticularlyiftheiragendaispopular

withthepublic.However,goingpublichasatendencytoalienatecongressandthusis

relativelyincompatiblewithbargaining.Thereforetobeaffectivethepresidentmustdecide

whethertorelyongoingpublicandamorecoerciveapproachtohandlingcongressor

whethertorelyonbargainingandworkingtogetherwithcongress.Asitrequiresless

compromiseandworkingwithcongress,goingpublicseemsparticularlyenticingto

presidentsthatdonothavealongbackgroundinortiestocongress.Forinstancethose

thatcametoofficeasanoutsidersuchasagovernorwouldbelesspreparedandinclinedto

bargain.179Theyarethusmorelikelytogopublicandtrytoexertpressureoncongress.Ina

crisisthetemptationtogopublicisevenhighersincetheissueoftenalreadyhasahighlevel

ofsalienceandoftenthepublicislookingtothepresidenttoleadduringacrisis.Thisis

especiallytrueinareassuchasforeignanddefensepolicyinwhichthepresidentcanserve

asasurrogaterepresentingthecountry.Inaddition,lobbyingcongressandusing

negotiationcanbeslowespeciallywiththehistoricdevolutionofpowerfromafew

powerfulindividualstothecurrentsysteminwhichmostmembersofcongresstochair

178Mayer.25.179Kernell,Samuel.2006.Pg.44.

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eitheracommitteeorasubcommitteeandthusisnotalwayswellsuitedtodealingwith

crises,whichoftenevolverapidly.180

Iftheoppositionpartyholdscongress,ithaslittleincentivetohelpthepresident

achievehisagenda,butratheritwillworkdiligentlytothwartthepresidentsothatthe

president’spolicydoesnotgetimplemented.Thisbothstopspoliciesthatcongressdoes

notapproveoffrombeingimplementedandalsocancausethepresidenttolook

ineffectual.In1985,HouseRepublicanWhip,RichardCheney,said,"Polarizationoftenhas

verybeneficialresults.Ifeverythingishandledthroughcompromiseandconciliation,if

therearenorealissuesdividingusfromtheDemocrats,whyshouldthecountrychangeand

makeusthemajority?"181Duringthetimeperiodexaminedinthispaperthereare

numerousinstancesofcongresstryingtosabotageorsidelinepresidentialproposals.Crises

canbothbeusedbythepresidenttoregaintheinitiativeaswellasapretextforcongressto

ignorethepresident’sproposals.

Thepresidentderivesconsiderablepoweradvantageduetohisinformational

advantagesandthefactthathecankeepinformationsecretinanumberofwayssuchas

classifyingitusingthenation’sclassificationsystemwhichwasitselfalmostcompletelyset

upthroughpresidentialexecutiveorders.Thepresidentalsolimitsthedisseminationofkey

informationthroughusingexecutiveprivilege.Inadditiontohisabilitytoprotectdata,he

hasadditionalinformaladvantagesduetohislinksandcontactsandhisuniquepositionin

thepoliticalhierarchyaswellashavingtheadvantagesduetothevastresourceshecan

bringtobeartofindoutrelevantinformation.Thepresidentgainsbyhavingthese

informationaladvantagesandtakesstepstoensurethathemaintainsthisadvantageover

congressandothers.AnexampleofthiswasPresidentBushorderingtheSecretaryof

HealthandHumanServicesnottomakethecostsofthepresident’sproposalforaMedicare

prescriptiondrugplanpublicasthecostwouldleadtoaweakeningofsupportforthebill.182

Inacrisisthisadvantageismaximizedasthepresidentandhisstaffisthenatural

coordinationpointandbecausethepresidenthasmoreopportunitytoshielddatafrom

congressandotherpartiesunderthereasoningthatthissecrecyisrequiredbythecrisis.

180Kernell.34.181Dickinson,Tim.“TheManWhoWouldBeVeep”MotherJones.July26,2000.182Shull.76.

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Thereisatrendinpoliticstolookmoreatshorttermpoliticsthanthelongterm

needsofthenationandthiscanleadtothecraftinglessdesirablepolicy.Thisisparticularly

trueincriseswhenthereismorepublicattentionandthuspublicpressureonthepresident

todealwiththeimminentthreat.HenryKissingersaid,"Thereisaproblemthatasthe

pressuresoftheirelectoralprocesshaveincreased,governmentshavebecomemoreand

moretacticallyoriented.Themoretacticallyorientedtheyare,themoreshort-termtheir

policies.Themoreshort-termtheirpolicies,thelesssuccessfultheyare."183Morecomplex

problemsorthosethatarelessvisibleandcomprehensibletothepublicoftenwillgetless

emphasisthansimple,symbolicactionsthatcanbeperformedquickly.

BerylSprinkel,chairofCouncilofEconomicAdvisorsunderReagansaid,"Itturnsout

thatgoodeconomicpoliciesthatbringyoubettergrowth,betteremployment,lower

inflationandhigherlevelsofprosperityusuallyhaveshort-runcost."Furthersaying,"You

gothroughthepainfirst,andthenyougetthegoodieslater.IfIcouldchangesomething,I

wouldcertainlygetthegoodiesupfrontbecauseitwouldsolvealotofpoliticalproblems."

Thisleadstolessdesirablepolicysinceitisunpopularintheshortterm.184Crisesleadtoan

evenshortertimehorizonandthustheriskofpoorpolicymeanttoaddresstheneedsofa

temporarysituationisevenmorepronounced.Ithasbeenarguedaboutmanyfinancial

crisesthatthesparkoftheircreationwaslegislationdesignedtodealwithpreviouscrises.

Forinstance,marktomarketaccountingthatseemedlikeagoodideaduringtheSavings

andLoancrisisdeepenedthe2007financialcrisis.

3. Hypotheses

Followingthereviewofsomeofthetheoreticalframework,thispaperlookstosee

formhypothesesbasedoffoftheframeworkthispaperisworkingfromandtheprevious

researchthathasbeendoneondelegation.Whilethereareseveralpotentialquestionsthat

canbeinvestigated,thispaperwillfocusonfivequestionsinparticularwithregardtocrises

183Kernell.1993.Pg.190.184Kernell.2006.Pg.232.

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andtheuseofdelegation:whethertheabdicationhypothesisiscorrect,whatdetermines

theagentsthataredelegatedto,whatdeterminestheconstraintsthatcongressesuses,the

extentofunilateralexecutiveactionduringthecrisis,andtheextentthatimplicitdelegation

wasusedduringthecrisis.

Theexistenceofacrisiscanbeviewedasanenvironmentalvariableanditisone

withsignificanteffectsbothonpolicytakenandalsoonthemannerinwhichthepolicyis

decidedonandimplemented.Delegationisoftenaneededtooltodealwithcrises.Often

theslow,deliberatemethodofshapingpolicythatcongresstypicallyusesisnotableto

handlefastchanging,complexsituationsthatrequireimmediateresponse.Thepresidentas

asingledecisionmakerisabletosteertheshipofstatefarmorenimblythantheoftenover

politicizedbodyofcongresswherepartiesbattleforpoliticalposition.Agenciesalsohave

advantagesovercongressinthattheyhaveandcangainspecializedknowledgeinkeyarea,

theyhavethesizeandscopetohandledetailedissues,andtheyoftenhaveastructurein

placetodealwiththesecrises.

Onewouldexpectthatthepresidentwillmakeacaseforstrengtheningthe

authorityoftheexecutivebranchandstatethatadditionalpowersarewarrantedtodeal

withthecrisis.Congresswouldalsobeexpectedforelectoralreasonstotakestepsto

addressthecrisis.Asthecrisisbeginstosubsidetheexpectationwouldbethatthe

governmentwillbegintoshiftfromsimplybeingreactivetobeingmoreproactivethe

executiveagenciesandcongresswillworkbothaloneandinconjunctiontochangethe

systemsothatthelikelihoodofasimilarcrisisoccurringagaininthefutureisdecreased.

Withtime,onewouldexpectexecutiveandlegislativebranchestorollsbacksomeofthe

responsesthegovernmentmadetothecrisisthatarejudgedastooextremeornolonger

neededafterthecrisis.

3.1AbdicationHypothesis

Therehavebeenmanyattemptstodeterminewhethercongressdelegatesits

authoritytofurtheritsownpoliticalinterestsbyavoidingdifficultdecisionsorwhetherit

usesdelegationformorepositivereasons.Inalllikelihood,congress’sactionsarelikelyfar

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morenuancedanddonotleadtogeneralities.Congressismadeupofhundredsof

individualsmakingdecisionsfordifferingreasons.Whilethecollectiveactionofcongress

canbeanalyzedforgeneraltrends,areasonableexpectationbasedonthevarying

preferencesofitsmembersisthatmembersofcongressdelegatebothtoavoidmakingthe

toughdecisionsaswellasformorepositivereasonssuchasadesiretocreatebetterpolicy.

Membersofcongresstypicallyhavemultiplegoalssuchastogetelectedandtohelpthe

publicinterestastheyseeit.Whilethesemayvaryinimportancetomembersofcongress

andtherelativepulloftheseinfluencesvarybasedonthepoliticalsituationandthe

questionbeingexamined,theywillallcontinuetoaffecttheactionsofindividualmembers

ofcongressandthebodyasawhole.Itmaybeexpectedthatinacrisiswhentheirnation

anditscitizensaremostatriskthatmembersofcongresswouldbemoreinclinedtofocus

moreonensuringthatthebestpolicyisputinplaceandinthecorrectmannerasopposed

tobeingmorefocusedonpoliticalissues.Thisbeliefinaltruisticintensionsinthefaceofa

severecrisisisconsistentwiththebeliefintherationalityofmembersofcongress.The

assumptionofboundedrationalityimpliesthatmembersofcongresswillchosethebest

optionstomeettheirgoalgiventheknowledgethattheyhave,butitdoesnotspecifywhat

theirgoalsareorimplythattheyneedbeonlytheirindividualself-interest.

Likewisewhenfacedwithacrisis,thetheorywouldpredictthatthepresidentwould

likelybemoreinclinedtodelegateforaltruisticreasonsandthedesiretohavebetterpolicy

createdratherthanpoliticalcalculations.Inaddition,thepresidentwouldbeexpectedto

takeexecutiveactionevenifitisunpopular.Thisisparticularlytrueforthosethatdonot

needtobereelectedsincetheyhavenothingtoloseelectorally.Evenwithoutelection

concerns,presidents’mayfocusontheirlegacy,howeverthistendstobelessimmediate

andfocusedonshort-termpoliticalscorekeepingandthereforemorelikelytodelegateto

producegoodpolicyratherthantoavoidblame.

Becauseoftheseverityofthecrisistherewasfarmorescrutinyoftheactionsof

congressandthepresident.Accordingtoabdicationtheorythiswouldgivelawmakersabig

reasontomakesurenottotakeunpopularactionsasthesewouldbehighprofileandwould

carryabiggercostthanwouldbethecaseinusualsituations.

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3.2Agents

Thestructureofdelegationisimportantinthatitcandeterminetheactions

governmentwilltakeandthiswillaffectthelawsandregulationsthatresult.Oneofthekey

determinantsoftheeffectsofdelegationiswhotheagentwillbethatisdelegatedto.

Agentshaveahostoffactorsthatdeterminehowtheywillactandinwhatsituationit

makessensetodelegatetothem.Amongthesefactorsarethesizeoftheagency,what

issuestheyarefocusedon,howindependenttheyarefromthepresident,howimmune

theyaretothethreatofregulatorycapture,theirideology,andtheirspecialization.By

assumingthatcongressandtheagentswillactrationallyintheirownbestintereststothe

extenttowhichtheyareabletodeterminethese,thechoiceofagentsthatcongress

delegatespowerstowillbestrategicallychosentoaccomplishgoalsandtopursueaspecific

agenda.Congressthuslooksatthespecificsofvariouspotentialagentstomakea

determinateofwhichagencytodelegatetoorwhethertocreateanewentitytobethe

receptacleofdelegatedpower.

Congresswillideallychooseanagentwithsomeexpertiseinafieldasexpertisewill

generallyleadtobetterpolicysincethosewithknowledgeofafieldarebettersituatedto

knowwhattheproperactionstotakeare.Congresswillthustendtoaimtodelegatetoan

agentwithexpertiseinafieldsolongasitwishesforaneffectiveorganization.Thereare

however,oftenmultiplepotentialoffices,departments,andagenciesthatwouldservewell

asapotentialtargetfordelegation.Congresscandeterminewhomamongsttheseto

delegatetobasedoncongress’viewofthecompetenceoftheseentities.Onecanreason

thatcongresswillchooseanagentthatwillbestmeettheirneedsandoftenthiswillbeto

effectivelydealwithaproblemandcreatesensiblerules.Theywouldwantanagentthat

hadsimilarviewsontheissuesonthetableascongressdid.Whilecongressisacollection

ofdifferentindividuals,onecansupposeamedianfloorvoteroramedianvoterofthe

dominantcoalitionanditisthispersonthattheagencywouldbeexpectedtohavesimilar

viewsto.Theagentwillalsobemorelikelytobeselectedasanagentiftheyholdsimilar

politicalviewstothoseheldbycongressandiftheyareofthesamepartythatcontrols

congress.Someagencieshavepoliticalleaningsinlargepartduetotheiremployeesself-

selectingwhatagencytoworkforandchoosingissuesthatintereststhem.Forinstancethe

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EnvironmentalProtectionAgencytendstobemoreleft-leaningwhilethoseinthemilitary

tendtobemoreright-leaning.WehypothesizethatarationalCongressalsofactorsinthe

leaningsoftheagenciesthemselvesaswellasjusttheirleaders.

Lawscanbewritteninvariouswaysandthistoocanaffectthechoicesrelatingto

delegation.Anactthatisvaguecangivemorewiggleroomfortheagentwhereasonethat

ismoreconcretelimitsfreedomofaction.Vaguelawsthatdelegatepowercanalsoleadto

questionsbythejudiciaryastotheacceptabilityofthelaw.Thiscancauselegal

complicationsanditcantakeawhileforthesetobecomeacceptedandthiscanslowdown

theadoptionprocessforthesenewpolicies.ThiscanbeseenintheCreditRepair

OrganizationsAct,whichwasTitleIVofTheConsumerCreditProtectionAct,whichwas

designedtoprotectbuyersofcreditrepairservices.However,theactwasnotclearlylaid

outsothatkeyquestions,suchaswhetherconsumerscansuecreditcardcompaniesevenif

thereisaclauseintheircontractssayingthatalldisputes,mustbesettledbyarbitration.

AftertheU.S.CourtofAppealsforthe9thCircuitruledintheCompuCreditCorp.v.

Greenwood,thatconsumersdidhavethisright,theSupremeCourttookuptheissue.185

TheSupremeCourtinan8-1decisionoverturnedtherulingofthelowercourt.Discussing

theconfusionthewordingofthelawcreate,JusticeScaliawroteamajoritypositionthat

stated,“HadCongressmeanttoprohibittheseverycommonprovisionsintheCROA,it

wouldhavedonesoinamannerlessobtuse.”

Agenciesarenotallcreatedequal.Theirstructure,history,personnel,and

numerousotherfactorscangreatlyaffecttheirtendencies.ForinstancetheDepartmentof

DefenseandtheDepartmentofHousingandUrbanDevelopmentwillhavedifferingviews

oftheirmandate,theirmission,andtheirplaceinthepoliticalsystem.Oftenthedecisions

madewhensettinguptheindustrylingerformanyyearsaftertheagencywasdesignedand

created.Thusagenciescanreflecttheeraandpoliticalclimateinwhichtheyarefirst

created.Thiscanaffectpolicycreation.

Amongthewaystocategorizeagencies,theyhavebeenplacedbysomein

categoriessuchasregulatoryagencies,redistributiveagencies,constituencyagencies,policy

agencies.Individualsthatchoosetoworkinorleadonetypeoforganizationdifferfrom

185132S.Ct.665.

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thoseatanother.Likewisemembersofcongressoverseeingoneofthesetypesofagencies

oftendifferfromthoseonothertypes.Asanexample,membersofCongressoverseeing

theUnitedStatesDepartmentofAgriculture,aconstituencyagency,aremorelikelytobein

anadvocacyroleforprogramsandtypicallycomefromdistrictswithalargenumberof

farmersandfarminterests.

Thisleadstocompetitionbetweenprincipalstoinfluencetheagent.Occasionally

theyworkintandemtohaveanoutsizedinfluenceonagencyactionsandtoworktoresolve

intractableissues.Oftenhowevertheinterestsofthepresidentandvariousmembersof

congressdonotalign.

Ininstanceswherecongresswriteslegislationdelegatingpower,itisabletochoose

towhomtodelegatethesepowersandithasnumerousoptions.Thechoiceofagentisa

keyfactorintheactofdelegating.Asthispaperassumesthatcongressismadeupof

rationalpoliticalactorsonewouldexpectcongresswillselectagentsthatbestmatchtheir

politicalgoals,whethertheybeavoidingblameorcreatingoptimalpolicy.Theselectionof

anagentmattersbecausedifferentagentshavedifferentgoals,capabilities,andfreedomof

action.

3.3Constraints

Thestructureofthedelegationcombineswiththetargetofthedelegationtotruly

determinethenatureofthedelegationandtheeffectsofitbeingthemethodused.

Constraintsgreatlyshapethedynamicsofthedelegationandtheactionsofthoseinvolved

inthedelegation.Constraintscanbeusedbytheprincipaldoingthedelegatingtoconstrain

theactionsoftheagentdelegatedthepower.However,theycanalsobeusedtofocus

actionsorensureefficientaction.Byrequiringtheagenttoworkinconjunctionwith

anotheragent,constraintscanensurepropercoordinationofalltheindividualsinthe

governmentwithexpertiseinanareaorastakeintheresults.Theycanalsoensurethatthe

agentdoesnotgotoofarfromthetypicalpolicyresponsesthathavebeenusedinthepast.

Thereisasizablecontingentamonggovernmentalagenciesthathaveastakeinthestatus

quoandwishtopreservepastdecisionsandwillpushbackagainstexcessivechanges.

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Constraintscanmakesurethatanewagencyoranagencyentrustedwithanewpower

doesnotdeviatetoofarfromcongress’desiredpolicychanges.

Wewouldexpectthatbecauseoftheimportanceandscopeofthelegislationthat

wasenactedinresponsetotheeconomiccrisis,thatnumerousconstraintswouldbe

employedtokeepagencyactionsalignedwiththepreferencesofcongress.Inaddition,this

paperwouldexpectthatthetypesofconstraintsemployedwouldbeconsistentwithand

dictatedbythegoalsthatcongressistryingtoachieve.

Constraintsontimecanalsobeusedtoensurethatasolutiondoesnotbecome

open-ended,butratherthepolicyresponsetothecrisisisdesignedtomeetthecurrent

crisis.Thisisthecaseifpowerisgivenforacertainamountoftimeoranagencyisdesigned

todissolveafteracertainamountoftime.Constrainscanalsoslowdownactionifcongress

requiresacertainamountofstudyorcertainspecificactionsbeforeitmaytakeaction.

Timeconstraintscanalsospeedupactionsorensurethatcertainstepsaretakenina

timeframethatcongressfeelsisacceptable.Congressmaywanttoshowacredible

commitmenttoresolvinganissueandbyenforcingmilestonesandfixeddatesforactions

suchasfindingsandreportsitcanensurethetimelineismet.Thereissomelossinthatthe

agentdoesnothavetheabilitytomakeitsowntimelines.Forinstance,ifcongressrequires

aproposalandareportbyaboardbyacertaintime,itcancauseinefficienciesiftheagent

hastoprematurelytakeaction.Itmaybeabletoproducebetterresultswithmoretimeand

wouldbeabletosolvetheproblem.

Spendinglimitsalsocanassurethattheagent’sscopeofactionisconstrained.For

agenciestobeabletoenactsweepingchanges,thereisoftenaneedfortheagenttohave

thenecessaryresourcestodealwiththeissue.Oneofthemostimportantresourcesforan

agencyisfundingwhichcanbeusedbytheagentanumberofwaystoachieveagoal.One

oftheotherkeyresourcesthatisneededbyanagencyismanpower.Themorepeoplethat

canbededicatedtoatask,andthebetterfittheyareforthetask,themorelikelytheywill

beabletosucceedatthattask.Thusifcongressdelegatestoalarge,well-staffedagencyit

willbetterenabletheagencytoaccomplishwhatwasdedicated,butitwouldalsobe

enablingtheagencytopushitsownagenda.Byhavingsignificantresources,including

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people,andnotneedingtorelyonotherstosupplythese,theagencyhaslessdependencies

andmorecapabilitieswhichcanbeleveragetopursueactionsthatitviewsasbest.

Guidanceisalsoanimportanttoolofcongress.Congressisabletogivesome

guidancesothattheagencyknowswhatitissupposedtoachieveandtheaimsofcongress

asthedelegatingpower.Congress,byassigninggoalsinthedelegationitself,canassure

vigilancebytheagencybeingdelegatedto.Itcanalsolayoutgoalssothattheagency

knowswhatitisaskedtoaccomplishandinthecaseofmultipleorcontrastinggoals,

congress’guidancecanbalanceprioritiesorprioritizethese.Byincludingsuchguidancein

thelawdelegatingauthority,theagencylegallymustbeattunedtocongress’desiredgoals.

Thusbyexplicitlystatingthesegoals,congresscanmakeexplicitwhatitisthattheywould

liketoachieveandmaketheagencyfocusonthese.Thisguidancealsohelpstoexclude

othergoalsthattheagencymightotherwisefocusonorsubstituteinsteadifcongressonly

impliesitsgoals.

Oversightisanothermethodcongresscanusetosetprioritiesandensurethatthe

agenciescontinuetofocusontheseratherthanstakingouttheirowngoals.Congresscan

setuphearingsandthusperformdirectoversight.Hearingsareapowerfulwaytoadjust

thecourseofanagency.Congresscanharangueanadministratorthatcongressfeelsisnot

doingagoodjoborisgoingagainstcongress’wishes.Themerethreatoftheseactionsis

enoughtokeepanagencyinline.Thisthreattotheagencyanditsheadscanbeusedfor

leveragetoallowlawmakerstoachievegoalsthattheyortheirvotersareinterestedinand

allowsforcaseworkonbehalfontheirconstituents.Thiscaseworkhelpsmembersof

congresspolitically.

Constraintscanbedesignedinsuchawaythatcertainindividuals,companies,or

industriesarespecificallyexemptedfromtheactionsonanagent.Thiscanbedoneto

decreasetheresistancetothebillallowingittopasssinceentrenchedintereststhatarenot

threatenedwillnotworkhardtocounterthebillastheyhavelessatstake.Exempting

groupsorindividualsisalsousefulformembersofcongress.Ifamemberofcongresscan

getaconstituentorcompanyintheirdistrictexemptedfromregulationthiscangarner

themagreatdealofgoodwillwhichcanleadtofuturevotesandcampaigncontributions.

Exemptionscanalsobeusedtostopanagencyfrombeingoverzealousandcreatingpoor

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policywhichdoesnottakeintoaccountimportantfactorsorwhichistoouniversalanddoes

nottakeintoaccountormakeallowancesforthespecificsofthesituation.Itcanalsoallow

membersofcongresshelptheirkeyconstituencies.

Alongwiththeexceptionsthatcongressmakesinthelawwhenitsetsforth

delegation,itcanalsosetforthcompensationthatmustbepaidorallowancesmadefor

thoseorganizationsandpeoplethatareadverselyaffectedbytheactionsoftheagency.

Likeexemptions,makingcompensationscanmakethedelegationlessdisruptivetothe

groupregulatedoraffectedbytheagency’spower.Thismakestheoppositiontothenew

lawlessdeterminedtocombatthenewbillandmorelikelytocompromise.Compensations

andexemptionsoftenaretheresultofcompromisesinwhichlawmakersuseitasabone

forotherlawmakersoraffectedinterestgroups.Theycanbeusedtoensurethatagency

actionsarenotunnecessarilysevereordisruptive.Thuscongresscanbuildingradualismor

mercythatwillhelpcompaniesadapttonewrules.Thiscanbeparticularlyimportant

duringeconomiccrisessinceittakestimeformarketstobecomeefficientandcongress

doesnotwishtodomoredamage,whichaparticularlysevereorfar-reachinglawcando

evenifitaddressesagenuinenationalneed.Thisisespeciallytruebecausemarketsrestto

agreatextentonexpectationsofthefutureandconfidenceinthemarketscouldbe

damagedifanagencytooktooaggressiveastep.

Judicialreviewisawaytooverseetheactionsofanagency.Itcanbeemployedto

ensurethatanagency’sactionsareapprovedofbyconstituents.Ifthereissignificant

unhappinessintheagency’sactionsorifanentityisadverselyaffectedtheyhaverecourse

torectifythesituationandeffectivelyoverturntheagency’sactions.Itispowerfulinsofar

asindividualsandorganizationscanbringacaseandthevastlegalsystemcandealwith

themasopposedtotakingcongress’limitedtime.Thisallowscongresstoprovideoversight

oftheagenciesatalowcosttoitself.Itisafirealarmratherthanpolicepatrolmethodof

overseeingtheagency.Thisbluntstherisktocongressofanunpopulardecisionthatcould

havebeentracedbacktocongress.Oftenentitieshaveaccesstothecourtsystemby

generalprovisionssuchasthosecontainedintheAdministrativeProcedureAct,but

congresshastheabilitytomakeadditionalprovisionsforaccesstojudicialreview.These

canbeusedforvariouspurposessuchastoprotectentrenchedinterests.Judicialreview

canbeparticularlyimportantinthecaseofeconomicregulationsinceitisoftendifficultto

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knowinadvancethetrueeffectofregulationsandjudicialreviewcanensurethatadverse

unintendedconsequencesdonotcausemoreharmthantheydogood.Itcanalsobeuseful

asregulationoutlivesitsneeds.

Servingasimilarfunctionasjudicialreviewareprovisionsmadetogivethose

adverselyaffectedbyagencyactionstherighttoappealsandwhichlayoutaformalappeals

procedure.Bymakingallowancesforappeals,congresscangiveindividualsandcompanies

awayaroundthelawsandregulationscreatedbyanagency.Thiscanavoidanexcessive

actionbyanagencyandassurethatspecificsarebeingtakenintoaccountandthatthe

decisionisnotsopoliticized.Itcanalsomaketheprocesshavemoreofanappearanceof

beingfair.

Congressalsocanmakerulemakingrequirementssothatagenciesmustcomplywith

theprocessesandproceduresthatcongresslaysoutinthelaw.Aswithmostconstraints,

rulemakingconstraintslimitthefreedomofactionoftheagent.Thereareavastarrayof

rulemakingrequirementsthatcongresshastheoptionofusingwhenitdelegatesauthority

toanagent.Thesecanrequireagentsjustifytheiractions.Theymightalsogive

requirementsfortheagencytomakeadecisionwithaneyetoacertaingoal.Thisdirects

theagencyandgivesitacourseofactionfaraftertheinitialadministratoroftheagencyhas

leftoralternativelyitcangiveanewagencydirectionbeforethecultureoftheagencyis

formedoritsstructureistrulyset.Thisisapowerful,flexiblepowerheldbycongressinthat

itcanbeusedtoaddressavarietyofissues.Itcanlimitthepowerofanagency,setthe

courseoffutureaction,changethemeansorendsofagencyactionandhelpdeterminein

whatsituationtheagentshouldtakeactionandinwhatsituationsitshouldnot.

Limitsondelegationcanalsoincludelimitstotheappointmentpoweroftheagent.

Thiscanlimittheabilityofcongressandthepresidenttofullydeterminethepeoplethatwill

leadtheagency.Theleaderoftheagencyormembersofaboardlargelysetthepriorities

fortheentityinquestionandhavefinalsayovertheactionsoftheagency.Thustheability

todeterminewhoisamemberoftheagencycanbeanimportantpowerforanagencyor

others.Therecanbeotherappointmentpowerlimitssuchascongressdetermininghow

longsomeonecanservefor.Settingtimelimitsforappointmentscanchangethestrength,

internalconsistency,andactionsoftheagency.Iftheheadofanagencyisappointedfora

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longperioditwillgivethemmoreindependencesothattheycanchartthecourseofthe

agencywithlessoversight.Longerappointmentsareimportantbecausetheycanstopthe

presidentfromselectingaspecificindividualforaposition.Thusappointeeswhoare

appointedtopositionswithlongertermwilltendtobelesstiedpoliticallytothepresident

andtheydonotneedtomaketheiractionsaccordwiththepresident’swishesinorderto

bereappointed.Theappointmentprocedurealsocandeterminewhethertheagencyhead

servesatthepressureofthepresidentorwhethertheycannotbeeasilyreplacedanditalso

determineswhogetsasayintheactofappointinganagencyhead.TheSenatetypicallyis

givensomeroleintheappointmentprocesswhenthepresidentappointssomeoneforthat

position.ThisisduetoArticleII,Section2,paragraph2oftheUnitedStatesConstitution

whichstates,“He[thepresident]shallhavepower,byandwiththeadviceandconsentof

theSenate,tomaketreaties,providedtwothirdsoftheSenatorspresentconcur;andhe

shallnominate,andbyandwiththeadviceandconsentoftheSenate,shallappoint

ambassadors,otherpublicministersandconsuls,judgesoftheSupremeCourt,andallother

officersoftheUnitedStates,whoseappointmentsarenothereinotherwiseprovidedfor,

andwhichshallbeestablishedbylaw:buttheCongressmaybylawvesttheappointmentof

suchinferiorofficers,astheythinkproper,inthePresidentalone,inthecourtsoflaw,orin

theheadsofdepartments.”186Thispassageclearlylaysoutthatformanyofficesthe

congressisabletodeterminewhichpersonorpersonsareabletomakeappointmentsand

theprocessused.Thereareoftenadditionalprovisionslaidoutinlegislationthatgives

otherindividualstheabilitytoroleintheappointmentprocess.

Delegationcanalsobedesignedinsuchawaythatfullyenactinganagent’sproposal

wouldrequirelegislativeactiontobetakenafterwardtofinalizetheactionoftheagent.

Thisisaweakformofdelegationthatvestslimitedpowerintheagent.Thisisusefulfor

advisorypanelsandsimilarorganizationswhichcongresswishestotakeinitiativeonan

issue,butonwhichcongresswouldlikefinaldecisionmakingauthority.Theactionneeded

bycongressisnotnecessarilytodecideabouttheissueathand,butinsteadcanbeon

relatedtopicssothatitisessentiallyacontingentdelegationthatdependsoncongress’

actions.Alternativelythedelegationmaybeaproposalthatcongressmustspecificallytake

actionauthorizingtheagentproposedaction.Anexampleofthiswasthesocalled

186USConstitutionArticleII,Section2,Paragraph2

126

Supercommitteewhichhassomeagendasettingpower,butwhichneededcongressin

ordertoimplementtheirproposals.

Delegationrequiringlegislativeactioniscloselyrelatedtothelegislativeveto.The

legislativevetoallowedcongresstounilaterallynullifyanactionofanagency.Itisapost

hocpowerofcongressallowingittostopactionsthisitdisapprovesofevenaftertheagency

createsthem.Legislativevetoeswerecreatedinwhichonlyonechamberofcongressis

abletooverridetheactionsoftheagency.Thisallowscongressorapartofitoverseean

agencyandgiveitfarlessleewayinthatallitsactionscanbeeasilyoverriddenallwithout

goingthroughthenormalprocessoflawmaking.TheSupremeCourthoweverruledthat

theabilityofcongresstousethelegislativevetotooverturnagencyregulationswas

unconstitutionalduetoitscircumventingtheregularrulesoflawmaking.However,itis

arguedbysomethatimplementationsofalegislativevetoarestillinlawandusedtoday

despitethistypeofconstraintbeingruledunconstitutional.

Congress,whenitwriteslegislationthatcontainsdelegation,oftenincludes

transparencyprovisions.Thesecantaketheformofrequiringpublichearings,whichare

usefultomembersofcongressinthattheyhelpgagepublicsupportforproposedcoursesof

actionsthattheagencysuggests.Thiscanhelpmembersofcongressdetermine

stakeholdersandeitherdistancethemselvesfromunpopularproposalsortakecreditand

associatethemselveswithpopularproposals.Publichearingsthusservethepolitician’s

interestsbybeinganefficientinformationgatheringtechniqueinwhichthereisverylittle

congressionalstaffeffortrequired.Publichearingsserveanadditionfunctionbeyond

transparencyandtheirpoliticalbenefitstoindividuallawmakersinthattheycanhelp

improvepolicy.Thesehearingsgarnerfeedbackfrompeopleandthesecanleadtobetter

informationfromwhichtodevelopapolicyandmayincludecountersuggestionsthatare

betterthantheinitialproposal.Publichearingsalsoturnpolicymakingintoatwo-way

endeavorinwhichthosethataregovernedcancommunicatewiththosemakinglaws.This

makesgovernmentmorerepresentativeandresponsivetothewillofthepeopleandthus

broadlyitbecomesmoredemocratic.

Constraintsondelegatedpowergreatlyaffectthemannerofpolicycreationandare

animportanttoolbywhichcongresscanensurepolicywillremainconsistentwithcertain

127

policyobjectivesthatcongresswishespursued.Thispaperhypothesizesthatconstraints

willformanimportantpartofthedelegationandthatthetypesofdelegationusedwould

beconsistentwithgoalsthattheenactingcoalitionistryingtoachieveandthemethodof

policycreationthattheyfavor.

Agencyheadsaretypicallychoseninlargepartduetotheirassociationwithone

party.Thispoliticalidentificationcanhelpthepresidentdeterminetowhatextentthe

interestsofapotentialagencyheadalignswiththeirownviews.Inthehectictimeafteran

election,itisdifficultforapresidentandtheirtransitionteamtofullyvetcandidatestorun

anagencyandsosubstitutingforafullknowledgeofacandidate’sviews,abilities,and

willingnesstodoasdirectedbythepresidentareanassessmentoftheirpartyloyaltyand

pasthistory.Delegationcanbeaffectedbyspecificssuchasthelengthoftimethatan

agencyheadormemberofaboardareappointedforandthuscongressandthepresident

willaltertheseandotherfactorsinordertoensuretheresultingpolicybettermeetstheir

preferences.

Limitingwhocanbeappointedtoheadanagencyortoanotherkeypositioncan

helpassurethattheactionsoftheagency,whicharelargelysetandcontrolledbythegoals

oftheheadoftheagency,caninturnbeinfluencedbycongress.Congresstriestoensure

thatthosewhoaregivensuchpowerandresponsibilityhaveviewsthatarewithinthe

mainstreamofcongress’sviews.Inaddition,thepowertoselecttheindividualortolimit

whotheexecutivecanchooseforthepositionhelpsensurethattheallegianceofthe

appointedindividualwouldbetothosethathelpedintheirnominationandwouldbe

directedtowardscongressingeneralratherthantotheexecutive.Thispoweroverthe

nominationprocesscanalsohelpgaincontrolevenofthosethataremerelyaspiringtoone

oftheseoffices,butnotcurrentlyupforanoffice.Thisoccursbecauseofficeseekersknow

theiractionsmayatafuturetimehavetheirviewsandactionsbequestionediftheydon’t

conformtocongressionalpreferences.

Despitepotentiallynothavingmuchexperience,theheadofanagencyhassizable

controloveranagency.Anagencyheadhasconsiderablepowertohelporhurtthecareer

prospectsofbothotherpoliticalappointeesandcareerbureaucratswithintheagency.Thus

whencongressusesitsabilitytoaffectappointmentstoleadershippositionsatafederal

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agency,thiscanhelpensurecompliancebytheagencytothedesiredactionsandoutcomes

thatcongressprefers.Italsogivesmembersofcongresspoweroverthatagencythatcan

bebeneficialforperformingcaseworkonbehalfofconstituencies.

Appointmentpowerlimitscanalsobeusedtodictatethemannerofchoosingahead

ofanagency,office,orboard.Theycanbeusedtomakesuretheprocessisequitableto

multiplepartiessuchasbysplittingappointmentsbetweendifferentgovernmentalbodies

orpowers.Alternativelytheycanbeusedtostackthedeckandensurethattheagentor

agentsselectedfitwithcongress’goals.Forinstance,therecouldbeanappointmentpower

limitinwhichthepersonappointedhastocomefromanindustryorbeaccreditedandthus

theirviewsandgoalswouldmorelikelybetiedtowardthestatusquo.Alternativelya

constraintonappointmentscouldeffectivelyrequireanactivistwhowaspushingforchange

beappointedifcongressdesignedthelimitofdelegationthusly.

Anothertypeofappointmentpowerlimitisalimitonthelengthoftimethatan

individualcanserveintheroletheyareappointedtooraspecifiedlengthofthetermofthe

appointment.Servingalongtimeinapositioncanallowanagencyheadtogaintheirown

powerbaseandachancetogainexpertiseintheareawhichbothwouldtendtoincrease

theindependenceofthatpoliticalactorandallowthemmoreleewaytopursuetheirown

goalsandtocountercallsfromcongressforcertainaction.Similarlybyhavingthetermof

appointmentbeshort,thebureaucratknowsthattheywillrequirecongresstohelpthem

getconfirmedagaintothatoranotherpositionwhentheirtermisup.Forthoseseekingto

continueingovernmentservice,eitherintheircurrentappointmentorinamorepowerful,

moreprestigiouspositiontheyhaveaneedtostayinthegoodgracesofcongressto

accomplishtheseendsandthustheyhaveapowerfulincentivetoberesponsivetothe

desiresofcongress.

ThisdifferencecanbeseenintheappointmentofthemembersoftheBoardof

GovernorsoftheFederalReserveSystemwhoareappointedto14-yearterms.Thislong

periodgivesthemconsiderableflexibilityandfreedomtopursuesoundmonetarypolicy

withoutresortingtoshorttermpoliticalexpediencies.Thoseontheboardareableto

increasethetimeframetheyarefocusedonandmakedecisionsbasedontheneedsofthe

nationratherthanontheneedsofapoliticalpartyorontheirpersonalneedtobe

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reappointed.Thiscanalsohelpensureconsistentpolicyastheydonotneedtoshiftpolicy

everyelectiontodealwithnewpoliticalrealities.Thisindependenceisgenerallyconsidered

agoodthingtohaveinacentralbankandmanyothercountriesalsohavesimilarlyisolated

andprotectedcentralbanks.However,thereisatradeoffbetweenfreedomofactionand

accountabilityandtoomuchindependencecanleadtolaxoversight.

Thebeliefthatcongresswilluseconstraintsstrategicallyisbasedofftheideathat

Congresswilltrytomakesureitapprovesofthepolicythatisimplementedandthuswill

wantconstraintsoveragent’sactions.Asthereareavastarrayofconstrainttypesthat

couldbeusedandwaystoimplementthem,congresswillusethesetohelptobestachieve

theirgoals.Thechoiceofconstraintsandthewaytostructurethedelegationgohand-in-

handwiththedecisiontodelegateandarepartofthedecisiontodelegateandhowto

structurethedelegation.

Onewouldexpectthatduetothenatureofthecrisis,constraintsthatcouldleadto

policybeingcreatedquickly,suchastimeconstraints,wouldbeusedsignificantly,whereas

constraintsthatmayslowimplementationofagencyregulationssuchasjudicialreview

constraintswouldbeusedcomparativelylessoften.Itisalsotobeexpectedthatcongress

willusereportingrequirementsandpublichearingrequirementssignificantlyaslargeshifts

inpolicyareabletobemadequicklyinacrisisandcongresswillwanttoensurethatitis

awareofthepolicythatisbeingpropounded,determinewhotheaffectedinterestgroups

are,andascertainthepoliticalramificationsofthesepolicychanges.

3.4UnilateralExecutiveAction

Policycanbecreatedusinganumberofmethodssuchasdirectcongressionalaction,

delegationofpolicymakingauthoritytotheadministration,andunilateralexecutiveaction.

Thispaperwillinvestigatetheuseofunilateralexecutiveactioninresponsetothecrisis.

Duetotheincreasedpublicscrutinyduringcrisesandatendencyforthepublictolookto

thepresidenttoleadinsuchcircumstancesonemightexpectsignificantunilateralexecutive

action.Furthermoretheexistenceofsignificantgridlockduringthisperiodandthe

importanceofreactingswiftlytoafinancialcrisiswhichcanbeexacerbatedifconfidencein

130

thefinancialsystemwitherswouldalsoleadtoexpectationsofextensiveuseofunilateral

power.

TheapproachusedtoanalyzeunilateralactionsissimilartothatusedbyWarber

whenhesetoutfivetenetsofUnilateralTheory:“(1)presidentsarerationalactorswho

maximizetheirunilateralactionpowerstothefullestinordertoenacttheiragendas,(2)

unilateralpowersareusefultoolsforpresidentstouseinachievingtheirpolicyagendas,(3)

presidentsarestrategicallymotivatedindecidingwhenandhowtouseunilateralpowers,

(4)presidentswillbemoresuccessfulinusingunilateralpowerstoachieveresultsincertain

policydomainsthaninpursuingtheirpolicyagendasthroughtraditionallegislative

strategies,and(5)therearecostsassociatedwiththeexerciseofunilateralpowers.”187

Theseassumptionsarguethatthepresidentwillperformunilateralactionwhenhefeelsthe

benefitsofsuchanactionexceedthecosts.

InthewordsofWilliamHowell,“Itisimpossibletoarticulateatheoryofpresidential

powerwithouthavingatheoryofCongressandthejudiciary.Inthissense,thedivisions

betweenpresidency,congressional,andjudicialscholarsappearentirelyartificial.The

influenceeachinstitutionhasoverpublicpolicydependsonthecheckthatothersplace

uponit…Atheoryofdirectpresidentialaction,atbase,mustbeatheoryofpolitical

institutions.”188Thereforethepaperwilltrytolookatthecontextandthespecificsofthis

periodtoseewhatmayhaveinfluencedthepresidenttodecidewhethertouseunilateral

executiveactionduringthisperiodtoaddressthefinancialcrisisortomodifythefinancial

regulatorysystem.

Allotherthingsbeingequal,oneshouldexpecthighlevelsofunilateralexecutive

actionduringacrisis.Thereisaneedforfastanddecisiveaction,whichisonecharacteristic

ofunilateralexecutiveaction.Additionallyinacrisistherewillbemorepronouncecallsfor

thepresidenttotakeactiontoresolvethecrisisandunilateralexecutiveactionisan

effectivewayforthepresidenttoshowthatheistakingactiontoaddressthecrisis.

187Warber,AdamL.ExecutiveOrdersandtheModernPresidency:LegislatingfromtheOvalOffice.Boulder,CO:LynneRienner.2006.13.188Howell,WilliamG.2003.113.

131

AsHowellargues,“thepresident’sfreedomtoactunilaterallyisdefinedby

Congress’sability,andthejudiciary’swillingness,tosubsequentlyoverturnhim.”189

3.5ImplicitDelegation

Whileconsiderabledelegationisexplicitandtakestheformofcongresscreatinga

lawthatdelegatessomeofitspowerandauthoritytoanotherbody,somepoweris

implicitlydelegated.Thiscanoftentaketheformofanindividualagencyclaimingapower

thatitwasnotexplicitlygivenbytheconstitutionorbyalaw.Wewouldexpecthigher

amountsofdelegationduringafinancialcrisisbecausetimeissuchanimportantfactorand

policyneedstobecreatedinatimelymanner.Itfollowsthenthatinthedepthofthecrisis

whenthereisthegreatestneedthereislikelytobemoreimplicitdelegation.Inaddition,

withhigherlevelofgridlockwewouldexpecthigherlevelsofimplicitdelegationasdirect

congressionalactionandexplicitdelegationbecomesmoredifficult.

4. CaseStudy

AroundDecember2007therebegantobeamajordownturnintheeconomy.This

downturnbecamearecessionfollowedbyapersistenteconomicslowdownpunctuatedby

highunemploymentratesandalowrateofGDPgrowth.TodealwiththethreattotheU.S.

economythatwasposedbyalingeringeconomicmalaise,thegovernmenttookanumber

ofactionstoreinvigoratetheeconomyandinsolateindividualsfromthedamagedoneto

theeconomy.Inthischapterthepaperlooksattheactionsthatcongresstooktoexamine

howandwhendelegationwasused.Thispaperalsolookatotherimplicitformsof

delegationsuchassomefarreachingexecutiveorderstakenbythecongresswithpowers

previouslydelegatedtohimbythecongress.Amongthelargenumberofactionscongress

tookaretheHousing&EconomicRecoveryActof2008,theEmergencyEconomic

StabilizationActof2008,theAmericanRecoveryandReinvestmentActof2009,the189Howell,WilliamG.2003.XV.

132

AmericanRecovery&ReinvestmentActof2009,theHelpingFamiliesSaveTheirHomesAct

of2009,andtheDodd-FrankWallStreetReformandConsumerProtectionAct.

Theseindividualactionsarepartofacollectiveattempttodealwiththesefinancial

challengessuchastheincreaseinforeclosuresandthelargeincreaseinunemployment.

Manymethodswereusedbycongresstodealwiththiscrisisandseveraloftheserelied

heavilyondelegation.Agencieslenteachotherpersonnelandsupportedeachother’splans

craftingmoreofagovernment-widesolutionthanacollectionofsmallsolutions.The

executivebranchworkedlargelyasanetworkratherthanahierarchicalbody.Itallowed

themtoaddressissuescollectivelyasateamandbringmorepowerandtoolstobearonthe

issueinwaysthattheycouldnototherwise.

Differentagenciesneededtoworkwitheachotherbecausetheyeachhaveformal

powersthatcouldcomeintoplayandwhichcouldcontributetothesharedgoal.Many

agencieshadastakeinthestabilizationofFannieMaeandFreddieMacandeffortto

stabilizethesewaspartofacombinedplantoaddressthefinancialcrisisinAmericaand

boostfaithinthefinancialmarkets.Inordertodothismanyagencieswererequiredtotake

actionssuchastheFederalHousingFinanceAgency,whichastheregulatorovertheGSEs,

hadconsiderablepowersoverthem.LikewisetheTreasuryDepartmentwasdelegated

someauthorityinthisarenathatittoocouldbringasdidtheDepartmentofHousingon

UrbanDevelopment.

TheissueofdecreasingconfidenceinthemarketwastakenupbyBenBernanke,the

ChairmanoftheFederalReserveBoardwhosaid,“Risingcreditrisksandintenserisk

aversionhavepushedcreditspreadstounprecedentedlevels,andmarketsforsecuritized

assets,exceptformortgagesecuritieswithgovernmentguarantees,haveshutdown.”The

Fedandotheragenciesworkedtosecuremarketsinordertodecreasethisriskaversion.

Therewaslostoutputandlostjobsduetotherecessionandtheactionsofcongresssought

toamelioratethese.AsBenBernankestatedinaspeechaboutthedownturn,“Government

policyresponsesaroundtheworldwillbecriticaldeterminantsofthespeedandvigorofthe

recovery.”190

190Bernanke,Ben.AttheStampLecture,LondonSchoolofEconomics,London,England,January13,2009.

133

Throughoutthisperiodtherewererecordhighlevelsofpartisanship.191Midway

throughthefinancialcrisis,thenationwaspresentedwithadecisiononhowtoproceedto

solvethecrisis.Thiswasmanifestedintheformofapresidentialelectionthatwas

ultimatelywonbytheDemocrat,BarackObama.Therewerealargenumberoffactors

affectingthevotinghabitsintheelection,butfortheObamaadministrationtheelection

wasviewedasamandateonwhatpolicieshewouldpursuewithregardstothecrisis.The

Republicansincongress,however,werelessinclinedtoimplementsomeoftheseproposals.

Vetoplayers,politicalactorswhoserefusalissufficienttoforestallapolicychange,

wereabletolimitthetypesofavailableactionsthatcongresscouldtake.Forinstance

duringthe112thcongress,whichservedduringthesecondhalfofPresidentObama’s1st

term,only283publiclawswereenacted.192ThemotivationsfortheRepublicanstowork

withtheadministrationwereslightandsotheyassessedtheirpoliticaloptionsand

determineditwasintheirinterestsorthoseoftheirsupporterstosupportthe

administration’splans.

Typicallyaspowershiftsbothpoliticalpartiescontinuetofindreasonstowork

together.ThosethatgaincontroloftheHousestillhavereasontocompromiseandnot

changetherulestoomuch.Thisisduetoarealizationthattheyneedtoworkwiththe

othersideandthatinshortordertheymaybeintheminority.Theminorityhassimilar

reasonstoputupwithanychangesenactedbythemajoritysincetheymaysoonbeinthe

majorityanddemocraticinstitutionsleadtoalongtermviewofthesituation.Dueto

electoraltrendssuchasdistrictsbecomingmorepolarized,muchoftheimpetustowork

togetherhadvanished.

Dealingwiththecrisismeantwalkingafineline.Thegovernmentneededtomake

thecrisisseemdireenoughtonecessitateimmediateandlarge-scaleaction,butdidnot

wanttoriskspookingmarketsandaddingtotheproblemsorerodingfaithintheeconomic

system,whichwouldmakethecrisisworse.Inthecontextofthefinancialcrisis,painting

toobleakapicturemightpromotearunonbanks,riskofnegativepressureonbigfinancial

191Cillizza,ChrisandAaronBlake.“Obama:TheMostPolarizingPresidentEver”WashingtonPost.January30,2012.192LibraryofCongress.Congress.gov.

134

companies,andhoardingoffundsbyindividualsandcompaniesandrelatedparadoxof

thriftproblems.Apotentialsolutionwereclosedhearingswherethosewhoare

knowledgeableaboutthestateofthecrisisandthedirectionitisgoingcangivehonest

assessmentsandadvicewithouttheinformationbecomingpubliclyavailabletohave

adverseeffectsonthebehaviorofcorporationsorindividuals.Italsoisinpartwhythe

minutesofthemeetingsofBoardofGovernorsoftheFederalReserveSystemaresealedfor

yearsafterthemeeting.

Trustinthemarkethasapositive,reinforcingcyclicaleffectthatcanhelpliftthe

marketsfromoutofthecrisiswhereasnegativeeventsbuilduponthemselveswhichhelped

contributetotheseverityofthecrisis.AnexampleofthispositivecycleiswhenWarren

Buffetagreedtobuy$10billioninsharesandanother$5billionworthofwarrants.This

signaledconfidenceinthemarketsandinGoldmanSachs,amajorfirmthatwasunder

seriousfinancialstress,fromoneoftheworldrichestandsavviestinvestors.Thispositive

stephelpedbuildconfidenceinoneofthelargestbankholdingcompaniesandthushada

positivereinforcingstep.Theinvestmentitselfwasdependentonpositivesignsof

governmentaction.Mr.Buffetindiscussingthethinkingbehindhisinvestmentsaid,“IfI

didn’tthinkthegovernmentwasgoingtoact,Iwouldnotbedoinganythingthisweek.”193

Regulationswereweakinlargepartduetothesignificantpoliticalpowerthatthe

financialindustryhasandhasusedtodecreaseregulationsupontheindustry.Between

1999and2008,thefinancialindustryreported$2.7billioninspendingonlobbyingthe

federalgovernment,whichwasoneofthelargestlobbyingeffortsduringthatperiod.194

FannieMaeandFreddieMacspent$164millionduringthatperiodonlobbyingandsaw

veryfavorablerulesthatenabledthemtobeveryprofitable.

Thepresidentialracewasunusuallyclosein2004,howevertheadministrationdid

notfeelthatitlackedamandateanddidnotshrinkfromactionthatitfeltwasrightandthis

tendencytostriveforbigpolicychangewasreinforcedbyRepublicancontroloftheHouse

andSenate.Thepresidentcanleadopinionorfollowopinion.

193Paulson.284.194FinancialCrisisInquiryCommission.FinancialCrisisInquiryReport.PublicAffairs.2011.XVIII.

135

TheperiodthispaperisinvestigatingincludestheendofGeorgeW.Bush’ssecond

termandallofPresidentObama’sfirstterm.PresidentObamacametopowerwithalarge

majorityofvotersvotingforhimandhismessageofchange.Thisatleastwouldseemto

givehimalargemandatewithwhichtoworkfrom.However,hechoosetousethe

mandatetopushthroughabillthatrevampedthehealthinsuranceindustryandthe

ensuingprotractedfightinlightofaweakeningfinancialpictureweakenedhissupport

amongvotersandincongressbythetimeheapproachedhiseconomicproposals.

PresidentBushbycontrastby2007wasveryunpopularandhadverylittleinthewayof

mandateandstruggledtoworkwithDemocraticfactionsinthecongress.Theexpectation

ontheeveofthefinancialcrisiswasthatheandhisnewTreasurySecretary,HankPaulson,

wouldnotbeabletodomuchmorethanserveouttheremainderofthepresident’sterm.

MarkPetersonquotesapolicyaidewhoworkedintheJohnsonWhiteHouse,describingthe

powerthatcomesfrompopularity,“whenapresidentislesspopular,helosescontrolovera

departmentanditssecretary.TheywillnothelphimontheHillasmuch,andtheyhave

moreoftheirownpower.”195Thusthepresident’sabilitytocontrolagentscanbeimpaired

byalackofpopularity,whichinturncanincreasecongress’abilitytocontrolagenciesand

enactchangesuponthem.

4.1NatureoftheCrisis

Thefinancialcrisisof2007–08wasasevereeconomicpullbackthatbeganin2007in

responsetoahousingbubbleandthenrippledouttomanyotherpartsoftheeconomy.

Muchoftheonsetofthecrisiswasinitiallyduetoaweakeninginthesubprimemortgage

market.Thiswasalargemarketwhichbytheendof2006,accountedfor20percentofall

newmortgages.”196Thishoweverdidnotstaymerelyamortgagecrisis,buthadnumerous

spillovereffectsthatinturnledtonewcausesofeconomicweakness.Whilemanyhad

195Peterson.1990.Pg.136.

196Paulson,Jr.,HenryM.70.

136

predictedlocalizeddecreasesinhomeprices,buttherewouldnotbeanationwidedecrease

insuchprices.197

Theunexpectedlyhighnumberofdefaultsinsubprimemortgageswaslargelydueto

anincreaseinthelaxityofmortgagelendingrules.Individualmortgageoriginatorsand

financialfirmswereincentivizedtocreatemoreloansandthefocuswassystematically

movedawayfrommanagingrisk.Securitizationwaspartofthecauseforthisdesireof

bankstoincreasethenumberofloanstheyhadandtobelessconcernedwiththelikelihood

thattheloanwouldberepaidratherthanfocusingonwhethertheloanwereconforming

andthuscouldbesoldtoFannieMaeorFreddieMac.Asdefaultsbegantorise,thistooka

tollontheearningsoffinancialfirmsthathadboughttranchesofhomemortgagesecurities.

Thesecompaniesbeganhavinglargelossesinthisclassofassetsthatwerealsooften

difficulttosell.Asinvestorsbegantosenseweaknessinsomefinancialinstitutionsthey

begantoputfinancialpressureonthosecompanies.Thiscoupledwithadryingupof

fundingsourcesputsevereliquiditypressureonseverallargefinancialfirms.BearSterns

wasabletobesavedthroughadealorchestratedbythegovernment,howeverwhen

LehmanBrothers,atthetimethefourthlargestinvestmentbankinAmerica,wentbankrupt

itledtoafurthertighteningofcreditmarketsandafurtherdisintegrationoftrustinthe

financialsystem.Thisledtorunsonbanksandotherfinancialcompanies.Othercompanies

wereendangeredduetolossesfromthemortgagedefaultsortheLehmanbankruptcyor

throughlosstransfermechanismssuchascreditdefaultswapsorthreatsfromcounterparty

exposure.

Leadinguptothecrisistherehadbeensignificantderegulationfordecadesasitwas

oftenincongress’intereststoderegulateasitoftenwasforexecutiveagencies.Therewas

notapowerfulinterestgroupthatgainedbytherebeingmorerestrictionsandregulations

onfinancialandhousingindustries.Regulationstendedtocutintoprofitsandsalariesand

thusthefinancialindustryspentconsiderablefundstryingtogetthegovernmentto

decreaseregulations.Thiswastrueevenafterthesavings&loancrisisthatwasinlarge

partcausedbyderegulation.Infactthechangescongressmadetoaddressthe

deterioratingcompetitivepositionsofSavings&LoanssuchastheDepositoryInstitutions

197Kling,ArnoldS.UncheckedandUnbalanced:HowtheDiscrepancyBetweenKnowledgeandPowerCausedtheFinancialCrisisandThreatensDemocracy.Rowman&Littlefield.2010.

137

DeregulationandMonetaryControlActandtheGarn-St.GermainActcontributedtothe

trendtowardsderegulationofthefinancialindustryandtothecrisis.TheGarn-St.Germain

Act,forinstance,greatlyincreasedthekindsofloansthatbanksandthriftscouldissue.

Manyofthenewtypesofloansthattheycouldoffer,suchasadjustable-ratemortgagesand

interest-onlyloans,havehadveryhighdefaultratesduringtheeconomiccrisisandinlarge

partcontributedtothemortgagecrisisandthesubsequentintertwinedcrises.

Therewasalsosignificantinterestbythoseintheindustrytogrowandbecomeever

larger.Thesecompaniesandindustrypressuregroupsthushadreasontolobbycongressto

removerestrictionsongrowthofbanks.Inresponsetothis,in1999congresspassedthe

Gramm–Leach–BlileyAct198thateffectivelyrepealedGlass-SteagallActprovisionsthathad

separatedcommercialbanks,investmentbanks,andinsurancecompanies.TheGramm–

Leach–BlileyActthusallowedcompaniesintheseareastocompeteintheseotherfieldsand

mergewithothertypesofentitiesandtherebypotentiallygrowlarger.Anotheractof

congresswasthepassageoftheRiegle-NealInterstateBankingandBranchingEfficiencyAct

of1994thatletsnationallycharteredbanksofferbranchesnationwidesolongasthebank

acquiresbranchesinotherstatesbymeansofamerger.Theseactsandotherremovalsof

regulationsledtoawaveofconsolidationsthatledtotheemergenceofcompaniesthatare

toolargetofailandwhichduetotheirsizecomplicatedtheresponsetothecrisis.In

additiontothegrowthinthenumberoftoolargetofailcompanies,theGramm-Leach-Bliley

Actmadeitmoredifficultforregulatorstogetasenseofthefinancialsysteminanareathat

theyarenotregulating.TheactitselfwasaresponsetoCitibank’spurchaseofinsurance

giant,TravelerGroup,andthedivestiturethattheGlass-SteagallActwouldthushave

necessitatedifcongressdidnottakeactiontoremovetheprovisionsthattheGramm-

Leach-BlileyActremoved.From1998to2007theassetsofthefivelargestU.S.banks

increasedfrom$2.2trillionto$6.8trillionandtheassetsofthefivelargestinvestment

banksincreasedfrom$1trillionto$4trillion.199

Oneofthemainbodiesdesignedtoensureliquidityandstabilityinthemarketswas

theFederalReservethatwascreatedbycongressin1913todealwithissuessuchasbank

runsofwhichtherehadbeenahalfdozeninthepreceding40years.BenBernanke,the

198Pub.L.106-102199FinancialCrisisInquiryCommission.FinancialCrisisInquiryReport.53.

138

ChairmanoftheBoardofGovernorsoftheFederalReserveSystem,feltthattheFedhad

beenlaxinitsregulationofthemortgagemarketandwentfurthersaying,“Ithinkitwasthe

mostseverefailureoftheFedinthisparticularepisode.”200OtherssuchastheHUD

Secretary,AlphonsoJackson,alsofeltthatregulationwasnotallitshouldbeandreflected

ontheperiodleadingtothecrisisbysaying,“Everybodywasmakingagreatdealofmoney

…andtherewasn’tagreatdealofoversightgoingon.”201

Regulationwasnotjustweakatthenationallevel,butwasweakatthestatelevelas

well.Thiswasbecausenationalregulatorsjealouslyprotectedtheirrealmsofauthority.

BoththeOfficeoftheComptrolleroftheCurrencyandtheOfficeofThriftSavingissued

rulesthatbarredstatesfromenforcingtheirregulationsonthriftsandbanksandleft

regulationofthesetotheirnationalregulatorsandthreateningstate’attorneysgeneralnot

totrytointerfere.202Nationalregulatorsthoughtitwastheirprerogativetoregulate

nationallycharteredentitiesandthatstateswerespecificallybarredfromthataction.

Thosestatesthatdidtrytoregulatenationalbanksalsohadtodealwithbanksarguing

thesejurisdictionalissuesaswell.Forinstance,theFinancialCrisisInquiryReportmentions

thatWachovia,aNorthCarolina-basedbank,refusedtoabidebyNorthCarolinaregulations,

becauseasanationalbankitonlyfellundertheregulatoryjurisdictionoftheOfficeofthe

ComptrolleroftheCurrency(OCC).203Thisledtoafour-yearlegalconfrontationwiththe

SupremeCourtultimatelysidingwithWachoviaanddeterminingthattheOCCwasthesole

regulatorofmortgagelendingwithjurisdictionoverWachovia.TheOCCandtheOTSgeta

largepercentoftheirfundingfromassessmentfromthebanksandthriftsthatthey

regulated.Thismadethemconcernedaboutcontinuingtobetheregulatorfortheentities

theyregulateandthisgivesthemperverseincentivessuchasatendencytobeeasyon

thosetheyregulatesothattheywillcontinuetobeselectedastheregulatorbythese

entities.

Creditratingsagenciesalsoplayedapartinthiscrisisinthatthereweresystematic

problemswithratings.TheNationallyRecognizedStatisticalRatingOrganizationswere

givenaspecialplaceinthatthelawcontainsseveralcapitalrequirements,restrictionson200Reddy,Sudeep.“BernankeDefendsRecordonLehman”WallStreetJournal.September3,2010.201FinancialCrisisInquiryCommission.FinancialCrisisInquiryReport.13.202FinancialCrisisInquiryCommission.FinancialCrisisInquiryReport.13.203FinancialCrisisInquiryCommission.FinancialCrisisInquiryReport.13.

139

purchasingcertainassets,andotherregulationsthataredependentuponsecuritiesbeing

ratedacertainclassofassetbyoneofthenationalratingsagencies.Lawssuchasthe

SecondaryMortgageMarketEnhancementActof1984204enhancedthepowerofthese

ratingagenciesandmadethempivotaltothefinancialsystem.However,creditrating

companieswerepaidbycompaniesthatcreatedsecuritiesandasthesecompanies

benefittedbyhavingbetterratedsecurities,agencieswouldbetemptedtoratethembetter

thantheywouldbeotherwise.ThiswascombinedwithanincreaseinthenumberofCDOs.

Mortgageswerebundledtogetherandsecuritizedandthevarioustrancheswererated.

OftentheywereratedAAAeventhoughtheunderlyingassetsthatcomprisedtheseequities

werefarriskier.Theratingagenciesreliedonunrealisticmodelsandratedtensof

thousandsofsecuritiesAAAthatwithinayearortwoweredowngradedsignificantly.This

ledtoaworseningofthefinancialsituation.Theseagencieshadbeenmostlyunregulated

untiltheCreditRatingAgencyReformActof2006205atwhichpointtherewassome

regulationoftheirmethodologies.

Amongtheitemsthathavebeenarguedasbeingsomeofthecausesofthecrisis,

manyoftheseweregovernmentactions.TheseincludetheGramm-Leach-BlileyAct206

whicheffectivelyrepealedtheGlass-Steagleact,theCommodityFuturesModernizationAct

of2000207whichensuredthatderivativeswouldnotberegulated,andtheCommunity

ReinvestmentAct208andotheractionstakenbycongresswhichledtogreaterlendingtothe

poorandthosewithpoorcredithistories.Intheseinstancescongresstookactionsthat

werepopularandhadpositiveshorttermeffectswithoutfocusingonpotentialproblems

thatmayoccurdowntheline.Insomeinstances,itmayhavebeenthattheseunintended

consequenceswereunforeseen,butinotherstherewaslikelyadecisionmadeaboutthe

benefitsthataccruedtoconstituentsnowandthisoutweighedconsiderationofpotential

problemsthatmightoccuratsomeperiodinthefuture.Theexamplesherearenottosay

thatcongresswastheonlypartofgovernmentthattookactionsthatcontributedtothe

crisis.TheMark-to-MarketrulesputforwardbytheSecuritiesandExchangeCommission,

whichgovernmenthowfinancialcompaniesvaluetheirassets,andtheactionsofFannie204Pub.L.98-440.205Pub.L.109-291.206Pub.L.106-102.207Pub.L.106-554.208Pub.L.95-128.

140

MaeandFreddieMachavebeenputforwardbymanyascausesofthecrisisaswellandin

thislattercase,theGSE’shadasimilarconflictbetweenshorttermadvantageandthe

potentialforlongtermcatastrophetothatofcongress.

DuringthecrisisthesizeofFederalHousingAssociation’sbalancesheetincreasedas

aresultofthisandgrewtoover$1trillion.209Duetoaworseningmortgagemarket,this

portfolioledtomajorlossesandrequiredhundredsofmillionsofadditionalfundingfrom

theTreasuryDepartmenttosupplyitwithadequatecapital.Mostoftheselossesweredue

totheinitialportfolioitinsuredshortlyaftertheFHAModernizationActof2008duringthe

midstofthefinancialcrisisof2007–08.210Thisfundingwaspartlyrecoveredduetoa$25

billionoutofcourtsettlementwithcertainlargebanksthatthefederalandstate

governmentsallegedhadactedimproperlymakingforeclosuresinafraudulentmannerand

withouttakingtheappropriatestepssuchasreadingandsigningtheforeclosure

documents.Thisresultingsettlementofthissocalledtherobo-signingcrisishadupto$1

billioninfundssetasidetocovertheFHAlosses.TheFHAemergencyfundwaslegally

requiredtoequalatleast2%oftheoutstandingloansoftheagency,buteventhislegal

requirement,whichisonlyhalfwhatprivateinsurersneedtohold,hadnotbeenupheldin

practice.211FHAcanraisefundsthroughthepremiumsitchargesforitsinsuranceservices

anditcanraiseitsratesastheneedarises.FHApickedupmuchoftheslackinthe

mortgageinsurancemarketthathadpreviouslybeenservicedbyFannieMaeandFreddie

Mac.InpartthisincreaseinloansinsuredbyFHAwasduetocongressionalactiontakenin

2011tomakeFHAloansmoreattractivethanthoseofFannieMaeandFreddieMac.

Partisanshipwasintenseduringthisperiod,buttheleadershipofthetwoparties

sawtheimportanceofworkingtogetheronthisimportanttopic.InthewordsofBarney

Frank,chairmanoftheHouseCommitteeonFinancialServices,“...inthiscasethe

enactmentoftheTroubledAssetsReliefProgram(TARP),illustratetheimportanceof

bipartisanship.Theleadershipofbothpartiesinbothhousesacceptedtheneedforaction

whenHankandBenBernankeoutlinedittous.”212Therewerestillasignificantnumberof

issuesthatneededtobedecidedduringthisperiodandoftentheseinvolvedsignificant

209Needham,Vicki.“FHA’sBalanceSheetReboundsAfterBailout”TheHill.November16,2015.210WashingtonPostEditorialBoard.“BailouttheFHA?”WashingtonPost.February20,2012.211Dennis.212Paulson.2010.Pg.XIX.

141

conflictanddifferencesofopinionsandimportantissuestendtohavemoreconflict.Thus

therewasagreatdealofnegotiationasthereisnegotiationinmostpoliticalactions.The

negotiationsincludednegotiationbetweenhouses.Housesnegotiateinconference

committeeandindecidingwhattoproposeinitiallyandwhendifferentpartieswith

competingaimscontrolthemthesenegotiationscanbequitebitter.

4.2ActionsTaken

Asthecrisisbecomedeeper,thoseingovernmentbegantopayattentionand

startedtryingtocomeupwithwaystoimprovethesituation.Inresponsetothecrisis

congresstooksomeactionitselfultimatelypassingsomekeylaws.Initiallyeffortswere

focusedondealingwiththesubprimemortgagecrisis.In2007,thefirstmajorsignsofthe

crisisappearedwithlargefirmsintheindustrygoingbankruptandthensevereweakness

facedbyFannieMaeandFreddieMac.Thefirstmajoractionofcongresstoaddressthe

crisisdidnotcomeuntilmid-2008,bywhichpointthehousingcrisishadalreadybecome

pronouncedthoughitwasstillnotviewedasasystemicrisk.

Policycreationduringthisperiodwaslargelypiecemealanddidnotforma

consistentwhole.Thepublicpoliciescreatedhaddifferentgoals,methods,andenactors

andwerelargelyreactionaryandthereforerapidlychangedtorespondtoshiftingevents.In

addition,thetimeframeofthepoliciesvariedwidely.Somepolicieswerefocusedonthe

currentcrisis,somewerefocusedonavoidingfuturecrises,andsomefocusedonpursuing

goalsunrelatedtothecrisisandweremoreopportunisticintheirnature.Whilethe

financialcrisiswenton,politicalactorscontinuedtotrytoadvancetheirlegislativeagenda

andtheyoftenfoundthatusingthefinancialcrisisascoverhelpedadvancetheiragenda.

Thusthefinancialcrisiswasusedtojustifydecreasinggovernmentalexpenditures,funding

greencompanies,andhealthcarereform,etc.

Industrygroupsandlobbyistalsoattemptedtoshapethepolicyresponsesthatwere

beingcrafted.Duringthefirstninemonthsof2009,thefinancialindustryspent$344

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milliononlobbyingandasofOctober2009,1537lobbyistsrepresentingthefinancial

industrywereregisteredtoworkonfinancialregulationproposalsbeforecongress.213

4.2.1 Emergency Economic Stabilization Act of 2008

PresidentGeorgeW.BushsignedtheEmergencyEconomicStabilizationActof

2008214intolawonOctober3,2008.ItwasbundledtogetherwiththeEnergyImprovement

andExtensionActof2008andtheTaxExtendersandAlternativeMinimumTaxReliefActof

2008whichcomprisetheothertwosectionsofthislaw.However,thelawismostwidely

knownforestablishinga$700billionfundtostabilizetheeconomybyeconomically

supportingbanksandotherU.S.financialinstitutions.ThisfundcalledtheTroubledAsset

ReliefFund(TARP)wasacontroversialprovisionthatthepresidentandmosteconomistsat

thetimefeltwasrequiredinordertostaveoffacatastrophicthreattotheU.S.financial

system,butwhichwasveryunpopularwithvoterswhosawitessentiallyasawaytobailout

rich,over-privilegedindividualsthathadmadebadfinancialdecisionsandwhonow,itwas

believed,shouldtakethelosses.Thefundwasgivenauthoritytobuymortgagebacked

securitiesatatimewhenthesefinancialinstrumentswerestruggling.Thisunpopularityof

thebillmadeitdifficultformembersofcongresstosupportit.Thoughmostelitesfeltthe

billwasnecessary,thiswasalsoacknowledgedtobeatoughpoliticalpositiontotakefor

membersofcongressasitwouldgreatlyhurttheirreelectionchances.This,alongwith

dissatisfactionofHouseRepublicans,contributedtotheinitialversionofthebillbeing

rejectedbytheHouseofRepresentatives.FollowingthisinitialrejectionofthebillTheDow

JonesIndustrialAveragedropped7%andTheNasdaqdropped9.1%.215Thetwomajor

party’snomineesforpresident,BarackObamaandJohnMcCainissuedajointstatement

sayingthattheysupportedtheTARPlegislationandtheywantedcongresstopassthebill.216

SimilarlyPresidentGeorgeW.Bushstatedtheimportanceofpassingthebillandsaidthat

theeconomicmarketmaysuffercatastrophicfailureifthisisnotaddressed.Ultimately213Johnson,Simon,andJamesKwak.13Bankers:TheWallStreetTakeoverandtheNextFinancialMeltdown.VintageBooksUSA,2011.192.214PartofPub.L.110-343215Lueck,Sarah,DamianPaletta,andGregHitt.“BailoutPlanRejected,MarketsPlunge,NewScrambletoSolveCrisis”TheWallStreetJournal.September30,2008.216PaulsonJr.,HenryM.“WhenMr.McCainCametoWashington”TheWallStreetJournal.February6,2010.

143

afteragooddealofpoliticalwranglingthebillwaspassedthoughgroupsoflawmakerson

bothsidesremainedopposedtoitsprovisions.

Thebilldidnotoriginateincongress,butinsteadwasinitiallyproposedbythe

SecretaryoftheTreasury,HenryPaulson,andwassupportedandencouragedbythe

president.Congressdidhowevershapethislegislationtosomeextent.Anexampleofthis

canbeseeninthelessoningofthediscretionthatwasdelegatedtotheSecretaryofthe

TreasuryintheenactedlawwhencomparedtothepowerdelegatedtotheTreasury

SecretaryinPaulson’sinitialproposal.Specificallytheclausestating,“Decisionsbythe

SecretarypursuanttotheauthorityofthisActarenon-reviewableandcommittedtoagency

discretion,andmaynotbereviewedbyanycourtoflaworanyadministrativeagency.”

whichwouldhaveremovedalloversightoftheTARPprogram,wasnotincludedinthefinal

legislationandthusledtomoveoversightancontroloftheactivitiesoftheTreasury

DepartmentwithregardtoadministeringTARP.TARPwasinitiallyaveryopenended

proposalwhentheTreasurygavetheirinitialdrafttothecongress.Congressexpandedand

fleshedouttheproposal,takingitfromthethreepageswhenitwasfirstproposedto169

pageswhenitultimatelywasenacted.

Agenciesbargainwithcongressbothinaformalcontextandamoreinformal

context.TheTreasurydepartmentfeltthattheyneededaneffectivelyunlimitedamountof

moneyavailabletoavertamajorcrisisandneededcongresstoapprovethisvastspending

ability.Treasurywenttocongressandputforthaplanwitharoughorderofmagnitudeas

aninitialbargainingposition.Knowingthatcongresswouldnotapprovespendingauthority

inthetrillions,theTreasurySecretarypushedforspendingpowerontheorderofseveral

hundredbilliondollarswhilestillleavingvaguenessintherequest.Thiswasputforward

becauseitwasalargesumthatwouldhaveaneffectwithoutbeingcloseenoughtothe

psychologicallyimportantfigureofonetrilliondollarssothatithadabetterchanceof

passing.TheTreasurySecretaryalsotookstepstosetanaggressivetimelinetopassthis

legislation.217Heusedthecrisisasacalltoactionandanultimatum.Whenpromptedwhat

217Paulson.261.

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wouldhappeniflegislationwasnotpassedthatwouldprovideforthesepowers,Secretary

Paulsonsaid,“Maygodhelpusall.”218

The$700billionpurchaseauthorizationwasgiventotheTreasuryDepartmentwhich

wasgiventhediscretionofdeterminingwhatactualassetstopurchase.Thehopewasthat

thepurchaseofassetsbythisprogramwouldhelpsolvethelackofliquidityincredit

markets.Itwasalsodesignedtoboostinvestorconfidence,andstabilizetheeconomy.Ben

BernankeinhistestimonybeforetheSenatestatedhissupportforTARPbysaying,

“Purchasingimpairedassetswillcreateliquidityandpromotepricediscoveryinthemarkets

fortheseassets,whilereducinginvestoruncertaintyaboutthecurrentvalueandprospects

offinancialinstitutions.Moregenerally,removingtheseassetsfrominstitutions'balance

sheetswillhelptorestoreconfidenceinourfinancialmarketsandenablebanksandother

institutionstoraisecapitalandtoexpandcredittosupporteconomicgrowth.”219

TheTARPFundsweremanagedandinvestedbyOfficeofFinancialStability,anew

officewithintheTreasuryDepartmentthatwasestablishedbytheEmergencyEconomic

StabilizationActof2008.TheofficewasheadedbytheAssistantSecretaryoftheTreasury

forFinancialStability,whoisappointedbythepresidentandconfirmedbythesenate.The

actualspecificsoftheassetpurchaseswerelefttotheOfficeofFinancialStabilityandthe

actualtypesofassetschangedovertimeasthefirstheadoftheoffice,NeelKashkari,sawfit

tomakechanges.InitiallytheOfficeofFinancialStabilityrantheCapitalPurchaseProgram

whichpurchasedprimarilyMortgagebackedSecuritiesbybuyingpreferredstockandequity

warrantssoastohavefirstclaimoverassets.Warrantsareatypeofcalloptionthatinthis

caseallowedthegovernmenttohaveapotentialupsideifcrisissubsidedandthestock

marketimproved.TheOfficeofFinancialStabilityessentiallyforcedinstitutionstotake

moneyinreturnforanequitystakeinordertoshoreupcashpoorfinancialinstitutions.

AftertheinitialMortgagebackedSecuritiespurchaseprogram,TARPexpandeditsfocusto

purchasingcollateralizeddebtobligations(CDOs)whichwerehitveryhardbythedownturn

inthehousingmarketanditletthevalueoftheseassetstodecreaseandliquiditytodryup

inthismarket.Thishelpeddefineapriceoftheseassetsandincreasedliquiditywhichwas

218Wallach,PhilipA.TotheEdge:Legality,LegitimacyandtheResponsestothe2008FinancialCrisis.BrookingsInstitutionPress.2015.Pg.81.219Bernanke,BenS.TestimonyBeforetheCommitteeonBanking,Housing,andurbanAffairs,U.S.Senate.September23,2008.

145

beneficialforbanksthathadbalancebookswhichcontainedsignificantamountsofCDOs

thatcouldneitherbesoldnoraccountedforappropriately.

TheTARPprogram,accordingtoitsadministrator,NeelKashkari,dealtwithseven

mainareasandinitiatives:theMortgage-backedsecuritiespurchaseprogram,anInsurance

program,aloanpurchaseprogram,anequitypurchaseprogram,homeownershipprogram,

compliance,andexecutivecompliance.Ithadrelativelyfreerangeofhowtospendthe

moneyitwasentrustedwiththoughtheactdidsetupoversightagenciestoensurethatthe

moneywasspentappropriately.

TheTreasuryDepartmentwasabletodeterminethecriteriathatfinancial

institutionsmustmeetinordertotakepartintheTARPprogram.Ittookadvantageofthis

bydisallowinggoldenparachuteprovisionsinthecompensationpackagesofsenior

executivesandputtinganumberofotherrestrictionsonthecompensationforsenior

executives.Thiswasinpartaresponsetopoliticalrequirementsandresentmentofthe

publicoverspendingpublicmoneytopaythesalariesofrichbankers,particularlywhen

thesebankexecutiveshaddonesuchapoorjobthattheytooktheirbankstothebrinkof

bankruptcy.Thisdesirenottobeseenhelpingbankerswasintensifiedduetothefactthat

theTreasurySecretary,HankPaulson,hadformerlybeentheheadofoneofthese

investmentbanksandthatmostofthosethathebroughtintoaddressthecrisisalsohad

beeninvestmentbankersthemselves.TheTreasuryDepartmentrealizedthateventhe

appearanceofimproprietycouldincitebacklashagainsttheTreasuryDepartment’sactions

tosavethebanksandimperilthefinancialrescueattemptsbeingmade.Neitherwasthe

TreasuryDepartmentaloneinfocusingoncompensation.OnFebruary5,2009,theSenate

votedtolimitexecutivebonuses.Compensation,particularlywhensomanyweresuffering

economically,isthesortofissuethatcouldgrabthepublic’sattentionandcausevotera

revolt.

PresidentBushauthorizedtheTreasurytouseTARPfundsforanypurposethatthe

TreasurySecretaryfeltwasneededtoalleviatethecrisis.OnMarch23,2009,theTreasury

SecretarytookadvantageofthisauthoritybycreatingthePublic-PrivateInvestment

146

ProgramforLegacyAssets.220Thisprogramwasdesignedtobuytoxicassetsthatwere

beingheldbybanksandtodosowithmaximumimpactbyleveragingprivateassets.Itwas

designedtoshareriskandtohelpdeterminethetrueassetpricebyhavinginterested

investorsbidontheasset.Thispricediscoveryfunctionisveryusefulinsofarasilliquid

marketshadleftbanksunsureastothetruevalueoftheseassets.Thisplan,withits

divergencefrompastinitiatives,cameaboutinpartthroughthedesiresofTimothy

Geithner,thenewSecretaryoftheTreasurywhohasassumedofficealittleundertwo

monthspreviously.Thisshowshowanadministrationcanshiftovertimeduetonew

leadershipputinplacebythepresidentandsenatewhichcanspotlightboththeconsistency

andtheinconsistencyofagenciesdependingoncircumstances.Thisisaninherenteffect

thatdelegationneedstoadapttoandwhichneedstobefactoredinwhencongressmakes

thedecisiontodelegate.

Banksarecategorizedinto5categoriesbasedontheCAMELSevaluationsystem,

whichinturndeterminedtheirlikelihoodtoreceivemoneyTARPfunds.221Howeverthe

actualcriteriamethodologywaskeptsecret.Thislackoftransparencywaspurposely

designedintothesystemasitwasintendedtostopworryaboutspecificbanksthatcould

leadtoabankrunandalsodesignedsothatthesystemcouldnotbegamed.However,with

regardtothevaluationoftroubledassets,theTreasuryismandatedthatitmustmake

publicmuchofitsmethodologyincludingthemethodsitusedforpricing,purchasing,and

valuingtheseassets.ItalsorequirestheTreasuryDepartmenttodothiswithintwodaysof

thepurchaseoftheirfirstassets.Furthermorethisactrequiresdisclosureandopennessfor

thoseorganizationsthatreceivefunding.Thelevelofdisclosurerequiredofthese

organizationsisatthediscretionoftheTreasuryDepartment.

Congressionalinfluencecontinuedtoplayaroleintheadministrationofthe

program.Congressbyitsnaturecontinuestocontrolsomeleversofpowersoverthe

administration.TheWallStreetJournalsuggestedanegativeinfluenceofcongressinthat

selectmembersofcongresstriedtofunnelmoneyintotroubledbanksintheirdistricts

220Chen,Fannie.“StructuringPublic-PrivateInvestmentProgramforLegacySecurities”ColumbiaJournalofLawandSocialProblems.Summer2013,Vol.46Issue4.June2013.221Lopez,JoseA.“UsingCAMELSRatingstoMonitorBankConditions”EconomicLetters.FederalReserveBankofSanFrancisco1999-19.June11,1999.

147

despitethefactthatbythestandardratingsystememployedtoevaluatewhichbanksarein

linetoreceivefunds.222

Likewise,asheadoftheExecutiveBranch,thepresidentwasinvolvedinmany

aspectsofadministeringTARP.Healsodirectlyhadpowerdirectlydelegatedtohimby

congress.AspartofTARP,thepresidentwasmaderesponsibleforputtingforwardarule

thatplacesafeeonbankstocovertaxpayerlossesduetotheprogram.

ThisprovisiontorecoupTARPlossesrequiresthatfiveyearsaftertheendofthe

TARPprogramtheheadoftheOMBmustsubmitareporttocongressdetailingthenet

financesoftheTARPprogram.223ShouldthisprogramshowthatTARPhadlostmoney,the

presidentismandatedtosubmitaproposaltocongressonhowtorecoupthelossesfrom

thosethatbenefittedbytheprogramorforthefinancialindustryingeneral.Thereisno

requirementthatcongressinstitutetheplan,butitdoessettheagendaandcouldbe

viewedasreassuringthatatworstTARPwouldberevenueneutralandwouldnotadversely

affectthebudgetorcontributetothenationaldebt.Thisprovision,despiteitslackofteeth,

helpedensurepassageforthislawasitprovidedcoverageforcongress.

Inthe2013budgetproposalsubmittedbythepresident,aprovisionwasincludedto

chargebanksthe$61billionthatwouldberequiredtocoverthecostoftheTARPprogram.

OneoftherequirementsoftheEmergencyEconomicStabilizationActof2008wasthatby

2013thepresidentlayforthaplan,“thatrecoupsfromthefinancialindustryanamount

equaltotheshortfallinordertoensurethattheTroubledAssetReliefProgramdoesnot

addtothedeficitornationaldebt.”224Thepresident’sproposal,thoughrequiredtobe

submitted,doesnotautomaticallygetapproved.Itiscongressthathasthepowertotax

andthepresident’sproposalwouldonlytakeeffectifcongressapprovesofit.Insucha

situationitbehoovesthepresidenttosuggestapopularcourseofaction.Thesuggestions

hemadefocusedonrecoveringcostsbyplacingataxonlargefinancialcompanies.There

wasapopulistbacklashthatmadejustsuchaproposalimmenselypopularandwhich

222Paletta,DamianandDavidEnrich.“PoliticalInterferenceSeeninBankBailoutDecisions”.WallStreetJournal.January22,2009.223CongressionalBudgetOffice.CostEstimateonEmergencyEconomicStabilizationActof2008.September28,2008.224CongressionalOversightPanel.WrittenTestimonyofTreasurySecretaryTimothyF.Geithner.December10,2009.

148

helpedcounteraccusationsofbailingoutrichbankexecutiveswithtaxpayermoney.By

makingthepresidentsupplytheplan,congresscouldavoidthepoliticalrisksofeither

seemingtoocozywithrichbankersorangeringthepowerfulbankingindustry.Therewas

significantuncertaintyabouthowthepublicwouldviewtheproposal,whichdependedona

shiftinpublicsentimentaswellasadditionalunknownssuchastheenduranceoftheissue’s

salienceatsuchpointastheproposal,needstobesubmitted.Congresslosespoliticallyby

raisingtaxesonthegeneralpopulaceandgenerallybycuttingprograms.Theyalsodonot

wanttovotetoplacenewtaxesonbanks,whichhurtsthosemembersthatapproveit

becausefinancialservicesfirmsaremajorcontributors.Theenddateforthepresidentto

submitaproposalensuredthatanactionwouldbetakenandthataplantorecoupthe

moneywouldbewrittenhoweveritwasfarenoughinthefutureastoletthetopicbecome

lesspartisanandtoseethefulleffectsoftheTARPanddetermineitsfullcosts.Whether

theactualrevenuematchestheactualcostshasnoimportanceintermsoftheeconomicsof

thesituationandisanartificialconstruct,howeverthereissignificantsymbolicvalueinit

forcongress.

TheTreasuryDepartmentwasabletousethepowerthatwasdelegatedtoitandthe

moneyitwasallocatedbythisactforahostofdifferentinitiatives.Amongthese,itcreated

aSystemicallySignificantFailingInstitutionsprogramtohelpsupportkeyinstitutionsthat

couldposeathreattotakedownotherlargefinancialinstitutionsandcreateadomino

situation.PrimarilythesefundswenttoAIGandwereusedtobenefitAIGcounterparties

thatwouldsuffersignificantfinanciallossesintheeventthatAIGwereforcedtofilefor

bankruptcy.225

OtherprogramsthattheTreasuryDepartmentenactedinresponsetopowersand

spendingauthoritygiveninpartofthisactaretheAutomotiveIndustryFinancingProgram,

theassetguaranteeprogram,andthetargetedinvestmentprogramwhichisadesignedto

helpailingmajorbanksthatcouldthreatenthestabilityofthebankingsystem.Clearlyfrom

thebreadthofactivitiesthattheTreasuryengagedinwiththefundsandauthoritythatthis

actprovides,itisclearthattheTreasurywasgivenagreatdealoflatitudeastohowto

addressthefinancialproblemsthatthenationwashaving.Inaddition,theTreasury

225ProPublica.BailoutTracker:EmergencyEconomicStabilizationAct.https://projects.propublica.org/bailout/programs/2-systemically-significant-failing-institutions

149

Departmentwasalsogivenauthoritytocreatestandardsforexecutivecompensationfor

financialinstitutionsthatsellequitystakestotheTreasury.

TARPwassimilartotheReconstructionFinanceCorporation(RFC)thatthecongress

andPresidentHoovercreatedinthe1932todealwiththeGreatDepression.Itwasan

independententitythatmadeloanstofinancialinstitutionsandothercompaniesandgave

fundstolocalandstategovernment,whichwasultimatelymergedwiththeFDICduring

WorldWarII.TARPwasinpartmodelledoffentitiessuchastheRFC.

TARPalsowasusedtofundanumberofothertypesofentitiessuchasauto

companiesandcities.226FewindividualswereevenawarethattheTreasurycreateda$50

billionfundtohelpcitiesgetfundingorexactlywhattherestrictionswereonhowits

fundingcouldbeputtouse.

TARPisnotaneasilyunderstoodconceptanditsresonancewiththepublicislargely

attheemotionallevelofsymbolismratherthanasareasonedrationeddecisionorlongheld

beliefs.ConsiderableeffortwasexpendedbybothpoliticalpartiestoframetheTARP

bailoutwhichinturnledtosignificantpressurebeingplacedonpoliticianswritingthelaw.

Likewisewhenthelawisimplementedpoliticalpressureinfluencedhowthelawis

implemented.

TheTreasuryinitiallyarguedforTARPbysayingthatitwouldbeusedtobuy

mortgagesandmortgage-backedsecuritiesaswellasotherassets.Howevertheactual

implementationdidnotactuallybuytheseassets,butfocusedonothertypesofassets

instead.InitiallyTreasurypushedfortheretobenojudicialreviewofTARP,butthis

proposaldidnotmeetwithcongress’approval.

Thereweredifferentviewsofhowquicklyactionshouldbetakenwithregardto

TARPlegislation.Thepresidentandmanyofthekeyagencyheadsthoughtthatitwas

importanttoactquicklysoastosupportthemarketbeforeanegativelyreinforcingcycle

beganandthemarketbegantodecrease.227Ontheothersidewereindividualssuchas

SenatorRichardShelby,therankingRepublicanontheSenateCommitteeonBanking,

226Weisman,Jonathan.“U.S.DeclaresBankandAutoBailoutsOver,andProfitable”TheNewYorkTimes.December19,2014.227Paulson.298.

150

Housing,andUrbanAffairs,whofeltmoretimeshouldbespentdeliberatingabouttheplan

anddeterminingwhetheritwouldbebeneficialorwouldhurttheeconomy.228Toshow

supportforhisplanhereferredtoaprominentpetitionsignedby192economiststhatwere

opposedtoTARP.PartoftheTARPprogramwasaprogramtoinsuretroubledassets.This

wasacontentiousissuewithmanypoliticians,eventhosethatsupportedthebill,opposed

toit.Intheend,acompromisewasreachedandtheinsuranceprovisionwasincludedand

madeamandatoryprovisionthatTreasurymustprovideatroubledassetinsurance

program.229Ultimately,whenTARPwaspassed,Treasurycompliedwiththisprovisionand

compliedwiththeletterofthelaw,butcreatedaninsuranceprogramwithsuchhigh

premiumratesthatitwouldnotbeusedbyanyoneandthusthatpieceofthelawwas

effectivelyvoided.

TheTreasuryDepartmentandthepresidentlobbiedcongresstoreleasefundsfor

TARP.TARPwasstructuredsothatthefundingforitcameinthreetranches.Thefirsttwo

werereleasedprettyeasily,butthethirdsliceoffundsrequiredcongress’approvaland

congresswasskepticaltotakesuchastepduetotheunpopularityofsuchanaction.

Congress,bykeepingthispowerforthemselvesasopposedtocreatingsomenonpartisan

commission,putthemselvesinatoughpositionpoliticallyasTARP’sunpopularitydidnot

abate,butrathergrewwithitspassageanduse.TheTreasurySecretaryhoweverfeltthat

themoneywasneededbecausemuchofthepreviousfundinghadalreadybeentiedupin

theCapitalPurchaseProgramtopropupbanksandinhelpingthecriticallyimportant

insurancecompany,AIG.230Therewasstillthepotentialforaneedformajoractionbythe

governmentinresponsetonewemergenciesandTreasurySecretaryPaulsonwantedtobe

preparedforsuchaneventualitywithadequatefundingandauthoritiestodealwill

problemsastheyarose.Thepresidentagreedwiththisplanandsotheadministration

lobbiedcongresstogetaccesstotheremainingTARPfunds.Theadministrationwasnot

merelyasking,butalsowaswillingtonegotiatetogetadealdone.Inordertogetthefunds

released,theadministrationsignaledtheirwillingnesstogivingsomeofTARPmoneytothe

228Paulson.298.229Section102oftheEmergencyEconomicStabilizationActof2008230Paulson,Jr.,HenryM.OntheBrink:InsidetheRacetoStoptheCollapseoftheGlobalFinancialSystem.NewYork:BusinessPlus,2010.

151

automakersifcongressapprovedtheadditionalfundsaswellashomeownerrelief.231This

madethedemocratswhocontrolledbothhousesmorelikelytosupporttheallocationof

thefundsunderBushratherthanwaitingforthenextpresidentwhowouldbeaDemocrat.

Initiallytheadministrationhopedtoavoidthepoliticallydifficultmoveofhavingtoaskfor

thislastsliceofTARPfunding,butwiththecontinuedweakeningofCitigroupandthehuge

shockitwouldbetothesystemifthisfinancialgiantfellandthelikelihoodthatsymbolically

importantGMwouldsoonfileforbankruptcy,theadministrationbegantoplanonhowto

requestthefundsinordertobeprepared.Ultimatelypresident-electObamaalso

supportedreleasingfundsbeforehecameintopowerandthishelpedbolsterthe

administration’sposition.However,duetopolitics,theactionthatcongressionalreleased

thefundswasdoneaftertheelection.

Afterthepresidentialelectionthepoliticaldynamicchangedandthelameduck

congresshadadubiousmandateforaction.Thisisoneofthestructuralfactorsthat

affectedtheactionsperformedduringthatperiod.Withroughly130legislativedaysayear,

Congressisnotinsessionmuchoftheyearandthistoocanaffecttheabilityofcongressto

formulatearesponsetoacrisissinceevenduringthecrisiscongresscloseddownfora

while.232

TARPwasinitiallydesignedtobeusedtodirectlypurchaseilliquidassetsandbuild

liquidityinthemarketanditwassoldtocongressandthepublicasbeingforthatpurpose.

However,onceTARPwasenacteditbecameapparenttothoseintheTreasurythatthe

illiquidassetprogramwouldtakefarlongertosetupthanexpectedandwouldhaveless

effectduetotheamountofmoneythatcouldbeinvestedinsuchalargemarket.233Itwas

thusdecidedtoscraptheplanforanilliquidassetpurchaseprogramandfocusonother

areasinwhichTARPfundscouldhavealargerandmoreimmediateeffectsuchascapital

investmentsthatprovidedmorebenefitfordollarspent.231Paulson,Jr.,HenryM.OntheBrink:InsidetheRacetoStoptheCollapseoftheGlobalFinancialSystem.NewYork:BusinessPlus,2010.

232Saenz,ArletteandErinDooley.“Here’sHowMuchLessCongressWorksThanYouDo”ABCNews.August4,2014.233Paulson,Jr.,HenryM.OntheBrink:InsidetheRacetoStoptheCollapseoftheGlobalFinancialSystem.NewYork:BusinessPlus,2010.

152

CongresscouldnotformallyaffectthedirectionsetoutbytheTreasurySecretary

aboutwhattodowithTARPfunds.Thedelegationwasverybroadandwasstructuredin

suchawayastogivetheTreasuryDepartmentsignificantdiscretionastotheactionsit

wouldtake.Congresscouldhowevertakecertainstepswithregardoversightandcouldtry

tochangeagents’actionswhentheydivergedfromcongressesintensionsastheydidwith

usageoftheTARPfund.Hearingsareoneofthemethodsthatcongressrelieduponthe

mostandtheTreasurySecretaryandotheradministrationofficialscertainlyhadtotestifyat

theseandwerecalledtotaskbyangrymembersofthecongress.InhisNovember18th

testimonybeforetheHouse’sFinancialServicesCommitteeSecretaryPaulsonreceived

commentssuchasRepresentativeMaxineWaters’accusation,“You,Mr.Paulson,tookit

uponyourselftoabsolutelyignoretheauthorityandthedirectionthatthisCongresshas

givenyou.”

TreasurySecretaryPaulsonarguedthatTARPwasanattemptatacomprehensive

solutionandthuswouldbeanimprovementoverthewaythegovernmenthadbeen

approachingthecrisisuptothatpointhoweverotherswerelessconvincedthatthiswould

beanimprovementoverthestatusquo.TheRankingMemberontheSenateBanking

Committee,RichardShelbystatedhisviewofTARPthusly,“Ratherthanestablishinga

comprehensive,workableplanforresolvingthecrisis,Ibelievethislegislationmerely

codifiesTreasury’sadhocapproach.”234

TheCapitalAssistanceProgramwaspartofthisactandendedupreplacingthe

CapitalPurchaseProgram.Thismadeanumberofchangesintheprogramitselfsuchas

requiringthosethatacceptedmoneytoagreetoadoptstandardloanforeclosuremitigation

measuresandincreasedreportingrequirements.235

TARPwasoverseenbyanumberofentities.Thesewereoftenquitecriticalofthe

TreasuryDepartmentandtheFed.SIGTARPforinstancecriticizedthewaythestructureof

theAIGassistancewasorganizedandthemultibilliondollarbailoutofAIG’scounterparties.

234Shelby,RichardA.SenatorShelby’sremarksbeforetheSenateCommitteeonBanking,Housing,andUrbanAffairs,TurmoilinU.S.CreditMarkets:RecentActionsRegardingGovernment-SponsoredEntities,InvestmentBanks,andOtherFinancialInstitutions.110thCongress2ndSession.September23,2008transcript.6.235Harris,AngeleeandRiteshPatel.TableShowingtheSimilaritiesandDifferencesBetweenTARPCPP&CAPforPubliclyTradedInstitutions.Manatt,Phelps&PhillipsLLP.

153

Howeverthesereportsweremadefarafterthefactandhadlittleabilitytochangethe

actionsoftheTreasuryDepartmentinitsrunningoftheTARPprogram.

InadditiontoTARP,theEmergencyEconomicStabilizationActof2008also

authorizedtheFederalReservetopayinterestonreserveandexcessreservebalancesifthe

FederalReservefeltsuchactionwasappropriate.Thisdelegationgaveitanewtoolwith

whichtostabilizetheeconomy.

TheEmergencyEconomicStabilizationActwasoneofthreesectionsofPublicLaw

110-343.TheothertwoofwhichweretheEnergyImprovementandExtensionActof2008

andtheTaxExtendersandAlternativeMinimumTaxReliefActof2008.Thefirstofthese

providedeconomicincentivesdesignedtoincreasetheadoptionofgreentechnologies.The

presidentonnumerousoccasionsattemptedtotietheissueofenvironmentalismandthe

strengthoftheeconomytogether.Hisrhetorichelpedassociatethesegoalstogetherand

thishelpedgetgreeninitiativespassedbyofferingtheprospectofnewgreenjobs.The

secondofthesesectionsoftheactfunctionedasapatchtostopthealternativeminimum

taxfromaffectingasmanypeopleasitwouldotherwise.Italsoincludedtaxcreditsand

breaks,andtemporarilyincreasedtheFDICdepositinsurancelimitfrom$100,000to

$250,000.

4.2.2 American Recovery & Reinvestment Act of 2009

TheAmericanRecoveryandReinvestmentActof2009236wasapieceoflegislation

designedtohelpbolstertheflaggingjobmarket.ItwassignedintolawFebruary2009and

authorizedspendingoneducation,health,infrastructure,energy,andtaxinitiatives

designedtoboostspendingonkeyareas.237Italsoexpandedtheunemploymentinsurance

programtoincreasetheamountofbenefitsgiven.Inaddition,theactincludednumerous

congressionalprioritiesthatwerenottiedtofixingthecurrentproblem.Theseincluded

popularprovisionssuchasaddingacaptotheamountofcompensationtoexecutivesof

236Pub.L.111-5237OfficeofManagementandBudget.“FrequentlyAskedQuestions–AmericanRecoveryandReinvestmentActof2009”https://www.whitehouse.gov/omb/recovery_faqs

154

banksthatreceivedfundsinthebailoutthatpoliticalpopularwithMainStreetAmerica.238

Thecentraltenantofthisactwasthatfederalgovernmentspendingwouldhelppropupthe

economyandmakeupfordecreasedcapitalexpendituresbybusinesses.Section3ofthe

AmericanRecovery&ReinvestmentActlistedthereasonsfortheact.Theseinclude

assistingthosehardesthitbytherecession,creatingorpreservingjobs,investinginareas

thatwillimproveefficiencyorlongtermgrowth,andplugginggapsinstateandlocal

governments.Theact,however,includedprovisionsnotdirectlyrelatedtothesegoals,but

whichwereneededeithertoassurethattheactpassedortoachieveotherpoliticalends.

TheactitselfwaswrittenprimarilybytheDemocraticCongressionalcommittee

leadersandtheirstaffs.Itwasaverypartisanbillwithall177RepublicansintheHouseof

Representativesthatvoted,votedagainstit.Similarly244outof255HouseDemocrats

votingvotedagainstthebill.239IntheSenateallDemocratsvotedforthebillwhereasall

but3oftheRepublicansvotedagainstthebill.Thisshowshowpartisanthisbillwas.The

majoritypartyandtheHouseRulesCommitteeusedrestrictiverules.

ThereweresignificantdifferencesbetweenthebillsinitiallypassedbytheSenate

andtheHouseofRepresentatives.TheSenatehadconsiderableswayinthedebateand

whilethetwohousesworkedoutthedifferencesbetweenthetwobills,approximately$150

billionfromtheHousebillwasmodifiedorremoved.

Amongthefundsallocatedinthisact,were$48.6billiontotheStateFiscal

StabilizationFund.240Besidesitseconomicstimuluseffects,thisDepartmentofEducation

controlledfundwasanattempttoshoreupstateeducationprogramsandadvance

educationreforms.Stategovernorshadsignificantaccesstothisfundthoughtherewere

numerousrestrictionsonthedispersalofthesefunds.TheDepartmentofEducationwas

abletouseitsinitiativetodeterminetheamountoffundsthatwouldbedispersed.The

intensityofthedebatechangedtheactionsofpoliticalactors.Forinstance,House

Democratshadpromisedverypubliclytoallowatwodayofpublicreviewanddiscussion

beforethefinalconferencereportcameupforavote,howevertheydidnotdelaythevote

thislong.238DeVaro,JedandScottFung.“PublicBailouts,ExecutiveCompensationandRetention:AStructuralAnalysis”JournalofEmpiricalFinance.26(2014).Pgs.131-149.239Govtrack.“H.R.1(111th):AmericanRecoveryandReinvestmentActof2009”https://www.govtrack.us/congress/votes/111-2009/h46240Dodaro,GeneL.RecoveryAct:PlannedEffortsandChallengesinEvaluatingCompliancewithMaintenanceofEffortandSimilarProvisions.DIANAPublishing.2010.

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4.2.3 Helping Families Save Their Homes Act of 2009

TheHelpingFamiliesSaveTheirHomesActof2009241wassignedintolawonMay

20,2009.Thebillwasdesignedtomakeiteasierforhomeownersstrugglingtopaytheir

mortgagetokeeptheirhomes.Thereareseveralsectionsofthisbillthataddressthisgoal.

Inonesection,thebillmakesiteasierforhomeownerstodeclarechapter13bankruptcy.It

givesconsiderableauthoritytotheSecretaryofAgriculturetoauthorizeloanmodifications

andpayoutstoafinancialinstitutionthatagreestolowertheamountofprincipalowedby

theborrower.Inaddition,itamendstheHOPEforHomeownersProgramandamongother

changesgivesauthoritytotheSecretaryofHousingandUrbanDevelopment.Italso

extendedtheEmergencyEconomicStabilizationActof2008tillDecember31,2013.The

HelpingFamiliesSaveTheirHomesActof2009alsosettheComptrollerGeneralasan

overseeroftheTARPprogram.

Theinitialpurposeoftheactwasdesignedtogivefederaljudgesauthoritytoalter

mortgageagreementsonhomes.Howeverthiscontroversialprovisionwasdroppedbefore

thebillwasapprovedandbecamelaw.242

4.2.4 Fraud Enforcement and Recovery Act of 2009

In2009,congressoverwhelminglypassedabillthatsoughttobattlefraud,which

hadbecomeanissueduringthefinancialandmortgagecrisis,asfraudtendstoincreaseat

suchtimes.EveryDemocratfrombothhousesvotedforthebillasdidasdidmany

Republicans.243Theacthadseveraleffectsincludingcreatingamoreencompassing

definitionoffraudagainsttheUnitedStates.Amongthenewactionsthatwouldnow

qualifyasfraudagainsttheU.S.wouldbefraudwithregardtofederalassistance,which

241Pub.L.111-22242Conyers,JohnJr.“ARecordofProgress:DetailedCongress-By-CongressSummary1965-Present”https://conyers.house.gov/sites/conyers.house.gov/files/A%20Record%20of%20Progress%20-%20114th%20Interim.pdfPg.53.243Govtrack.“S.386(111th):FERA”https://www.govtrack.us/congress/bills/111/s386

156

includesgrantsandothergovernmentfundsfrommanyoftherecentlyenactedprograms

suchastheTroubledAssetReliefProgramandtheAmericanRecoveryandReinvestmentact

of2009.Itthushelpedprovidedoversightintheformofincreasedpunishmentinorderto

deterfraudwhichotherwisemightincreaseinanenvironmentofsuchgovernment

programs.Furthermore,bypunishingthosethatengagedinthisbehaviormoreseverely,it

madethepublicfeelbetterabouttheusageandoversightoffederaldollars.

AdditionallySection5oftheFraudEnforcementandRecoveryActof2009created

theFinancialCrisisInquiryCommissionto,"examinethecausesofthecurrentfinancialand

economiccrisisintheUnitedStates.”Itwasalsotaskedwithpublishingareportattheend

oftheprocessandwastoldtoreferanycriminalwrongdoingituncoverstowhichever

attorneygeneralhasjurisdictionoverthewrongdoing.Itwasatemporarycommissionthat

wasdesignedtodisbandwithin60daysofsubmittingitsfinalreport.Thecommissionwas

givenauthoritytoholdhearingsandissuesubpoenas.Itwasdesignedsothat,"nomember

ofCongressorofficeroremployeeofthefederalgovernmentoranystateorlocal

governmentmayserveasamemberoftheCommission."Thismadeitanadhoc

commissionwithostensiblylesspoliticallyinvestedintheresultsofthereportandless

reasontosayornotsaythingsduetopoliticalorcareerconsiderations.

Thecommitteewasimportantbecauseitwouldbethemostthoroughgovernmental

narrativeofthecrisisandwouldthushaveakeyroleinshapingthehistoricalunderstanding

ofthecrisismuchasthePecoraCommissiondidfortheGreatDepression.Italsoperformed

theimportanttaskofassigningblame.Inaddition,bylistingcausesofthecrisis,it

effectivelyarguedfororagainstspecificpublicpoliciesbysayingtheyhadapositiveor

negativeaffectinthecrisis.Evenbasicconclusionsofthecommissionsuchasthatthe

financialcrisiswasavoidablehadpoliticalimplications.

Howeverwhenthecongressionalcommissionpublishedathoroughreportdetailing

itsfindings,itwaslargelysplitalongpartylineswithRepublicanmemberswritingdissenting

statements.Thecommissionconsistedoffivemembersselectedbyofeachhouseof

congress:threefromthemajoritypartandtwofromtheminorityparty.Thusthis

legislationensuredthattheDemocratswouldhavea6-4majorityonthecommissionwhich

wasotherwisesupposedtobenon-partisanandwhichallowedthemtotakestepssuchas

157

voting6-4tolimitdissentingopinionsintheofficialreporttoninepagesascomparedto

wellover400forthecommission’sopinion.Thecommissionwassupposedtoprovide

answersastothecauseofthecrisisandtoevaluatehowthegovernmentdealtwiththe

problemsoastogiveanaccountingtotheAmericanpeople,butalsotoprovideknowledge

formoreenlightenedpolicymakinginthefuturesofuturecrisesortheonethatwas

continuingtolingeronatthatpointcouldbetterbedealtwithoravoided.However,the

extenttowhichthisinformationwasorwillbeleveragedcanbecalledintoquestion.In

fact,inhisdissentingopinion,PeterWallison,amemberoftheFinancialCrisisInquiry

Commission,raisedthequestionofwhybothertohavethecommissionatallsincecongress

tookmajoractionsuchastheDodd-FrankActwithoutwaitingforthecommission’sreport

andrecommendationtoinformitastowhethersuchanactwouldbebeneficialwith

regardstothissortofcrisisandasitlargelywaspoliticalratherthaninvestigative.244

Thecommissionhadanumberoftimeconstraintsplacedonitsuchthatitwas

requiredtosubmittheirreporttothepresidentandtothecongressbyDecember15,2010

thoughthisdidgivethecommissionwelloverayeartoachieveitsend.Furthermorewithin

120daysofsubmittingthatreport,thecommissionwasrequiredtoappearbeforethe

HouseFinancialServicesCommitteeandtheSenateBankingCommitteetoanswer

questionsabouttheirfindings.

4.2.5 Dodd-Frank Wall Street Reform and Consumer Protection Act

TheDodd–FrankWallStreetReformandConsumerProtectionAct245wasamajor

pieceoflegislationwhichbecamelawonJuly21,2010andwhichgreatlychangedfinancial

regulationintheUnitedStates.Theactconsolidatedagencieschargedwithregulating

financialcompanies.Aspartofitsfocusonimprovingfinancialregulation,itcreateda

consumerfinancialprotectionagencyanditdelegatedpowerstotheFDICthatenableditto

graduallyshutdownbanks.Italsowasdesignedtoimplementinternationalstandardsand

thesocalledVolckerRule.

244Wallison,PeterJ.“TheTrueStoryoftheFinancialCrisis”TheAmericanSpectator.May13,2011.245Pub.L.111-203

158

Notallmembersofcongressapprovedofthedelegationcontainedintheact.Sen.

RichardShelbydescribedthebillasbeing,“a2,300-pagelegislativemonster…thatexpands

thescopeandthepowersofineffectivebureaucracies.”246Theagenciesandadministration

haddifferingmotivationsanddifferingviewsoftheact.HankPaulson,theTreasury

Secretary,saidabouttheact,“Thenewtoolsinthislegislationwillhelpmitigateand

managethenextfinancialcrisis,whichisinevitable,probablywithinthenextsixto10

years.”247

Congressactedinresponsetoadministrationpreferences.Thebillinitiallycame

fromaproposalfromPresidentObama.Afterthebillwasputforward,Obamalaterargued

forittoalsoincludetheVolkerRule.248TheVolkerRulewaseventuallyincludedinthisact

aswell.TheVolkerruleprohibitedbanksfromengaginginproprietarytrading.Many

economists,includingintheadministration,didnotthinkproprietarytradingplayedapart

inthecrisisandsawtheVolkerrulemoreasgoodpoliticsthatawaytoaddressthe

weaknessesinthefinancialsystemthatledcrisis.249

AlsointhebillisasectiongivingtheSECauthorityoverwhethercertain

shareholderscanmodifyproxystatementstoplacedesireddirectorsofthecompanyas

nomineesupforvote.ThisallowstheSECtoregulatethisimportantissue.Board

membershipisakeyissuethataffectstopicssuchasgovernanceandacceptablebehavior

forcorporations.

TheactcreatedtheFinancialStabilityOversightCouncilthatistaskedwithassessing

systematicriskstotheU.S.financialsystem.Thecouncilalsoissupposedtopromote

disciplineinthemarketsanddecreasetheriskoffinancialbubblesandmoralhazardwhile

atthesametimealsoensuringthatinvestorconfidencestaysstrong.Theycanalsorequire

largefinancialinstitutions,excludingbanks,tosubmitreportstothecouncildetailingtheir

financialsituation,theirriskmitigationplansandmethods,andthepotentialadverseeffect

thattheagency’sactionscanhaveontheU.S.financialsystem.Themembersofthecouncil

consistprimarilyofseniormembersoftheexecutivebranch.TheFinancialStability

246Paletta,DamianandAaronLucchetti.“LawRemakesU.S.FinancialLandscape”WallStreetJournal.July16,2010.247Paletta,DamianandAaronLucchetti.2010.248Drawbaugh,Kevin.“WhiteHouseRecommitsto‘VolkerRule’BankTradeBan”Reuters.February23,2010.249Geithner,TimothyF.StressTest:ReflectionsonFinancialCrises.CrownPublishers2014.414.

159

OversightCouncilitselfisoverseenandcanbeauditedbytheComptrollerGeneralofthe

UnitedStates.

TheDodd-FrankWallStreetReformandConsumerProtectionActalsocreatedthe

OfficeofFinancialResearch,aTreasuryoffice,whichisdesignedtocollectfinancial

informationfromcertainfinancialinstitutions.Thedirectoroftheofficehaspowersto

facilitatethecollectionofthisdataincludingsubpoenapower.Theyusetheinformation

theygathertoreporttocongress.Theagencycandeterminetheformatofthedataitis

collectingandrequireagenciestoadoptthisformatwhenprovidingitwithdata.

InTitleIIofDodd-FrankAct,theauthorityisgrantedtotheFDICandtheSecurities

InvestorProtectionCorporation(SIPC)towinddownoperationsforbanksandother

financialinstitutions.ThissectionoftheactalsoallowstheSecretaryoftheTreasury,with

theconsultationofthepresident,toappointanindividualtorunthecompanyonceittakes

itover.

PriortothisacttheFDICandSIPChadsomelimitedpowerstowinddownoperations

ofcertaincompanies.However,thisactgreatlyenhancedthesepowersandincreasedthe

numberofentitiesthattheseagenciesareauthorizedtoclosedown.Fundsweresetaside

forthispurposeintheformofthe“OrderlyLiquidationFund.”250Thefundisabletobe

replenishedbyafeeonfinancialcompaniesthatvariesdependingontheriskthatisposed

byaninstitutionandthestatusoftheeconomy.Alimitwasplacedontheamountthatthe

Governmentisobligatedtopaywhenacompanyisliquidated.

TitleIII,alsocalledthe“EnhancingFinancialInstitutionSafetyandSoundnessActof

2010”,wasdesignedtotransfersomedelegatedpowerfromoneagenttoothers.Financial

institutionshadengagedineffectivelyselectingtheirregulators.Theytendedtopickthe

leastrestrictiverulesandthisledtoasituationwhereinstitutionswouldshopforregulators

withlaxrulesandminimalrequirements.Thisalsogaveregulatorsreasontofurtherrelax

theirrulestoregulatemorecompaniesandthusreapmoreinthewayoffees.Aspartof

250Reuters.“Factbox:HowDodd-Frank’sOrderlyLiquidationRegimeWorks”February28,2011.

160

theattempttoreversethistrend,thisactabolishedtheOfficeofThriftSupervision(OTS)

andmergeditwiththeOfficeoftheComptrolleroftheCurrency.251

OTSperformedparticularlypoorlyasanoversightagencyandmanycompaniesthat

itoversawhadcatastrophicfailures.TheseincludeWashingtonMutual,American

InternationalGroup(AIG),andIndyMac.Itwasevenimplicatedinthestockbackdatingthat

IndyMacparticipatedin.ThepoorregulatoryperformanceofOTSduringthisperiodwas

partlyduetothefactthatfundingforOTScamefromfeespaidbytheinstitutionsthey

regulate.252Whilethisisinlinewithotherregulatorsoffinancialinstitution,itledtothe

regulatorandtheregulatedcompaniesbeingtiedtogethersothattheregulatorisrelianton

theregulatedandisthusincentivizedtotakeiteasyoninstitutionstheyregulate.OTSwas

particularlyinneedofinstitutionstoregulate,astherehadbeenadecreaseinthenumber

ofthriftsandthusadecreaseintheamountoffundsthatwerecomingintotheagency.

Thisdecreaseinthenumberofthriftsalsoledtotheexistentialquestionofwhatwasthe

agency’spurpose,whichledtotheagencytryingtoexpandanddefineitsrole.Thefearwas

thatmembersofcongressmightbegintodoubttheneedforaseparateagencytoregulate

sofewentities.Whilethereweresomerestrictionsaboutwhocoulduseaspecificagency

toregulatethem,allacompanyneededtodotohaveOTSastheirprimaryregulatorwasto

buyoropenathriftandmanycompaniessuchasAIGdidjustthat.

OTSwascreatedasaresponsetotheSavings&LoanCrisisofthe1980sinwhich

manyundercapitalizedbanksultimatelyneededtobebailedoutattaxpayerexpense.The

daythattheOTSwascreated,PresidentGeorgeH.W.Bushremarked,“neveragainwill

Americaallowanyinsuredinstitutiontooperatewithoutenoughmoney.”253TheOTSand

PresidentBush’remarkwereadirectresultofthefailureoftheFederalHomeLoanBank

whichhadpriortothecreationoftheOTShadregulatedasimilarareaandhadfailedtoa

similardegreethatOTSwouldfailtwodecadeslater.Theconfidencethepresident

professedtohavethattherewouldnolongerbeundercapitalizedbanksoperatingin

Americaprovedtobeill-foundedasthesolutionthatwasputinplacetoavoidthissortof

resulthelpedleadtothesameresultalbeitthroughdifferentmeans.

251O’Connor,Sarah.“OfficeofThriftSupervisionStaffRemainDefiant”FinancialTimes.June19,2009.252TheFinancialCrisisInquiryCommission.2011.Pg.173.253Bush,George.GeorgeBush,PublicPapersofthePresidentsoftheUnitedStates.1989.

161

TheDodd-FrankActalsoincludesaprovisionthatrequiresadditionalreportingfrom

hedgefundsandsimilarentities.254Hedgefundsandtheshadowbankingsectorhave

grownasapercentageoffinancialactivitytakingplaceinAmericaandinpartthisprovision

acknowledgesthisfactandputsthetreatmentofhedgefundsmoreonparwithotherlarge

financialentities.Therewasconcernthatthegrowthoftheshadowbankingsystemmay

eventuallyleadtoaneconomiccrisisinthefutureandthisacttookstepstominimizethat

risk.

Anotherprovisionthatsoughttominimizetheriskoffutureeconomiccriseswas

TitleVIoftheDodd-FrankActthatamendedtheBankHoldingCompanyof1956tolimit

riskyinvestmentsbylargefinancialcompanies.Itprincipallydidthisbylimitingtheir

ownershipofhedgefundsandprivateequityfunds.Thisformedthebasisforthehighly

contestedVolkerrulethatultimatelywascodifiedandfleshedoutbymorethan960pages

ofagencyrulesandlaws.

AnotherareathatbegantoberegulatedbytheDodd-FrankActwastheswaps

industry.InTitleVIIoftheact,theSECandtheCommodityFuturesTradingCommissionare

givenresponsibilityforregulatingswapsanditalsomandatesthatmostswapsbetraded

throughexchanges.ThisactisalsocalledtheWallStreetTransparencyandAccountability

Actof2010andwasdesignedtorectifyweaknessinthefinancialregulatorymarketand

exemptionsthathadbeeninplaceduetotheGramm-Leach-BlileyAct,whichwasenacted

inNovember1999.Swapsareatypeofderivativeinwhichtwopartiesenterintoacontract

to“swap”termsofcontractssuchasinterestrates.OnetypeofswapcalledaCreditDefault

Swap,inwhichonepartypaysanotherpartytoassumeariskofacreditdefault,hada

particularlydeleteriouseffectontheeconomyduringthecrisis.Congresshadspecifically

prohibitedanyoversightorregulationoftheswapandoptionsmarkettoprohibitagencies

thatatthetimeweretryingtoassertanauthoritytoregulatethisindustry.

SenatorBlancheLincolnafterinitiallyrequestingfewerrestrictionsonbanksuseof

derivativesandbeingopposedbytheadministrationofferedapopulistamendmentthat

wouldalmostbanbanksfromalltradingofderivatives.255Geithnerandotherssawthisasa

254Brown,Stephen,AnthonyLynch,andAnttiPetajisto.“HedgeFunds,MutualFunds,andETFs”inRegulatingWallStreet:TheDodd-FrankActandtheNewArchitectureofGlobalFinance.Wiley.2010.255Geithner.419.

162

responsetoatoughelectionbattleshewasfacingfromanopponentattackingherfromthe

left.AnotherproposedDodd-FrankamendmentwasproposedbySenatorsMerkleyand

Levinandproposedabroaderdefinitionofproprietarytradinginthehopesofhavinga

tougherrestrictionsonbank’stradingactivities.Itwasamoreexpansivedefinitionthanthe

administrationwaspushingfor,buthadthesupportofVolkerhimselfandmanyonthe

liberalwingoftheDemocraticParty.256

Severalotherareaswereaddressedbytheactthatsoughttoensureadequate

regulationofthefinancialmarketasawhole.Forinstance,theactcreatedanewoffice

calledtheFederalInsuranceOffice,whichisacomponentoftheDepartmentofthe

Treasury.AlongwithresponsibilitiessuchasadministeringtheTerrorismInsurance

Programitwasgivenresponsibilityforfindinggapsintheregulationoftheinsurance

industryandwaschargedwithlookingforproblemsintheinsuranceindustry.

OneofthewidestpiecesofdelegationinthisactgivespowertotheFederalReserve

Boardtocreatestandardsthatwouldlimitthepossibilityofamajorfinancialinstitution

posingsystematicrisk.257Itcanusethepowerdelegatedtoitinthispartoftheacttoset

standardsinawidevarietyofareas.

TheactalsomodifiesthestructureandauthoritiesgrantedtotheSECaswellas

allowingittoregulatenewentitiessuchascreditratingagencies.258TheSECisalsogiven

authoritytoissuerulesrequiringdisclosurewhenretailinvestorsmakepurchasesandalso

gaveauthoritiesoverbroker-dealersandinvestment.Inaddition,Dodd-FrankActgave

additionalenforcementpowerstotheSEC.ThisisanincreaseinthecapabilitiesoftheSEC

andtheactionsitcantake,butisnotadelegationofcongressionalauthority.Theactalso

shieldedtheSECfromhavingtocomplywithfreedomofinformationrequestsandthis

changemadetheSEC’sactionslesstransparent.Anotherpartofthissectionadded

regulationsforasset-basedsecurities,whichwereacontributingfactortotheeconomic

downturn.TheSECalsoistoldtodirectexchangesnottolistsecuritiesofcompaniesthatdo

notmeettheSECrulesonexecutivecompensation.Thisgivesstrongerenforcementtothe

rulesthattheSECcomesupwith.Thisactionwasrequiredoneyearfromtheactbeing

256Geithner.420.257TitleVIIIofDodd-FrankWallStreetReformandConsumerProtectionAct258TitleIXofDodd-FrankWallStreetReformandConsumerProtectionAct

163

passed.AnotherrulethattheSECwasgivenresponsibilityforarethosedeterminingwhat

typesofmembersareacceptableonacompany’scompensationcommittee,whichisused

todeterminepayofexecutives.

AnothernewareathattheSECisgivenresponsibilityforisoverseeingcreditrating

agenciesandinparticulartheNationallyRecognizedStatisticalRatingOrganizations

(NRSROs)thattheU.S.FederalCodegivesspecialauthoritytoandwhoseratingsarerelied

onbyvariousprovisionsoflaw.Thecrisisshowedaweaknessintheabilityoftheseratings

agenciestoissueratingsthataccuratelyreflectthecurrentstateofcompaniesand

securities.Thisinpartwasviewedasaconflictofinterestprobleminwhichcompaniesare

incentivizedtogivebetterratingstotheirclientsinordertoincreasetheirrevenueand

profits.TheSECamongotherpowerscanrevokethedesignationofanNRSROifthereisa

chronicproblemwiththeintegrityofitsratingprocess.Italsomayissuerulesthatare

designedtopreventaconflictofinterestintheagencybetweensalesandfairandhonest

ratings.

TitleIXSubtitleFmakeschangestothewaytheSECoperatesinordertoimproveits

efficiencyandeffectiveness.Thisincludesmanagementcontrolsonactionsaswellas

outliningnewmethodsofoversightoftheSECbytheGAO.Thisenablescongresstochange

theactionsofanagencyandthemethodwherebyitperformsitsfunctions.Typicallythese

arepowersthatthepresidenthasasheadoftheexecutivebranch.Anotherchange

containedinthissubsectionisthattheSECisnowtobefundedprimarilybyfilingfees.This

willhelpkeeptheagency’sindependenceandavoidthepotentialforconflictsofinterest.

ThistitlealsocreatesalargerrolefortheMunicipalSecuritiesRulemakingBoard(MSRB)

givingitauthoritytoregulatemunicipaladvisors.Thisactalsorestructuresthisboard.

WhiletheMSRBalreadyexisted,thePublicCompanyAccountingOversightBoard(PCAOB)

wasestablishedbythistitle.ThePCAOBisasubunitoftheSECandisgivenauthorityto

regulatepublicaccountingfirms.

ManyoftherestrictionsandregulationswerelaidoutexplicitlyintheActwith

existingregulatoryagenciesresponsibleforpolicingagenciesbasedontherulesintheact.

However,theregulatorsthatwerespecificallyassignedentitiestoregulatebyfunctionwere

givenauthoritytocreaterulesforvariousassetclassesandmayalsoofferexemptions.The

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actitselfalsoexemptsspecificassetclassessuchasQualifiedResidentialMortgagesfrom

theseoversightprovisions.

OneofthehighestprofilepartsoftheDodd–FrankWallStreetReformand

ConsumerProtectionActisthatitestablishedtheBureauofConsumerFinancialProtection

withintheFederalReserve.Thebureauisresponsibleforregulatingfinancialproductsand

servicesthataretargetedtoindividuals.Theroleofthebureauis,"tomakemarketsfor

consumerfinancialproductsandservicesworkforAmericans—whethertheyareapplying

foramortgage,choosingamongcreditcards,orusinganynumberofotherconsumer

financialproducts.”259Ideallythisalsowouldbehowcongressseesitsroleinthisarea,but

inpracticeitsmissionisnotalwaysthesame.

TheConsumerFinancialProtectionBureauusedthepoweritwasgrantedbythe

Dodd-FrankActandmadelargepolicychanges.AnexampleofthiswasonFebruary16,

2012whentheboardproposedaruletobeginregulatinglargedebtcollectorsandthe

majorcreditbureauswhichhadpreviouslynotbeenregulatedentities.260Thebureau

linkedtheseissuestothefinancialcrisisandstatedthattheneedtoregulatetheseentities

wasalsoduetotheincreasedroletheseindustrieshaveinthelivesofAmericans.Besides

makingtheproposaltoregulatedebtcollectorsandcreditbureaus,theCFPBmake

numerousotherpolicydecisionssuchassettingthecutoffofwhichcompaniestoregulate.

Thiscanhavemajoreffectsonitspowers.TheCFPBsetthecutoffforregulatingconsumer

reportingagenciessuchthatitwillregulateallsuchagenciesthathavereceiptswithatleast

$7millionperyear.Atthisthreshold,theagencywillnotonlyregulatethethreemajor

creditbureaus,Experian,EquifaxandTransUnion,butalso30orsominorcompaniesthat

recordinformationonindividualsthatarelargelyoutsideofthetraditionalfinancialsystem.

TheActalsogavetheConsumerFinancialProtectionBureauauthorityoutlinedintheTruth

inLendingActthathadpreviouslybelongedtotheFed.

259Slack,Megan.“ConsumerFinancialProtectionBureau101:WhyWeNeedaConsumerWatchdog”TheWhiteHouseBlog.January4,2012.https://www.whitehouse.gov/blog/2012/01/04/consumer-financial-protection-bureau-101-why-we-need-consumer-watchdog260Villafranco,JohnE.andKristinA.McPartland.“NewAgency,NewAuthority:AnUpdateontheConsumerFinancialProtectionBureau”TheAntitrustSource.http://www.americanbar.org/content/dam/aba/publishing/antitrust_source/feb12_villafranco_2_27f.authcheckdam.pdfPg.9.

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TheMortgageReformandAnti-PredatoryLendingAct,TitleXIVoftheDodd-Frank

WallStreetReformandConsumerProtectionAct,alsofocusesontheBureauofConsumer

FinancialProtectionthatwascreatedduringthecrisistoprotectindividuals.ThisTitlewas

brokenupintoeightsubtitles.Theactlaysdownrestrictionsonmortgageoriginators.

Mostoftheserestrictionswereexplicitlylaidoutinthissubsectionaswasadefinitionofthe

termmortgageoriginator,buttheboardisleftdiscretiontotightenstandardsonpayforthe

servicesofamortgageoriginator.

Theactexplicitlylimitsactionsofactors.Itlaysoutstandardsforresidentialloans

andrequirescertainminimumstandardssuchasthattheloanoriginatormustbelievethat

individualtakingouttheloanisabletorepayitandthatrevenueoftheborrowermustbe

documentedanditlimitsthetermsofcertain“high-cost”mortgages,changesrequirements,

andaltersexistingloans.

TheDodd-FrankActwasnotlovedbyall.Forinstancethebankingindustrywasnot

supportiveofthechangesthatbroughtabouttighterregulationofthebankingindustry.

Thoughthiswasatthetimeanunpopularviewpointtohave,theydidmakesomeeffortsto

spintheissueandtrytoreframethedebatetohelptheirside’sposition.Thepresidentof

theAmericanBankersAssociationsaid,“Tosomedegree,itlookslikethey'rejustblowing

upeverythingforthesakeofchange[…][i]fthisweretohappen,theregulatorysystem

wouldbeinchaosforyears.Youhavetolookatthereal-worldimpactofthis.”261By

comparison,theSecuritiesIndustryandFinancialMarketsAssociation,amajorlobbying

groupforthefinancialindustry,hasstatedsupportforthelawostensiblytostopatougher

lawfrombeingenactedinstead.

TheDodd-FrankActaddedanewofficertotheFederalReserve’sBoardofGovernors

toadvisetheboardandoverseetheregulationoffinancialinstitutionsaswellastoreport

tocongress.Thisposition,whichiscalledthe“ViceChairmanforSupervision”,servesasthe

boardchairmanwhenthechairmanisabsent.Italsolaysoutsomenewresponsibilitiesfor

theGAOtooverseeandaudittheFederalReserveandtheemergencylendingfacilitiesthat

hadbeenextendedsinceDecember1,2007.TheFederalReserveisalsogivennew

261Applebaum,BinyaminandBradyDennis.“LegislationbySenatorDoddWouldOverhaulBankingRegulators”WashingtonPost.November11,2009.

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oversightresponsibilitiesbytheactandwasmandatedtodevelopstandardsforindustries

thattheyoversee.Thesestandardswererequiredinanumberofareasincludingcapital

requirements,liquidityrequirements,concentrationrequirements,riskmanagement

requirements,limitsontheuseofleverage,andreportingrequirementsrelatedtoan

institution’screditexposure.

TitleXIIIamendedtheEmergencyEconomicStabilizationActof2008.This

amendmentgreatlyreducedthequantityoffundsavailablefortheTroubledAssetRelief

Fund.ItalsoamendedtheHousingandEconomicRecoveryActof2008andtheAmerican

RecoveryandReinvestmentActof2009sothatmoneythatwasmadebytheprogramwas

setasidefordeficitreduction.Inpractice,creatingbulwarksbetweenspendingand

revenuesothatmoneyisassignedforapurposeisusuallymoreforshowthanitisan

effectivewayofcontrollingnationalspending.Thiswasusedtoshowfiscaldisciplinein

responsetotheaccusationsthatTARPwasawastefulbailoutinwhichthepoorwere

subsidizingrichbankers.Itwasanadhocconstraintonthedelegationthatwasinherentin

theTARPlegislation.

Dodd-FrankalsocreatesanofficeintheDepartmentofHousingandUrban

Developmentchargedwithcounselingindividualsabouthomeownershipandrenting

houses.Thedirectorofthisnewofficeisauthorizedtoappointanadvisorycommitteeto

coordinatemediatoeducateonthesetopics.Thelawcreateslimitstothelengthofthe

termthatcanbeservedandthenumberofappointees.Theyaregivencertainpowerssuch

astheauthoritytoprovideeducationassistanceaswellascertainresponsibilitiessuchas

trackingforeclosuresanddefaults.Italsolaidoutrulesgoverningescrowforthepurchase

ofrealestate,butalsoregulatestheactionsofmortgageservicers.Inaddition,limitsare

placesonthesituationsinwhichacreditorcanextendcreditinthecaseofariskier

mortgage.Thesemostlyconsistedofstepssuchasappraisalsthatneededtobedonebya

certifiedorlicensedappraiserbeforealoancouldbeissued.Toensurethatappraisalsare

meaningful,thissubtitlechargesalargenumberofagencieswithworkingtogethertocome

upwithstandardsforappraisals.Inaddition,thissubtitleregulatesthesettlementprocess

inanefforttomakeitmoretransparent.

167

Theserequirementsinthissubtitlewereclearlyareactiontothesystematicfailure

inensuringthathomeswereworthmorethanloansandthusthatdefaultwasunlikely.

Thesechangesweredesignedtostopfutureloansfromhavingthesameweaknessesas

manyloansduringthehousingcrisishadandthustheyaimedtostoptheproblemfrom

reassertingitself.Thesolutionhoweverfocusedsquarelyontheloanoriginatorand

avoidedplacinganyblameonindividualswhotookoutloansdespiteaninabilitytopayback

theloans.Blamingmortgagecompanieswasapopularchargewhereasdemonizingthose

individualsthatdefaultedwouldhavebeenverybadpoliticallyforthemembersof

congress.Presumablyhowevercongresscouldcreateanentityorempowerabodyto

betterassurethatindividualsdidnotactinarecklessorfraudulentmannerwhentakingout

loansastheyindividualtakingtheloanisasmuchpartofthebrokensystemasthosewho

issuedtheloans.Withnostakesinthegametheloanoriginatorsdidnothaveanincentive

toscrutinizetheloanstheymaketoseeiftheywerelikelytobepaidback.

TheDodd-FrankActalsoincludedanumberofunconnectedprovisionsthatamong

otherthingstaskagenciestoissuereportsonareasofinteresttocongress.Some,butnot

allofthesearerelatedtothefinancialcriseswhereasothersusethebillmostlyasavehicle

topassdesiredchanges.

TheVolkerRulehasbeenoneofthemajorprovisionsoftheDodd-FrankAct.It

largelylimitstheabilityofbankstomakecertaintypesofinvestmentsusingtheirown

moneythoughitdoescontainnumerousloopholes.Itisalsooneofthemorecontentious

provisionsoftheactasmanyindividualsfeelthatitwillmakeitharderforU.S.banksto

competewithforeignbanks.JohnWalsh,theactingComptrolleroftheCurrency,

encapsulatedthisviewinhisremarksbeforetheHouseFinancialServicesCommitteewhen

hestated,“UnitedStatesbankscompetingwiththeseforeignbankswilloperateata

competitivedisadvantage,”262TherulewasdesignedtogointoeffectJuly21,2012sothat

therewouldbetimeforbankstoadaptandtheeffectoftheruleoncommercialbanksis

notexcessivelyonerous.TheVolkerRulemakesapolicytradeoffbetweenbankprofitsand

stabilityofthefinancialsystem.Itisdesignedtodealwithstructuralproblemsand

systematicrisksinthesystemandthusisadirectresponsetothefinancialcrisis.However,

262Protess,Ben.“RegulatorsConcernedAboutHowtoApplyVolckerRule.”NewYorkTimes.January18,2012.

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thefinancialfirmsthatwouldbeaffectedlobbiedagainstthisrulebothbeforeitsbecoming

partofthelawandaftertheDodd-FrankActwaspassed.

TheVolkerrulefollowedacomplexroutetobecomingpartofthelaw.Therulewas

initiallyproposedintheSenateasanamendmentbutwasnotputtoavote.Aversionof

theVolkerRulewaslaterencompassedintheMerkley-LevinAmendment,whichwasa

somewhatstrongerversionoftheVolkerRuleandwhichputadditionalrestrictionson

banks.Theamendment,however,wasnotvotedoneither.Insteaditwasattachedto

anotheramendmentwhichinturnwasthenwithdrawnbythatamendment’ssponsor,Sam

Brownback.ThebillwasinitiallyapprovedbytheSenatewithoutanyversionoftheVolker

rulebeingincluded.However,inconferencecommitteewhentheHouseandSenate

reconciledtheirversionsofthebill,theMerkley-Levinamendmentwasincludedinresulting

legislation.However,asthevoteswereincrediblytightintheSenateandhingedona

Republican,ScottBrown,votingforthebill,allowanceshadtobemadesothathewould

voteyesforthebillandgavethemafilibuster-proofmajorityintheSenate.Thesechanges

meantthattherulewasloosenedsothatproprietarytradinginmanygovernment-backed

securitieswasexemptedfromtheproprietarytradingrestrictionsintheinitialMerkley-

LevinAmendment.Theruleitselfisinpartapieceofdelegationinthatthoughitgivesa

generalsetofrestrictionsonactions,ultimatelythespecificsofhowtoimplementtherule

werelefttotheFinancialServicesOversightCouncil(FSOC).

TheFSOCsoughtpubliccommentontheruleandhowbesttoimplementit.This

enabledthoseinvolvedtogivetheirfeedbackandguidetheresultingactionsoftheagency.

ThisopportunitywastakenadvantageofbymanycorporationssuchasGoldmanSachsand

BankofAmerica.AftertheRepublican’sretookthehouse,theChairmanoftheHouse

FinancialServicesCommittee,RepresentativeSpencerBachus,statedhisintentiontoslow

implementationoftheVolkerRuleandquestioneditsusefulnessinastatementhereleased

whichstated,"TheU.S.capitalmarketsarethedeepestandmostliquidofanyintheworld.

ThequestionforthisCommitteeiswhetherimplementationoftheVolckerRuleinits

currentformrepresentsaself-inflictedwoundthatwillunderminethecompetitivenessof

ourmarketsandraiseborrowingcostsonabroadrangeofU.S.businesses,thereby

169

damagingoureconomy."263ByOctober2011,adraftofregulationsoftheVolkerrulehad

beenputtogether,whichduetoconsultationconstraintsonthedelegationwasthen

approvedtheSEC,TheFederalReserve,TheOfficeoftheComptrolleroftheCurrencyand

theFDICandthreemonthslaterwasapprovedbyCFTC.ThepublichaduntilFeb13,2012

tocommentonthedraftproposal.Therewasagoodbitofcomplexitytotheregulation

thathandledanydetails,butleftlesstojudgmentdecisions.PaulVolkerhimselfsaid,“I’d

writeamuchsimplerbill.I’dlovetoseeafour-pagebillthatbansproprietarytradingand

makestheboardandchiefexecutiveresponsibleforcompliance.AndI’dhavestrong

regulators.Ifthebanksdidn’tcomplywiththespiritofthebill,they’dgoafterthem.”264

While,Dodd-FranksetforththeVolkerRule,theactualrulesandregulationsofthe

Volckerrulewerelaidoutbyagenciesandendeduptotalingmorethan963pages.265There

wasconsiderabledelegationinvolvedwithturningahard-to-defineruleintoconcrete

requirements.Inaddition,theadministrationwasabletosetmanyspecificssuchaswho

therulewouldaffectandwhenitwouldtakeeffect.Therewasacontinualbattleoverthe

rulesthatwereputinplaceandhowtheywouldbewrittenandtheirimplementation.To

quoteTimothyGeithner,“Reformisa‘foreverwar’.”266

SincetheenactmentofDodd-FrankandtheVolkerRulethatitcontains,therehave

beennumerousattemptsbythefinancialindustries,theRepublicanPartyandothersto

weakensomeoftherestrictionsandrequirementsthattheVolkerRuleimposedonfinancial

institutions.Therehadbeenclashesaboutseveralprovisionsoftherulessuchaswhether

collateralizedloanobligations(CLOs)wouldbeexemptfromtheseregulations.InJanuary

2014,regulatorsaccededtosomeindustryrequestssuchasallowingbankstoholdspecific

typesofdebtsolongasthesedebtinstrumentswerebackedbytrustpreferredsecurities.267

SeveralcourtcaseswerealsobroughtwhichslowedimplementationofmuchoftheDodd-

FrankAct.ItwasyearsfortheregulationsmandatedbytheDodd-FrankActtogointo

effect.ForinstanceatthefouryearanniversaryofDodd-Frank,lessthanhalftheSECrules

263CommitteeonFinancialServices.“ChairmanBachusStatementonVolckerRule'sImpactonMarkets,InvestorsandJobs.”PressRelease.January18,2012.264Stewart,JamesB.“VolkerRule,OnceSimple,NowBoggles”TheNewYorkTimes.October21,2011.265TheEconomist.“TheVolkerRule:MoreQuestionsThanAnswers”TheEconomist.December14,2013.266Geithner.2014.Pg.505.267Patterson,ScottandStephanieArmour.“StreetHitsWallon‘Volker’.”TheWallStreetJournal.March13,2014.

170

werefinal.268Nearlytwodozenofficialshaveavoteontheregulationsthatimplementthe

VolkerRule.269KaraStein,oneofthefiveSECCommissioners,threatenedtovoteagainst

theimplementationoftheVolkerRuleduetoitslooselimitsonhedgingandbecauseinthe

proposedrulesarenotonhookforruleviolations.BecausethetwoRepublican

Commissioners,MichaelPiwowarandDanielGallagher,alreadyplannedtovoteagainstthe

implementation,Ms.Stein’svotewasneededtoenacttheSEC’sregulationsregardingthe

VolkerRule.270Ultimately,theruleswerechangedsothathedgingofaportfoliowasnot

exemptedfromVolkerRulerestrictions.ThischangeinrulesafterJ.P.MorganChase&Co.

disclosedthatithadlostbillionsinthesocalledLondonWhale,transactionsthatJ.P.

Morgancharacterizedasportfoliohedging.Ontheothersideoftheissue,Senators

Manchin,Wicker,andKirksentalettertoBenBernankeandotherregulatorsthatthey

wantedtherulesloosenedandtoexemptsmallbanks.

Toensurethatfinancialinstitutionshadenoughcapitalonhandtosurviveafinancial

downturn,aprovisioncalledtheCollinsAmendmentwasincludedintheDodd-FrankAct

whichsetsrisk-basedcapitalrequirementsandsetmaximumlimitsonleverage.Inorderto

implementtheCollinsAmendmentandotherprovisionsofDodd-FranktheFedannounced

onDecember20,2011aseriesofstepsthatwereproposed,“tostrengthenregulationand

supervisionofU.S.bankholdingcompanieswithconsolidatedassetsof$50billionand

nonbankfinancialfirmsthatitdeemsasbeingsystemicallyimportant.”271Amongthe

measurestheboardproposedwereliquidityrequirements,capitalandleverage

requirementsbasedonacompany’srisk,mandatoryperiodicstresstests,limitson

counterpartytransactionsinwhichthereisasinglecounterparty,andearlyremediation

requirements.Thisledtounintendedconsequencessuchaslargeforeign-basedbankswith

U.S.presences,suchasBarclaysandDeutscheBank,tryingtoskirttherulesbyswitching

entitytypes.Thispotentiallyenablesthemtocontinueoperatingtheselargeentitieswith

minimalregulationandcapitalcushions.Thisleadstotheseformstakinghigherriskandbe

morecompetitivethandomesticcompanies.

268Ackerman,AndrewandAlanZibel.“Dodd-FrankLawStillFarFromDone.”TheWallStreetJournal.July21,2014.269Patterson,ScottandAndrewAckerman.“’VolkerRule’FacesNewHurdles.”TheWallStreetJournal.November20,2013.270PattersonandAckerman.271BoardofGovernorsofFederalReserveSystem.“FRBPressRelease.”December20,2011.

171

Otherentitiesalsocreatedrulesandpolicytoimplementthebroadgoalsand

provisionsinDodd-Frank.ForinstancetheFDICtookstepstoimplementtheVolckerRule,

Section619,andSection165,whichrequiredstresstestsofcertainbanksandcreatedpolicy

aspartofthisprocessoffleshingoutthegeneralpolicy.AnexampleistheFDIC’s

determinationofwhatistheprocessandtherequiredpiecesforthestressteststhatthe

Section165ofDodd-Frankmandates.

TheDodd-FrankWallStreetReformandConsumerProtectionActwasareactionto

thecrisisandwasdesignedtotakestepstoavoidafuturecrises.Ithasbeenarguedthat,

“politiciansandpoliticalideologuesbegantotreatthehypothesesthatconfirmedtheir

predilectionsasiftheywereestablishedfacts,andthesetheorieseventuallyformedthe

conventionalwisdom.Thus,conservativeswereeagertoblamethecrisisonthe

government…whileliberalswereeagertoblamethecrisisoncapitalism…”272

Dodd-FrankenhancedtheFed’sregulatoryroledespitetherelativelypoorjobithad

doneasaregulatoryagencypreviously.Thisincreaseinitsregulatorypowersisjuxtaposed

againstplanspriortothecrisisthathadfocusedonchangingregulatoryagencies,which

wouldhavedecreasedtheFedsresponsibilitiesinthisarea.273Despiteitspoorperformance

asaregulator,manyfeltthattheFed’srelationships,experience,andauthoritywouldmake

itthebestchoiceforaregulatortooverseethestabilityoftheentirefinancialsystem.274

AgenciestriedtoaffectthecourseoftheDodd-Franklegislation.TheFedhadonlya

five-memberlegislativeaffairsteam,butitusedthoseaswellasitspoliticallyconnected

boardmembersbothinDCandatthe12regionalbankstocurtailargueagainstseveral

provisionsthattheFedanditsleadersdidnotthinkwereinitsbestinterests.Attheperiod

thatDodd-Frankwasbeingdebated,therewasstronganti-fedfervorincongressaswellas

thepublic.Thismanifesteditselfasapushformoretransparencyaswellascallsforthefed

tobestrippedofpowersanditsroleasaregulator.Intheendacompromisewas

272Friedman,Jeffrey,andWladimirKraus.EngineeringtheFinancialCrisis:SystemicRiskandtheFailureofRegulation.UniversityofPennsylvaniaPress,2011.273Calomiris,CharlesW.,andStephenH.Haber.FragilebyDesign:ThePoliticalOriginsofBankingCrisesandScarceCredit:ThePoliticalOriginsofBankingCrisesandScarceCredit.PrincetonUniversityPress,2014.279.274French,Kenneth,etal."TheSquamLakeReport:FixingtheFinancialSystem."JournalofAppliedCorporateFinance22.3(2010):8-21.

172

hammeredoutwhichwouldincreasetransparencyoftheFed’sactionswhilestillallowing

thefeddiscretioninitsdaytodayactivities.Theamendmentpassedthesenate96-0and

evenSenatorBernieSanderswhohadinitiallyproposedamuchstrongeramendment

supportedtheamendment.OtherlobbyinggroupssuchasCommunityBankersofAmerica

pushedfortheirownpreferredpolicy.InthecaseofCommunityBankersofAmericathey

wantedtheFedtoremaintheregulatorforsmallbanks.Theywerepowerfulbecausethere

werepoliticallyconnectedbankersinsomanycongressionaldistrictsandtheyusedthisto

ensurepoliticalleverage.

Dodd-FrankalsocreatedanewFedposition,avice-chair,whowasputinchargeof

theFed’sregulationmission.Howeverdespitethecreationoftherole,thepresidentnever

nominatedanindividualtofillthisrole.

Dodd-Frankcalledforstressteststhatamongotherthingscandeterminewhether

profitscanbedistributedtoshareholdersorbuybackitsstock.Thiswasnotamere

hypotheticalpower,butwasusedtostopdistributionsforseverallargebanksthattheFed

judgedtobeunder-capitalized.Muchofthispowerisinthehandsofadministratorsrather

thanlaidoutinclear,conciserules.

4.2.6 National Commission on Fiscal Responsibility and Reform

Todealwithlong-termstructuraldeficits,Republicanspushedforactionstodeal

withdeficitspendingandinparticularpushedforspendingcuts.Seeingthatatthattime

theRepublicanswereonthepoliticallypopularsideofthisissue,thepresidentembraceda

failedsenateproposalandissuedExecutiveOrder13531whichcreatedTheNational

CommissiononFiscalResponsibilityandReform,commonlyreferredtoastheSimpson-

BowlesCommission.Thecommissionwasostensiblysetuptofindacompromiseofhowto

tacklelongtermdebtreduction.275ItbeganitsworkinApril2010andreleaseditsreport

andhaditsfinalvoteinDecemberofthatyear.Itwasstructuredasapresidential

commissionsetupbyPresidentObamainExecutiveOrder13531,butthemajorityofits18275TheWhiteHouseOfficeofthePressSecretary“PresidentObamaEstablishesBipartisanNationalCommissiononFiscalResponsibilityandReform”February18,2010.https://www.whitehouse.gov/the-press-office/president-obama-establishes-bipartisan-national-commission-fiscal-responsibility-an

173

membersweremembersofcongress.Thecommissionwasdesignedtocreateablueprint

fordeficitreductionwhichcouldthenbevotedupordownbycongressbutnotamended.

Howeverinordertobeautomaticallyintroducedtocongresstovoteon,theproposal

neededa14votesupermajorityofcommissionmemberstosupporttheproposal.In

practicethisdidnothappenandonly11commissionersvotedfortheproposalandthe

proposalnevermadeittothefloorofcongressforavote.Thehighnumberofvotes

requiredtomeettheminimumnumberofvotesneededtoensureactionwasaconstraint

aswastheenddateforthecommissiontoreportby.Thecommissionmetinsecretandthis

allowedittoworkoutpossiblesolutionswithoutthelimitationsorimmediacyoffocusing

onpoliticallypopularpositions.Whilecongressdeterminedtheultimatesayofwhetherto

voteforthedealoragainstthedeal,thefactthatthedetailswereworkedoutbyanother

entityandtheproposalhasclosedruleswherebyitcouldnotaltertheagreement,made

thisapieceofdelegationinanimportanttopicarea.Thestructureofthistypeofdelegation

isverysimilartotheBRACcommissionortotreatiesnegotiatedbythepresidentunderFast

Trackauthority.Ultimatelythestructureofthedelegationhurtit.Becausethecommission

waslargelycreatedbyPresidentObamaandhewouldreceivecreditforits

accomplishments,thisriskedmakingsomememberstobelessreceptivetotheprocess.

Oneoftheco-chairmanbelievedhesawthistendencyandstatedthepurposeofsomeof

thosethatvotedagainsttheproposal,“wastostickittothepresident.”276

4.2.7 Budget Control Act of 2011

In2011,therewasconsiderablefightingoverwhethertoraisethedebtceilingand

overotherdebt-relatedinitiatives.TheRepublicanstriedandinpartsucceededongetting

theDemocratstogivegroundonspending.Someofthecapitulationstheywrangledoutof

Democratsthatcameaboutduringprotractednegotiationsonraisingthefederaldebtlimit,

oncontinuingresolutionsneededtokeepthegovernmentopen,andontheannualbudget

wereimplementedintheBudgetControlActof2011.277Aspartofthedeal,alarge

percentageofthesereductionsweredesignedtobedeterminedbyacommissionrather

276Balz,Dan.“Obama’sDebtCommissionWarnsofFiscal‘Cancer”WashingtonPost.July12,2010.277Pub.L.112-25

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thanbycongressdirectly.CongresssetuptheJointSelectCommitteeonDeficitReduction,

alsoreferredtoastheSupercommittee.

Thiscommitteewasrequiredtocometoanagreementtocutatleast$1.2billionin

federalspending,butmanyinbothpartieswereurgingforagrandcompromisethatwould

yieldevendeepercutsandhelplimittheprojectedriseintheratioofnationaldebtto

GDP.278Thewaythebillwasdesigned,theSupercommittee,congressandthepresidentall

haddeadlinesontheiractionsandiftheyfailtomeetthesedeadlines,automaticcutsare

triggered.Thecutsweredesignedtobeunappealingtobothpartiesinordertoincreasethe

willingnessofthepartiesonthepaneltocompromise.Theinitialagreementtodelegateto

theSupercommitteewasanagreementtocutapredeterminedamountfromthebudget;

thedetailswerelefttilllateroncethegoalwasdetermined.TheSupercommitteewas

instructedonaminimumgoalandwerefreetousewhatevermethodtheydeemed

appropriatetoreachit.Thedesignofthecommitteewassuchthatitneededamajorityin

ordertotriggerthenextphasewherecongressvotesonthebill.Thebillthatthe

Supercommitteewouldproposecouldnotbeamendedbyeitherhouseofcongress,could

notbefilibusteredbythesenate,andmustbevotedupordown.Thisensuredthatthedeal

thatthecommitteeagreedtowouldeitherbeacceptedasagreedonorelsetoughcuts

wouldbeautomaticallyenforcedandtherebythecommittee’scompromisewouldlikelybe

accepted.Besidesensuringthedealwasapproved,thetoughsanctionsalsoencourageda

dealforthecommitteeinthefirstplace.

Themembersofthecommitteeweremembersofcongress,butthecreationand

empoweringofthiscommitteeisstilladelegationasthebodywasseparateanddistinct

fromcongressasabody.Inthatsense,delegatingtoanycongressionalcommitteeisaform

ofdelegation,buttothisjoint,selectcommitteethisisevenmoreso.Whileallmembers

arepartofcongressandthecommitteeisacongressionalcommittee,thereisnothing

inherenttothesecharacteristicsthatchangesthenatureofthedelegationmuch.Ifthe

committeeincludedacouplemembersthatwerenotmembersofcongressitwouldnot

changethenatureofthedecisionortheresultingcompromise.Italsowouldnotgreatly

threatenthelegitimacyofthebodyorthismethodofcreatingpolicy.Asforthecommittee

278Thurber,JamesA.“Agony,Angst,andtheFailureoftheSupercommittee”Extensions.Summer2012.

175

beingacongressionalcommitteeratherthananadvisorycommitteethathasbeenusedin

otherinstances,eitherwaythecreationofthebillisdonebyacollectionofindividuals

appointedtoaroleandtheultimateupanddowndecisionwillrestwithcongress.The

committeeitselfisunlikemost,inthatitcanwritelegislation.Themembersona

committeedohaveaneffectonthecommitteeprocessandmoreimportantlyonitsresults.

Inthiscase,thepaneliscomposedoftwelvemembers:threemembersfromeachpartyin

eachhouse.Thusthemembersreflecttheinterestsofthepartyheadsinbothofthe

housesofcongressasthesechosethemembersoftheirpartyintheirhousethatwould

representthepartyonthepanel.Themembersoftheboardthusvarydependingonwho

appointedthem.However,onegeneraltrendisthatthemembersdidnottendtobeparty

leaderswhotypicallyleadtheirpartiesincongress.Thislackofformalpowermakes

creatingadealthatmuchmoreofachallenge.Fourmembersoftheboardwereonthe

earlierSimpson-Bowlescommissionandallfourvotedagainstthedealcreatedbythat

commission.

Intheend,thispieceofdelegationwasnoteffectiveinthissituation.Whilethe

generalbeliefisthatneithersidewantedthetalkstobreakdownandhavesevere

automaticcutskickin,neithersidewaswillingtocompromiseenoughforadealtobe

reached.Thisledtoastalemateinwhichaftermonthsofdiscussionandnegotiation,the

committeewasunabletocreateaseriesofcutsthatwouldbeacceptabletobothparties.

Thuswhathadinitiallybeencreatedinthehopesofbipartisancompromisebrokedownand

ultimatelyledtopartisanbickering.OnNovember21st,morethanthreeandahalfmonths

afterthecommitteewasfirstestablished,itstwoco-chairswereforcedtoissueastatement

saying,”Aftermonthsofhardworkandintensedeliberations,wehavecometothe

conclusiontodaythatitwillnotbepossibletomakeanybipartisanagreementavailableto

thepublicbeforethecommittee’sdeadline.”279Thedeadline,whichwasputtheretoforce

anagreement,becameanunattainablegoalandwellbeforethatitbecameclearthatno

dealwaslikelytobereached.Thechairsexpressedregretthatnodealwasabletobe

reached,butothersontheboardtrytousethefailurepoliticallyandpointblameatthe

otherside.Neartheendofthecommittee’sdeliberation,therecameashiftinwhichan

279Supercommittee.“StatementfromCo-ChairsoftheJointSelectCommitteeonDeficitReduction”November21,2011.http://www.murray.senate.gov/public/index.cfm/2011/11/statement-from-co-chairs-of-the-joint-select-committee-on-deficit-reduction

176

alternativewaspresupposedinthatcongresscouldremovetheautomaticcutsthatwould

kickinsincetheycouldjustpasslegislationvetoingthatpartofthebill.PresidentObama

cameoutagainstsuchamoveandstatedthathewouldvetoanysuchmeasures,buthedid

soafterthepanelconcededdefeatsothatthispotentialwayoutappearedviablewhilethe

panelwasstillnegotiating.280Ifhisgoalwastoforceacompromise,theappropriatetimeto

statehisunwillingnesstoacceptareversaloftheautomaticcutswouldhavebeenearlyin

theprocessandsothosenegotiatingcouldonlyhaveseentwoalternatives:compromiseor

unacceptablecutstoareasthattheyparticularlycareabout.Onecannothoweverbesure

ofthepresident’spolicypreferences.Thesequestercutskickedinthoughthenatureofthe

cutswasnotdesiredbyeitherside.UltimatelytheBipartisanBalancedBudgetActof2013

decreasedthesizeofthesequestercutsin2014and2015.Thedecreaseincutswaspaid

forbyothersavingsandbyextendingthesequestertwoadditionalyearsbeyond2020when

thesequestercutswereinitiallyduetoexpire.

Innegotiationssuchasthis,thoseinvolved,includingthepresident,arelikelynotto

showtheirtruepolicypreferencesandtherebyundercuttheirhand.Hemaywellhave

wishedfortheautomaticcuts,whichtrimmedwhatweretypicallyverypoliticallydifficult

areastotrimsuchasdefense.Asspendingondefensehadincreasedsomuchinthelast

decadeandhetendedtobemoreofadovishpresident,itwaspossiblethatthiswashis

preferredresult.Howeverforobserversitlookedlikeafailureofcongressandthepolitical

processandwhenthenewsleakedoutthattheSupercommitteewasgoingtoannounce

laterthatdaythatthecommitteehadbeenafailureandwasnotabletoreachan

agreement,theU.S.stockmarketreactedveryunfavorablytothenewsandsoonafter

StandardandPoor’sdowngradedtheUnitedStates’creditratingtherebymarkingthefirst

timethatthedebthadbeendowngradedlessthanAAA.

Thecommitteemembersanticipatingthewaythefailureofthecommitteewouldbe

perceivedfocusedonpointingfingersandhalfthecommitteememberswentonSunday

politicalnewsshowstotrytoplacetheblameforthestalemateonmemberoftheother

partyandthereintractableness.Thisinabilitytocometoanagreementwassimilartomany

otherinstancesofgridlocksuchastheSimpson-Bowlescommissionandthenegotiations

280Fontevecchia,Agustino.“Obama:IWillVetoAttemptsToGetRidofAutomaticSpendingCuts”Forbes.November21,2011.

177

betweenSpeakeroftheHouseBoehnerandPresidentObamaoveragrandbargainthat

wouldreduce4billionfromthedeficitoverthecourseof10years.Inallthesecases,those

involvedstatedadesiretosolvetheproblemandthattheysawthedeficitasamajorlong-

termcrisisthatrequiredabi-partisansolution.Thusthoseinvolvedhadreasontowork

togethertosolvethesestructuraldeficits,butdespitethisapparentagreementonthe

majorgoal,theywereunabletodeterminetheparticularsofhowtoreachthatgoal.

Onepotentialproblemwiththisdelegationisthatcongresscontinuestohavethe

abilitytocountermandthenegativerepercussionsthatwouldkickinifnodealwasreached.

CongresscanpasslegislationrewritingtherulesthattheBudgetControlActof2011putin

place.ThistendencycanbeseenintheGramm–Rudman–HollingsBalancedBudgetActof

1985281andtheBudgetandEmergencyDeficitControlReaffirmationActof1987282thatwas

usedinthe1980stolimitdeficitspendingbyusingthethreatofautomaticspendingcuts.

However,despitebudgetsthroughthisera,thecutswerecounteredandeventually

removedwhenthecongresspassedtheBudgetEnforcementActof1990283andswitchedto

thePAYGOmethodoflimitingbudgetaryspending.Thestrongestmethodtoguardagainst

thisisapriorpubliccommitmentortheframingoftheissuebythosewhowishtoensure

thatcongressdoesnotskirtatoughissuebyremovingthepunishmentforinaction.The

presidentinparticularcansetexpectationsfortheboardandraiseitsprofilesothatthe

publicwillnotallowthetakingoftheeasycourse.Theactalsoensuredacongressional

voteonabalancedbudgetamendment.Theamendmentbillwasnotabletogarnerthe

required2/3rdofvotesineitherthehouseorthesenateandthuswasneversenttothe

statestoberatified.

Theactitselfalsoincludedanincreaseinthedebtceilingthatwasneededforthe

U.S.tocontinuedeficitspending.Thusitwasviewedasimperativetopassthebillasthe

U.S.approachedthedebtceilingandthepotentialofadebtdefaultbecamemore

pronounced.TheRepublicansinsistedoncuts,butthetwosidescouldnotfullyworkout

thespecifics.Insteadsomecutswerelaidoutinthisactandwentintoeffectandthe

281Pub.L.99-177282Pub.L.100-119283Pub.L.101-508

178

secondsetwasleftuptothediscretionofthepanel.TheactwassimilartotheSAFE

CommissionproposalthatRepresentativeFrankWolfhadproposedpreviously.

TheRepublicanswereabletoshiftthedebatefromhowmuchadditionalstimulus

therewouldbeandshiftedittoaquestionofreducingthenationaldebt.TheRepublicans

incontroloftheHouseweremostresponsibleforthischangeandinlargepartplayeda

majorruleinblockingmanyoftheproposalsthatObamaandtheDemocraticallycontrolled

Senateproposed.ItwasthischangeinpublicsentimentthatallowedtheRepublicansto

playhardballinthedebtlimitnegotiationsandthuswereabletopushthroughtheBudget

ControlActof2011.Thiswasineffectapivotfromafocusontheshorttermeconomic

problemstoawider,moreexpansivelookatthelongtermeconomicweaknessfacedbythe

country.Thustheshorttermcrisiswasusedasamethodtoimprovethelong-termfinancial

pictureofthenation.Thetime-frameanddefinitionwereshiftedinthemindsofvotersby

tyingtogethertheshort-termcrisesandthelong-termcrises.Thisisdespitethefactthatby

cuttingshort-termspendinginordertoimprovethedeficitsituationwould,accordingtothe

commoneconomicview,hurttherecovery.WhilenotalleconomistsagreethatKeynesian

stimuluswillhelptherecessionandquestionsaboutmultipliereffectsarecommon,the

prevailingviewisthateconomicstimulusisonewaytohelptheeconomy.

Bythreateningtothrowthecountryintosovereigndefaultonitsdebt,the

RepublicanswereabletomaneuvertheDemocratsintogoingalongwithsomeofthese

changes.ByusingbrinksmanshiptheRepublicanwasabletopushtheCongresstoagreeto

somecutsandtoperformadelegationtocutadditionalspending.Therewashowever

somerisksastheDemocratsusedthistopainttheRepublicansasbeingrecklessand

irresponsible.Inaddition,thehardlineoftheRepublicansrantheriskofinadvertently

actuallyleadingtoadebtdefaultsinceneithersideknewtheactionstheothersidewas

willingtotake.

TheBudgetControlActwasdesignedinsuchawaythattherewerethreeseparate

increasestothedebtceilingthatcouldbeauthorizedbytheact.Thesecondandthird

increases,whichamountedtothebulkoftheactsincreases,requiredthepresidentto

requestthemoneyandhadaprovisionsothatcongresscouldacttostopthedebtceiling

increase.Ascongresscouldonlystoptheincreasewithajointresolution,whichwouldbe

179

subjecttovetobythepresident,congresscouldbeprettysurethattheincreaseswouldbe

implemented.However,byimplementingthebillthisway,congresscouldtagthepresident

withmostoftheresponsibilitywithraisingthedebtceiling.Thiswasapoliticalliabilityin

thatpoliticalenvironment.

OnNov9,2011,thepresidentissuedanotherexecutiveorder.284Thisone

attemptedtocutgovernmentwaste.Byusinganexecutiveorderthepresidentwasableto

bypassacongressthatwasmireddowningridlockandhadalargecontingentthatsawitas

politicallyexpedienttocounterthepresident'sproposals.Theexecutiveordersoughttocut

governmentspendingontravelandtechnologyby20%.Itdoesthisbylimitingthepiecesof

technologysuchasphonesandlaptopsthatareissuedtogovernmentemployees.Similarly

itisdesignedoncuttingbackontheamountofofficialtravelaswellasitemsthatare

viewedasfrivoloussuchasmugsort-shirts.

PresidentObamasuggestedthathebegiventhepowertoconsolidateagencies.285

Presidentshadthesepowersfor52yearsuntil1984atwhichpointcongressremovedthis

provision.Thispowerwouldforcecongresstohaveanup-downvotethatwouldeither

approveorrejectthepresident’sproposalwithin90daysoftheproposal.Thisisa

delegationandaffectsotherdelegations.Thepowerthepresidentrequestscurrently

resideswithcongress.Obamaanalysisofthisdelegationwasthatitallowed.Hestatedit

thusly,“CongressfirstgrantedthisauthoritytopresidentsinthemidstoftheGreat

Depression,sothattheycouldswiftlyreorganizetheexecutivebranchtomeetthechanging

needsoftheAmericanpeople”286Ifthepresidentcanreshufflethebureaucracythen

powersdelegatedtoagenciescanbechangedbythepresident’sactions.Thepresident

wantedtousethispowertoconsolidateanumberofagenciesthathearguedwouldgetrid

ofduplicationandwouldmakethegovernmentmoreefficientandstreamlined.Heinitially

proposedconsolidatingsixagencies:theCommerceDepartment,Export-ImportBank,the

OfficeoftheU.S.TradeRepresentative,theOverseasPrivateInvestmentCorporation,the

SmallBusinessAdministration,andtheTradeandDevelopmentAgency.Theestimation

284ExecutiveOrder13589285Nakamura,DavidandEdO'Keefe.“ObamaSeeksMorePowertoMergeAgencies,StreamlineGovernment”.WashingtonPost.January13,2012286Klein,Ezra.“ReorganizingGovernment,RecapturingExecutiveAuthority,andCriticizingCongress:TheHighlightsfromPresidentObama’sSpeech”TheWashingtonPost.January13,2012.

180

fromtheadministrationisthattheconsolidationwouldallowacutin1,000-2,000jobs,

whichwouldsavearound$3billionoverthedecade.287Thisconsolidationwasashufflingof

thestructureoftheseorganizationsandbychangingthestructureitcanchangethe

resultingpoliciesandpreferences.Forinstance,theOfficeoftheUnitedStatesTrade

RepresentativeiscurrentlyundertheExecutiveOfficeofthePresidentoftheUnitedStates

andthushasagreatdealoffreedomfromcongressionalactions.FurthermoretheUnited

StatesTradeRepresentativeiscurrentlyacabinetlevelposition,butafterthereshuffleonce

thetraderepresentativewillbeundertheheadofthenewagencyandthusmayeventually

nolongerbeacabinetlevelpositiondespitePresidentObama’sassurancesthathedoesnot

intendtochangethis.Thischangeinstatureofthepositionwouldaffecttheamountof

powerthattheorganizationhasandwouldeffectivelydeemphasizetheprojectoftrade

liberalization.ItwouldalsocomplicatetheUSTR,whichisalreadyaverysmallstreamlined

organization.Inpartthisrequestwaslikelytoclaimthepopularpositionofcutting

expensesandmakinggovernmentmoreefficientthattheRepublicanshadpreviouslybeen

championing.Thusaskingforandusingthispowerwouldbelargelyapoliticalactionas

wouldcongressgrantingthepower.Theadministration’spositioniswellsummedupbythe

DeputyDirectorforManagementandChiefPerformanceOfficerattheOfficeof

ManagementandBudgetwhenhestates,“Thegovernmentwehaveisnotthegovernment

weneed.ThelastreorganizationofthewholegovernmentwasdonebyHerbertHoover.

Sincethen,agencieshavebeenlayeredontop.”288TopushforthispowerPresidentObama

implicitlycomparedthegovernmenttoaninefficientcompanywhenhesaid,“Thisisthe

samesortofauthoritythateverybusinessownerhastomakesurethathisorhercompany

keepspacewiththetimes.”Hefurtheraskedforthisdelegationbymakingtheclaimthat

hewilluseitwellandthuswillbeself-policing.Tothisendhestates,“Letmebeclear,Iwill

onlyusethisauthorityforreformsthatresultinmoreefficiency,betterservice,andaleaner

government.”289

287NakamuraandO'Keefe.2012.288Tau,Byron.ObamaSeeksNewPowertoMergeAgencies.Politico.com.January,132013.289TheWhiteHouseOfficeofthePressSecretary.“RemarksbythePresidentonGovernmentReform”January13,2012.https://www.whitehouse.gov/the-press-office/2012/01/13/remarks-president-government-reform

181

HisproposalsuggestedmakingtheSmallBusinessAdministrationacabinetlevel

agency,whichwouldgiveitmoreprominence.Thischangewouldimplyadministration

supportforandemphasisonsmallbusinessandthisisnearlyuniversallyapprovedof.

Bygivingthepresidenttheinitiativetoinitiallyproposewhattocut,hegains

considerableabilitytosettheagenda.Hewillfocusonissuesofinteresttohimandcut

fundstocertainareasheisnothappywith.Othergroupsofcoursewouldhavedifferent

priorities.Therightwingpaper,theWallStreetJournal,proposedconsolidatingthenation’s

47jobcreationprogramsasawaytocutoverlapandwastefulinefficiency.Thissuitedtheir

ideologyasthiscutprogramsthattypicallyarepopularwithliberalsandunpopularwith

conservativesandhadaconservativepresidentbeeninpowertheymightproposesucha

change.Obama,beingmoreleftwing,wasmoreinterestedincuttingtradeandcommerce

agenciesthatareapprovedofbyconservativeswhileliberalsarelesssureoftheirvalue.The

proposalitselfwouldnotgreatlyaffectthebudgetandthuswaslikelymoreofasymbolic

andpoliticalmoveratherthanamajorchangeinpolicy.Itwasalsonotbipartisanordone

incoordinationwithcongress.

Therestructuringhoweverdoesnotreflectwherethegovernmentisspendingits

efforts.TheCommerceDepartmentismanytimeslargerthananyoftheotheragencies

thatareproposedgettingmergedwithitbothintermsofemployeesandbudget.This

meanstheseotheragenciesareatriskofbeingsubsumedintothewholeandbeing

deemphasizedwhenthecommerceentityineffectbecomestheparententityinthis

merger.EventhoughNOAA,alargepartoftheCommerceDepartmentwouldbeshiftedto

theInteriorDepartmentundertheplan,theCommerceDepartmentstillwouldaccountfor

nearly90%oftheemployeesinthecombinedagency.Bycomparison,theagencywillhave

10timesasmanyemployeesastheSmallBusinessAdministrationwhichObamaproposes

makingaCabinetlevelagency.

Theseagenciesdohavecloselyrelatedfunction,butcurrentlyservedistinct

purposesandthushavebeenseparate.WhiletheCommerceDepartmenthandlesawide

numberofissuesandareasrelatedtocommerce,theExport-Importbankfocusesonthe

muchmorenarrowtaskofhelpingUSBusinessesexporttheirgoods,OPIChelpstheUSget

establishedoverseas,USTRtriestopushinternationaltradepolicies,thesmallbusiness

182

administrationhelpssupportandgrowsmallbusiness,andtheTradeandDevelopment

agencyfocusesonopeningemergingmarketsuptoUSexports

Ofcoursenotallproposalstodelegatepowersbecomelaw.Apieceofproposed

legislationthatdidnotpassthroughcongresswasaproposalforanationalinfrastructure

bank.ThisproposalwasproposedintheSenatein2007.ThefollowingyearthePresident

statedhissupportforthebillandithasreemergedanumberoftimessince,includingasa

componentoftheAmericanJobsAct,butithasyettobecomelaw.

Aneconomicsissuethatcongresslargelyhandleditselfwereprovisionsofthe

EconomicGrowthandTaxReliefReconciliationActof2001(EGTRRA)andtheJobsand

GrowthTaxReliefReconciliationActof2003(JGTRRA)whichtogetheraregenerallyreferred

toas“theBushtaxcuts”.Thetaxcuts,whichwerecreatedasatemporaryactwithasunset

provision,werescheduledtoexpireDecember31st,2010.Thisledtoseriousnegotiation

betweenbothpartiesasthatdateapproachtodeterminewhatstructurethecutsshould

be.Thethreealternativesweretoletthetaxcutsexpire,extendthemforsomelengthof

time,andmodifywhattaxratesarecutandpassthisnewtaxcut.Whilelettingthetaxcuts

expirewouldhavegonealongwaytowardimprovingthelongtermdebtproblemsthe

countryfaced.Duetotheshorttermfiscaldownturn,theDemocratswantedtokeepthe

taxcutsinordertostimulatetheeconomy.TheRepublicansmeanwhiletendtolikelower

taxesandsmallergovernmentandthusalsowantedtokeepthetaxesinplace.Inaddition,

neithersidewantedtobebrandedascausingthelargestsingleincreaseintaxesinthe

historyoftheUnitedStates.Thetemporarytaxcutwasinlargepartdesignedtobepassed

intolawinpartbecauseitwouldappeartobeacomparativelysmallcosthoweveritwas

alsodesignedsothatthoselaterwouldnotfinditeasytoallowittoexpire.Manyother

provisionswithyearlyadjustments,sunsetprovisions,anddonutholesaredesigned

similarlyforthisreason.UltimatelytheRepublicanstookthepositionthatthetaxcuts

shouldbeextendedintheircurrentformwhiletheDemocratssaidthetaxcutsshouldonly

beextendedforthosethatarenotrich.Withinayearoftheinitialtaxcutsbeingpassed,a

significanteffortwasputforwardtomakethetaxrebatespermanentandmultiplebillswith

thatgoalpassedtheRepublicancontrolledHouseofRepresentatives.Inpractice,they

wantedthetaxcutstoexpireonthosewhoseyearlyincomewasgreaterthan$250,000,but

183

wouldbeextendedforeveryoneelse.LaterafteralackofwillingnessoftheRepublicansto

accedetothisproposal,thecutoffwasraisedto$1,000,000.

PresidentBushpushedforthetaxcutpublicly.Inhis2003StateoftheUnion

speech,PresidentBushlaidoutplansfora$726billiontaxcut.Theproposalwasnot

popularwitheveryoneasmuchofthecutscomefromcutstodividendtaxesandthuswas

mostbeneficialtotherichandleastbeneficialtothepoorandthuswasnotpopularwith

someDemocraticlawmakers.Howeverthelargesizeofthetaxcutwasalarmingtosome

Republicanlawmakersthatwereconcernedwithbudgetdeficits.However,theeconomy

wasweakandthepresidentmadethecasethattaxcutswereneededtostimulatethe

economysaying,“Tocreateeconomicgrowthandopportunity,wemustputmoneyback

intothehandsofthepeoplewhobuygoodsandcreatejobs.”290Congressultimatelypassed

thetaxcut,butnottothesizethatthepresidentwanted.Therewerefuturetaxcutsin

2004astheelectionyearmadecutspoliticallybeneficialtobothparties.Theinitial

proposalhadtobecutbackinpartbecausethedemocratsdidnotwantBushtohavea

politicalvictory.291

TheRepublicanswantedthefocustobeonthisissueandall44Republicansenators

threatenedtostopallotherlegislationuntilthetaxcutissueshadbeenresolved.The

Republicanshadenoughvotestostopacloturevoteandtheywereabletousethesetoget

significantleverage.TheDemocratswereabletwicetogettheirproposalspassedthe

HouseofRepresentatives,butcouldnotgetthebillspassedtheSenateduetothe

coherenceoftheRepublicandelegationintheSenate.Afterthesetwofailedattemptsat

changingthenatureofthetaxcutandwithlessthanamonthtogobeforethecutswould

expire,thepresidentintercededandwasabletonegotiateadealwiththeRepublican

contingent.Throughouttheprocess,thepresidenthadassignedacouplekeyaids,the

TreasurySecretaryandtheheadoftheOMBtohelpnaildownacompromise.Thetaxcuts

wereextendedtwoyears.Aspartofthepackage,theAlternativeMinimumTax(AMT)was

adjustedsothatitwouldaffectlesspeople,theestatetaxruleswereadjusted,andsome

stimuluswasincluded.Thisallowedbothsidestogetsomethingofinteresttothemand

290Boaz,David.ThePoliticsofFreedom:TakingontheLeft,theRightandThreatstoOurLiberties.CatoInstitute.2008.Pg.131.291CQPress.CongressandtheNation2001-2004.Pg87.

184

wasabletopushoffthecontentiousissueagainuntilafterthe2014election.This

benefittedthepresidentsinceitmightsidetrackhisotherprioritiesandwasahighrisk.

WhilecongressultimatelyapprovedthedealandpasseditastheTaxRelief,Unemployment

InsuranceReauthorization,andJobCreationActof2010,292itcanbeviewedasasortof

delegationasthepresidentandhisadvisorslargelysteppedinandshapedthestructureof

thebillalongwithRepublicanSenators.Congressasabodywasgivenanagreementtovote

onthatwasessentiallyafaitaccomplithatcouldnotreallybealteredandthustheycould

onlyacceptorrejectthetreatymuchasthecasewithforeigntreatiesthatthepresident

negotiatesundertheprovisionsofFastTrack.

FollowingtheTARPlegislation,TheTreasuryDepartmentinjectedcapitalintoallthe

majorbanksinthebeliefthatmanybankswereallundercapitalized.Thebankswere

effectivelyforcedtoaccepttheadditionalcapitalinreturnforpreferredequity.However,

duringthecrisisthiswascheapcapital.TheTARPCongressionalOversightPanelestimated

thatthesecapitalinjectionsincludeda22%subsidytothebankingsector.293

4.2.8 Other Responses to Economic Crises

Thepresidentandcongressalsotookstepstodecreasethegovernment’scostsby

decreasingsalariesandbenefitsforgovernmentemployees.Thisincludesfreezingthepay

ofgovernmentworkersotherthanmembersofthemilitary,makinggovernmentworkers

paymoretowardstheirpensions,andmakingmilitaryveteranspaymoreforhealthcare

throughtheFederalHealthcaresystem.Thiswasarelativelypainlesscutpoliticallysince

freezingwagesdoesnotseemlikeadecreaseinsalarythoughwithinflationitwasa

decreaseinrealeconomicterms.Thedifferencebetweenastandardsalaryincreaseofa

littleover2%andnoincreaseisfarlessofagappsychologicallythanadifferencebetween

noincreaseanda0.1%decrease.Thissentimentofthepopulacehasaneffectonpolicy

formationsinceitaffectspublicsentiment.Governmentworkersarerelativelyeasytargets

292Pub.L.111-312293TARPCongressionalOversightPanel.FebruaryOversightReport:ValuingTreasury’sAcquisition.February6,2009.

185

forcutsasthereisaperceptionthatgovernmentworkersareoverpaidandunderworked.294

TheseperceptionswereencouragedbyRepublicans,whotypicallyprefersmaller

government.ThisperceptionalsohassometruthinthatFederalGovernmentemployees

earnfarmoreonaveragethanthetypicalAmericanworker.Alsothereisnotmuchinterms

ofgeographicaldistributionofgovernmentemployees.ThemajorityofFederalgovernment

workersliveinMaryland,Virginia,orWashington,D.C.,whicharepoliticallyrather

homogenous,andthussenatorsandthepresidentarenottooworriedpoliticallyabout

gettingreelectedandtheywillnotbethathurtbythisaction.

Stepsweretakentoprovideasafetynetsuchasextendingunemployment

insurance.Thiswasrelativelypopularwithvotersandsocongressenactedmanyofthese

changesthemselves.Otherstepstakenduringthedownturnweretostimulatethe

economyinthehopesofstabilizingitandhelpingitbegintogrowagain.Anexampleofa

policythatwasputinplaceforthissecondreasonwasacutinthepayrolltax.Byits

structurethisactshouldhelpputmoneyinthepocketsofthosethataremostlikelyto

spendit.Payrolltaxisarelativelyflatorregressivetaxandsoreturningmoneywillmean

mostofitendsupgoingtothosethatarerelativelypoorwhoweremorelikelytoneedthe

moneyandmorelikelytospendthemoneythantherich.Thishelpsensureadecent

multiplierforthatmoneythatwasreturnedtotheeconomyandthusthatitwouldhavea

biggereffectontheeconomythanotheractionswould.Thiswastemporarilycut,withthe

cutbeingequivalenttoanactwithasunsetprovision.Therewasenoughreasonto

convincelawmakerstoagreetoextendtheprovisionbasedonthecontinuingweaknessin

theeconomy.Thistemporarymeasureallowedthetopictobereaddressedratherthan

becomingapermanentchange.However,popularactionscancontinuedtobepatched

ratherthanfixedlongterm.Theextensionwasmorecomplexthanitcouldhavebeen

otherwiseastheRepublicanswhowerelessinfavorofextendingthisreductioninthe

payrolltaxaskedforconsiderationsinreturnfortheiracceptanceoftheirproposalandthey

wereultimatelyable.Amongthesewasadecreaseinthecostsoffederalpensions.Public

opinionhadalsobeguntomoveagainstcongressasawholeforbeingperceivedas

dysfunctionalandgridlocked.Thiswasanadditionalmotivatortogetcongresstoagreeon

294Richwine,Jason.“GovernmentEmployeesWorkLessthanPrivate-SectorEmployees”TheHeritageFoundation.Septermber11,2012.http://www.heritage.org/research/reports/2012/09/government-employees-work-less-than-private-sector-employees

186

adealsothatbothsidescouldbeseenasdoingthenation'sworkandeffectivelymanaging

thecrisis.

Thepresidentmadepolicybasedoncertainassumptionsandmodels,butcouldnot

beassuredoftheirvalidityandhadaneventoughertimeexplainingthemtothepublicor

congress.TheObamaadministrationreleasedpredictionsthatthestimuluswouldcreateor

preserveupto3.6millionjobsoverabaselineinwhichthestimulushadnotbeen

implemented.295AsjobscontinuedtobelostandtherewasanetjoblossintheUnited

Statesitwashardforthepublictoseeincreasingunemploymentandunderstandthatthe

stimuluswascreatingjobs.Thiswasnothelpedbythefactthatthejobscreatedorthose

thatweresavedduetostimuluscouldnotbecountedandoftenthecomplexstateofthe

economymadeitsoonecouldnotbedeterminedifajobwassavedduetostimulus.Since

thejobswerenotcountable,therewasnowaytoverifythatthesejobsweresavedor

created.Rathertheadministrationusedthemodelthatwasusedtopredictthejobssaved

andusedittosaythatitprovedthattheyweresaved.Thiswasatheoreticalapproach

ratherthananempiricalmethod.Thisisriskysincethemodelcouldwellbeoffwhichthe

administrationmodelofunemploymentcertainlywas.Thereweremillionsofjobslost

duringthebeginningsofthestimulus.BetweenOctober2007whentheTroubledAsset

ReliefProgramwassignedintolawandDecember2008,roughlyeightmillionjobslost

accordingtotheBureauofLaborStatistics.296Whiletherewasalagtimebetweenwhen

TARPandotherstimuluswerepassedandwhentheywouldbegintobeimplantedorbegin

tohaveaneffect,thetypicalviewofcitizensdoesnottakethisintoeffect.Thepopulation

alsodoesnottakeintoeffectthelongtermgrowthintheU.S.laborforcewhichrequired

significantjobcreationjusttokeepthepercentageofemployableAmericanemployedthe

same.Politicallyitwasintheinterestsofthepoliticians,andparticularlytheadministration

inpowerthatwillmostbeblamediftheeconomyisdoingpoorly,inpowerstopointout

thesefactorsandmanageexpectations.Unfortunatelyinacrisisthetimeframeofpeople

andthusalsothoseofpoliticiansareshortenedandthetendencyistofocusonthemore

immediatecrisis.Thisleadstochangesinhowstimulusisstructuredaswellashowto

approachlongertermissuestiedupwiththecrisis.Thepresidentinparticularmustbe

295Bozzo,Albert.“BadLaborMarketAGoodElectionBarometer”CNBC.September27,2010.296BureauofLaborStatistics.LaborForceStatisticsfromtheCurrentPopulationSurvey:SeasonallyAdjustedEmploymentLevelofthose16andover.http://data.bls.gov/timeseries/LNS14000000

187

awareofthissentimentinthissituationbecauseeventhoughhehasverylittlecontrolover

theeconomyinthepublicimaginationthepresidenthasextensivepowerstocontrolthe

economyandcaneffectchangequickly.Hethusgetsblamediftheeconomyisweak.This

isthereasonthattheClintoncampaignusedits“It’stheeconomy,stupid”sloganwhenhe

campaignedagainstGeorgeH.W.Bush.

TheunemploymentratewasfoundbytheBureauofLaborStatisticstobearound

4.7%inOctober2007whenTARPpassedandcontinuedtoriseforthefollowingmonths

untilitwasaround10%.297Theunemploymentrateisameasureoftheamountofthe

workforcethatislookingforajob,butiscurrentlyunemployed.Thismeasurement

excludesanumberofpotentialworkerssuchasthosethatare“under-employed”,those

thatareemployedatapart-timejobthatwantafull-timejob,andthosethathavegivenup

lookingforwork.ThusthemeasureusedbytheBureauofLaborStatisticsgreatly

understatedtheeffectsonworkers.Beforetherecession,theeconomywasinstrong

shape,beingnearfullemployment,andthusthecomparisonmadebyvoterswaseven

moreofastarkcontrastsincetheespeciallystrongeconomymadethesituationappear

worsethanitwouldotherwise.Unemploymentistypicallyviewedasalaggingindicatorso

itwilldropaftertheactualeconomyhadalreadybeguntosuffer.Inthecrisis,theratioof

theworking-agepopulationthatwasemployedtothatwhichwasnotemployedwasthe

lowestsince1947.Therewerealsovastdisparitieshiddenintheunemploymentrate.

Certaingeographicareashadafarhigherthantheaverageunemploymentratesandcertain

groupssuchasAfrican-Americansandmenalsowerewellaboveaverageandteen

unemploymentwasarecordhigh.WhileteensandAfrican-Americanstypicallyhavehigher

ratesofunemploymentthansocietyasawholethesealreadyhighratesofunemployment

increasedsignificantlyduringthecrisis.Policythatthegovernmentcreateswouldneedto

beawareandaddressthesedisparitiestobefullyeffectiveandmeettheneedsand

expectationsoftheirconstituencies.

Thehighunemploymentratehadmajordirecteffectssuchasincreasesinfederal

outlaysforsocialspendingandadecreaseintaxesreceipts.Therearealsofollowoneffects

suchaslessrevenueforbusinessesastheunemployedspendless.Thebiggesteffect

howeverisadecreaseintrustinthesystemandadecreaseinoptimismaboutthefutureof

297BureauofLaborStatistics.LaborForceStatisticsfromtheCurrentPopulationSurvey:SeasonallyAdjustedEmploymentLevelofthose16andover.http://data.bls.gov/timeseries/LNS14000000

188

theeconomy.Manyoftheaspectsofthecrisisalsoledtoadecreaseinconfidenceinthe

financialsystem,thepoliticalsystem,andabeliefofhowitwillaffectthem.Themodern

economicsystemispredicatedontrustandwouldgrindtoahaltwithoutfaithinthe

system.Banks,whichthrivethroughlendingorinvestingvastmultiplesortheirassets,

wouldnotbeabletolendortoavoidbankrunsandbankruptcy.Businesseswouldnotbe

abletogetfundsandavoidliquiditycrisis.Businesseswouldhavetocutbackon

investmentsandlayoffpeople.Moreindividualswouldlosejobsandtheirhousesthereby

exacerbatingthecrisis.ItwouldstopthedynamismoftheU.S.economy.Inaddition,these

allnegativelyaffectedtheU.S.stockandbondmarketswhichdecreasesthewealtheffect

whichinturndecreasesthetendencytospendandthusGDPaswellasweakeningthe

savingsheldbymanyandmakingittougherforindividualstostrugglealong.

Thisseverityofthecrisisledtoextraordinaryactions.ThepresidentandtheTreasury

Secretaryhavesignificantemergencypowersthatenablethemtodealwitheconomic

crises.MostofthesepowersinitiallycamefromDepressioneralegislation.Theseinclude

regulatorypowersoverbanksintheFederalReserveSystem.Muchofitspowerisinformal

powersandthepowertopersuademuchasthepresident’spowerorotheragencyheads.

Inlargepartitisuptotheadministratorofanagencytodefinetheirroleforthemselves.

Thepresidentalsotakeshisownviewofpresidentialpowersandwillassertpowersthatare

notdirectlylaidoutinthecongress.

Congressgivessignificantleewaytoagenciesduringacrisis.Congressoftenwanted

actiontakenonanissue,butcouldnottakeactionitselforevendelegatepowersinatimely

mannerduetointernalconflict,beingadjourned,politicalunpopularityoftheactions,or

otherreasons.DuringtheLehmanBrotherscrisis,theTreasurysecretarymentionedto

BarneyFrank,whowastheChairmanoftheHouseFinancialServicesCommittee,thathe

wantedadditionalpowerstowindresolvethecrisis.InthewordsoftheTreasurySecretary,

CongressmanFrank,“encouragedtheFedandTreasurytointerpretourexistingpowers

broadlytoprotectthesystem,saying‘Ifyoudoso,I’mnotgoingtoraiselegalissues.’”298

TheFedandTreasurywerethusabletoactquicklyunderpowerstheycouldassert

theyhad.Congressincomparisonwasslowtoact.ReformoftheHousingmarketand

GovernmentSponsoredEnterprisesthatwastherootcauseofthecrisisdraggedonasno

298Paulson.139.

189

quickreformsweremade.Congressisadeliberativebody.Inmanysituationsitcanbea

goodthingtoactinamoderated,levelheadedwayratherthanrushingintodecisionsthat

mayprovepoororillthoughtoutinthefuture.However,thisdoesmeanthatitsactions

areoftennotimmediateandGSEReform,whichwasamajorissueofdebatein2008,iswas

stilllingeringseveralyearslateraslawmakersdebatetheultimateshapeofthereformand

evenwhetheritshouldbeapiecemealreformormorecomprehensive.Thisslownesstoact

wasofcoursenotsolelyduetotheprocessesofcongress.Congressreliestoaconsiderable

extentontheadministrationandsotheybasedreformsoffofproposalssuchasthosein

Treasury’smandatedreport“ReformingAmerica’sHousingFinancemarket:AReportTo

Congress”whichwasissuedinFebruary2011.Thisleadstothecentralpointofthemanner

inwhichpolicyiscreated.Inthisinstance,itwasindirectresponsetothecrisisevenifnot

immediateintimetoitandreliedheavilyontheadministrationandagenciestoshapethe

publicpolicythateventuallycongresswouldformallyadoptalbeitwithsomemodifications.

TheTreasurypressedforsignificantnewpowersduringthecrisissuchastheability

tobuyequityinFannieorFreddie,atemporaryincreaseinthelineofcreditthatTreasury

wasallowedtoextendtothesetwohousingentities,andallowingtheFederalReserveto

getaccesstotheGSE’sfinancialdataasaconsultativeregulator.299Italsopushedfor

significantspendingpowerwithTreasuryheadPaulsonsaying,“Ifyouwanttomakesureit

isused,makeissmallenoughandit’llbeaself-fulfillingprophecy…Itwouldbeself-

defeatingtostartputtinglimitationsonaplan…Ithinkthatifyouhaveasquirtguninyour

pocketyoumayhavetotakeitout,”Paulsonsaid.Hecontinuedbysaying,“Ifyouhavea

bazookainyourpocket,andpeopleknowyouhaveabazooka,youmayneverhavetotake

itout.”300MuchofthesepowersthatwererequestedweregrantedintheHousingand

EconomicRecoveryAct(HERA)thatwasenactedJuly30,2008.

Thepresidentwasabletousehisvetoandinconjunctionwithhisparty,heisableto

forceconcessionstohisviewpoint.Forinstanceduringthecrisisbothsideswanted

agenciestohaveemergencypowerstosupportFannieandFreddieandthehousingmarket

ingeneral,howevertheDemocratswereinsistingonblockgrantstostateandlocal

governmentswhichwasdislikedbyboththepresidentandthevastmajorityRepublicansin

299Paulson.149.300Paulson.151.

190

theHouseofRepresentatives.301Ultimatelythepresident’spositionforcedtheDemocrats

agreedtostructuretheemergencypowerinawaythatdidnotincludetheseblockgrants.

BarneyFrankwrotethat,“Here,anotherimportantpointaboutourgovernment

mustbenoted:intimeslikethis,theinitiativeisinevitablyandinescapablywiththe

executivebranch.Congresscanrespondtorequests,modifythem,andinsomecases

refusetoact,butitisvirtuallyimpossibleforCongresstoinitiateactioninacrisisofthis

sort.”302Congresscouldhowevertakestepstoblockactionorcountertheadministration.

CongressmanFrankalsomadetheassertionthattheRepublicansinitially

understoodtheneedtogovernresponsiblyandaddressthecrisisinaconstructiveway,but

thatoncetheylosttheWhiteHouseandthecongresstheynolongerfeltcompulsion.

ThoughRepresentativeFrankwasintheopposingpoliticalparty,hiscommentswere

phrasedasmerelyapoliticalfactoflifepredicatedonthestructureofthepoliticalsystem

andthebalanceofpowerandsayingthathadthesituationsbeenreversedthatthe

Democratswouldactthesame.Frank’spointcanbeseenintheRepublicansrefusingto

raisethedebtceilingmuchasmanyDemocratshadwhenGeorgeW.Bushwasinoffice.

ObamahadvotedagainstraisingthedebtlimitwhenaRepublicanwaspresident,butonce

hebecamepresidentandwishedtoincreasethedebtlimithecharacterizedvotesagainst

themeasureasirresponsibleanddangerous.

Otherentitieswereinvolvedinthecreatingpolicyandrespondingtothecrisisas

wellsuchasNewYorkState’sSuperintendentofInsurance,EricDinallo.Becauseofthe

centralizationofmuchoftheU.S.financialindustryintheNewYorkCityarea,thestatelevel

agencyheledwastheregulatorforalargepercentageofthenation’sbondinsurers.There

wasnofederalregulatorfortheseentitiesandsopoliciesoremergencyactionstakento

dealwiththehugelossesofthisgroupofmonolineinsurersduetolossesincurredfrom

residentialmortgage-backedsecuritiesthattheyinsuredorfromcollateralizeddebt

obligationstheyinsuredthatwerebackedwithresidentialmortgage-backedsecurities.

SuperintendentDinallowasalsorequiredforcashstrappedinsurancecompany,American

InternationalGrouporAIG,toraisebyraising$40billionbysellingoffsubsidiaries.AIG,as

thelargestunderwriterofcommercialinsuranceinAmerica,wasasystematicallyimportant

financialentitythatwasseverelyundercapitalized.Theabilitiesofvariousfederalentities

301Paulson.146.302Paulson.XIX

191

toresolvethiscrisiswerelimitedandsotheyrequiredhelpatthestatelevel.TheFederal

ReserveBoarddeterminedthatitcouldnotlegallyacttoloanmoneytoAIGbecauseitwas

notabank.303

Inaddition,otherentitiesfromtheprivatetradeassociation,InternationalSwaps

andDerivativesAssociation,totheUK’sFinancialServicesAuthorityplayedsomesortofrole

inresponsetothecrisis.Inaddition,severallesserknowngovernmentagenciesplayeda

part.Forinstance,OFHEO,theregulatorforFannieandFreddie,negotiatedadealtoget

themtoraisemorecapitalinreturnforareductioninasurchargethatOFHEOhadplaced

onthesetwoGSEs.

TheunwindingofGlass-Steagelandthegradualderegulationhadleftapatchworkof

regulatoreachwiththeirownrulesandpowers.Thiscausedproblemsincasessuchas

LehmanBrotherssincetheSecuritiesandExchangeCommission,whichregulated

investmentbanks,lackedtheauthoritytotakeoveroneofthesebanksandwinddownthe

bank.Thispowerhoweverwasavailableforcommercialbanksandthispowerallowedtheir

regulator,theFDIC,theabilitytominimizethenegativeeffectsandminimizethethreatof

majorfinancialhavoccausedbythefailureofoneoftheseentities.

Thenew,updatedregulatoryframeworkwasdesignedtodealwiththesystematic

weaknessesoftheprevailingsysteminordertominimizethechanceofasimilarcrisis

occurringagaininthefuture.Itwasputtogetherthroughahodgepodgeofcompetingplans

andrecommendationsthatthroughthepoliticalprocessendedupshapingwhatchanges

actuallygotimplemented.Whileitisnoteasytodeterminethecauseofeachactionitis

clearthatmostofthesechangesweredueinlargeparttoactorsotherthanthecongress.

ProposalssuchastheTreasuryDepartment’sBlueprintforaModernizedFinancial

RegulatorySystemformedmuchofthebasisofthisreform.Likewiseagenciesstroveto

havechangesthattheylikedenactedandthwartthosethattheydidn’t.TheFedfoughtto

keepandexpanditsrole.304

Similarly,theconceptfortheTroubledAssetReliefProgramwasbroughttothe

congressfromtheTreasury.Whiletheagencykepttheinitialproposalbasicandleftmany

ofthedetailsandlegalesetocongresstodecidethemajorpartoftheplanwasalready

structuredbythetimecongressreceivedit.Inaddition,TARPitselfleftalmostfull

303Paulson.204.304Horwitz,Steven.“TheFed:FirefighterorArsonist?”U.S.News&WorldReport.May20,2013.

192

discretionoverwhattodowiththevastamountoffundsitentailedtotheTreasury.The

presidentwasalsoinvolvedonshapingTARPandmadesureithadcertainprovisionsashe

pushedforitsadoption.

HERA,whilebeinganactofcongress,actuallygavetheTreasuryDepartmentthe

abilitytodecidehowthegovernmentwouldaddressthecrisis.Containedinthislegislation

wasanimmensedelegationofpowerwhichallowedtheTreasurytospendfundinghowever

itthoughwouldbestimprovethefinancialsituation.Evenmoreunusualisthattheactwas

essentiallyablankcheckinthatitcontainednolimitontheamountoffundsthatthe

TreasuryDepartmentcouldusefortheseinitiatives.Rathertheonlypracticallimitationon

Treasury’sspendingpowerwasthenationaldebtceilingwhichaspartofthisactwasitself

increased$800billion.305

TheheadsofHUD,SEC,theFed,theTreasury,FDIC,andotherGovernmententities

workedinconjunctiononseveralbigissuesposedbythecrisis.Agenciesneededtowork

togetherandtheyfaceacoordinationproblemofworkingtofindasolution.Thisisanarea

wherethepresidentandkeystaffmemberssuchasthePresident’sChiefofStaffandthe

ExecutiveOfficeofthePresidentwereneededinteracttoachievedesiredaims.

Agenciesthatweredelegatedtooftenthenattemptedtostretchthedelegationto

allowthemtotakeactionsthatwerenotstrictlywithintheintendedscopeofthe

delegation.AnexampleofthisistheTreasuryDepartment’sbackstoppingofFannieMae

andFreddieMae’sdebt.TheyweregiventemporaryauthorizationendingDecember31,

2009tousegovernmentfundstocoverlossesatthesetwoentities,howevertheTreasury

Departmentinterpretedthedelegationasmeaningmerelythattheyhadthatdatetosign

anagreementwiththeseentities.Treasurystructuredtheseagreementsaskeepwell

agreementsthatwouldbeanopenendedcommitmentthatwouldcommitthegovernment

tocoverhundredsofbillionsofdollarsinlossesfarintothefutureandbeyondtheinitial

timeperiodauthorizedfordelegation.306

AnotheremergencypoweroftheTreasuryDepartmentistheExchangeStabilization

Fund.UndernormalsituationstheTreasuryandotheragencieshadlittlepowertofund

entities.HoweverinacrisistheTreasuryagencyhadsignificantpowersundertheGold

305Paulson.155.306Paulson.168.

193

ReserveActof1934.307TheExchangeStabilizationFundgavethepowertostabilizethe

dollarby“interveningintheforeignexchangemarket.”Theagencyonceagainhad

considerablepowertodeterminewhatwasacrisisandwhatactionscountasinterveningin

foreignexchangemarketsandwhatactionsmeetthegoalofstabilizingthedollar.Treasury

couldnotactunilaterally,butinsteadinordertoaccessthetensofbillionsofdollarsinthe

fundthepresidenthadtosignoffonit.308Treasury,withthesupportofthepresident,used

$50billiontoguaranteedepositsinmoneymarketfunds.Thiswasaresponsetothe

breakingofthebuckandtheworryinthefinancialmarketsthatthathadcaused.Whether

thisstrictlywasrequiredforthegoalofstabilizingthedollarorthisactionwastakenwitha

differentgoalinmindtheauthorityforitwasdeterminedbytheinterpretationofthe

presidentandtheTreasury.Thiswasclearlyanareawheretheadministrationhadgained

powerstosetpolicyapartfromcongress.Thiscanalsobeenseeninthe1994tappingofthe

EmergencyStabilizationFundduringPresidentClinton.InwhichtheDepartmentofthe

Treasuryandthepresidentusedthefundtosupply$20billiontoMexicotodealwiththe

MexicanPesoCrisisdespitethefactthatwhenthepresidenthadtriedtogetcongresstoact

directlyandgivethefinancialsupporttoMexicobypassingtheMexicanStabilizationAct,

congressvotedagainstjustsuchameasure.Themoneymarketguaranteewasmodifiedby

theinfluenceofSheilaBairwhoconvincedtheTreasuryDepartmenttoputdatelimitson

thefundsthatcanbeinsuredsothatitdidnotposeanunduerisktobankssincethere

wouldbelessreasonforpeopletoputmoneyinbankssincetheycouldputtheirmoneyina

moneymarketfundandbeprotectedandgetlargerreturns.Itwasunintended

consequenceslikethisthatfastlegislationriskedmissing.Allthedetailscouldnotbe

workedoutandtheconsequencesnotdeterminedthatquickly.Themoneymarket

guaranteeprogramwasannouncedSeptember19andwasopened10dayslater.309

TheFDIChadbeengivenauthoritytogivefinancialassistancetobanksandthriftsso

longastheassistancewaslesscostlythanliquidationandwindingdowntheentitywould

be.Howeverthisleastcostrestrictioncouldbesetasideifitwouldprotectthenation

againstsystematicrisk.TheFDICcouldnotunilaterallyacttovoidthisprovision,butrather

inadditiontotwothirdsoftheFDICboardofdirectors,itisalsorequiredtheapprovalofthe

307Pub.L.73-87.308Paulson.253.309Paulson.263.

194

TreasurySecretaryandtwothirdsoftheFederalReserveBoard.ThisallowedtheFDICto

giveassistancetoWachoviatohelpputtogetheradealforit.Intheactualcase,withspeed

beingimperative,thevoteswerenotevencollectedinthattheTreasurySecretarywasnot

evenaskedforhisacceptanceashewasoutoftheofficeandinsteadanAssistantSecretary

oftheTreasury,DavidNason,approveditinstead.310

TheFDIC,withinputfromotheragencies,puttogethertheTemporaryLiquidity

GuaranteeProgram(TLGP)toguaranteecertaintypesofunsecureddebt.Thiswouldbe

usefultomanylargefinancialcompanies.IthoweverwastiedtogetherwithTARP

investmentinandcapitalizationofthesecompanies.Thuscompanieswouldhavetouse

bothoftheseprogramsandwouldthussubmittotherestrictionsofTARPwhichincludethe

maximumcompensationthatexecutivescouldreceive,limitationsonthesizeofdividends

thatcouldbepaidforthenextthreeyears,limitsongoldenparachutepayments,andalso

changedthetaxtreatmentofyearlyincomesinexcessof$500,000.

TheFDICpushedaloanmodificationproposaltostopthoseinhousesfrom

defaultingwiththegoalofdecreasingthenationalforeclosurerate.Whilethesocalled

IndyMacProtocolFDICadministrator,SheilaBair,putforwardwasnotenactedbyGeorge

W.Bush,itwasforthemostpartadoptedbytheFederalHousingFinanceAgencyaswellas

theGovernmentSponsoredEnterpriseswhichitregulated,FannieMaeandFreddieMac,as

wellastheHopeNowAlliance,apublic-privatepartnershipthatwasdevelopedbythe

DepartmentsofHousingandUrbanDevelopmentandTreasury,andindividualfinancial

companiessuchasCitigroup.Thiswasnotaseffectiveatstoppingforeclosuresasmany

mayhavewished,butitpositivelyaffectedmillionsofindividualsandwasonceagaina

majorefforttakenalmostentirelybytheexecutivebranchdespitethefactthatthecongress

wasultimatelyabletopasstheHousingandEconomicRecoveryAct.

TheFDICalsocreatedtheTemporaryLiquidityGuaranteeProgramtoencourage

interbanklendingandthusallowedbankstobettermeettheirliquidityneeds.Laterthis

programwasextendedtokeynonbankcompaniessuchasGECapital,thefinancesubsidiary

ofindustrialgiantGeneralElectric.

Americaalsoworkedinconcertwithothernationstoaddresstheeconomiccrisis,

whichaffectedotherareas,suchasEurope,quitesignificantlyaswell.Anexampleofthis

310Paulson.315.

195

wastheOctober10thagreementcomingoutoftheG7financeministersmeetinginwhich

membernationsagreedtoabroadfivepointframeworkthatincludedtakingdecisiveaction

andusingallavailabletoolstosupportsystematicfinancialinstitutions,unfreezecreditand

moneymarkets,ensurethatfinancialinstitutionscanraisecapital,provideenoughdeposit

insurancetorestoreconfidenceandpreventbankruns,andtakeappropriatestepsto

improvethemortgageandsecuritizationmarketwhileimprovingfinancialtransparency.311

ThesesortsofagreementsareenteredintobytheTreasurySecretaryonbehalfofthe

nation,butdonotneedtoberatifiedbycongressandthusareanotherformofexecutive

powerthatcanbeusedincrises.Thoughgeneralinnature,thisagreementwasimportant

fortheUnitedStatesandtheworldandthisagreementwasdesignedtominimizethe

tendencyofbeggarthyneighboreconomicpoliciesinwhicheachnationtriestofurtherits

goalsindividuallyratherthancoordinatingwithotherstomakethewholeworldbetteroff.

PresidentBush’scommentsafterthemeetingshowtheimportanceofsuchagreements,“As

ournationscarryoutthisplan,wemustensuretheactionsofonecountrydonotcontradict

orunderminetheactionsofanother.Inourinterconnectedworld,nonationwillgainby

drivingdownthefortunesofanother.We'reinthistogether.Wewillcomethroughit

together.”312Thiswasanimportantpointbecausewithoutsuchagreementsnationsmay

lookattheirownindividualneedsandtakeactionsthatriskmakingthewholeworseoff.An

exampleistheFinancialServicesAuthorityintheUnitedKingdomwhoastheU.K.regulator

forCitigroupimposeda$6.4billioncashlockupthatprotectedinterestsofU.K.thoughata

costofgreatlyreducingliquidityandgreatlyincreasingthechancethatCitigroupwouldfail

anddamagetheglobalbankingsystem.313

Congresswasalsoatriskoftakingactionthatmightmakethecrisisworseby

focusingonitsowngoals.Lookingatthewordsofindividualmembers,itappearscongress

temptedtoplaypopulistmessagesanddemonizethebanksthoughthiswouldhaverisksof

causingthesituationtogetworseasitcouldstigmatizeprogramsthataresetuptohelp

financialsystemssincelimitationsoncompensationanddividendswouldbeunpopularwith

executivesthoughitwouldscorepointswithmembersofcongress.Likewise,placingblame

311G7.“G7FinanceMinistersandCentralBankGovernorsPlanofAction.”Washington,DC.October10,2008.312Jackson,David.“BushVowsCoordinationwithWorldPowersonFinancialCrisis”USAToday.October12,2008.313FinancialCrisisInquiryCommission.FinancialCrisisInquiryReport.380.

196

andhavinghearingsandotherbackwardlookingactionscouldbepopularwithpeople,but

wouldtakefocusoffofhowtoimprovethecurrentsituation.Congressalsoisgiven

additionleverageduringacrisisandcangetawaywithactionswithoutlookingatcostsor

howtoallocatescarceresources.ThuscongressgetsthecreditforprogramssuchasCar

AllowanceRebateSystemalsoknownastheCashforClunkersprogramaswellassome

foreclosureprogramsthatwerepopular,butnotnecessarilyeffectiveincombattingthe

crisisconsideringthecostsoftheseprograms.

Evenmorecontentious,butmoreimportant,thantheCashforClunkersprogram

wasthebailoutoftheautocompanies.PresidentBushwasopposedtoanautobailouton

principal.Itwentagainsthisfreemarketconvictionsandhefeltthecarcompanieshad

broughttheirpoorstateofaffairsuponthemselvesthroughyearsofpoordecisionsas

opposedtoitbeingsolelycausedbyashocktothesystemrelatedtothehousingcrisis.Nor

didhewanthislastmajoractinofficetobeabailout.314Likewiseothersinthe

administrationsuchastheTreasurySecretaryopposedtheautobailoutaswell.However,it

becameclearthatifalargeautocompanywentunderitwouldmakethecrisismore

pronouncedandincreasesuffering.PresidentBushthusannouncedaplantouseTARP

fundstohelpsupportthethreemajorU.S.carmanufacturersfrombankruptcy.315Thiswas

anexecutiveactionthoughthedemocraticallycontrolledhouselargelyvieweditpositively

withtheminorityRepublicansopposedtoit.However,apriorattemptofcongresstoenact

anautobailoutwasunsuccessful.316Theautobailoutincludedaloanof$9.4billioninTARP

fundstoGeneralMotorswithanadditional$4billioninloansifcongressreleasedtherestof

theTARPfunds.Whiletheloansprovidedsignificanthelptothecarmanufacturers,the

helpwasstructuredinsuchamannerastokeepthepressureontheseorganizationsto

changeandbecomemorecompetitive.Inordertoensurechange.theexecutivebranch

addedprovisossuchasthatthecarcompanieswouldwithinacouplemonthshaveto

submitproposalsonhowtorestructureandwouldhavetomeetcertaincriteria.Ifthe

criteriawerenotmet,thegovernmentcouldcollectontheloan.Thiswouldalmost

assuredlypushGeneralMotorsintobankruptcyandthusthisgavethegovernment

314Paulson.Pg424.315Allen,MikeandDavidRogers.“BushAnnounces$17.4BillionAutoBailout”Politico.December19,2008.http://www.politico.com/story/2008/12/bush-announces-174-billion-auto-bailout-016740316Herszenhorn,DavidM.andDavidE.Sanger.“SenateAbandonsAutomakerBailoutBid”NewYorkTimes.December11,2008.

197

tremendousleverageoverthecompanytoensurethatGMtooktheappropriateactionsas

viewedbythegovernment.Thisalsoallowedtheoutgoingadministrationtoputinplacea

frameworkthatcouldconstrainboththecompany’sactionsandeventhoseofthenext

administration.

Anotherunpopularpositionthatwastakenduringthecrisiswasthegovernment

acceptingashareoflossesfromBankofAmerica’sacquisitionofMerrillLynch.Thisallowed

thedealtobeconsummatedandMerrillLynchwassavedtherebyavoidingasituationthat

wouldhavefurtherweakenedtheeconomy.Thishoweverwasanactionofthe

administrationratherthancongressorthepresidentandthusdidnotreceivemuchmedia

attentionorleadtocriticismofthoseinpower.

OnDecember6,2007,inresponsetothecrisisthepresidentoutlinedaproposalto

freezeinterestratesforfiveyearstherebyminimizingthedamagethatARMsweredoingto

homeaffordabilityforthosewiththatclassofloan.317ThisHOPENowinitiativewas

generallycriticizedasbeingineffectiveandpoorpolicy.318Thiswasinpartbecauseitwasa

comparativelyminorfixforthemajormortgagecrisisthatultimatelyunfoldedandbecause

therewereminimalpotentialbenefitstohomeownersundertheproposalsinceinterest

ratescontinuedtofallthroughoutmuchofthecrisisastheFedcutitsinterestrates.Thus

ARMsthatwouldhavebeenresetwithoutHopeNowwouldnothavegoneupmuchor

beenthatbigaburdenonborrowers.

Therewerenumerouspublic-privateresponsestothiscrisissuchaswhenthe

Treasuryagencyandotherfederalagenciesworkedtoensurethataprivatedealcouldbe

reachedtorescueBearSternsfrombankruptcywiththeTreasurytakingonsomeoftherisk

posedbyBearStern’sassetstoensureadealcouldbereached.Anotherexampleisthe

creationoftheMasterLiquidityEnhancementConduit,aproposedmechanismforhelping

StructuredInvestmentVehicleswhichwerestrugglingtofindfundingandwhichitwas

worriedwouldbeforcedtosellAssetbackedSecuritiesatbargainbasementpriceswhich

wouldthenexacerbatethecrisis.TheMasterLiquidityEnhancementConduit,which

allowedtheseSIVstoselltheirilliquidassetsandcreateamarketandhelpestablishprices

317Crutsinger,Martin.“BushMortgagePlanWillFreezeCertainSubprimeInterestRatesfor5Years”MemphisDailyNews.December6,2007.318Immergluck,Dan.“TooLittle,TooLate,andTooTimid:TheFederalResponsetotheForeclosureCrisisattheFive-YearMark”HousingPolicyDebate.Vol.23,Iss.1.2013.

198

fortheseassets,wasputforwardandpromotedbytheTreasuryAgencythoughtheactual

implementationwaslefttoprivatebanksandneverfullycametofruition.319

TheFedintroducedtheTermAuctionFacility(TAF)inDecember2007toincrease

fundingforthebankingsystembyauctioningcollateralizedloans.320Theprogramlargely

helpedU.S.branchesforeignbanks.Duetothewaythiswouldbeviewedpolitically,the

Fedandadministrationdidnotwishitknownthatthebulkofthemoneywenttosupport

foreignbanksandsotheymadesurethisremainedsecret.

4.2.9 Other Governmental Actions

InresponsetothelargedebtsofGSEs,thegovernmenttookoverFannieMaeand

FreddieMac.Thiswasamajormoveastheseentitieshadtrillionsofdollarsontheir

balancesheetsandtogetherhad11,000employees.Thesetwocompaniesrackedup

potentiallyhugelossesthattheUnitedStatesgovernmentwouldultimatelyberesponsible

forpaying,whereasanygainswouldhaveaccruedtoshareholdersandthustherewasan

asymmetrythatledtosystematicrisksbeingignored.Yetdespitethestructuralproblemsof

theseorganizations,theywereessentialforawell-functioninghousingmarket.Asthecrisis

unfolded,thehousingfinancemarketbecamelessfluidandpotentialpurchasersofhomes

hadmoretroublefindingfinancingfortheirpurchases.Thishousingcrisisthreatenedto

spreadintotherestoftheeconomyandthreatenthestrengthandstabilityoftheeconomy

ingeneralwhichthegovernmenthopedtoforestallwiththeirextraordinaryactions.Inthe

wordsofTreasurySecretarywhenannouncingthegovernmenttakeoverofthesetwo

agencies,"Oureconomywillnotrecoveruntilthebulkofthishousingcorrectionisbehind

us,FannieMaeandFreddieMacarecriticaltoturningthecorneronhousing."321

PriortothefederaltakeoverofGSEsPaulsonhadrequestedfromcongressthe

abilitytousemoneytosupportFannieMaeandFreddieMacandcongresshadapproved

319Enrich,DavidandDiyaGullapalli.“BanksAbandonEfforttoSetUpBigRescueFund”TheWallStreetJournal.December22,2007.320Weinberg,John.“FederalReserveCreditProgramsDuringtheMeltdown”FederalReserveHistory.http://www.federalreservehistory.org/Events/DetailView/70321PaulsonJr.,HenryM.“StatementbySecretaryHenryM.Paulson,Jr.onTreasuryandFederalHousingFinanceAgencyActiontoProtectFinancialMarketsandTaxpayers”U.S.DepartmentoftheTreasuryPressRelease.September7,2008.https://www.treasury.gov/press-center/press-releases/Pages/hp1129.aspx

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thisrequest.322Thisactionwasnotapprovedofbyall.ArmandoFalcon,theformerheadof

OFHEOandonethatbegananearlyinvestigationoftheagencies’actions,describedthe

governmenttakeoveras,“ashareholderbailoutfinancedbytheU.S.taxpayers”.323Mr.

Falconisreferringtothefactthatbytakingthisactionthosethatheldthedebtofthese

companieswasbackedupbytheUnitedStates’government.Thissecuredtherightsof

AsiancentralbanksandotherdebtholdersandatapotentiallyhighcosttoU.S.taxpayers.

Thiswaspopularwiththosethathadtheirinvestmentsshoredup.ABankofChina

spokesman,WangZhaowen,statedhissupportforthisU.S.actionbysaying,"Wethinkit's

averypositiveactionbytheU.S.Ithascomefrombeinganinvisibleregulatorandto

comingtothefrontlinestosavethemarket".324ThoseattheTreasuryDepartment

discussedtheiractionswithmajorholdersofdebtinsuredbythesetwoentities.Leadingup

tothisactionthoseattheTreasurygathereddataandopinionsfromthesestakeholdersand

alsotookstepstoreassurethemabouttheaction.Whenthegovernmenttookcontrolof

theseentities,theyalsoaffectedtheactionsoftheseagenciesbyappointingnewheadsfor

theagencies.TreasurySecretaryPaulsonproposedtheideaofacashinfusionortakeover

ofFannieMaeandFreddieMactothepresidentduringanAugust28OvalOfficemeeting

withthePresidentandsenioradministrationofficials.Hewasgivenapprovaltocontinueto

pursuetheplan.ThustheDepartmentoftheTreasuryactedasanagentandthepresident

inpartactedasaprincipal.Paulsonworkedwithseveralothermembersofthe

administrationtodrafttheplananddeterminethedetails.TheheadsofFannieMaeand

FreddieMac,DanielH.MuddandRichardSyronrespectively,wereinformedthatthe

organizationstheyheadedwerebeingtakingover,butthoughtheydidnotapprovethere

waslittletheycoulddotothwarttheadministration’sintentions.

Thetakeoverofthesetwoagencieswasnottheonlysteptakenbythegovernment

toshoreupthehousingmarket.Concurrentwiththetakeoverofthesegovernment-

sponsoredenterprises,thegovernmentannouncedaprogramtobuyupto$5billionworth

322TheAssociatedPress.“GetOnIt,Congress!Treasury’sPaulsonSaysSpeedCrucialonFannie,Freddie”NewYorkDailyNews.July22,2008.http://www.nydailynews.com/news/world/congress-treasury-paulson-speed-crucial-fannie-freddie-article-1.349158323Irwin,NeilandZacharyA.Goldfarb.“U.S.SeizesControlofMortgageGiants”TheWashingtonPost.September8,2008.324IrwinandGoldfarb.September8,2008.

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ofmortgagebackedsecurities.Thisactionwasdesignedtosubsidizemortgagesand

improvetheliquidityofthemortgagemarket.

TheFederalReservehadintervenedtokeeptheeconomyonsolidfootingwhen

BearStearnswasfacedwithsignificanteconomicchallengesandhadintervenedwhenfaced

withtheweaknessofFannieMaeandFreddieMac.However,inordertoavoidsettinga

precedentandenshriningmoralhazardinplace,neithertheFednortheTreasury

DepartmentintercededwhenLehmanBrotherswasonthepointoffailuretokeepthe

majorfinancialcompanyviable.TheFeddidhowevertakestepstocushiontheblowwhen

LehmanBrothersdeclaredbankruptcysuchasannouncingnewlendingproceduresthereby

decreasingthechancesthatthefailureofoneofthenation’slargestinvestmentbanks.The

Fedalsotookseveralotherextraordinarystepssuchaslending$85billiontoAmerican

InternationalGroup(AIG).325Thishelpedtokeepthecompanyafloat.Inreturnforthis

loan,thegovernmentreceivedalmost80%ofAIGstock.Shortlyafterthatmove,the

FederalReserveworkedinconjunctionwithcentralbanksfromEurope,Canada,andJapan

toprovideupto$180billiontolendersinthosecountriessothattheycouldprovideloans

andliquidityandstabilizetheeconomy.326

TheFederalOpenMarketCommittee(FOMC)hadpriortothisbeendelegatedthe

authoritytooverseethenation'sopenmarketoperationswhichenablestheFOMCto

effectivesetthemonetarypolicyforthenation.ThisFederalReservecommitteeusedits

controloverinterestratesandthemoneysupplytohelpstimulatetheeconomyand

mitigatetheliquiditycrisisinthemarkets.Whilethispowerwasnotspecificallydelegated

forthiscrisis,thisauthorityhadbeendelegatedandwasusedtodealwiththiscrisis.Many

ofthesesamepowershadbeenusedtorespondtopreviouscrisesincludingtheGreat

Depression.

Therewereahandfulofexecutiveordersissuedbythepresidenttodealwiththe

financialcrisis.InoneweekObamacreatedatinitiativetospurjobgrowthforveterans

throughtheuseoftargetedtaxcredits,healsopushedforstudentloanreliefinorderto

325Andrews,EdmundL.,MichaelJ.deleMercedandMaryWilliamsWalsh.“Fed’s$85BillionLoanRescuesInsurer”TheNewYorkTimes.September16,2008.326Saltmarsh,MatthewandKeithBradsher.“FedOffers$180BillionforAilingMoneyMarkets”TheNewYorkTimes.September18,2008.

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decreasethelongtermburdenofcollegeloansongraduates,aswellasmakingregulatory

efficiencychangesforsmallbusinesses.

Aninstanceofdelegationthatwasusedtodealwiththecrisiswasanemergency

assessmentof20basispointsassessedbytheFederalDepositInsuranceCommittee(FDIC).

Thiswasusedtorecapitalizeaninsurancefundthathadnearlybeenexhaustedduetoa

largenumberofbanksfailuresduringthedownturn.

Inaddition,theFDICalsocreatedtheTemporaryLiquidityGuaranteeProgramwhich

wasdesignedtoinsureseniorunsecureddebtissuedwithinagivendaterangetoentities

thatmeetcertaincriteria.327SimilartotheactionsoftheFDIC,theFarmCredit

Administration,whichoverseesagriculturalcreditorganizations,alsotooksimilaractions

duringthefinancialcrisisforagriculturalcreditorganizations.

Anotherpieceofdelegationthatplayedaroleinthecrisiswasthedelegationofthe

creationofaccountingrulesandacceptedpracticestotheFinancialAccountingStandards

Board(FASB),anonprofitentityinitiallycreatedbytheSecurityandExchangeCommission.

FASBissuedStatementsofFinancialAccountingStandardsNo.157requiringinstitutionsto

marktomarket.Thatistosaythatthevaluetheycanclaimforassetsontheirbalance

sheetsmustequalthefairmarketvaluethattheassetcanbesoldforinthecurrentmarket.

Thiswasdesignedtodealwithapriorcrisis,butthisledtoaweakeninginthebalance

sheetsofnumerousfinancialcompanies,whichinturnexacerbatedthecrisisasit,caused

companiestofaceashortfallofassetstoliabilities.Whilethemagnitudeoftheeffect

causedbythisrulechangehasbeengreatlydebatedtherearemanywhofeelthatthiswasa

majorcontributor.AnexampleofthisisWilliamIsaac,theformerchairoftheFDIC,who

airedthiscriticismbysaying,“TheSEChasdestroyed$500billionofbankcapitalbyits

senselessmarkingtomarketoftheseassetsforwhichthereisnomarkingtomarket,and

thathasdestroyed$5trillionofbanklending.That’samajorissueinthecreditcrunch

we’reinrightnow.Thebanksjustdon’thavethecapitaltostartlendingrightnow,because

ofthesehorrendousmarkdownsthattheSEC’sapproachrequired."328Inresponseto

concernsabouttheeffectofthemarktomarketrule,FASBhasfasttrackedarevisioncalled

327Bovenzi,John.InsidetheFDIC:ThirtyYearsofBankFailures,Bailouts,andRegulatoryBattles.JohnWiley&Sons.2015.Pg.191.328Sopelsa,Brooke."FormerFDICChairBlamesSECforCreditCrunch".CNBC.October9,2008.

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StatementsofFinancialAccountingStandardsNo.157-dthatwouldrectifythischange.

Section133oftheEmergencyEconomicStabilizationActof2008requirestheSECin

conjunctionwithTreasuryandtheFedtoinvestigatetheeffectsofthemarktomarket

accountingruleandsection132oftheactgivestheSECauthoritytosuspendtheruleifit

believesthatdoingsoisinthepublicinterest.

TheFederalReservecreatedseveralprogramsdesignedataddressingareasof

economicweakness.TheCommercialPaperFundingFacilitywasdesigntoincreaseliquidity

inshorttermmarketsandtherebyincreasetheamountandavailabilityoffundingfor

householdsandbusinesses.329ItwastheFed’sfirstprogramfocusingonthecommercial

papermarket.Theprogramwasdesignedtopurchasecommercialpaperfromfirms.Itdid

nothavemanyrestrictionsonthefirmsitwouldbuyfromandwasusedbyseveralnon-

financialfirmssuchasHarley-DavidsonandMcDonaldsaswellasbyfinancialcompanies.It

alsoallowedforeigncompaniestoleveragethisprogramandUBS,Dexia,andBarclaysalone

accountedformorethan$160billionofthe$738billionthatwasloanedoutunderthis

program.

OnNovember2011,thepresidentannouncedaseriesofinitiativeshereferredtoas

"WeCan'tWait"campaign"whichwasdesignedtogetjobsforveterans.330Thiswasnota

particularlywelldesignedprogramintermsofdecreasingunemployment,howeveriswas

politicallyverypopularandcouldmaketheadministrationappeartobepro-veteranand

workingtocreatejobs,whicharebothimportantimagestofosteratthistime.Thefirstof

theseinitiativesistheReturningHeroescreditwhichtheWhiteHouseispushingandwhich

wouldappliestoallveteransnotjustrecentveterans.AnotherprogramistheVeteranGold

Cardwhichprovidesthosethatservedsince9/11aseriesofjobtoolsandcareersupport.

ThefundingcamefromfundsalreadydedicatedtotheDepartmentofLaborandthusthe

presidentisabletosidestepcongress.Fromthepresident’sstandpoint,ifhecantie

employmentsubsidiestoapopularissuesuchassupportingU.S.veteransitcanhelphim

getalawpassedandthushehasanincentivetopursueitthoughitmaynotbethebestor

mostefficientsolutiontotheproblem.

329Wallach,PhilipA.TotheEdge:Legality,Legitimacy,andtheResponsestothe2008FinancialCrisis.BrookingsInstitutionPress.2015.Pg.95.330Jackson,David.“Obama’sLatestExecutiveOrdersAffectVeterans”USAToday.October25,2011.

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However,historicallytaxbreakstargetedinreturnforthehiringofcertaingroups

arenotanefficientwaytobringdownthetotalnumberofunemployed.Ittypicallycreates

asubstitutioneffectratherthananadditiveaffect.Atthetimeoftheannouncement,the

unemploymentrateforveteranswasconsiderablylowerthantheunemploymentrateat

largeandsothegroupwasnotagoodcandidateforsegmentingtheunemployedand

providingbenefitstosome.However,thereareotherfactorsthanjusteconomicefficiency.

Policymaybecreatedtoincreaseequityorprovidebenefitsthatmayotherwisehelp

societysuchasallocatingfundsforconvictreformordrugtreatmentcenters,whichbesides

helpingthetargetedgroupmayprovidepositiveexternalities.

5. Results

5.1AbdicationHypothesisvs.DelegationHypotheses

Thiscasestudycanhelpusinvestigatewhethertheabdicationhypothesisorthe

delegationhypothesisismoreconsistentwiththeactionsofcongressduringthisperiodorif

theactualactionsofthegovernmentaresomewherebetweenthese.Thatistosaywhether

congressmakesitsdecisiontodelegatebasedonindividualpoliticalconsiderationsorin

ordertoyieldbetterpublicpolicythancouldbeachievedbycongress.Congresstook

numerousactionsduringthisperiodtodealwiththecrisis.Bylookingattheprobable

causesofcongress’actionsandthespecificsoftheexamplesofcongressionaldelegation

onecanhelpseeiftheactionsaccordwithonehypothesisortheother.Itcanbedifficultto

definitivelydeterminewhatarethemotivationsofindividualmembersofcongressorof

congressasawhole.However,bylookingatgeneraltrendsandlookingattheactionsof

lawmakersastheactionsofrationalactors,thispaperwillattempttocomeupwithsome

reasonableexplanationsfortheiractions.

Bytheirnaturecrisescanhaveaprofoundeffectuponthewellbeingofanation.

Thereisanoptimisticbeliefbysomethatmembersofcongresshaveadesiretotake

positiveactionsanddowhattheyseeasrightdespitesignificantresearchhasreportedto

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showthatcongressmenfirstandforemostgoalistobereelectedwithsecondarygoalsof

gainingmorepower.Thisviewsaysthatthedesireforpowerandreelectionarenotthe

solemotivationswhycongressmenrunforofficeandservetheirterms.Thedesireof

membersofcongresstobeelectedinpartisduetoadesiretodowhattheyfeelisgoodfor

thenation.Inacrisis,thereisacalltodowhatmattersandmembersofcongresswillin

thesepivotalmomentsbemoredrawnthannormaltodoanimportant,muchneededactas

opposedtofocusingsolelyonreelectionorfeatheringtheirnest.Highmediascrutiny

accentuatesthisphenomenon,butinpartitisalsoduetotheconceptofcivilserviceanda

wishtohonortheirpositionanddoagoodjob.

Boththosethatsubscribetotheabdicationhypothesisandthedelegation

hypothesisascribethedecisiontodelegateonarationalstrategicchoice.Wheretheydiffer

ishowtheprincipalgainsbydelegation,butbothhypothesesviewthedecisionofwhether

todelegateasastrategicdecisionthatisusedtofurtherthegoalsoftheindividualsor

bodiesdelegatingpower.

Boththeproponentsoftheabdicationhypothesisandthedelegationhypothesisalso

agreethatcongressionaloversightofthebureaucracyisminimal.Thisconcurswiththe

actionsofcongressduringthisperiod.Thedifferencebetweenthesetwohypothesesisthat

thedelegationhypothesisassumesthatcongressstillmaintainscontrolofthe

administrationduetoitspowerssuchasappropriationanditspowertoappointagency

heads.

Delegationwasverywidelyemployedbycongressduringthisperiod.Thequestion

becomeswhetherthisdelegationwasusedbycongresstoavoidmakingdifficultpolitical

decisionsthatwouldhurtmembersofcongresspoliticallyorwhetheritwasusedby

congresstoensurethatbetterpolicyiscreatedthanitwouldbeifitwaslefttocongressto

decide.KeyactsofdelegationintheDodd-FrankActincludetheregulationoftheconsumer

financeindustryandthedelegationofregulations

Differentlawmakershaddifferingmotivationsandinthecaseofmostlawmakersit

islikelythattheyhadmultiplemotivationsandsothisquestionboilsdowntodetermining

thepredominantmotivationofmembersofcongressasthiscanhelpdeterminewhat

congresswilldoandhowdelegationcanbeusedtoimprovethesituation.

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Accordingtothedelegationhypothesisoneofthekeyreasonsthatthelevelof

delegationwashighduringthisperiodwasthatpoliticiansdidnotwanttobeseenmaking

unpopulardecisions.Thetheorywouldexpectthatpoliticianswouldwanttodistance

themselvesfromdecisionsthatmanyfeltequatedtobebailingoutrichWallStreetCEOsat

theexpenseofthoseonMainStreet.Duringthisperiodthepublicwasveryfocusedon

politicaleventsandthisincreaseinsalienceofandinterestintheissuesmadeitparticularly

politicallydangerousforpoliticianstogoagainstthepublic’spopulismbypromotingpolicy

thatmightbegoodforthenation,butwhichdidnotplaywellonTV.Thiscanbeseeninthe

factthatTARPwasinitiallyvoteddown.Bydelegating,italsoallowedmembersofcongress

memberstorailagainsttheactionsofthegovernmentandtobeseenrepresentingtheir

constituentswhileatthesametimegettingthepolicythattheywant.Therewerecertainly

severalpoliticianswhosupportedgovernmentalactioninresponsetothecrisiswho

nonethelessspoketotheconstituentsoftheiroutrageabouttheactionsbeingtaken.This

useofdelegationisconsistentwiththeabdicationhypothesis.

Alongasimilarline,delegationminimizesuncertainty.Uncertaintyofhowthepolicy

wouldturnoutandhowpeoplewouldfeelaboutthepoliciesledtouncertaintyaboutwhat

actionstotakeorwhatbillsitisintheirbestinteresttobeseenopposing.Positiontaking

becomescomplicatedanddownsideriskincreases.Politiciansareinterestedinin

minimizingriskeveniftheyarenotfullyabletocapitalizeontheupsideiftheyhappento

selectapolicythatendsupbeingpopular.Thuspoliticallyitmakessenseformost

politicianstodelegatetoavoidtheserisks.

Manyofthedecisionsmadeinresponsetothecrisisbygovernmentalagencieswere

veryunpopular.Itstandstoreasonthatthesepolicieswouldalsohavebeenveryunpopular

hadtheybeenmadebycongress.Decisionstousepublicmoneytobailoutstruggling

banks,cuttingspendingoncertainprograms,proppingupfailingautomakers,bailingout

thosewholostmoneyontheirhomewouldallhavehurtpoliticians’politically.

Manyactionsofcongressseemconsistentwiththeabdicationhypothesis.Actsof

delegationwerelargelyconsistentwiththeexpectationthispaperhasinwhichcongresswill

trytoavoidtoughpoliticaldecisions.Duringthisperiod,congresspassedveryfewbills

relatingtothefinancialcrisisandthosethatitdidpassprimarilydelegatedpowertothe

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administrationandbureaucracy.Asthepoliticalenvironmentmadenecessaryresponses

suchasfinancialsupportforthefinancialindustryveryunpopular,thislackofdirectaction

bycongresswouldseemtogoalongwiththeexpectationsthattheabdicationhypothesis

wouldpredict.Conversely,Congressismorewillingtopasspopularbillsthatgivebenefits

toconstituentsandarebroadlypopular.Theonlymajordirectlegislationduringthisperiod

thatdidn’tdelegatethemajorityofthedecisionwastheEconomicStimulusActof2008.

DuringthisperiodtheFederalHousingFinanceAgencywasgiventhepowertolower

thegoalslaidforthbycongressonFannieMaeandFreddieMac.Thesegoalsinclude

popularprovisionssuchasrequiringacertainamountofloanstogotopoororother

individualsthatwouldotherwisefinditdifficulttogetaloan.However,thispushtowards

lendingtoriskierindividualscancontributetohousingmarketinstabilityandeconomic

losses.Bydelegatingthisdecision,congressisabletogetcreditforsettingtheselaudable

andpopularsocialgoalswhilemutingitseffectontheeconomyduringthecrisis.Itisable

torollbackitsprovisionswithouttakingcriticismfordoingsoasitcertainlywouldfordirect

action.

Itappearsthatmembersofcongresswerenotdisinterestedactorssolelyseekingto

createefficientpublicpolicyandcongressdidnotalwaysapproveofpolicychangeseven

onesthatwereviewedgenerallyasbeinggood.FannieMaeandFreddieMachadmade

verysubstantialdonationstoalargenumberofmembersofcongressandhadspentlarge

sumsonlobbying.331ThishadenabledtheseGSEstogetgovernmentssupportwhen

draftinglegislationthathadenabledthemtobeveryprofitablecompanies.The

contributionsthattheyhadgivenandcontinuedtogivethroughouttheearlypartofthe

crisismadeitsotheyhadalotofsupportincongressthatwouldopposethe

administration’sproposalofnationalizingtheentitiestodealwiththecrisis.Congresswas

unwillingtoactuntilwellintothecrisistotakeactionsthatmostviewedasinthepublic

good.

OnSeptember7,2008,DirectorLockhartoftheFederalHousingFinanceAssociation

announcedthatFannieMaeandFreddieMacwerebeingplacedunderFederalHousing

331Raum,TomandJimDrinkard.“FannieMae,FreddieMacSpentMillionsonLobbying”USAToday.July17,2008.

207

FinanceAssociationreceivershipandassumedthepoweroftheboardandmanagementof

theseorganizations.332ThismovebyFHFAwaspartofthelargergovernmentaleffortto

addressthiscrisis.HankPaulsonwentonrecordassayingthat,“conservatorshipwasthe

onlyforminwhichIwouldcommittaxpayermoneytotheGSEs.”333Thisconservatorship

hadprofoundimplicationsandincludedtheappointmentofHerbertAllisonthefollowing

dayastheChiefExecutiveofFannieMae.Inaddition,theFHFAauthorizedstrongerbacking

formortgage-backedsecuritieswhichwouldprotecttheholdersofthesefinancial

instruments.SimilarlytheChiefExecutiveofFreddieMacwasreplacedwithDavid

Moffett.334Alsotheactionsofthesetwoorganizationswereconstrainedsothatalllobbying

ceased,theywouldnolongerpaydividendsontheirstock,andtheyadjustedpaypackages

forexecutives.

TheauthoritytoplacetheseGSEsintoconservatorshipcamefromthepassageofthe

Housing&EconomicRecoveryActof2008whichsetuptheFHFAastheoversightagencyof

theGSAsandgrantedFHFAthepowertoputthemintoconservatorship.Congress

delegatedthisimportantpowerandresponsibilitytoanewagencyratherthanmakingthe

importantdecisiontoplaceFannieMaeandFreddieMacintoconservatorshipthemselves.

CongressreceivedconsiderablefundingandsupportfromtheGSEswhichwere

knowntohaveverystronglobbyingmachinesandtobequitevindictivetopoliticiansthat

opposedthem.Thislikelycontributedtothedecisiontodelegatethispowerwhichwas

usedjustoveramonthafterthelawwasenacting.Thefactthatthelagbetweendelegating

thispowerandtheusageofitwassoshort,particularlyastheagencywasjuststaringup,

pointsoutthattheeconomicfundamentalsdidnotchangeintheinterveningperiod.Nor

didcongresslacktheabilitytodeterminewhethertherewasaneedforconservatorship.

Thatdecisionwasinalesscomplexissueareaandrequiredlessspecializedknowledgethan

manyduringthisperiodandwaswithincongress’capability.Congressseemedtowantthe

GSEsplacedintoconservatorshipascanbeseenbytheirhandingthispoweroutatthistime

andtheyhadtheabilitytodoso,howeverratherthanenactingthispoliticallytough332FederalHousingFinanceAgency.“FHFAAsConservatorofFannieMaeandFreddieMac”http://www.fhfa.gov/Conservatorship/pages/history-of-fannie-mae--freddie-conservatorships.aspx333PaulsonJr.,HenryM.C-SPAN.“FederalTakeoverofFannieMaeandFreddieMac”September7,2008.https://www.c-span.org/video/?280948-1/federal-takeover-fannie-mae-freddie-mac334Reuters.“GovernmentTakesControlofFannie,Freddie”CNBC.September8,2008.http://www.cnbc.com/id/26590793

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decisionthemselvestheydelegatedittoanagencythathadlesspoliticallytolosebythis

action.Thisappearstogoalongwiththeabdicationhypothesis.However,itcouldalsobe

viewedascongressrealizingitsowninabilitytoaddresstheproblem,delegatedthetaskto

anagencyasitknewtheresultingpolicyandthenewlimitationsonFannieMaeandFreddie

Macwouldbegoodforthecountry.

TheDodd-FrankActdelegatedawaythepowersandresponsibilitiesassociatedwith

assuringthatthefinancialsystemwasstable.Whilethiswaspopularwiththegeneral

public,theregulatoryburdenthatwasplaceduponfinancialinstitutionswasveryunpopular

intheindustryaswerespecificactionsthateventuallyneededtobetakenagainstvarious

financialcompanies.Financialcompaniesaremajordonorstocongressandcongresswould

wishtoavoidthepoliticallydifficultactofimposingheavyregulatorycostsuponthismajor

industry.Congresshowevergetscreditwiththepublicforthelaudablegoalofpassing

legislationtoensurestabilityinthefinancialsystem,eventhoughitsidesteppedthecosts

associatedwithtakingactionthemselves.

Similarly,theConsumerFinancialProtectionBureauisgivenconsiderablepowerto

regulateconsumerfinancialproducts.Thisisseenasaworthwhilegoalbythegeneral

public,butisincrediblyunpopularamongthefinancialcompaniesthatwouldberegulated.

BydelegatingawaythisauthoritytotheCFPB,congressgetthepoliticalbenefitofbeing

seenastakingactiontoprotectthepublic,butminimizestheill-willfromfinancial

companiesthatseeprofitserodedorcostsriseasaresultofthenewregulationsmandated

bytheCFPB.

OnceagaintheTroubledAssetReliefProgram(TARP)isagoodexampleaswell.

TARPwasincrediblyunpopularduetoitssupposedcostdespitethefactthatitwasviewed

bymanyeconomistsasbeingnecessarytoforestallamuchdeepercrisis.335VotingforTARP

wouldhavebeenviewedashurtingreelectionchancesformostmembersof.Intheinitial

voteonthispieceoflegislation,itwasvoteddown.Thisledtopanicinthemarkets,

heighteningthecrisisanddrivinghomethestakesinvolved.Afterthisinitialrejection,

congressionalleadershipandthepresidenttriedtoshoreupsupportforthelegislationand

335Johnson,Bridget.“FrankReflectsonTARPasMostSuccessful,MostUnpopularPrograminU.S.History”PJMedia.December31,2012.https://pjmedia.com/blog/frank-reflects-on-tarp-as-most-successful-most-unpopular-program-in-u-s-history/

209

soonafteritwaspassed.Howeverthiswasinpartduetothepoorresponsetotheinitial

rejectionofthelegislationthatshowedthatrejectingthelegislationwouldbeapoliticalrisk

aswell.

TARPwasalsopassedinpartbecauseofthesweetenersthatconvincedotherwise

skepticallawmakerstovoteforit.Theseincludedpopulartaxprovisionsandother

provisionsthatwerepopularsuchasanincreaseinthecapthattheFDICwouldinsure

bankingdepositsfor.Manyofthesepopularprovisionswerenotdirectlyrelatedto

addressingthecrisis.Thoughcongresswasabletoaddressthecrisiswiththisbill,it

requiredcongresscraftingabillbasedonotherissuestocreatealogrollasopposedto

solelycraftingpolicytoaddressthecrisisthatwasunfolding.

ThevotetosetuptheTroubledAssetReliefFundinitiallyfailedwhichledtolarge

declinesinthestockmarket,whichdemonstratedhowpervasivewasthebeliefthatthe

TARPbillneededtopassandthatcongressneededtotakeaction.However,itdidnot

initiallypassbecauseitwasalsoanincrediblyunpopularvotethatitwasbelievedwould

hurtthosevotingforitpolitically.However,asunpopularasthisvoteanditsprovisionsto

delegatetotheadministrationthepowertobailoutfinancialinstitutionswere,itwould

havebeenafarmoreunpopularvoteforpoliticianstodirectlybailoutthefinancial

institutionsthemselves.Similarlyvotessuchastodelegatethepowertocutspendingseem

designedtoavoidcongressneedingtotaketheblameforcutswhicharenecessarytokeep

thedebtlevelmanageable.Cuttingspendingandraisingtaxes,whichwererequiredin

ordertominimizethedeficit,aregenerallyveryunpopular.Membersofcongresslargely

calledforcuts,butdidnotputforwardanyspecificsastowherethecutswouldcomefrom.

Thepublicisbroadlyacceptingofcuttinggovernmentspendingingeneral,itisspecificcuts

thatwouldrequirepoliticiansputtingforwardaspecificplan,thattendtobeunpopular.To

saythatcutsmustbemadewithoutlayingoutthespecificcuts,congresswasabletoavoid

toughpoliticaldecisions.Theseactionsaresimilartowhencongressattemptedonacouple

instancestodelegateawaymuchoftheresponsibilityforraisingtaxesordecidingwhat

spendingcutsshouldbeimplemented.

Whileitdelegatedawayalotoftoughchoices,congresstookseveralpopularactions

itself.AspartoftheHousing&EconomicRecoveryActof2008,congressincludeda

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provisionthatgave$7,000tofirsttimehomebuyersaswellassomeothertypesof

homebuyers.TheAmericanRecovery&ReinvestmentActof2009laterincreasedthisto

$8,000.336Thispartoftheactdidnotdelegatepower,butinsteadspecificallylaidouthow

thecreditshouldbestructured.Thetendencyofcongresstoenactpopularpolicies

themselveswhiledelegatingthoselesspopularwouldseemtosupporttheabdication

hypothesis.Homebuyersgreatlybenefitedfromtheactwhereasthosethatwouldneedto

payfortheprogramweredispersedandthustheprogramwaspopularwiththosethatwere

benefittedwithouthavingmanyopponents.Congressalsodirectlygavefundsinsome

instancessuchasthe$400perpersonrefundabletaxcreditprovisionintheintheAmerican

RecoveryandReinvestmentActof2009.

Similarly,intheHousing&EconomicRecoveryActof2008isaprovisionthat

protectsmembersofthemilitaryfrombeingforeclosedonwhiletheyareoutofthe

country.Inthisultra-patrioticperiod,thiswaspopularprovisionandavoidedthepotential

badpressthatsuchcasesmightmake.Thispolicywasalsomadedirectlybycongressrather

thanbeingdelegated.SimilarprovisionssuchastheprovisionsintheAmericanRecovery&

ReinvestmentActof2009whichreimbursedservicemembersforlossesonthesaleoftheir

primaryresidenceduetomoveswerealsomakedirectlybycongressandwouldseemtobe

madeforsimilarreasons.

Congressenactedcertainprovisionsthatwerenotnecessarilyapprovedofbythose

intheexecutivebranchsuchasincludingalimitonexecutivecompensationforcompanies

receivingTARPfunds.Someintheexecutivebranchthoughtthislimitwouldmake

companieslesslikelytousetheseprogramsthatwerebeingcreatedtohelpcompaniesand

toaddliquiditytofinancialmarkets.However,congresswasattunedtotheearofthe

publicandtookactionthattheyknewwouldmakegovernmentsupportforthesefirms

morepubliclyacceptable.Thepublicdidnotwanttosupportacorporatebailout,which

wasviewedbysomeaswelfarefortherich,andsocongresswasbeingmoreresponsiveto

theneedsofthepublicandmoredemocratic.However,astothequestionofhowwellthe

lawaddressestheneedsofthenationinpreventingthecrisis,factorssuchasthepaythat

companiespaytheirexecutivesweremostlyofadistractionandapopulistissue,anddid

336Christie,Les.“FinalScore:$8,000forHomebuyers”CNNMoney.February17,2009.http://money.cnn.com/2009/02/13/real_estate/homebuyer_tax_credit_finalized/

211

notaddresstherootcauseofthecrisisorhelpamelioratethecrisis.TheDemocratspushed

foranumberofprovisionsthatwouldlimitexecutivecompensationandgoldenparachutes.

Thesemayhavesomesymbolicvalue,butdidnotdirectlyaddressthecrisisitselfandthey

heldrisksfortheprogramsthatweredesignedtodiminishthecrisis.TheTreasury

SecretarythoughtlimitsonexecutivecompensationwouldstigmatizeTARPandmakeitless

likelytobesuccessfulascompaniesmightbelesswillingtotakeTARPfundsduetothese

provisions.Ultimatelythepowertolimitexecutivecompensationforcompaniesthat

receivedgovernmentassistancewasgrantedtoSpecialMasterforTARPExecutive

Compensation,morepopularlyknownasthePayCzar,ratherthanbeingsetbycongressor

byusingthe$500,000salarycapthattheObamaadministrationhadinitiallybeen

pushing.337

Whilemanyoftheactionstakenbycongressduringthisperiodseemconsistentwith

theabdicationhypothesis,thisisnottosaythatthiswascongress’onlymotivationand

manyoftheactsofdelegationthatpoliticallybenefittedpolicymakerstheyalsowere

consistentwithanattempttousedelegationtoachievebetterpolicy.Duetohyper-

partisanship,congressstruggledformuchofthisperiodtopassbillsandcouldobjectively

seedelegatingtoanexternalbodyasincreasingthelikelihoodofapositivepolicyoutcome

resulting.Inaddition,considerabletimeandeffortwasrequiredtodealwithallthe

consequencesofthefinancialcrisisandcongressmighthavefeltthatitdidnothavethe

abilitytodealwithalloftheseespeciallyduringperiodswhereitstimeandattentionwere

focusedonotherissuessuchasreformingtheUnitedStateshealthcaresystems.

Duringthisperiodtherewasextensivegridlockandsogettingbillspassedtooka

considerableamountoftimeandeffort.Thismeansthatpolicycreatedbycongresswould

notbeveryadaptableandcouldnottobemadebycongressinatimelymanner,however

policycreationcouldpotentiallystillbeadaptableandimplementedquicklyifitweremade

bythebureaucracy.Respondinginatimelymannerwasimportantduringthecrisisas

confidencewasweakening.Weakeningconfidenceduringafinancialdownturnleadsto

moreindividualsholdingontomoneyratherthanspendingit.Thissituationisthesocalled

ParadoxofThrift,inwhichtherationalactionsofindividualmarketparticipantstoconserve

337Dennis,Brady.“PayCzarLimitsSalariesforTopExecutivesat5Firms”TheWashingtonPost.March24,2010.

212

theirmoneyduringacrisisleadstoadropinaggregatedemandandconsumptionandthat

makestheeconomyweaker.Similarlyandperhapsmoredangerouslyisthefactthatcrises

leadtobankrunsandtheirmoderndayequivalents.Actionsweretakentoassurethose

lendingmoneyinswapmarkets,individualsandcorporationsholdingfundsinbanksforfear

ofabankrunwhichcouldquicklybringdownmajorfinancialinstitutions.Aslowresponse

toacrisisallowsfaithinthesystemtofalter,whichcanallowthecrisistodeepen.Congress

andthepresidentrealizedtheneedforvigorousactionandusedthisasjustificationfor

takingactionintheformofdelegationtotheagencies.

AnotherexamplewheredelegationmadestrategicsensetoenactpolicywasThe

ConsumerFinancialProtectionBureau,whichpittedtheinterestsoffinancialcorporations

vs.thoseofindividualsandoftenpoorandlesseducatedAmericans.Theconceptofthe

CFPRhadbeenaliberalgoalpushedforyearsbyElizabethWarrenandothersthatcouldnot

gettractionuntilthecrisisandthechangeinpublicopinionthatcamewithit.Thiswasa

majorpieceofdelegationthatbegantoregulateanareathathadbeenlargelyunregulated

previously.Thisappearstobeanattempttocreatenewpolicythatonepartyviewedas

beneficialsincethepoliticalenvironmentwouldfinallyallowittopass.Thisdelegation

allowedthesedecisionstobemadeoutsideofthepoliticallychargedatmosphereof

congress.Thisinsulatedthispolicysothatafterthecrisis,thepro-businesslobbywould

havemoredifficultyundoingthispolicydecision.Itwaslargelyapopularactionand

congress,oratleastthemajorityDemocraticParty,wouldhavegainedbytakingactions

directly.Howeverthiswouldhaveriskedthepolicylongtermandalsowouldhavehad

congressdealingwithcomplexfinancialsituations.Thuscongressappearedtohavetaken

actiontocreatepolicythattheyviewedasworthwhileasopposedtofocusingonpolitical

considerations.

Certainpiecesofdelegationseemednecessitatedbyaneedofexpertise,time,and

attentionthatcongresswasnotabletomanage.AninstancewastheDodd-FrankAct

requiringfinancialregulatoryagenciestocreateregulationsgoverningthevalidationmodels

usedbythemortgagemarket.338Theseruleswereinaverycomplexpolicyarea,mayneed

338Pub.L.111-203,Section1473.

213

tobeadjustedfromtimetotime,andwouldtakealongtimetofleshout.Thesereasons

wouldallleadtomoredelegationandbeconsistentwiththedelegationhypothesis.

Congressandthepresidentcanactontheirownorelsedelegatedecisionsand

authoritytoanotherentity.Assumingrationalself-interest,ifdelegatingbetterachieves

congress’goalsthandirectactionwouldthencongresswilldelegate,whereaswhendirect

actionisincongress’self-interestcongresstendstoactitself.Thisappearslargelytobe

whathappenedduringthefinancialcrisis.Whetherdelegationisincongress’interestis

generallythoughttodependonnumerousfactorssuchaswhethercongressisofthesame

partyasthepresidentandwhetherthedecisionislikelytobepopularornot.The

abdicationhypothesisassumesthatcongressprimarilytriestoavoiddecisionsthatwill

reflectpoorlyonmembersofcongressandtherebyhurtthempolitically.Morepositive

theoriesviewcongressaswantingtodelegatetoarriveatbetterpoliticalsolutionsthat

bettermeetthenation’sneeds.

Ceterisparibus,forpopularbillsCongresswouldtypicallyprefertopassthebill

directlysothattheycanhavemorecontrolandgetcreditforthepolicy.Congressis

howevercognizantofthefactthatonmanynationalmattersorincasesofemergencies,the

populationlookstothepresidenttoleadthenationandproposetheappropriatenational

policies.Thusonemayhypothesizethatcongresswilltendtoaccedetothepresident’slead

insuchsituationsasitwouldbeviewedasoversteppingtheboundsoftheirroleby

opposingthesolenationallyelectedleader.Forunpopularbills,congresswillchooseto

delegatepowerespeciallytoabureaucracy.Thisactionalsodelegatespowertothe

appropriatecongressionalcommitteeorcommitteesthatoverseestheagencysincethey

willbeabletodocaseworkandgainpoliticallyfromthisrole.Thistooisaformof

delegationasthoseonthecommitteehaveadifferentsetofintereststhantheaverage

floorvoter.Whenpublicscrutinyishighestsuchasduringacrisis,congresswillbe

especiallyriskadverseandtrytodelegateawaydecisionsthatwilllikelybeunpopular.

5.2TheSelectionoftheAgentsofDelegation

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Therearenumerousinstancesofdelegationduringthisperiod.Areviewofthem

showsthatthereweregeneraltrendsintheagentsthatwereselectedforactsof

delegation.Wetakeasanaxiomthattheprincipalsthatdelegatedpoweractedrationallyin

theirownperceivedbestinterestsandthattheagentsofdelegationwerestrategically

selectedbycongress.Thusweareabletolookatthemotivationsofthechoiceofagentby

lookingatthesetrendsthatcongressdisplayedinselectingagents.

TheimplementationofthemajorbillssuchastheDodd-FrankWallStreetReform

andConsumerProtectionActleftmostofthemajordecisionsinthehandsofbureaucrats

ratherthanenshrinedinstatutorylaw.Theimplementationofthesebillscomprisedthe

mostimportantgovernmentalactionduringthisperiodandwerearguablymoreimportant

thatthebroad-basedrulessetdownbycongress.Theseresponseswereinstancesinwhich

“thedevilisinthedetails”andtheseeminglysmallerchoicesmadeonhowtoimplement

someofthesebroadgoalswerewhatdeterminediftheywouldbesuccessful,whowould

bethebeneficiariesandlosersinanygovernmentalactions,andthemethodsthatwouldbe

used.Thesedecisionscomprisethebedrockofpoliticalaction.

Forinstance,thetextoftheEmergencyEconomicStabilizationActof2008isvague

whichallowsforsignificantdiscretionbytheTreasuryandotherorganizationsthatare

delegatedpowersundertheact.Oneinstanceofthisisthatwhendefiningeligibilityfor

TARPprogramfundstheactlimitsthiseligibilityto“financialinstitutions”with“significant

operations”intheUnitedStates.AsthesephrasesarenotdefineditallowedtheTreasury

todeterminethemeaningsofwhatconstitutesa“financialinstitution”andhowlargean

operationconstitutes“significantoperations”.TheTreasuryDepartmentuseditsauthority

todeterminethat“financialinstitution”wasabroadandinclusivetermthatincludedahost

ofcorporationsoutsideofthescopeofjustbanks.Anexamplewasthesignificant

assistanceprovidedtoAIG,alargeinsurancecompany.

Thevastmajorityofthemajorpolicychangesthatresultedinresponsetothecrisis

weremadebygovernmentalagenciesthatweredelegatedpowers.Thisistruebothinthe

shorttermresponsetothecrisisinwhichstepsweretakentoamelioratethesituationas

wellasyearslaterwhenthefinancialregulatorysystemwasgettingrestructuredinorderto

forestallormitigatepotentialfuturefinancialcrises.Itmayseemsomewhatintuitivethatin

215

thedepthofthecrisisthatadditionalpowerisdelegatedtoexecutiveagenciesthatcan

addressthecrisismorequicklythancongress,havegreaterexpertiseinthefinancial

servicesindustry,andhavemoretimeandattentiontodedicatetoworkingonacrisisthan

doescongresswhichismorelimitedinsize.However,muchofthesereasonstodelegate

powertothebureaucracyinacrisisdonotholdtruewhentheneedislessimmediateand

thefocusoflegislationistoimprovetheregulatoryregimesoastobetterprotectagainst

futurecrises.Inthissituation,speedislesspivotalthantakingthetimetoensurethat

effectivepolicyiscreatedandthecapabilitiesandexpertiseofcongressarelessofa

detrimentastheycanrelyonexpertisefromtheGAOandtherestofthelegislativebranch

aswellasmuchoftheexecutivebranchwhichcongresscanhavereportortestify.

Fertilegroundforexploringthechoiceoftheagentsthatcongresschoosesto

delegatetoarethosesituationsinwhichcongresscreatesanewofficeoragencyand

delegatespowerstothenewentitythatitsetup.Investigatingthesesituationsisuseful

becausecongresshasanopportunitytotailortheagent’scharacteristicstoitspreferences,

whichgivesobserversachangetoseewhatcharacteristicscongresspreferredfortheentity.

Congressgavecertainauthoritiestospecificagenciesinitsattempttodealwiththe

crisis.Theseweredeliberatedecisionsandthustrendsinthesedecisionsshowuswhat

congress.TherewerereasonsthatcongressdelegatedsuchvastpowerstotheTreasury

DepartmentandnottotheCommerceDepartment.Thereappeartobeahandfulof

motivationsthatappearedtodeterminetheuseoftheagentoragentsselected:ensuring

agentindependence,agentexpertise,ensuringcoordination,allowingformorevigorous

action,andtoensurecontinuedattentiontoanissue.Belowthispaperlooksatthereasons

fordelegationandagencyselectionthatappearedtopresentthemselvesmostfrequently.

5.2.1 To Ensure Agent Independence

Congressonrepeatedoccasionsduringitsresponsetothefinancialcrisisappearsto

havefocusedonmakingsuretheagentthatpowerisdelegatestoisabletobeindependent

ofpoliticalconsiderationsandpressurefromvariousinterestedactorsandthatitislikelyto

remainsointheforeseeablefuture.Thisinpartseemstobearesponsetoregulatory

216

capturethattookplaceatagenciessuchastheOfficeofThriftSupervisionandtoalesser

extenttheSecuritiesandExchangeCommission.Italsostemsfromtherealizationthat

therearepowerfulpoliticalintereststhatmightbeinterestedinmeddlingforpoliticalor

economicgain.ThefinancialindustryisoneofthelargestindustriesinAmericaandby

lobbyingitcanhaveconsiderableswayincongressandwiththeadministration.Several

instancesarelistedbelowinwhichensuringagencyindependenceappearstobeoneofthe

primemotivationsforthechoiceofagent.Thisisnottosaythatthisistheonlymotivation,

andcertainlyotherfactorssuchasexpertiseintheareawereafactoraswell,but

independenceisasignificantfactorinthisdecision.

Thepoliticalprocesscanexertinfluenceonthepolicymakingprocessandcanlead

topolicythatisnotasefficientorasbeneficialtothenationaspolicythatwascreated

withouttheseinfluences.Thusifcongresscanselectanagentthatisisolatedfrompolitical

considerations,thiscouldleadtobetterpolicy.

CooperandWestsuggestedareasonfortheuseofdelegationwasthatagenciesare

lesspoliticalthancongressandconsequentlycanmakebetterpolicysincetheycouldfocus

onwhatisthebestpolicyforthenationratherthanscoringpoliticalpoints.339Thecrisisdid

seemtoshowagenciesasbeinglesspolitical.Thoughagencieswerelargelyledbypolitical

figures,theagenciesstillactedlesspolitical.HenryPaulson,whowasthememberofthe

bureaucracywhohadthemostcontrolovertheinitialgovernmentresponsestothecrisis,

actedmoreasatechnocratthanapolitician.Inpartthiswasduetohisbeingnewtothe

politicalworldandinsteadcomingfromthefinancialworld.Inaddition,whenheultimately

enteredthepoliticalworldhewasreluctanttodosoandtwiceresistedtheofferofbeing

nominatedasTreasurySecretaryandtookthepositionmorefromasenseofdutyorgiving

backthanfromawishtohelphiscareerorgetintopolitics.Therehadlongbeenarevolving

doorsothatthekeyfinancialleaderssuchastheheadoftheFederalReserve,theTreasury

Secretary,andtheCommerceSecretarywouldoftencomefromthefinanceworld,servein

politicsbriefly,andthengobacktofinance.

339Cooper,JosephandWilliamF.West.“PresidentialPowerandRepublicanGovernment:TheTheoryandPracticeofOMBReviewofAgencyRules”JournalofPolitics.50(4):864-95.1988.

217

Thepresidentappointedthecabinetandmanymembershadlongpoliticalcareers

priortojoiningtheBushadministration.Astheserandepartmentsandagenciesitwould

seemtherewassignificantriskthattheadministrationwouldbeaspoliticalascongress.

Howeverbeforecongressdelegatedpowertheywouldknowwhotheyweredelegatingto,

atleastwhowouldinitiallywieldthosepowers.Thisforeknowledgecouldallowthe

congresstoavoiddelegatingtooverlypoliticalagenciesandindividuals.Inpracticemuchof

thedelegationtodealwiththefinancialcrisiswastobureaucratsthatwerenotpolitical.

Manyofthesewerenewtopublicserviceandwerenotplanningtomakeacareerinpublic

serviceorwereinpositionsthatwereinsulatedfrompoliticalconcernssothattheycouldor

wouldactmoreastechnocrats.

Muchofthedelegationwastoexecutiveagenciesandsothequestionmightarise

abouthowmuchindependencetheseagencieshavesincethepresidentistheheadofthe

executivebranch.Theadministrationhoweveronlyhaslimitedcontrolovertheexecutive

branchagencies.Anexampleofthiscanbeseeninthatmuchoftheadministrationsuchas

theSecretaryForHousingandUrbanDevelopment,ShaunDonovan,wantedFannieMae

andFreddieMactowritedownmortgagesandhelpstrugglinghomeownerswhereasthe

ActingDirectoroftheFederalHousingFinanceAgency(FHFA),whichregulatesthesetwo

entities,barredthemfromwritingdownloansasthiswouldbeexpensivefortaxpayers.340

ThisisdespitethefactthatPresidentObamaappointedtheActingDirector,Edward

DeMarco.

WhencongresscreatedtheOfficeofFinancialResearchinresponsetothefinancial

crisis,itbuiltinsomesafeguardstoensureagentindependenceoncetheagencywasupand

running.ForinstancethedirectoroftheOfficeofFinancialResearchisappointedtothe

positionforsixyearssothatthedirectorwillhavemoreindependencefromtheexecutive

branchthanifitwasashorterperiodorexpiredinconjunctionwiththepresident’sterm.In

addition,aprovisioninthebillthatcreatedtheOfficeofFinancialResearchstatesthatno

agencycancompelthedirectoroftheofficetotestifytothembeforehesubmitshisreport

tocongress.Thishelpsensureindependenceofthisagencyfromthepresidential

administration.

340Hallman,Ben“ShaunDonovan,HUDChief,HopesFannieMaeandFreddieMacWillWriteDownMortgages”TheHuffingtonPost.February16,2012.http://www.huffingtonpost.com/2012/02/16/shaun-donovan-fannie-mae-freddie-mac-mortgage-write-down_n_1283020.html

218

Likewise,bysettinguptheConsumerFinancialProtectionBureauaspartofthe

FederalReservethishelpshieldstheCFPBfromcongressionalandpresidentialtampering.

TheFederalReserve,beingacentralbank,wasspecificallygivenfarmoreindependence

thanotheragenciesandthusbymakingtheCFPBasanindependentagencylocatedinside

theFederalReserve,inturngivesitadditionalindependencethatitwouldnothaveitwas

madeapartofanotherorganization.Subject-wisethereisnotmuchreasontoplacethis

bureauintheFedasopposedtootheragencies,howeverthestructureoftheFedprotects

itfromoutsideinfluencesandthatmaybethereasoningofthosethatcreateditandmade

itpartofthefederalreserve.TheCFPBislikelytobeunpopularwithbusinessintereststhat

oftenarepoliticallyconnectedandhaveconcentratedinterestswhencomparedtothe

dispersedinterestsofconsumers.Thusprotectingtheindependenceoftheagencyis

importantifcongresswantstoensurethattheadministrationandmembersofcongressdo

notinterferewiththebureau.TheCFPBhastiestotheexecutivebranchinthatthe

presidentappointsthedirector.Howeverthe5-yeartermoftheappointmentdoesallow

somefreedomforthedirector.

NotonlydidcongresstakestepstoshieldtheCFPBfromoutsidefromcongressional

andpresidentialinterference,butitalsocreatedthisagentsothatitwouldnotbeunduly

influencedbyotheragenciesincludingtheFederalReserve,inwhichitresides.TheFedis

prohibitedfromdirectinganemployeeoftheboardortryingtoinfluenceitsdirector,

impedingthebureauorchangingtheroleofthebureau.ThisisunusualinthattheFedis

theparentorganizationofthisnewboardandyetithaslittlesayinhowthisentityisrun

andthechecksonthisentityallcomefromotherentities.Thisissimilartopriorfederallaw

thatprohibitstheTreasurySecretary,“frominterferingwiththespecificactionsof

regulatorsliketheOfficeoftheComptrollerofthecurrencyandtheOfficeofThrift

Supervision,eventhoughtheyarenominallypartofthedepartment.”341

Inaddition,todesigningdelegationtoprotectanagencyfromtheadministration

andcongress,italsocanbedesignedtoprotecttheagencyfromtheinfluenceofspecial

interests.Typicallyconcentratedinterestsaremoreabletoinfluenceagenciesand

membersofcongressandcanthusgetthelawamendedtomeettheirdesires.Consumers

341Paulson.49.

219

asawholearenotaconcentratedinterestwhereasfinancialindustrytradegroupsandeven

largeindividualcompanieshavesignificantpowerandconsiderableinterestatstakein

weakeningregulationsandconsumerprotectionsasweakeningthesemayincreaseprofits.

Assuch,keepingthisconsumerprotectionfunctionisolatedfromthesespecialinterestsand

pressuregroupssothattheinterestsofconsumerswouldcontinuetoberepresented.

Therearecountlesssimilarexamplesofthissuchasagriculturalmarketingordersthathelp

ahandfuloflargeagriculturalfirms,butwhichleadtohigherprices,wastedproducts,and

inefficiencyinthemarkets.Thereareveryfewinterestgroupsthatrepresentconsumer

interests.SchlotzmanandTierneydidasurveyof3,000citizengroupsandoftheseonlyone

wasfocusedprimarilyonconsumerinterests.342ItisforthisreasonthattheFedisagood

placeforthisnewboardsincethisprotectsisfromcongress,thepresident,andinterests

thatputpressureonanagency.

FortheTroubledAssetReliefProgram,congressdidnotwantthepresidenttobe

directlyinchargeoffinancialdecision-making.Thepresidentwasnotpopularwithcongress

andhadpoliticalchallengesthatwouldmakeitdifficultforhimandhisadministrationto

maketheappropriatechangesthatneededtobetaken.Congressthusgainedbydelegating

toaninsulatedtechnocraticindividual.

AlmostnoauthoritywasdelegatedtothepresidentintheDodd-FrankAct.Almost

allauthoritythatwasdelegated,wasdelegatedtoagenciesandtheirheads.Inpartthis

seemsthiswasinordertokeepthispoweroutofthehandsofthepresidentandfuture

presidents.Thepresidentwasstilltheheadoftheexecutivebranchandthuscouldexert

somenominalcontroloverexecutiveagencies.However,muchofthedelegationduring

thisperiodseemstohavebeendesignedtominimizetheabilityofthepresidentandother

administrativeofficialsfrombeingabletoaffectpolicy.

MuchoftheauthoritydelegatedwastotheFederalReserve.Thisincludedmuchof

theregulationoffinancialcompaniesandmuchoftheresponsibilityforthestabilityofthe

financialsystem.TheFederalReservehadspecificallybeendesignedtobeinsulatedfrom

thepoliticalconsiderationsoftheadministration,whichisviewedasabestpracticefora

342Schlozman,KayLehmanandJohnT.Tierney.OrganizedInterestsandAmericanDemocracyat251.HarperCollinsCollegeDivision.1986.

220

centralbankthatneedstofocusonlongtermissuesandbewillingtomakeunpopular

decisions.Onefactorleadingtoitsindependenceisthatthetermlengthformembersof

theFederalReserveBoardofGovernorsis14yearssothatwhileGovernorsarenominated

bythepresidentandconfirmedbythesenate,theydonothavetoworryabout

reappointmentandotherpoliticalconsiderations.Thisindependencealongwiththeir

expertiseseemstobethekeyreasonstheyweregivensomuchnewauthorityafterthe

crisisdespiteamediocreshowingintherunuptothecrisis.

Independenceisimportantinthiscontextbecausefinancialinstitutionslobbyfor

lesserrestrictionsonthemastheseimposeacostontheseinstitutionsandmembersof

congressandtheadministrationoftenchampionthecauseofsuchinstitutionswhen

weighedagainsttheslightpotentialofoneofthemfailingorathreattothefinancialcrisis.

TheFedcantakealonger-termviewandbalancecurrentcostsagainstpotentially

devastatinglong-taileventsthatmayoccurinthefuture.

SimilartotheadditionalpowersgiventotheFederalReserve,inresponsetothe

crisisandtoavoidfuturecrises,congressauthorizedanddelegatedextensivepowerstothe

FinancialStabilityOversightCouncil.AstheFSOCrepresentstheinterestsofapolitically

weakanddispersedinterestgroupitisparticularlyatriskofpoliticalmanipulationand

ineffectivenessunlessprovisionsaremadeforittoremainindependent.Tohelpensure

this,Congressdesigneditsothatthecouncil’spowerisnotcircumscribedbytheFederal

AdvisoryCommitteeActasmostFederalAdvisoryCommitteesare.Italsohasextensive

fundingsourcesandthusisrelativelyunconstrainedfinancially.Inaddition,italsohas

powertodirecttheOfficeofFinancialResearch,whichisanotherneworganizationthatwas

createdunderthisactandthisgivesitadditionalcapabilities.

Incontrasttothesenewagenciesthatwerecreatedinresponsetothecrisisand

whichweredelegatedauthority,theOfficeofThriftSupervisionhaditsauthorities

transferredtootherorganizationsandwaseffectivelyshutdownandmergedintotheOCC.

TheDodd-FrankActeliminatedtheOfficeofThriftSupervisioninpartduetoitspoor

regulatorycultureineffectmergingitwiththeOfficeoftheComptrolleroftheCurrency.

ForyearsOTShadbeenknownasalaxregulatorandhadusedthattolurefinancial

221

companiestochooseitasitsregulatoryagency.343ThiswasinOTS’interestsasitreceived

revenuefromthecompaniesitregulated.IthadbeentheregulatorofAmericanInsurance

Group(AIG),WashingtonMutual,andIndyMac,whowerethreeofthelargefinancial

companiesthatstruggledthemostduringthisperiodduetoexcessiverisk-taking.OTShad

repeatedlyshowninstancesofregulatorycaptureandhadinthemindsofcongressproven

thatinitscurrentformandcultureitcouldnotbeindependentenoughtomakepolicy

decisionsortoregulateeffectively.

Anotherkeyregulatoryagencythatcongresscreatedinresponsetothefinancial

crisisanddelegatedextensivepowertowastheConsumerFinancialProtectionBoard.The

structureoftheCFPBwasdeterminedbytheinterplayofvariousgroupsanditisagood

exampletoshowhowimportantthestructureofanagencyandthechoiceofagentwasto

congress.344Republicansenatorsonthewholepreferredamoredecentralizedorganization,

whichisoftenasignthattheywantedaweakerregulatorwithlesspower.Thisdesign

choicecouldbeforotherreasonsandotherorganizationssuchastheSECandFDICdohave

adecentralizedstructurethatarerunbyexecutiveboards.Howevertheassumptionthatits

designwastoweakentheboardissupported,bythefactthatthosethatpushingfora

decentralizedboardalsoopposedtheproposednominationofElizabethWarrenwhowas

seenaswantingtostrengthentheorganization.

TheDodd-FrankActwaswritteninsuchamannerthattheboardcouldonlyperform

itsfunctions,suchasregulatingnonbankfinancialcompanies,iftheagencyhadaheadand

itwouldnothavethisabilitywithoutone.345AsRichardCordraystatedinablogpost

followinghiseventualappointment,“Now,withadirector,theC.F.P.B.canexerciseitsfull

authorities—withrespecttobothbanksandnonbanks—tohelpthosemarketsoperate

fairly,transparently,andcompetitively.”346ElizabethWarren,thepresident’sinitialchoice

forthispositionandoneofthearchitectsofthenewagency,wasnevernominateddueto

herbeingviewedastoliberalandtoolikelytopushforastrong,aggressiveagencyandthus343Joffe-Walt,Chana.“RegulatingAIG:WhoFellAsleepontheJob?”NPR:AllThingsConsidered.June5,2009.344Warren,Elizabeth“TheBankingIndustry’sTransparentAttempttoWeakentheCFPB”TheHuffingtonPost.October20,2015.http://www.huffingtonpost.com/elizabeth-warren/banking-industrys-attempt-weaken-cfpb_b_8340792.html345Wyatt,Edward.AppointmentClearstheWayforConsumerAgencytoAct.NewYorkTimes.January4,2012.346Cordray,Richard.Standingupforconsumers.ConsumerFinancialProtectionBureau.January4,2012.

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itwasbelievethattheSenatewouldnotapprovehernomination.Insteadheappointedher

asaspecialassistanttothepresident,whichallowedhertoperformakeyrolein

establishingtheagencywhilenotrequiringanomination.Thoughshehelpedinitiallyshape

theboard,bybeinginthatpositionratherthanastheheadoftheboard,itlimitedactions

thattheCFPBcouldtake.

TheRepublicansalsowereunwillingtoapprovethepresident’snomineeforthisrole

andthenominationlingered.TheunwillingnessoftheRepublicanstoapprovethe

nominationwasduetotheirplayinghardballandtryingtoforceachangeinthestructureof

theagencyinwhichthedirectorwouldbereplacedbyafive-memberboard.InMay2011,

44Republicanssenatorssignedaletterstatingthattheywouldnotapproveanominationof

anagencyheadandinsteadtheywouldinsistonafive-memberboard.Asthatwasoutofa

totalof47Republicansenatorsitwasclearthatthepartyasawholewasveryopposedto

thestructureoftheboardandtheyhadenoughsupporttofilibusterandblockany

nomination.Thestructureoftheboardisimportantbecauseitishardertoaccomplish

majorchangeswithaboardasthereisnotasingularpersonpressingfortheirvisiontobe

realizedandbecausethelawwaswritteninsuchawayastheheadoftheboardwasvery

powerful.Theboardstillhadsomecapabilitieswithoutaheadandcouldexercisepowers

andauthoritythatweregiventobyshiftingexistingpowersfromexistingagenciessuchas

theFederalTradecommission,itwaslimitedastowhatnewpolicyagendasitcouldpursue

ornewrestrictionsitcouldenact.

WithregardtoPresidentObama’sappointmentofRichardCordraytotheConsumer

FinancialProtectionBureau,thepresidentwrote,“InominatedRichardforthisjoblast

summer.Andyet,RepublicansintheSenatekeptblockinghisconfirmation–notbecause

theyobjectedtohim,butbecausetheywantedtoweakenhisagency.”347Heviewedthe

actionsofcongressasexplicitlytryingtoweakentheagencysothatitislesseffectiveand

thusisnotasabletodowhatitischargedtodo.Controlofcongresshadchangedfrom

whenthelawhadbeenenacteduntilthepointwhenObamawenttonominatesomeoneto

headtheagency.IntheinterveningperiodtheRepublicanshadbecomethemajorityinthe

347Obama,Barack.“WeeklyAddress:ContinuingtoGrowtheEconomyintheNewYear”WhiteHouseOfficeofthePressSecretary.January7,2012.https://www.whitehouse.gov/the-press-office/2012/01/07/weekly-address-continuing-grow-economy-new-year

223

HouseandhaddeeplycuttheDemocrat’smajorityinthehousetoapointwherethe

minoritywasabletoblockthemajority.ObamaandtheDemocratsframethisasthe

Republicansthwartingthewillofthemajority.Obama,forinstancewithrespecttothe

Republican’sstoppingtheappointment,stated,“Iwillnotstandbywhileaminorityinthe

Senateputspartyideologyaheadofthepeopletheywereelectedtoserve,”348These

debatesoverthestructureandleadershipofagencieswerenotconfinedtotheCFPB.It

took17monthsafterthecreationoftheOfficeofFinancialResearchforittogetaleader

TheFederalReservewasspecificallydesignedtobeinsulatedfrompolitical

concerns.Longtermsofofficeandlittleoversightbycongressleadstothoseatthecentral

banknotbeingoverlyinfluencedbycongressandthusabletotakealongterm,

disinterestedviewoftheeconomicsystemandtaketheappropriateactionstoimprovethe

longtermeconomicsituationofthenationratherthanfocusingonshorttermpolitical

concerns.Thishaslongbeenupheldastheidealforcentralbanksasitleadstobetter

economicpolicy.However,congressisnotalwayshappywiththeFeddoingasitseesfit

andsoduringthecrisis,someincongresstriedtomakepoliticalhaybydemagoguery

againsttheFederalReserveandproposingmoreformaloversightoftheFedasawayof

reiningitin.

Thereisreasontobelievethatagenciesactedlesspoliticallythancongressduring

thecrisis.IndividualssuchasSecretaryoftheTreasuryPaulsonactedinamannerthat

appearedthattheywerenotinterestedinimprovingtheirpoliticalprospectsorthoseof

theirparty,butratherweremorefocusedonmitigatingthecrisis.Bycomparison,congress’

actionsseemedverypolitical.Examplesofthiswerethenegotiationsoverraisingthedebt

limitandoverpassingacontinuingregulationtofundthegovernmentwheremuchofthe

debateseemedtoberelatedtopoliticalpositioningandimprovingtheelectionprospectsof

individualmembersofcongress.Inaddition,manyvotesseemedverypartisanandpolitical

basedoffofthepercentofmembersofcongressthatvotedalongpartylinesandseemedto

bemotivatedbypoliticalreasoning.Intheseactions,membersofcongressspent

considerabletimeandenergyframingthedebatesothattheactionstakenwouldbe

popularwiththeirbase.Thiswasprimarilyduetoelectoralreasonsratherthantoaffect

348Nakamura,DavidandFelicia,Sonmez.“ObamaAppointsRichardCordraytoHeadConsumerWatchdogBureau.”WashingtonPost.January4,2012.

224

thetextofthebillofitselfthoughtherewasanaspectthatbymakinganactionunpopularit

couldforcetheactionsoftheothersideandleadtomorepreferredpoliticalactions.

However,eventhisviewseemstoshowthattherewaspartisanshipascanbeseeninthat

thisframingwastakeninparttousepoliticalconsiderationstoforcethehandoftheother

sidewhereasaninsulatedbureaucrat,suchastheChairmanoftheFederalReserve,would

notbemuchmovedbythesearguments.

UndertheEmergencyEconomicStabilizationActof2008,theTreasuryDepartment

alsowasempoweredtomakedeterminationsastowhetherhedgefundsandothernon-

traditionalfinancialentitiesshouldqualifyforfederalassistance.Thispropositionisa

politicallychargedoneinthathedgefundsareviewedasbeingtoolsoftherich,whohave

donewell,whilethepoorhavestruggled.Congresswouldfinditdifficulttovotefora

provisionthatissounpopularandwhichappearsasifthepoorhadtobailouttherich,

howeveramoreinsolatedagencyhasmorepoliticalleewaytoinstitutethisifitfeltthatit

wouldbebroadlybeneficial.Congressmadeadecisionthatdelegatinginthisinstance

madethemostsense.

5.2.2 Agency Expertise and Capabilities

TheTreasuryandtheFederalReserveweretwooftheorganizationsthatwere

delegatedtothemostduringthisperiod.Thesewerealsotheorganizationswiththe

greatestknowledgeofthefinancialareasthatrequiredmostgovernmentalresponses.

Beyondjustexpertiseinthesubjectmatter,thedelegationseemedtobetoorganizations

thatalreadyhadsimilarpowersandwereabletogetthingsdone.Comparativelylittle

authoritywasdelegatedtotheCommerceDepartmentandtheLaborDepartmentduring

thisperioddespitetheirmissionsofpromotingeconomicgrowandprotectingworkers

beingcloselyalignedwiththeneedsduringthecrisis.Thisislargelyduetotheexpertiseof

theformeragencieswhencomparedtothoseofthelatteragencies.Theselatter

organizations,likecongress,didnothavethedepthofexpertiseinfinancialmarketsthat

congresswouldprefer.

225

Therewereseveralinstancesinwhichcongresscreatedbroadgoals,butleftlarge

partsofthepolicycreationuptoagencies.AgoodexampleofthisistheVolckerRule,

whichwasasectionoftheDodd-FrankActthattriedtostopbanksfromengagingin

proprietarytrading,tradingonbehalfofthemselvesratherthantheirclients.Whentherule

actuallywasimplementeditendedupbeinghundredsofadditionalpagesofregulations.

Thesecoveredtheharderquestionssuchaswhenexactlydoestradingcountasproprietary

trading,whatrestrictionstoplaceonfinancialinstitutions,andwhatreportingand

regulatoryrequirementwouldbeimplementedtodealwiththis.Inaddition,theagencies

determinedthetimelinethatthenewruleswereimplemented.Thusthoughthismay

initiallyseemtosomeascongressdeterminingpolicyandtheagencymerelyfillinginthe

details,inactualitymanyofthekeydecisionsweremadebytheagenciesratherthan

congress.Thesedetailsultimatelydeterminedtheeffectthepolicywouldhave,howit

wouldbeimplemented,whowouldbeaffected,andtheextenttowhichitchangedthe

behaviorofbanksandotherfinancialinstitutions.WhileDodd-FrankwaspassedinJune

2010,theregulationsimplementingtheVolckerRulewerenotwrittenandapproveduntil

December2013andmostofitstherulesdidnottakeeffectuntilJuly2015.349Congress

reliedonagenciestosetmakemostofthecomplexandinvolvedpolicydecisionsregarding

theVolkerRuleandnumerousotherpolicies.

AsectionoftheHousing&EconomicRecoveryActof2008thatdemonstratesthe

needforexpertiseandthatcongresslookedforthiswhenselectingagentsistheMortgage

DisclosureImprovementActof2008,whichamendedtheTruthinLendingActmaking

changestomandatorywaitingperiodswereputintoplacetoensuretheprocessisworking,

duediligenceisbeingdone,andthatthosegettingloansuseloaninformationinan

informed,consideredmanner.Inorderforthislawtohaveaneffect,theFederalReserve

publishedrulechangestoRegulationZthatprovidecertainrulesontimingofactionsfor

creditors.350Thisdecisiontodelegatetothebureaucracyallowedexpertisetobebrought

tobearwhencreatingpolicy.Italsoallowedthepropertimeframeandattentiontobe

giventosuchacomplexarea.

349Roberts,Daniel.“TheVolkerRuleTakesEffectTodayAfterYearsofDelays”FortuneMagazine.July22,2015.350OfficeoftheComptrolleroftheCurrency.Comptroller’sHandbook:TruthinLendingAct.December2014.

226

Throughreportingrequirementsandsimilarpowers,congresshadthecapabilityto

acquiretheinformationandexpertiseitwouldneedtomakepolicyaboutfinancial

regulationdirectly,howevercongressintheoverwhelmingnumberofinstancesdelegated

thisauthorityandtheresponsibilityforthesedecisionstogovernmentalagenciesandtheir

heads.TheSEChasalreadywrittenseveralhundredpagesofregulationsandrulesasa

resultoftheDodd-FrankActandnumerousotheragencieshavesimilarlysetdown

numerousregulations.ThemajorityofthenewregulationsnecessitatedbytheDodd-Frank

ActwerelefttotheSECtodetermineandwrite.Forinstance,theSECwasgivenauthority

toexemptanissuerorclassofissueriftheburdenoftheregulationfallsdisproportionally

onsmallissuers.

TheEmergencyEconomicStabilizationActof2008authorizedtheFederalReserveto

startpayinginterestonreserves.Thisactofdelegation,inwhichtheFedcoulddetermine

what,ifany,levelofinteresttopay,allowedforbetterpublicpolicysincetheFederal

Reservewasabletoactquicklycomparedtocongressandvarytherateastheneedarises

orasmoreinformationbecomesavailable.Thedecisiontodelegatethepowertosetthis

interestrateratherthanindexingittoabenchmark,appearedtobelargelytoallowfor

expertizetobeusedandtoallowquickchangesastheneedarises.BenBernanke,the

ChairmanofFederalReserveBoardfeltthattheabilitytopayinterestonreserveswouldbe

ausefulability,butwasunsurehowtouseitandsoheexperimentedwithdifferent

applicationsofthisauthorityandtriedthreedifferentrateswithinthefirst40daysafterthe

billwasenacted.Hewasquotedassaying,"We'renotquitesurewhatwehavetopayin

ordertogetthemarketrate,whichincludessomecreditrisk,uptothetarget.We'regoing

toexperimentwiththisandtrytofindwhattherightspreadis.”351Theabilityto

experimentinthiswaycamebecausedetailssuchasratesthatcouldbepaidondeposits

werelefttotheFederalReservetodetermineratherthanbeingdeterminedbycongress.

Therewaslittletogainpoliticallyforcongressbydelegatingsincecontrollingtherates

wouldallowcongresstohavesignificantleverageoverthepowerfulbankingindustryand

couldallowmembersofcongresstodofavorsforthisgroupwhichwouldlikelyhave

broughtincreaseddonations.However,congressstilloptedtodelegatethispowertoan

organizationbetterabletoanalyzeeconomicdataandmakethisdecision.

351Bloomberg.“FedtoPayMoreonBanks’Reserves”TheEconomicTimesInternational.October23,2008.

227

TheEmergencyEconomicRecoveryActof2008alsodelegatedthepowertotheSEC.

TheSECwasgiventheauthoritytosuspendmark-to-marketaccountingrequirement.This

delegatedacomplexdecisionthatcouldnotbeasfullyexaminedbycongressasitcouldby

thisspecializedagency.Thiscomplexityappearstobeoneofthemainmotivatorsforthis

action.

Alongwithexpertiseistheconceptofanagenciescapabilitiesbeingareasonto

delegatetothatagent.Partoftheadvantageofdelegatingtoanagencyisthatitallowsthe

agencytoquicklytrynumerousdifferentmethodstosolvethecrisisathand.Thisabilityto

trynumeroussolutionsisanefficientwaytofindasolutionratherthanthrowingmoneyand

placinghopesinonlyacoupleinitiatives.Italsoallowsinitiativestobeshutdownifitturns

outnottobesuccessfulorisnolongerneeded.Infastmovingcrises,itisgoodtohavethe

adaptabilitythatagenciesprovide.

Congressionalactionwasdifficultduetopoliticalgridlock,politicalunpopularityof

actionsthatwouldpropupthemarket,anduncertaintyoverthedepthofthefinancial

downturn.However,agencieswerebetterabletohandletheseandsetpolicytodealwith

thefinancialdownturn.Someagenciesarebetteratthistaskthanotherswhichledtothem

beingdelegatedmorepowerandresponsibility.TheTreasuryDepartmentinparticularwas

abletotrynumerousmethodsofresolvingthefinancialcrisis.Itwasnotknowexactlywhat

programswouldbesuccessfulandwhichwouldnotandsomanyweretriedconcurrentlyor

inquicksuccessiontostabilizevariouspartsofthemarket.

5.2.3 Ensure Coordination

Duringthecrisistherewasaneedforactiononvariousfrontstoadequatelyaddress

theweaknessintheeconomyanditseffectsonpeople’slives.Toensurethebestresults,

policyneededtobecoordinated,andinorderforthistohappenthevariousagencies

neededtocoordinatewitheachother.Bydesigningdelegationtoensurecoordination,the

governmenttriedtoavoidthegapsinoversightthatcontributedtothiscrisis.

228

Delegationduringthisperioddelegationwasstructuredinsuchawayastofacilitate

variousorganizationstoworktogetherandtheagentsofdelegationwereselectedor

createdaccordingly.ForinstanceSection203oftheDodd-FrankWallStreetReformand

ConsumerProtectionActsetforthproceduresforagenciestomakerecommendationsfor

theFinancialStabilityOversightCouncil.

Therewasagoodbitofcoordinationduringthisperiod.Forinstance,whilethe

CentralBankisitsowninstitutionandthusintheoryshieldedfromtheadministrationand

politics,inpracticethisseparationgavewaytocoordination.Theweeklybreakfasts

betweentheTreasurySecretaryandCentralBankheadduringthistimewasonesignof

this.352

ThustheFedalsocoordinatedwithandtookactionsinconjunctionwithother

nation’scentralbanksasinthisglobalized,multipolarworld,theU.S.cannotactunilaterally

toaddresscrises,butcanproducebetterresultsbyworkingwithothernations.Anexample

ofthisworkingwithothernationswasonOctober8,2008whentheFedreducedtheir

interestratesinconjunctionwiththeBankofCanada,theBankofEngland,theEuropean

CentralBank,SverigesRiksbank,andtheSwissNationalBank.353Thiswasanewprecedent

foractioninthattheFedhadneverdecreaseditsratesinconjunctionwithothercentral

bankspriortothisaction.354CongresshaddelegatedtheseauthoritiestotheFed.

Thecreationofagenciesandofficesisperhapsthereareawhereyoucansee

coordinationofpolicycreationmostexemplified.TheFinancialStabilityOversightCouncilis

aprimeexampleinthatthemembersofthecouncilincludetheSecretaryoftheTreasury,

theChairmanoftheFederalReserve,theComptrolleroftheCurrency,theChairmanofthe

NationalCreditUnionAdministrationboard,andthedirectorsoftheCFPR,SEC,FDIC,CFTC,

FHFA,OFR,andFederalInsuranceOffice.Thesearethekeyagenciesthatwouldneedto

coordinateduringafinancialcrisis.Bycreatingthecouncilanddelegatingsignificantpower

toit,congressensuresthatpolicywouldbecreatedinconjunctionwithvariousagencies

andcoordinatedtogether.Thiscontrastedwiththeimmediateresponsetothiscrisiswhere

theTreasurySecretary,ChairmanoftheFederalReserve,andheadoftheFederalReserve

352Paulson.62.353http://www.federalreserve.gov/newsevents/press/monetary/20081008a.htm354Paulson.339.

229

BankofNewYorkworkedtogethertotheexclusionofotheragencyheadsandcraftedthe

bulkofthepolicyresponseunilaterally.Thisledtosituationswherethedecisionwasmade

toeffectivelyguaranteedmoneymarketfundswithoutanythoughtastohowthatwould

adverselyaffectthebankingsector.

TheFederalInsuranceOfficeActof2010355createdanofficeintheTreasury

Departmenttooverseetheinsurancemarket.TheFederalInsuranceOfficewasgiven

preemptioninsomeareasoverstateregulatorswhohistoricallyhadbeenthemain

regulatorsoftheinsurancemarket.Theactalsoaltersinsuranceregulationsuchthatwith

thechangeonlyaninsurancecompany’shomestatecanregulateorlevypremiumtaxeson

it.Thishelpedharmonizetheinsuranceregulationsacrossstates.

5.2.4 To Give Attention to an Issue

Congressdoesnothavethetimeorinclinationtofocusoncertainissuesoncethey

areoutofthepublicspotlight.Withthisself-knowledgecongresstookactiontodelegate

powerstoagentsthatcouldkeepawatchfuleyeonspecificissuesandcraftpolicy

accordingly.Thechoiceofagents,andcreationofagentsinparticular,wereselectedto

ensurefocusonapolicyspherefarintothefutureandinsomeinstancesevenifthe

coalitionthatpassedthebillincongressiseventuallyreplacedbyonelessappreciativeof

policycreation.

WiththeclearneedforregulationofbanksandseeingthewaythattheFederal

Reserveneglectedthisresponsibilityinplaceofmoreglamorousresponsibilities.TheDodd-

FrankActprohibitedsubdelegationoftheFederalReserveBoard’sauthorityand

responsibilitytocreateregulationandtosupervisebankholdingcompaniestoaFederal

ReserveBank.ThisensuredthatthisrolewouldbeamainfocusoftheFederalReserve.

Inaddition,asTheFederalReservehadalwaysfocusedmoreonmonetarypolicyto

theexclusionofitsresponsibilitiessuchasregulation,theDodd-FrankActalteredits

355PartoftheDodd-FrankWallStreetReformandConsumerProtectionAct

230

structureandcreatedthepositionofVice-ChairmanforSupervision.356Thebeliefbeingthat

aseniorofficialattheFedwithsupervisionandregulationaspartoftheirexplicitportfolio

wouldleadtotheFed’sregulatoryfunctionsbeinggiventheattentionthatcongressfelt

theydeserved.ItwashopedthatthischangewouldhelpchangethefocusoftheFederal

ReserveBoardwhichisaregulatoryagency,butisonethathasfocusedonitsotherareasor

responsibilitythanonthelessglamorousroleofregulation.

TheDodd-FrankActalsorequiredtheSECtocreateanOfficeofCreditRatingsto

regulatenationallyregisteredstatisticalratingorganization(NRSRO).Theactalsoamended

severalactstoremovethespecialplacethatcreditratingsandthatNRSROshadunderthe

formerlaw.357Thisstepwastakenbecausecreditratingswereviewedasbeinginaccurate

andbiasedandfurtherthattherelianceonratingswasblamedbysomeascontributingto

thecrisis.Creditratingsareanareathatwaslargelyunregulatedbythegovernmentprior

tothecrisis,butcongresswantedtoensurethatgoingforwardthatsomeonewouldpay

attentiontothisneglectedpolicyarea.Bykeepinganentityfollowedonthisareaitwould

alsoallowforproactiveresponsestochangesintheindustryratherthanreactiveresponse

thatonlyoccurafteraproblemhasoccurred.

Thereweredifferenttypesofregulatorsthathavedifferentgoals.TheFedandOCC

focusedonriskmanagementfocusingonsoundnessofthesystemandtheentitiesthat

compriseit.AlternativelytheSECusedrulesandteststoensurethatthesystemisfairand

thatinvestorsareprotected.358Congressdelegatedauthoritytoeachofthese

organizations,buttheauthoritiesdelegatedweredifferentforthedifferentbodiesand

weredesignedsothateachofthesespherescontinuedtobemonitored.

TheCFPBhadadifferentmandateandwasdesignedtoprotectapoliticallyweak,

diffuseinterest,namelythepublic,fromthepowerful,entrenchedpowersinindustryand

congress.Bydelegatingtoanagencychargedwiththisresponsibility,congresscanensure

thattheagentwouldcontinuetofocusonthiscoremission.Futurecongresseswouldbeat

riskofbeingpulledinbythepowerfulfinancialinterestsandsofinancialprotectionof

356Ro,Sam.ThereAreNowTWOFederalReserveViceChairPositionsThatNeedToBeFilled.BusinessInsider.October11,2013.http://www.businessinsider.com/dodd-frank-second-fed-vice-chair-2013-10357Section939ofDodd-FrankWallStreetReformandConsumerProtectionAct358FinancialCrisisInquiryReport.198.

231

consumerswouldbeneglectedasthisislesspoliticallyvaluabletolegislators.Thisuseof

delegationtoentrenchthecurrentcongress’policypreferencesinlawandprotectitalso

makespoliticalsenseastheissuewasverypartisanwiththedemocratsgenerallypreferring

moreregulationofWallStreetthantheRepublicanswhoingeneraltendtoholdmorefree

market,laissezfaireviews.Atthetime,theCFPBwasestablishedtheDemocratsheldboth

housesofthecongressandthepresidency.However,theyknewthissituationwouldnot

lastforever,particularlyasthefinancialcrisisatthetimeledmostexpertstoexpectthatthe

Republicanswouldpickupanumberofseatsinbothhouses.Theactwaspolitically

valuableinthatitmadeitlooklikethepresidentandthecongresswereprotectingthe

commoneverymanthoughtheactualactionsofwhatwouldbedonecouldnotbetoldyet.

Anothermethodthatwasusedtoensurethatattentioncontinuedtobepaidtoan

issuewasthatinsomeinstancescongressdelegatedapowerorauthoritytomultiple

agenciessothattheyeachcanusetheirdecisionmakingauthorityandindependent

judgment.AnexampleofthisisSection213ofDodd-FrankWallStreetReformand

ConsumerProtectionActthatgaveboththeFDICandFederalReserveBoardtheauthority

to,“bancertainactivitiesbyseniorexecutivesanddirectors.”359

5.3TheUseofConstraints

Theactionsofcongressappearconsistentwiththehypothesisthatconstraintsare

selectedstrategically.Constraintsondelegationareusedtoallowcongresstodelegate

powerandachievetheirgoalswhilestillassuringthattheagentthatisdelegatedto

performsactionsthatarecircumscribedsuchthattheywillbeconsistentwithcongress’

preferences.Therearenumeroustypesofconstraintsthatcanbeusedandthereare

differentsituationsinwhicheachwouldbeused.Congressseemstounderstandthe

constraintsavailabletoitandusesdifferentonesasdifferentneedspresentthemselves.

Uponexaminingtheuseofconstrainsduringandinresponsetothefinancialcrisisit

appearsthatcertaintypesofconstraintswereusedbycongressmoreoftenthanother359CRSSummaryofSection213ofDodd-FrankWallStreetReformandConsumerProtectionAct

232

typesofconstraints.Forinstancetimelimitconstraintsandconsultationrequirementswere

usedquiteextensivelyduringthisperiodandhadsignificanteffectsontheresultingpolicy

thatwascreated.Thisseemsconsistentwithcongresswantedtocreatepolicyquicklyand

toensurethatitwassystematicanddidnothavesignificantholeswheretherewasalackof

regulation.Otherconstrainttypessuchasspendinglimitconstraintsandcompensation

constraintswereusedfarlessfrequentlyandhadminoreffectsonpolicy.

Whenthispaperevaluatestheactionsduringthiscrisisperioditlooksinitiallytosee

ifadditionalpowersandauthorityaredelegatedtotheexecutivebranch.Inaddition,it

factorsinwhetheradditionalconstraintsareplacedonagentsthatlimittheirfreedomof

action.Ceterisparibus,theadditionofnewconstraintsupontheactionsofagentsthat

havebeendelegatedpowereffectivelydecreasesthepoweroftheagentandthereby

decreasestheamountofdelegation.Thereareanumberoftypesofconstraintsthatare

usedtoconstrainexecutiveactionwhichcongressregularlyapplies.

Congresstendstouseanumberofconstraintswhenitdelegatesitsauthoritytoact.

Byusingtheseconstraintsitattemptstoensurethattheactionsoftheexecutivebranchor

otheragentsitgivespowertoactonitsbehalfwillbeacceptabletoit.Thisisallin

accordancewithprincipal-agenttheoryandhasconsistentlybeenakeymethodof

investigatingcongress’useofdelegation.Bylimitinganagency’sabilitytoactfreely

congresscanbettermaintaininfluenceoveranagencyandassurethatactionsthatan

agencypursuesarenotdetrimentaltocongress’interests.Thereareavastnumberoftypes

ofconstraintsthatcongresshasavailabletoitasameansofcontrollingagencyactions.

Therearedifferingeffectsofeachoftheseconstrainttypesandthusvariedreasonsfor

congresstochooseeachoftheseconstraints.Thisleadstocongressemployingvarious

constraintsatdifferenttimesandwithvaryingfrequency.

Constraintsareacommonwaytolimitthepoweroftheagentinordertominimize

agencylosses.Constraintscanlimitanumberofproblemsinvolvedindelegationsuchas

adverseselectionandmoralhazard.Constraintscanalsoresolveinformationdisparityand

addcheckstolimittheagent.Theseconstraintscantakeplaceaspartoftheinitial

delegationsuchasinthecaseofagencydesign.Alternativelythesecouldfocusonactions

thatcancontinuetokeeptheagencyinlinewithcongress’wishes.Thesecanbestructural

233

intermsoftheruleandframeworkthatisusedforthedelegation.However,these

constraintsarenotperfecttoolsandtheselimitationscombinedwiththelackofcomplete

informationmeanthattheseconstraintswhilehelpful,cannotcompletelyeliminateagency

loss.McCubbinsandPagedescribethissituationasbeingsimilarto,“walkingadogwitha

rubberleashonadarknight.”Theyexplaintheanalogybypointingoutthat,“Theleashis

notaperfectinstrumentofcontroltobeginwith,andcontrolismademoredifficultby

beingabletoseeonlyshadowsandfragmentsofwhatisgoingon.”360

Abillcanbewritteninaverydetailedwaysoastolimitthediscretionofagencies.

HuberandShipanusedwordlengthasawaytomeasuretheamountofdiscretiongiven.361

Amongtheirresultsisafindingthatdelegationdecreasesascongressionalinstitutional

capabilitiesincrease.Alldelegationhasascopethatdefineswhatactionstheagentcan

take.Typicallythismeansthereisacertainamountofpowercededandsomeconstrainsas

tothemeans,manner,andmethodofitsuse.Congressisunawareofthefullcapabilityset

ofanagencyasagenciesmaykeepthishiddeniftheagencyevenknowsthisitself.

Duringthecrisistherewerevastamountsofdelegationandalongwiththiscongress

enshrinedsignificantnumbersofconstraintsinthelaw.Theseconstraintscameinmany

varietiesandthereweredifferentcausesandeffectsofeachofthem.

Belowisalistthemaintypesofconstraintsondelegationthatwereusedtoensure

thatthebureaucracyactsinamannerconsistentwiththewishesofcongress.The

categorieslistedarebroadlybasedonthoselaidoutbyEpsteinandO’Halloranandcome

fromtheirinvestigationoftheliteratureonthetopic.362Thispaperhasmadeafewchanges

totheirlist,groupingthosetogetherthathaveconsiderablecommonalityand

deemphasizingthose,suchastheuseofthelegislativeveto,thatarelessapplicabletothe

currentU.S.politicalenvironment.

Thispaperanalyzedthesixkeylawsthatwerepassedduringthisperiodandwhich

hadamajoreffectoneconomicpolicy:TheHousing&EconomicRecoveryActof2008,The

EmergencyStabilizationActof2008,TheAmericanRecovery&ReinvestmentActof2009,

360McCubbins,MatthewD.,andTalbotPage.“ATheoryofCongressionalDelegation”inCongress:StructureandPolicy.CUPArchive,1987.410.361HuberandShipan.2002.362EpsteinandO’Halloran.1999.

234

HelpingFamiliesSaveTheirHomesActof2009,TheDodd-FrankWallStreetReformand

ConsumerProtectionAct,andTheBudgetControlActof2011.Thispaperthenlooksatthe

relativefrequencyofconstraints.

Theuseofspecifictypesofconstraintscantelluswhatcongressistryingto

accomplishwiththeiruseandwhatitsmotivationsare.Forinstance,congressusedtime

limitconstraintsasignificantamountduringthecrisisinwaysthatappearedprimarilyto

ensurethatactionwastakenbythebureaucracyquicklyandthatmanyactionsthatwere

takenandbodiescreatedtodealwiththecrisiswouldnotcontinuebeyondtheimmediate

needforthem,butwouldratherbephasedoutatsuchtimeasthecurrentcrisishadbeen

respondedtoadequately.Theuseofconstraintscanalsotellusaboutthepreferred

methodscongresshasforensuringagencyactionsareinaccordancewithcongress’goals.

Certaintypesofconstraintsweremoreoftenusedthanothersduringthisperiod.In

particularrulemakingconstraints,reportingrequirementsandconsultationrequirements

accountedforthemajorityoftheconstraintsused.Otherconstrainttypessuchas

appointmentpowers,restraintsrequiringexecutiveorlegislativeaction,spendinglimits,

compensationconstraintsandappointmentpowerlimitswereusedfarmoresparingly

duringthisperiod.

5.3.1 Time Limits

Timelimitsareconstraintsthatlimitthedurationofthedelegationandwhichexpire

atagiventime.Sunsetprovisionsareanothernamefortimelimits.Thesecantakethe

formofaprogramonlybeingauthorizedforacertainperiod,butcanalsotaketheformof

othertimelimits.Timelimitssuchasthesemaybemodifiedlateriftheneedarises.

Timelimitscanhelpcongressaddressshort-termissueswithoutpermanentlygiving

upthepower.Furthermoretheycanensurethatsolutionsthatareofvalueinacertain

situationdon’toutlivetheirusefulnessandleadtounnecessary,permanentlawsortoan

officeoragencythatweredesignedtodealwiththepresentsituationendupbecominga

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permanentpartofthebureaucracy.Thereiscertainlyalwaysthispotentialotherwiseand

scholarshavepointedtoanumberofinstancesofthis.

Sunsetprovisionsensurethatlawsaresystematicallyreviewedandreauthorizedif

theyarestillvaluableorcancellediftheyarenolongerdeemedrelevantorbeneficial.A

strengthenedformofthiswasseeninaprovisionchampionedbySenatorEdmundS.

Muskieinthe1970s.363Thisproposalwouldhavecancelledalllawsafteracertainamount

oftime.Thiswouldhaveledtoasystematicreauthorizationofentireclassesofspendingon

aperiodicbasisallowingforprogramstobeevaluatedagainsteachotherandformoneyto

beredistributedifneedbe.Thisforcedreexaminationoflawsandprogramscanbeuseful

whendealingwithacrisis.Itoftenrequiresvigorousactiontodealwiththecrisis,butmany

ofthesestepstakentocounterthecrisismaynotbebeneficialoncethecrisishaspassed.

Thuscongresswillsometimesstructuretheseresponsesastemporaryprovisions.

ThisHousing&EconomicRecoveryActhadasunsetprovisionsothatitwouldonly

stayinplaceforthreeyears.Thisactguaranteesnewsubprimemortgageloans.This

provisionwouldbeusefultocalmdistressedmarkets,butwouldbeanexpensivemarket-

bendingsubsidythatwouldleadtoinefficienciesandextragovernmentalcosts.Thusit

couldhelpdealwiththecurrentcrisis,butwouldmakeforanexpensivegiveawayover

time.Thisexplainswhythesunsetprovisionwasincludedsinceitcouldallowtheactto

helpsolvethecurrentcrisiswhilenotbeinganopen-endedauthorization.

TheTARPprogramwasauthorizedtospendthemoneyforafixedperiodthat

expiredOctober2,2010.Thiswasshortlyafterthebillwaspassed.Thecloseenddatewas

usedtoensurethatthemoneywasspenttopropupthemarketduringthecrisissincethe

needwasimmediate.BytheendofthisperiodtheTARPprogramhadcommitted$470

billionanddisbursed$387.364

TheDodd-FrankActgavetheSECtheabilitytocreatedisclosureregulationson

issuersofasset-backedsecuritiesandalsorequiredtheSECtoissueregulationslimitingthe

waysthatthesesecuritiescanbemarketed.Thislimitonmarketing,whichcoversdetails

suchaswarranteesthatcanbeclaimedbythesellerofthesecurity,mustbeimplemented363Mooney,Chris.“AShortHistoryofSunsets”LegalAffairs.January/February2004.364NewYorkTimes.CreditCrisis—BailoutPlan(TARP)

236

bytheSECwithinsixmonthsofthelawbeingenacted.ThisisaconstraintontheSECthat

requiresaspecificsetofactionsbyacertaindate.Thisensuresthattheissueisbeing

tackledandthuscongresscanalsoclaimcreditforsolvingtheissue.Thereishowevera

tradeoffifthetimeframedoesnotallowfortheagencytofullyinvestigateandproposethe

bestsetofregulationsthatitmightotherwiseimplement.Onthepositivesideasetdate

canensurethattheperfectisnottheenemyofthegood.

TheEmergencyEconomicStabilizationActof2008waswritteninsuchawaythat

theauthoritiesgiventotheTreasuryDepartmentwithregardtoTARPexpiredDecember31,

2009.Thisensuredthatthisprogramandthevastdelegationofpowertotheexecutive

branchwouldbeclose-endedandwouldnotbeapermanentshiftofpowertothis

executiveagency.

AnotherexampleofanactofdelegationwithatimelimitconstraintistheAmerican

Recovery&ReinvestmentActof2008delegatedauthoritytotheSBAtoestablisha

SecondaryMarketLendingAuthoritytomakeloanstothesystematicallyimportant

secondarymarketbroker-dealers,butthiswasonlyfortwoyearsuntiltheemergencywas

over.

Severalentitiesthatwerecreatedduringtheeconomicdownturnhadbuiltinend

dateswhentheywerecreated.ForinstancetheRecoveryAccountabilityandTransparency

BoardandtheRecoveryIndependentAdvisoryCouncilweredesignedtoterminate

September30,2013.365

5.3.2 Consultation Requirements

Congresscanrequirethatanagencyconsultwithoneormoreotheragenciesor

otherkeyactorsaspartoftheagency’spolicymakingprocess.Thiscanbeusedasawayto

gatherinformationandgetinterestgroupsthatmightopposethepolicytostatetheir

preferencesandbringpressuretobearontheissue.Thiscanalsostoptheproblemofthe

365OfficeoftheVicePresident.“VicePresidentBidenAnnouncesNewChairmanfortheRecoveryAccountabilityandTransparencyBoard”December23,2011.https://www.whitehouse.gov/the-press-office/2011/12/23/vice-president-biden-announces-new-chairman-recovery-accountability-and-

237

policybeingimplementedbeforecongressandothersknowaboutitandthusavoid

surprises.Thisinturncanhelpcongressavoidnegativepoliticalconsequencesandcanhelp

stopagenciesfrombeingpoliticalfreeagents.Consultationrequirementscanbeusedto

enfranchisefavoredconstituents.366Finally,itcanassuregoodcommunicationsuchas

betweentwoagenciesthatneedtoworkinconjunctionandinthiswaycouldbea

componentofgoodgovernancedependingonitsuse.

Congresssometimeswriteslegislationthatrequirestheapprovalofotherexecutive

branchactorsbeforeacertainagency’sproposalisenacted.Congresscanoftendesign

delegationinsuchawaythattheagencycannotunilaterallymakedecisionsonkeyissue

areas.Thisallowscongresstoensurethattheagencydoesnotdivergetoofarfromthe

wishesoftheadministration.Itrequiresagreementoftheagencyandwhateveractor

neededtoapprovethedecisionwhetherthisisanexecutiveagency,thepresident,oran

agencyhead.

Byhavingmultipleactorsinvolved,congresseffectivelysetsupchecksandbalances

inthesystemtoensurethatmonitoringisperformedandcorrectiveactioncanbeapplied

withoutdirectinterventionofcongressitself.Thisisparticularlytruewhencongressdesigns

thesystemsooneagencyismotivatedoftenthroughcontrastedintereststocheckthe

actionsofanother.Thiscaneffectivelysetupacomparativelycostlessformofoversightin

whichoneexecutiveagencyoftenwithacontrastinggoalisputinapositioninwhichitis

incentivizedtomonitoranotherorganizationandensurethattheagency’sactionsdonot

circumventingcongress’wishes.Itcanalsosetinterestsagainstinterestsandthereby

ensurethatlittlegetsdonethatisnotunobjectionable.

Thisactioncancreateandinstitutionalizevetoplayerswhichcanincreasethe

tendencytowardsthestatusquoandwhichcandecreasethesizeandpaceofchange.This

inturntendstoleadtomorepoliticalstabilityandtoatendencyforproposalsthataremore

ideologicallymainstreamtohaveagreaterchanceofpassing.Inaddition,thisnewagency

canbeoneoverwhichcongresshasconsiderablecontrolandthuscanhelpdeterminewhat

policyisallowedtobecreatedbytheagencythathaspowerdelegatedtoit.

366HuberandShipan.2002.

238

AconsultationconstraintthatwasputinplaceonTARPfundsisthattheTreasury

DepartmentwasorderedtoconsultwiththeBoardofGovernorsoftheFederalReserve

System,theFederalDepositInsuranceCorporation,theComptrolleroftheCurrency,the

DirectoroftheOfficeofThriftSupervision,andtheSecretaryofHousingandUrban

Developmentinitsadministrationoftheprogram.Thisrequirementtoconsultwithother

agenciescanlimittheactionsthattheTreasuryDepartmentcantakeintheirrunningofthe

TARPprogram.Italsocanhelpensurethatallthekeygovernmentagencieswereonthe

samepageandTreasurywasnotdeterminingtheentiregovernmentresponsetothiscrisis

withouttheinputofotherkeygovernmentalagencies.

TheFinancialStabilityOversightCouncil,whichwascreatedbytheDodd-FrankAct,

isableundercertaincircumstancestosettheFederalReservetooverseeinstitutionsthat

thecouncilviewsasarisktothefinancialsystem.Thisisaccomplishedthroughtheactions

oftheSecretaryoftheTreasuryandtheapprovalofatleast2/3rdofthemembersofthe

council.Thustheapprovalofmultipleactorsisrequired.Thecouncilwascomprisedofthe

headsofseveralagenciesthathadaroletoplayinensuringfinancialstability.

TheBureauofFinancialConsumerProtectionhassignificantpower,butitalsohasa

numberofchecksonitspowersuchasreportsitmustfileandthefactthatitsactionsmay

bevetoedbya2/3rdvotebytheFinancialStabilityOversightCouncil.Theneedtogetthe

FSOCtoapprovethebureau’sactionweakenstheabilityofthebureautoactandstrikeout

onitsownandengageinpolicyfreelancingratherthanfollowingthewishesofthe

administration.

TheHousing&EconomicRecoveryActof2008createstheFederalHousingFinance

Agencyanddelegatestoitanditsdirectorsignificantauthority.Amongthechecksonitare

arequirementthat,“RequirestheDirector,beforeissuinganyregulationsaboutthe

exerciseofadditionalauthorityregardingprudentialmanagementandoperations

standards,safeandsoundoperationsof,andcapitalrequirementsandportfoliostandards,

toconsidertheviewsoftheChairmanoftheBoardofGovernorsoftheFederalReserve

Systemregardingrisksposedtothefinancialsystembytheregulatedentities.”367

367CRSSummaryofHousing&EconomicRecoveryActof2008Section1118

239

UndertheAmericanRecoveryandReinvestmentActof2009,TradeAdjustment

Assistanceeligibilityisincreased.TheSecretaryofLaborisabletomakerulingthatcanend

upprovidingsignificantassistance,howevercongressputinaconsultationrequirementthat

thesecretarymustconsultwithcertaincongressionalcommittees.368

Dodd-FrankincludedaprovisionfortheBoardoftheFDICtothefullestextent

possibleto,“relyontheexaminationreportsofotherfederalorstateregulatoryagencies,

andotherspecifiedrequiredreports,relatingtoasavingsandloanholdingcompanyand

anysubsidiary”and“coordinatewithotherfederalandstateregulators”.369These

requirementsaimtoavoidaduplicationofeffortandminimizeadditionaloverlapping

regulatoryburdens.Inaddition,thelawhelpsresolveterritorialdisputesbetweenagencies

whichseethemselvesasregulatorsforbankholdingcompaniessinceworkingtogethercan

helpspeedandcoordinateresponseswhichareusefulduringthecrisisandafter.

TheWallStreetTransparencyandAccountabilityActof2010createdaconsultation

requirementthattheSecuritiesandExchangeCommissionandCommodityFuturesTrading

Commissiontoconsultwitheachotherbeforemakinganyregulationregardingswaps,swap

dealers,andswapparticipants.Likewise,theactrequirestheCommodityFuturesTrading

CommissionandtheFederalEnergyRegulatoryCommissiontoagreetoamemorandumof

understandingabouthowthetwoorganizationswouldusetheiroverlappingregulatory

authorities.370Furthermore,itrequiresthismemorandumofunderstandingtobe

submittedtocongress.

Section752oftheDodd-FrankWallStreetReformandConsumerProtectionAct

requirestheCFTCandtheSECarerequiredtoconsultwithinternationalregulators

regardingswapregulation.371WhereasSection813oftheDodd-FrankActrequires,“the

CFTCandtheSECtocoordinatewiththeBoardtodevelopjointlyriskmanagement

368Pub.L.111-5,Section1857369CRSSummaryofSectionof604ofDodd-FrankWallStreetReformandConsumerProtectionAct370MemorandumofUnderstandingBetweenTheU.S.SecuritiesandExchangeCommissionandTheU.S.CommodityFuturesTradingCommissionRegardingCoordinationInAreasofCommonRegulatoryInterest.http://www.cftc.gov/idc/groups/public/@newsroom/documents/file/cftc-sec-mou030608.pdf371MemorandumofUnderstandingBetweenTheFederalEnergyRegulatoryCommissionandtheCommodityFuturesTradingCommission.http://www.cftc.gov/idc/groups/public/@newsroom/documents/file/cftcfercjmou2014.pdf

240

supervisionprogramsfordesignatedclearingentities.”372TheDodd-FrankActalsorequired

thebankingregulatorstoworkinconjunctionwiththeSECtosetrulesthatwouldrequirea

securitizertoremainaportionoftheunderlyingassetorcreditlist.

Inaddition,theDodd-FrankActrequiresthatcertainregulationsbeprescribed

jointly.Thiscoordinatesandharmonizestherulesofvariousregulatorswithregardtothese

regulationareas.Theseareasincludelimitingincentivepaymentsiftheyencourage

excessiveriskorexcessivepayments.373Theseconsultationrequirementsinthisactmake

surethatviewpointsandknowledgefrommultipleagencieswererepresentedinpolicy

creation.Inthecrisistherewereseveralsituationsinwhichoneagencywentofftoaddress

acrisis,butdidnotadequatelyconsultotheragenciestoseehowtheywouldbeimpacted

ortoseeiftherewasapieceofthepicturethattheyweremissing.

TARPwasimplementedinsuchawaythatiftherewasuncertaintyastowhethera

bankwasviablelongtermandthuswhetheritwasacandidatethatwouldreceivefunds

fromTARPtheissuewouldbedecidedbyapanelcomprisedofrepresentativesfromthe

fourmajorregulatorsoffinancialinstitutions,theOfficeofThriftSupervision,theFederal

DepositInsuranceCorporation,theFederalReserve,andtheOfficeoftheComptrollerof

theCurrency.Thiswasanotherexampleofexecutiveagenciesworkingtogethertoaddress

thecrisiswithlittleinterventionfromcongress.

Section805oftheDodd-FrankAct“authorizestheCFTCandtheSEC,subjectto

reviewandchallengebytheFederalReserveBoardandtheCouncil,toprescriberisk

managementstandardsfortherespectivedesignatedclearingentitiesandfinancial

institutions.”Theruledelegatesakeypowertothesetwoagencies,butaddsacheckin

thatiftheytakeactionsthatseemunwarrantedthattheFederalReservecankeepthe

regulatoryagenciesinline.

5.3.3 Reporting Requirements

372CRSSummaryofSectionof813ofDodd-FrankWallStreetReformandConsumerProtectionAct373Pub.L.111-203,Section956.

241

Congressoftenrequiresthatanagencyreportsinacertainmanneroratacertain

time.AnexampleofthisistherequirementsofAdministrativeProcedureAct(APA),374

whichrequiresagenciestoreportbeforetheyperformactionsandexecutepolicydirectives.

Thisisostensiblytoallowthosewithastakeintheagencies’proposedregulationstovoice

theirconcerns,butconvenientlyitalsogivescongressachancetoaddresspotential

problemsandassurethattheagency’sactionsareconsistentwithcongress’swishesandthe

needsofkeyconstituenciesandadvocacygroups.TheAPArequiresanoticeofproposed

rulemakingthatmustbepublishedintheFederalRegister.Thereisusuallya90-daywaiting

periodinwhichthepubliccanlearnaboutandcommentontheproposedrule.Incertain

emergencysituationsthisprocesscanbybypassed,butitisrequiredinthevastmajorityof

situationandthereareoftenstrongerreportingrequirementsthanjustthoserequiredby

theAPAreportingrequirements.Thesereportingrequirementshelpavoidafaitaccompliin

whichanagencyactsandmarshalssupportforanactionandturnspublicopinioninfavorof

theirplanbeforecongressisabletostop.Thiscanineffectforcecongressintoaccepting

theactiondespitemisgivingsbecauseitistoolatetoformacoalitiontoopposethechange

ortodosowouldbepoliticallydamagingoncetheagencyhasshapedthepolitical

landscapeinfavoroftheagencyaction.Italsoallowsdealstobemadewiththeagencyor

allowsforforcetobebroughttobearontheagencyinordertochangetheirposition.

Excessiveandburdensomereportingrequirementscanalsoundermine

organizationaleffectiveness.Asstatedearlieritcanbetheintensionofcongressto

overwhelmandlimitthecapabilitiesofanorganizationsothatitisunabletodomuch

outsideofactivitiesthatcongressadvocatesandsothattheagencyisunabletotakeactions

itfeelsarewarranted.Thiscanbegoodforcongressifthelawthatwaspassedisbroadly

popularandperhapsrequiredbycircumstances,butcongressinpracticedoesnotwish

muchaction.Anexampleofthisisadditionalfinancialregulationwhichoftensoundsgood

toawideswathoftheelectorate,butwhichinpracticeoftengoesagainstthepowerful

entrenchedinterestsoftheindustryandwhichhastangiblecoststhatmanymembersof

congresswouldliketoavoid.

374Pub.L.79-404

242

AnexampleofareportingrequirementisthattheSecretaryoftheTreasuryis

requiredtoreporttocongresswith24hoursoftakingoverafinancialinstitution.

Furthermorewithin60daysoftakingoverthecompany,theSecretarymustissueareport

tobemadeavailabletothepublicwhichwilllayoutkeyinformationaboutthestateofthe

companyandtheactionsthattheTreasuryDepartmentintendstotake.

Reportingrequirementscanbeagoodwayforcongressmemberstoensurethat

agenciesdonottakeactionsthatcongresswillnotapproveof.Theserequirementsallow

foroversightandcantaketimeawayfromtheagencyandthuslimititsabilitytotackle

problems.Theyalsoactasaneffectiveinformationgatheringmechanismforcongress.This

isespeciallyimportantinareasthatitwouldbehardforcongresstogathermuchinsight

aboutotherwiseduetoeithertheircomplexityortheirhiddennature.Anexampleofthisis

theTARPprogram,whichwasveryimportant,butwasalsoverysecretiveandwasdifficult

tounderstandtotheaveragecongressperson.Thuscongresscreatedreporting

requirementstoensuretheyreceivedtheinformationneededsothattheycouldassessthe

programandtakeanyneededactionstoaddressanyshortcomings.

Inaddition,theDodd-FrankActrequirestheSECandtheComptrollerGeneralto

submitannualreportstocongressabouttheSEC’sinternalcontrolsandfinancialreporting

procedures.Byrequiringboththeseentitiestosubmitseparatereportsitensureddifferent

perspectivesandensuredindependentviewpoints.Thecomptrollerisalsotoldtolookat

theactionsandstructureofotherentitiessuchastheGovernmentalAccountingStandards

Board(GASB).Thereare81studiesand93congressionalreportsmandatedbytheDodd-

FrankActalone.375

5.3.4 Public Hearings

Therearemultipletypesofpublichearingsincludingprimarypurposeoversight

hearings,reauthorizationhearings,andthosetoamendexistingstatutes.Thisisanother

instanceinwhichtheAdministrativeProcedureAct(APA),376requiresspecificactionsfor

375U.S.ChamberofCommerce.2010.376Pub.L.79-404

243

executiveagenciesinordertoensurethatpotentialactionsareperformedinaccordanceto

thewillofcongress.Publichearingsareagoodwaytodetermineindividualsandgroups

thatwouldbeaffectedbytheregulationspassedbyandactionsofanexecutiveagency.It

canhelpmakecleartherelativeintensityofinterests,thestrengthofthesepolitical

coalitions,andthepoliticallandscape.Thiscanbetterhelpcongresstotakepositionsthat

meettheirconstituents’wishes.Thesealsogivemembersofcongressconsiderable

leverageovertheagencywhichcanallowsformembersofcongresstoperformcasework

onbehalfoftheirconstituentsandotherconstituenciesandthushelptheirelectoral

prospectinfutureelections.

Italsoallowscongresstosanctionagenciesandtheirheadsthatarenotfollowing

congress’wishes.Congresscanquestionandfact-findandoftenpubliclyberatetheheadof

anagencyandtherebygetthemtofallinlineiftheyhaveveeredoffofcongress’preferred

course.Thiscanalsoservesasadeterrenttoagencyheadstakingpoliticalinitiativeandthis

helpscongressmaintaincontroloftheagency.

Thetransparencyofpublichearingscanmakeforgoodgovernanceaswellandis

partofaparticipatorydemocracythatbringsdisenfranchisedindividualsintothepolitical

system.Thiscanallowabackandforthinwhichthepubliccommentsonaproposedrule

andtheagencyrespondstothepublic.Thisallowsforafreeflowofinformationamong

thoseconcernedabouttheissueandtheagencysothatissuesthatmighthavebeen

overlookedbytheagencyarebroughttolightbythosethatfocusontheissue.Theagency

alsomakesarecordofpubliccommentandthisismadeavailable.

Amongotherreportingrequirements,theproposedregulationisrequiredtobe

postedintheFederalRegister.Congressmaykeeptotheseandotherrequirementsthat

formabaselevelforpublichearing,buttheymayalsoaddadditionalrequirementsin

certaincasesinordertofurtherconstraintheactionsoftheexecutivebranch.

5.3.5 Rule-Making Requirements

244

Congresscanmandatethatanexecutivebodythatisdelegatedpowermustusea

specificprocessorspecificmethodologywhendecidingtomakeanaction.TheAPAisone

exampleofarule-makingrequirementinsofarasitrequiresregulatoryagenciesto

announcetheirdecision-makingreasons.InthecaseoftheAPAthisensuresthatthereisa

justifiablereasonforanagency’sdecisionandhelpskeeptheminlinewithcongress’desires

sincetheywillneedtojustifyanydeviations.Byrequiringanagencytouseamethodology

thismakesagencyheadseasiertocontrolastheyneedajustifiablereasonfortheiractions

anditisharderforthemtobeapoliticalfreeagent.Theseconstraintscanalsoslowdown

agencyactionandhelpassurethatcongressisapprisedbeforeanyfarreachingchangein

policyisenacted.Itcanalsohelpkeeptheagencyconfinedtomoreevolutionarypolicy

ratherthanrevolutionarypolicy,asitiseasiertojustifyminorchanges.

Thistypeofconstraintcanalsoensurethatacertainmethodologyisused,thatthe

publicislistenedto,andthatvariousinterestandviewpointsareaccommodatedortaken

intoaccount.Thiscanincertaininstancesleadtobetter,moreinclusivepolicy.Theserule

makingrequirementsaresubjecttojudicialreviewandthistoocanhelpensurecompliance

withthemandategivenbycongressandcanlimitthetendencyofanagenttryingto

substituteintheirownpreferencesforthoseofcongress.

Theserulescanbeveryconstrainingandintricateindetailorcanbemoregeneralin

nature.Anexampleofabroadconstraintwouldbethedirectivethattheagencyshould

workinthepublicinterest.Thesegeneraldelegationsgivetheagentmorefreedomof

action.

TheauthoritythatwasdelegatedtotheFDICandtheSecuritiesInvestorProtection

Corporation(SIPC)towinddownoperationsforbanksandotherfinancialinstitutionscame

withsomelimitationsincludingthatcertaincriteriamustbemetforthewindingdown

processtobegin.

TheactthatauthorizedtheFDICtotakeoverafailinginstitutionalsogivesitasetof

rulestofollowduringtheliquidationphase,whichlimitsitsoptionsandalsogiveitgoals

thatitisaskedtoprioritizesuchasperformingactionsthatwillhelpensurethefinancial

stabilityofthecountryasopposedtoactionsdoneonbehalfofthecompanythatisin

receivership.

245

AnyassetpurchasesmadebyTARPweremandatedbycongresstotakeplaceinonly

amannerthatwouldprotectpublicfinancessothattaxpayerswouldnotbeonthehook.

Oneexampleoftherestrictionsthatwasputinplaceonpurchasesisthattheactonly

allowedTARPfundstomakepurchasesinreturnforwarrants.Congresswrotetheactina

waythatwouldgivetheagencywidediscretionincertainareaswhilekeepingagency

actionsquiteconstrainedinotherareas.

TheDodd-FrankActallowedregulatorstocreateadditionalrulesregulatingasset-

basedsecuritiesbeyondthoseexplicitlylaidoutintheact,howeveritonlyallowsrulesthat

arelimitedintheirgoalsinthattheymusteither,“helpensurehighqualityunderwriting

standardsforthesecuritizersandoriginatorsofassetsthataresecuritizedoravailablefor

securitization”or“encourageappropriateriskmanagementpracticesbythesecuritizersand

originatorsofassets,improvetheaccessofconsumersandbusinessestocrediton

reasonableterms,orotherwisebeinthepublicinterestandfortheprotectionofinvestors.”

Bystatingagoalitkeepstheagencieseyesfixedonthepurposeoftherulesitenactsand

ensurethatitsreasoningmatchesthatofcongress.Thiscanhelppreventagainstexcess

regulationortheSECcreatingitsownendsandgoals.

Rulemakingrequirementswereusedbycongresstoavoidnegativesymbolismthat

couldleadtopoliticalproblems.Forinstance,intheEmergencyEconomicStabilizationAct

of2008,congressusedrulemakingconstraintstolimittheTreasuryDepartmenttobuya

troubledassetformorethantheowneroftheassetinitiallypaidtobuyit.Thiscouldhave

beenviewedasspendingtaxpayerfundsinordertoenrichthefinancialcompaniesthat

causedthefinancialcrisis.

TheHelpingFamiliesSaveTheirHomeActof2009hasseveralrulemaking

requirementsthatactasconstraints.TheSecretaryofHUDisgivenauthoritytosetupa

programtohelphomeownerspaytheirmortgages.Howeverthereareseveralrestrictions

uponthespecificprogramandtermsthattheSecretarycanusetoachievethisaim.For

instance,theacthasarequirementthatrequiresthemortgagertoagreeinwritingthatthey

are,“liabletorepaytotheSecretaryanydirectfinancialbenefitachievedfromthe

reductionofindebtednessontheexistingmortgage”.377Congressthushelpedavoid

377CRSSummaryofHelpingFamiliesSaveTheirHomeActof2009

246

potentialpoliticalproblemsthatmightariseifindividualswhodidn’tpaytheirmortgages

wereenrichedduringthisprogramattaxpayerexpense.

TheBureauofConsumerFinancialProtectionhasrule-makingrequirementsinthatit

isrequiredto,“takespecifiedconsiderationsintoaccountbeforeprescribingafinal

regulation…”378

Section604ofTheDodd-FrankActamendstheBankHoldingCompanyActof1956

suchthattheboardoftheFDICisdirected,“totakeintoconsiderationtheextenttowhicha

proposedbankacquisition,merger,orconsolidationwouldresultingreaterormore

concentratedriskstothestabilityoftheU.S.bankingorfinancialsystem.”

IntheDodd-FrankAct,theappropriateregulatoryagenciesaregiventheabilityto

setminimumcapitalrequirementsforbankholdingcompaniesandsavingsandloan

companies.379Thisauthoritycamewiththerule-makingrequirementthattheagenciesseek

tomakecapitalrequirementscounter-cyclicalsuchthatrequirementarehighestduring

strongeconomicperiodsandarelessduringafinancialdownturn.

InSection718oftheDodd-FrankActsetsforthproceduresfortheSecuritiesand

ExchangeCommissionandCommoditiesFuturesTradingCommissionforhowtoevaluate

newderivativeproducts.MeanwhileSection723oftheDodd-FrankActaddsrule-making

requirementsthatconstraintheSecretaryoftheTreasury’spowerstoexemptforeign

swapsfromregulationbytheUnitedStatesgovernment.

IntheDodd-Frankact,thesecretaryofHUDisassignedthetaskofestablishinga

programtoprotecttenantsofmidtolargesizerentalpropertiesaswellastheproperties

themselves.Thecriteriafortheprogramareoptionallylaidoutbycongressinthelaw,but

lefttothediscretionoftheSecretary.MeanwhilethissubtitledirectstheTreasury

Secretarytopostinformationonlineaspartofanemphasisontransparency.

AlsoundertheDodd-FrankAct,theFederalReserveisempoweredto,butnot

requiredto,createstandardsthatregulatethecontingentcapitalrequired,additionalpublic

disclosurerequirements,andlimitsonshort-termdebt.TheactconstrainstheFed’sability

378CRSSummaryofSection1041ofDodd-FrankWallStreetReformandConsumerProtectionAct379Section616.

247

todecideonrulesforcapitalrequirements.ItmandatesthattheFedmusttakeinto

accountoff-balance-sheetactivitiesandenumeratesseveralsuchactivitiesthattheFed

mustincludeaspartoftheirrequirementrule.

5.3.6 Recommendations

Similartorule-makingrequirementconstraintsdescribedabove,congressalsomade

recommendationsforagenciesthatitdelegatedpowersto.Thesedidnothavetheforceof

lawthatrule-makingrequirementsdo,butstillcoulddirecttheactionsoftheagencythat

wasdelegatedtotowardcongress’desiredcourseofaction.

TheDodd-FrankActrecommendstheSECuseitsauthoritytocreategeneralrules

governingconflictsofinterestcoveringamuchwiderscopeofissues.Byrecommendinga

courseofactionforanagency,congresscanguidetheagencytowhatitbelievesisan

importantissuetoaddresswhileleavingtheexpertsattheSECfullrangeofaction.Italso

allowsforinactioniftheagencydeemsthatthatisbestorthattheissuethatitisaskedto

proposerulesforisnotapriorityandcanwaittillalaterperiod.

CongressdelegatedauthoritytotheSecretaryoftheTreasuryandentrustedhimto

spendasignificantamountofmoneytoimprovetheeconomy.IntheHelpingFamiliesSave

TheirHomeActof2009,congressincludedtherecommendationthattheSecretaryofthe

Treasuryshouldusethemoneyauthorizedintheacttopurchasemortgagerevenuebonds

forsingle-familyhousing.Therewereothersimilarrecommendationsintheactsuchasthe

recommendationthattheDepartmentofJusticeshouldsetupaMortgageFraudTaskForce

andarecommendationthatforeclosuresagainstmortgagorsnotoccuruntilforeclosure

mitigationprovisionsareputintoplace.Ultimatelythesewerenotexplicitrequirements,

butmerelythefeelingsorsuggestionsofcongress.Thesesuggestionshadsomeweight,but

allowedflexibilitytotheagenciesthatweredelegatedto.

Section1124oftheHousing&EconomicRecoveryActof2008includesasection

statingcongress’beliefthatsecuritizationofmortgagesaddliquiditytothemarketandthe

exhortationthatFannieMaeandFreddieMacshouldsecuritizemortgagesacquiredunder

248

theact.Congressalsoincludedtherecommendationthatmortgagerequirementsandrules

shouldnotinterferewithlocalrulesthattheholderofaforeclosedpropertymaintainthe

property.380

WiththeFederalInsuranceOfficeActof2010,Congresspreemptedsomestatelaw

regardingtheinsuranceindustry.However,congressstilldeferredtothestatesonmany

severalkeypoints.Itdidhoweverincludeinthisactthatitintendsstatestoadoptnation-

wide,uniformrequirementsandprocedures.381

IntheDodd-FrankActSection939H,congressstatesitsdesirethatthe,“SECshould

exercisespecifiedrulemakingauthoritytopreventimproperconflictsofinterestarising

fromemployeesofNRSROsprovidingservicestoissuersofsecurities...”Congressdidnot

havespecificpolicyrecommendationstodealwiththefactthatNRSROshadaconflictof

interestinthattheysoldservicestotheorganizationswhosesecuritiestheyarerating.It

howeverlettheSECknowthatitwouldliketheconflictofinterestaddressed.

InSection1079AoftheDodd-FrankActhadtheU.S.SentencingCommissionreview

andpotentiallyamendsentencingguidelinesforsecuritiesfraudundertheguidanceof

congress’recommendationthatpenaltiesandsentencesshouldreflectthedamagethese

dotothepublicandtofinancialmarketsandthattheyshouldensuretheappropriate

amountofjailtime.Inthisactcongresswasabletopushfortoughersentencestothese

crimeswithoutactuallytakinganyaction.Itisabletopositionitselfasbeingtoughon

financialcrimeandbeingwithMainStreetagainsttheabusesofWallStreet.

CongressalsoincludedaprovisionintheDodd-FrankActthatstatedcongress’view

thatafixtomortgagecreditpracticeswouldnotbecompletewithoutanoverhaulofFannie

MaeandFreddieMac.Politicallyhoweveritwasdifficultforcongresstoactdirectlyasthey

hadreceivedsubstantialdonationsfromFannieMaeandFreddieMacandwhowereatrisk

forsevereretributionsifindividualmembersofcongresswentagainstFannieMaeand

FreddieMac.ThucongressstatesitsviewthatFannieMaeandFreddieMacrequiremajor

structuralreformstoaddressproblemsoftheorganizations,yetnoactionistakendirectly

bycongresstorestructuretheseagencies.

380CRSsummaryofHousing&EconomicRecoveryActof2008Section1605381CRSSummaryofSection521ofDodd-FrankWallStreetReformandConsumerProtectionAct

249

5.3.7 Exemptions

ExemptionsarewhenCongressspecificallyexemptsanentityfromregulationor

limitsthefacetsinwhichitcanberegulatedforacertainamountoftime.Thisallows

congresstoexemptcertainfavoredgroupsfromtheadverseeffectsofregulation.Thisisa

powerfulabilitythatcanmakethesegroupsbecomingindebtedtothemembersofcongress

whohelpedexemptthemandthuscanleadtocampaigncontributions,votes,and

advocacy.Italsoallowsforcongresstoavoidcertainnegativerepercussionsofregulation

andtoensuretheagencylimitsitsactionstocertainacceptablechannels.Inaddition,itcan

beusedinspecialcircumstancesorspecialcasestomakeallowancesasspecific

circumstancesdemand.Exemptionscanalsoenablealawtobepassedthatotherwise

wouldmeetwithtoomuchoppositionfromentrenchedinterests.

Byspecificallyexemptingacompany,industry,orotherfavoredgroup,congressties

thehandoftheagencythatitdelegatedtoandlimitsitsfreedomofaction.Sodoingcan

allowfordistributionalbenefitstokeyconstituents,whichhavepositiveelectoral

ramificationsformembersofcongresswhoensuretheexemptiongetsimplementedand

therebyensuresthattheagencycannotthreatentheprotectedinterestgroup.

Duringthecrisis,therewereseveralpiecesofdelegationthatincludedexemption

constraints.Atexampleofanexemptionconstraintduringthisperiodwasaprovisioninthe

Dodd-FrankAct,inwhichtheabilitytosetcapitalrequirementsforfinancialinstitutionswas

delegatedtoregulatoryagencieshoweverSection619oftheactexemptsanumberof

activitiessuchasthepurchaseofUSsecuritiesandcertainhedgingactivities.

TheDodd-FrankWallStreetReformandConsumerProtectionAct,Section113

createdtheFinancialStabilityOversightCouncilanddelegatedsignificantpowers,butit

placedlimitationsonthesesuchasrestrictingtheBoard’ssupervisiontothecompany's

financialactivitiesonly.382

Section763oftheDodd-FrankActexempts,“asecurity-basedswapfromclearing

requirementsifoneofitscounterpartiesisnotafinancialentity”orifthecounterparty“is

382Pub.L.111-203,Section113

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usingsuchswapstohedgeormitigatecommercialrisk”.383TheDodd-FrankActalso

includedasectionthatexemptsstate-registeredinvestmentadvisersfrom“certain

restrictionsoninvestmentadvisorycontracts.”384

Exemptionsfromregulationwerealsogivenforloansthatareguaranteedbythe

FarmCreditAdministration.Theseloansdidnothavetherequirementthatsecuritizers

keepaportionofthecreditriskthatcongressplacedonsecuritizersofotherresidential

mortgages.

TheConsumerFinancialProtectionBureauisgivenvastdomain,butareassuchas

realestatebrokers,accountants,lawyers,autodealers,andcharitiesareallexpressly

exemptedfromthebureau’spurview.Thiskeepstheseindustriesfrombeingadversely

affectedbynewrequirements.Theseindustrieshadfacedrelativelylittlefederalregulation

andthisexemptionattemptedtomaintainthisstatusquo.Thesearepoliticallypowerful

constituenciesthatappearwithinmostcongressionaldistrict,whichinpartmaybeoneof

thereasonstheyhadexemptions.

Bywayofcomparison,compensationconstraints,inwhichcongressmandatesthat

agenciescompensatethoseadverselyaffectedbynewrulesandregulation,wereusedfar

lessandhadmuchsmallereffectsonthefinalpolicythattheirexemptionconstraints

despitetheirsimilarityandthesimilarinstancesinwhichtheywouldtypicallybeused.

5.3.8 Oversight

Congressusesoversightofagenciesandtheotherpartsoftheexecutivebranchto

helpavoidanagentfromsettingacoursethatcongressdoesnotapproveof.Italsoisused

toensuregoodgovernmentandavoidsurprises.DuringthecrisisCongressformalized

oversightofanumberofagenciesbyenshriningoversightprovisionsinthelaw.

IncludedinthesectionoftheHousing&EconomicRecoveryActof2008thatcreated

theFHFAwerecheckstoensurethattheagencyperformedwellandinamannerconsistent

383CRSSummaryofSection763ofDodd-FrankWallStreetReformandConsumerProtectionAct384CRSSummaryofSection928ofDodd-FrankWallStreetReformandConsumerProtectionAct

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withcongress’wishes.AmongstthesechecksisthatthisactcreatedanOfficeofthe

InspectorGeneralwhichisapositionappointedbythepresidentwhichmustbeconfirmed

bythesenate.

Amongotherdelegationsofauthorityduringthisperiodwastheincreaseinthe

authorityoftheComptrollerGeneral,whoistheheadoftheGovernmentAccountability

Office.Thishelpedconstraintheactionsofagenciesthatweredelegatedadditionalpowers

duringthefinancialcrisis.Inaddition,therewasaSpecialInspectorGeneralforTARP

(SIGTARP)thatwascreatedtoallowforincreasedscrutinyofTARP.Otheroversight

includedaCongressionalOversightPanel,theFinancialStabilityOversightBoard(FSOB),and

additionalrequirementsfortheGovernmentAccountabilityOffice(GAO)andthe

CongressionalBudgetOffice(CBO).Thisseriesoforganizationsandagencieshelpedensure

thattheconsiderablefundsusedforTARPwereexpendedinamannerconsistentwith

congress’wishes.Theseoversightagencieshaveanumberofdifferentforms.

TheFinancialStabilityOversightBoard(FSOB)wascreatedtooverseethe

DepartmentoftheTreasury’sactionsvis-à-vistheTARPprogram.Itwasmostlycharged

withlookingforwasteandabuseandrecommendingchangestominimizethese.However

italsohasmorethanjustanadvisoryrole;ithasthepowertoensurethatitsactionsarein

accordancewiththeneedsoftheUnitedStateseconomy.Itissuesaquarterlyreportto

congressandtotheCongressionalOversightPanel.TheFSOBisatemporaryboardthatwas

setuptodealwiththisonespecifictask.Themembersoftheboardareprominent

membersoftheadministrationandtheyheadexecutivebranchagencies.Inparticularthey

aretheChairmanoftheBoardoftheFederalReserve,theSecretaryoftheTreasury,

DirectoroftheFederalHousingFinanceAgency,ChairmanoftheSecuritiesandExchange

Commission,andtheSecretaryoftheDepartmentofHousingandUrbanDevelopment.This

delegationbycongressthusalsohelpsassurethatagenciesareworkingtogether.

TheCongressionalOversightPanel(COP)wasalsoestablishedbytheTARPAct.Itis

constitutedofmembersofcongressandisgivenaroleinensuringapropermanagementof

TARPfunds,overseeingfinancialmarkets,andensuringtheregulatorysystemforthese

troubledassetsandthosethatparticipateinthemarketcontributetotheemergenceof

healthy,longtermmarketforthesesecurities.Thispanelwaschargedwithissuinga

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monthlyreporttocongressstatingtheirfindings.ThishelpsensurethatTARPgets

continuedattentionandoversightfromcongress.Thecongressassignedfiveexpertstothis

boardinaroughlynon-partisanmannerthathasrepresentativesappointedbyboththe

SenateandtheHouseofRepresentatives.Inaddition,thispanelwaschargedwithcreating

aone-timereportregardingregulationbyJanuary20,2009detailingpotentialreformsto

theregulatoryschemethatwasinplacethatmightprovebeneficial.

TheCongressionalOversightPanelwasatemporarypanelthatcongressdesignedto

terminateonorbeforeDecember31,2009.Somemembersofthispanelweremembersof

congressandotherswereoutsideexperts.Thusthisadhocpanelwasnotcompletely

nonpolitical.OnFebruary6,2009theCOPissuedareportstatingitsfindingthatthe

TreasuryDepartmenthadpaidfarmorethatmarketvaluefortheassetsthatitpurchased.

Thisoverpaymentof$78billionforanestimated$176billionworthofassetswasopposed

totheEmergencyEconomicStabilizationActof2008andtheexplicitmandateofTARP

whichisrequiredtosafeguardpublicfundsratherthantosubsidizefinancialinstitutions.

TheCOPsummarizeditsviewonTARPbysaying,"Inparticular,thePanelseesnoevidence

thattheU.S.TreasuryhasusedTARPfundstosupportthehousingmarketbyavoiding

preventableforeclosures."385Theyalsosaid,"Althoughhalfthemoneyhasnotyetbeen

receivedbythebanks,hundredsofbillionsofdollarshavebeeninjectedintothe

marketplacewithnodemonstrableeffectsonlending."386Thiscriticismfocusesonthe

program’svalueandisabroadercriticismthanwhetherithadlaxcontrolthatallowed

fraud.Thissortofoversightcanbeimportantthoughlittleultimatelycamefromthe

concernsthatwerevoicedbytheCOP.

AnotherbodyinthelegislativebranchtaskedwithoverseeingTARPfundswasthe

GovernmentalAccountabilityOffice(GAO).TheGAOoverseestheactionsofmuchofthe

executivebranch,butthey,andinparticulartheheadoftheGAO,weregivenspecific

guidanceastotheoversightoftheadministrationoftheTARPprogram.Theheadofthe

GAO,whoistheComptrollerGeneral,ismandatedtodoanannualauditofTARP.This

legislationrequiredtheTreasurytomaketherelevantdataanddocumentsrelatedtothe

385CongressionalOversightPanel.TheSecondReportoftheCongressionalOversightPanel:AccountabilityfortheTroubledAssetReliefProgram.January9,2009.Pg.10.386CongressionalOversightPanel.TheSecondReportoftheCongressionalOversightPanel:AccountabilityfortheTroubledAssetReliefProgram.January9,2009.Pg.20.

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TARPprogramavailabletotheGAOtoperformthenecessaryanalysisandoversight.The

GAO’sroleistokeepcongressappraisedastoTARP’sactivitiesandoverseethem.Inthis

senseitactstogatherandcompiledata,andtoactasasourceoffirealarmsforcongresson

theissue.However,theabilityofGAOtoactuallyenactchangesisquitelimited.It

suggestedanumberofchangestotheTARPprogramwhichcouldhelprectifyaperceived

lackofcontrolsinplaceontheprogram.Someofthesesuggestionswereacceptedand

somewererejectedbytheOfficeofFinancialStability.NeelKashkari,thechairmanofthe

OFS,rejectedtheGAO’skeysuggestionofaddingadditionalreportingrequirementsfor

banks.Thisdidnotallowcongresstohavethelevelofcontrolandinfluencethatcongress

wanted.MembersofcongresssuchasRep.ElijahCummingsandSpeakeroftheHouse

NancyPelosiagreedwiththeGAO’sfindingsandwishedadditionalauditingmechanisms

andfinancialcontrolswereputinplace.SpeakerofthehousePelosiwentsofarastosay

thattheTARPprogram,"isnotaccountabletoAmericantaxpayers."387

ThisactalsocreatedaSpecialInspectorGeneralforTARP(SIGTARP)tohelpwith

oversightoftheTARPprogram.Thispositionlikesomanyotherswasdesignedsothatit

wouldbeappointedbythepresidentandapprovedbycongress.Thisenablesboththe

presidentandthecongresstohavesomeinfluenceonthisindividualandtomakesurethat

theindividualselectedgenerallyhasthesamegeneralpositiononkeyissuesasdothe

presidentandthecongress.TheSpecialInspectorGeneralischargedwithinvestigatingand

monitoringtheactionsoftheOFSinadministeringtheTARPprogram.SimilartotheGAO,

partofSIGTARP’sresponsibilityistoreporttheirfindingstocongress.Inthecaseof

SIGTARPtheyarerequiredtoreportontheTARPprogramonceperquarter.Thispositionis

separateanddistinctfromthepositionoftheInspectorGeneraloftheU.S.Departmentof

theTreasury.BycreatinganewpositionithelpedkeepconstantfocusontheTARP

programevenaftersomeofthemediaspotlighthadlessened.TheSpecialInvestigator

GeneralforTARPwasconfirmedonDecember8,2008.Thejobofoverseeingsuchalarge

programrequiredsignificantresourcesthatwereavailabletotheSpecialInvestigator

GeneralbyusingtheresourcesoftheOfficeoftheSpecialInspectorGeneralforthe

TroubledAssetReliefProgram.Thisofficehasanumberofagentsauthorizedtomake

arrests.Itthusservesasalawenforcementagencyaswellasitsoversightfunction.The

387Kelley,Matt.“GAOcallsformoredetailsonuseofbailoutfunds.”USAToday.December13,2008.

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SIGTARPinsomeinstanceshasbeenabletostopmalfeasance,hasrecoveredover$150

millioninassets,andhasledtotheconvictionof14individualsforfraud.Havingnumerous

overseersledtovariousviewpointsbeingvoiced.ForinstanceNeilBarofsky,theSpecial

InvestigatorGeneraloftheTroubledAssetReleaseProgram,wasverycriticalofthebailout

oftheAmericanInsuranceGroup(AIG)whichraisedtheprominenceofthatdecisioninthe

publicdiscourse.388

TheSIGTARPstatedthat,"Inadequateoversightandinsufficientinformationabout

whatcompaniesaredoingwiththemoneyleavestheprogramopentofraud,including

conflictsofinterestfacingfundmanagers,collusionbetweenparticipantsandvulnerabilities

tomoneylaundering”.389

Dodd-FrankActcreatesanombudsmantoactasaliaisonbetweenaretailinvestor

andtheSecuritiesandExchangeCommission.Theombudsmanactsasanadvocate,but

alsoactsinanoversightrole.TheDodd-FrankActalsoaddednewwhistle-blower

protectionsthathelpedproduceadditionaloversightoftheindustryandtheadministration

withrelativelowcostintermsoftimeofgovernmentresources.

5.3.9 Spending Limits

EpsteinandO’Hallorandefineanactashavingspendinglimitsifitdefines,“a

maximumamountthattheagencycanallocatetoanyactivityorsetofactivities,either

statedexplicitlyorinaformula”390thislimitisimportantasitcanlimitthescopeofan

agency’sprogramsandcanalsohelpprioritizeactions.Thiscanhelpcongressprotect

constituentsorallowittobeseentotackletheissuesofthedaywithoutgivingtoomuch

authoritytoexecutiveagents.Itcankeepexecutiveagenciesincheckbyeffectivelysetting

theiragendaandcapabilities.Itcanalsohandicapagenciesandmakethemdependenton

activistgroupsorindustry.Thiscanleadtoagencycaptureoraweakineffectualagency

whichmaybewhatcongresswishessuchaswhencreatingaregulatingagencythatis

388Wagner,Daniel.“LawmakersSeeksFedAuditafterCriticalAIGReport”TheMemphisNews.November19,2009.389Duthel,Heinz.EuropeanDebtCrisis2011.IACSociety.2010.Pg.39.390EpsteinandO’Halloran.101.

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popular,butthatcongressdoesnotwishtohavetoomuchabilitytoregulateanindustry.

Congresscanputacaponspendingtoensurethattheagencydoesnotchangepriorities.It

alsolimitstheamountofdiscretionthattheagencyhastomakecase-by-casedecisionson

spendingprioritieswhichisoneofthemainpowersthatagenciestypicallyhave.Spending

limitsandbudgetscanbeanexantecontroldevicethatprincipalscanusetocontrolagents.

Despitetheirabilitytoconstrainactionsandsetpriorities,therewasrelativelylittle

useofspendinglimitconstraintsduringthisperiod.Themostnotableuseofspendinglimit

constraintswasTitleXIIIDodd-FrankAct,whichwasalsoknownasthePayItBackAct.This

actlimitedtheamountofTARPfundsthattheSecretaryoftheTreasurywasauthorizedto

haveoutstandingatanygiventimeto$475billion.Similarly,itincludedarescissionofused

fundsfromtheAmericanRecoveryandReinvestmentActof2009.However,otherthanthis

act,thistypeofconstraintwaslargelyunused.

5.3.10 Appointment Power Limits

Appointmentpowerlimitsareconstraintsonwhocanbeappointedtopositions.

Therearesomeminorconstraintsonappointmentsthathadalreadybeeninplacesuchas

thatmanypositionsrequiretheadviceandconsentoftheSenate.Thepresidentwiththe

adviceandconsentofthesenateappointstheheadsofeachofthecabinetlevelagenciesas

wellasotherkeypositionssuchasdeputysecretariesandundersecretaries.Thiscomes

fromtheAppointmentsClause391oftheU.S.Constitutionthatgivesthepresidentthe

authoritytoappointall“OfficersoftheUnitedStates”.Thephrase“consentofthesenate”

aslaidoutintheconstitutioninpracticemeansthatwhenthepresidentialnominateshis

nomineesforthesepositionstheymustbevotedonandapprovedbytheSenate.While

thisiscertainlyalimitonthepresidentitisrequiredofmanyappointments.Thispaperis

focusedprimarilyonnewappointmentpowerlimitsthatgobeyondthislowthresholdto

constraintheagentevenfurtherduringthisperiod.

391UnitedStatesConstitution,ArticleII,Section2,Clause2.

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Appointmentpowerconstraintsareanothertypeofconstraintthatwereused

sparinglyduringthecrisisandintheperiodfollowingit.Somerestrictionswerelaidoutfor

thenewofficesandagenciescreatedduringthecrisis,suchasthatoneofthevoting

membersoftheFinancialStabilityOversightCouncilneedstohaveknowledgeofthe

insuranceindustry.However,theneteffectoftheconstraintswasrelativelyminimaland

didnotgreatlyaffectthepolicycreatedduringthisperiod.

OtherappointmentpowerconstraintswereincludedinTheHousingandEconomic

RecoveryActof2008anddecreasedthenumberofboardmembersontheboardsofFannie

MaeandFreddieMacfrom18downto13withthedirectoroftheFederalHousingFinance

Agencyabletochangethisnumberattheirdiscretion.Theactalsostripsthepresidentof

appointmentpowerfortheboardsofFannieMaeandFreddieMac.Whichwasperhaps

oneofthemostsignificantoftheseconstraints.Buttheseinpracticewereminorchanges

astheseorganizationswereplacedundertheconservatorshipoftheFederalHousing

FinanceAgencyinSeptember2008whicheffectivelystrippedtheboardofitsauthorityand

inNovembertheFHFAreconstitutedFannieMae’sboard.Duetotheconservatorship,the

boardsofFannieMaeandFreddieMacworkatthebehestoftheFHFA.392

5.3.11 Judicial Review

IntheU.S.legalsystemacourtcanlookatthestatutesproposedbyanagencyand

determineifthedelegationiswithinthescopeoftheauthoritygrantedtotheexecutive

branchbytheinitiallawthatvestedtheagencywithpower.Ifitisfoundtoexceedthe

authoritydelegatedandtobeUltraVires,thenthecourtscanoverturnthelegislation.

TheJudiciaryalsohastakenstepstoensuretheexecutiveactionsareappropriate

anditcanoverturnexecutiveactionsthatitjudgesarenotconstitutional.Thissortof

judicialreviewstartedtoincreasearoundthetimethattherebegantobeanincreasein

delegation.Thisisanunderstandabletrendsinceashiftofpowertotheexecutiverequires

392FannieMae.

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someassuranceforotherbranchesthatthereisneithertoogreataconcentrationofpower

noramisuseofpower.

Inmanycases,congresswishestolimitjudicialpowerandauthority.Vaguely

writtenlawsgivethejudicialbranchtheabilitytointerpretlawsandplacetheirownstamp

ontheselaws.Congressthusformulateslawsinamannersothatthejudicialbranchcannot

setitselfupasacompetingpowerwithswayovertheagency.

Judicialreviewcanbeusedtoensurethedecisionmakingprocesswasfairand

followedestablishedguidelines.Ajudgeinthiscasewouldhaveacheckonexecutive

action.Itdiffersfrommanyotherconstraintsinthatitcangiverelieforrecoursetoan

individualpersonorentity.Manyotherconstraintsarebroad-brushattemptstoconstraint

agencyaction,butarelessfocusedonindividualcasesanddetails.

Typicallyevenforapersonorgroupwithlegalstanding,theymusthavefolloweda

processbeforeaskingforjudicialreviewandbeconsistentwiththeexhaustionofremedies

doctrine.Furthermoretheissueathandmustbeageneralcontroversyworthyof

adjudicationandmeettheripenessrequirementstobeheard.Inpractice,itisoftenthe

casethatcasesaredismissedduetoarulingthattheplaintivelackedstandinginthecase

andthusdidnothavearighttobringthecasebeforethecourt.

Ifacourtvacatesanagency’sruleorregulation,itwilltypicallygranttheagencythe

prerogativeofreissuingtheruleinamannerthataddressesthelegalproblemsthatthe

courtfoundintherule.

Byjudicialreviewconstraint,thispaperreferstosomethingbeyondthisbasicform

ofreview.Constraintsofthissortwouldbeprovisionscreatedbycongressthatspecifically

providedamethodofjudicialreviewforanagency’sactions.Inthisway,judicialconstraints

servearolesimilartotraditionaloversight.Thisservesasaconstraintinthatitcanlimitthe

actionsanagencytakesandallowconstituenciesthatareunhappywithagencyactionsto

seekremediation.

Oneofthekeysectionsofthisactcreatesaprovisiontoallowforjudicialreviewof

theactionsperformedbytheTreasuryDepartmentundertheEmergencyEconomic

StimulusAct.TheliquidationprovisionsunderTitleIIoftheDodd-FrankActspecificallylist

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judicialreviewprovisionsforthefinancialcompaniestobeliquidatedifthecompany’s

directorsdonotagreetoliquidate.TheauthoritygrantedtotheFDICandtheSecurities

InvestorProtectionCorporation(SIPC)bytheDoddFrankActtowinddownoperationsof

banksandotherfinancialinstitutionswasspecificallydesignedtobesubjecttojudicial

reviewiftheboardofdirectorsofthecompanythatistobeliquidateddoesnotagreetothe

liquidation.

AspecialjudicialpanelwasalsocreatedaspartoftheUnitedStatesBankruptcy

CourtfortheDistrictofDelaware.ThepanelmustconcurwiththeSecretaryoftheTreasury

beforeacompanycanbetakenoverbytheFDICorSIPCorelsetheTreasurycanappealto

anappealscourtthatcanfurtherbeappealedtotheSupremeCourt.Thepanelthatmakes

theinitialdecision,theOrderlyLiquidationAuthorityPanel,isdesignedsothatitensures

thatthemembersofthepanelhavethenecessaryunderstandingofthefinancialsystemto

evaluatethesituation.

Bydesigningsuchajudicialreviewmethodscongresswasattemptingtoplacea

checkontheauthoritygiventotheTreasuryDepartmentandFDICwhilestillallowinga

case-by-casedecisionwhichcongresswouldhavetroubleoverseeing.Theuseofjudicial

reviewalsoisusefulinshowingtheruleoflawintheliquidationofthesecompanies.It

legitimizestheprocessmorethanifanagencycouldjustliquidateacompanyagainstits

wisheswithoutanyrecourse.

AnotherinstanceofJudicialReviewbeingspecificallyincludedinanactofdelegation

wastheDodd-Frankact.IntheDodd-FrankAct,stateattorneysgeneralarespecifically

givenauthoritytobringcourtcasesonbehalfoftheirstateiftheyfeeltheactisnotbeing

enforced.393Thiswasdesignedtoensurethatpartsofthefederalgovernmentdidnot

neglecttowriteandimplementtherulesandregulationsnecessarytoimplementtheact.

Likejudicialreview,appealsprocedurescanhelpkeepanagencymonitoredandthus

inlinewithcongresseswishesandlesslikelytocreatenegativesurprises.Stepssuchas

givingstandingtoagroupinthelawcanhelplimitagencyactionandcanappeaseinterest

393CRSSummaryofSection1042andSection1422ofDodd-FrankWallStreetReformandConsumerProtectionAct

259

groupshurtbythepolicy,ascongresscanseemtobeonthesideoftheconstituentsand

againstthe“rogue”agency.

Theuseofjudicialreviewconstraintswerecomparativelyminorandhavehadhad

minoroverteffectofpolicythusfar.Whileithasbeenemployedintheinstances

mentionedabove,itwasusedlessconsultingandreportingrequirementsandhadless

affectthanotherconstraintssuchastimelimitsconstraints.

5.3.12 Summary of Constraints Used

Duetothevastamountofdelegationthatoccurredinresponsetothefinancial

crisis,mosteverytypeofconstraintwasusedmultipletimesduringthisperiod,however

thereweredifferencesinprevalenceandeffectofdifferenttypesofconstraints.Typesof

constraintsusedduringthisperiodincludedtimelimitconstraints,consultationconstraints,

reportingrequirements,publichearings,rule-makingrequirements,exemptionconstraints,

compensationconstraints,spendinglimitconstrains,appointmentpowerlimits,andjudicial

reviewconstraints.

Thetypesofconstraintsthatwereusedmostduringthisperiodweretimelimit

constraints,consultationandreportingrequirements,aswellasrule-makingrequirements

andrecommendations.Theseseemedaimedatmakingsurethatapolicywascreated

quickly,butthatthepolicywouldnotoutlivetheneedforitandwouldbephasedoutwhen

itwasnolongerneeded.Theseconstrainttypesalsohelpedensurethatcongressandthe

publicwaskeptawareofproposedchangestopublicpolicyandallowedcoursecorrections

bycongressifpolicyseemedtobemovinginadirectionthatcongressdidnotapproveof.

Otherconstrainttypessuchascompensationconstraints,spendinglimits,

appointmentpowerlimits,constraintsrequiringlegislativeaction,andjudicialreview

constraintswereusedlessfrequentlyandtolesseffect.Theyhadlessbenefitswithregard

todealingwithacrisisandmakingsurethateffectivepolicythatcongresscouldapproveof

wasenacted.

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5.4UseofUnilateralExecutiveAction

Surprisinglylittlesubstantiveunilateralexecutiveactionwastakenbythepresident

inresponsetothiscrisis.Whentherearelargeunilateralpolicyshifts,theyaretypically

enactedbymeansofexecutiveorders,whichareperhapsthemostpowerfultoolthe

presidenthastoshiftdomestic,non-defensepolicy.Theycanalsoallowthepresidentto

takeactionevenwhencongressdoesnotapproveoftheproposedpolicychange.However,

duringthecrisistheuseofexecutiveordersrelatingtothecrisiswasminoraswastheir

results.

Historicallytherehavebeentimeswhenpresidentshavetakenunilateralexecutive

actionattimeswhereitcouldbearguedtheydidnothavetheauthoritybasedonthe

powerslaidoutinconstitutionorthroughexplicitdelegationofpowerbycongress.During

thedepthofthecrisiscongresswasrelativelyunlikelytotrytocurbassertionofpowerby

thepresident,howeverbothPresidentBushandPresidentObamatookrelativelylittle

executiveaction.Thisissomewhatsurprisingjuxtaposedagainstsomeoftheexecutive

actionsthattookplaceinotherpolicyareas.

Arationalpresidentwillbemorelikelytoworkwithcongressratherthantake

unilateralactionifheislikelytogetthepolicyhewantsenactedanyways.However,having

ahostilecongresswillleadthepresidenttoattemptunilateralaction.Ahostilecongress

canbecausedbynumerousfactorsincludingtheresultofthepresidentandcongressbeing

ofopposingparties,apresidentthathasusedunilateralactiontoooftenandhasneglected

congress,oraweakpresidentplaguedbyfailuresorscandal.Duringacrisisoranother

time-sensitivesituationmanyhavehypothesizedthattherewouldbemorepresidential

unilateralactionthantherewouldbeotherwise.Besidesallowingforquickpolicychanges

andtheenactingofpolicywithoutmuchriskoffailure,unilateralexecutiveactioncanalso

beusedtomakethepresidentlookeffectiveanddecisive.

Themainexecutiveordersthatwereissuedinresponsetothiscrisisprimarily

createdboardsandtaskforces,whichprimarilyservedinadvisoryroleswhereintheycould

suggestpolicy,butcouldnotcreateorimplementpolicy.Theboardscreatedbythese

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executiveorderswerethePresident’sEconomicRecoveryAdvisoryBoard,394theFinancial

FraudEnforcementTaskForce,395theNationalCommissiononFiscalResponsibilityand

Reform,396thePresident’sCouncilonJobsandCompetitiveness,397andthePresident’s

AdvisoryCouncilonFinancialLiteracy.398

Mostoftheseboardswerelimitedinscopeandwerealsolimitedinlengthinthat

themajorityoftheseboardshad2-yearsunsetprovisions.Theactualtangibleresultsfrom

theseboardswererelativelyminorwithregardtothesumofgovernmentactionthatwas

takeninresponsetothecrisis.

Inaddition,almostnopolicyfocusedonthefinancialcrisisorfinancialregulation

wascreatedbyunilateralexecutiveaction.Thepresidenthasanumberoftoolsthathecan

usetounilaterallycreateandshapepolicysuchasexecutiveactions,executiveagreements,

presidentialdirectives,presidentialproclamations,andsigningstatements.Manyofthese

canbequitepowerfulandcanallowthepresidenttoessentiallycreatepolicywithoutthe

needtoworkwithcongress.Thiscanbeusefulforcreatingeffectiveandtimelypolicy

especiallyduringperiodsofhighpolarizationbetweentheparties.DuringPresidentBush’s

secondtermandformuchofPresidentObama’stimeinofficetherewasconsiderable

gridlockwithcongressoftenstrugglingtopassbillsandnotalwaysableorwillingtopush

forwardthepresident’sproposals.Withhighpolarizationwewouldexpectexecutive

actionssuchasexecutiveorderstobeamorecompellingwaytocreatepolicyforthese

presidentsandwouldconsequentlyhaveexpectedseveralexecutiveordersmeantto

addressthesystemoffinancialregulationinAmerica.However,neitherpresident

employedsuchexecutiveactionsandinsteadlefttheresponsibilitytocreatetherelevant

lawtocongress,whichwasinturndelegatedtogovernmentalagencies.Thisisjuxtaposed

againstthefactthatboththesepresidentsusedextensiveuseofunilateralexecutiveaction

innumerousareassuchasterrorism,foreignpolicy,minimumwage,stemcellresearch,

nationalsecurity,andimmigration.Theonlymajorexecutiveordersthatcameaboutdueto

thefinancialcrisiswerethosefocusedondeficitreduction,thedebtlimit,andspending

394CreatedbyExecutiveOrder13501whichwasissuedonFebruary6,2009395CreatedbyExecutiveOrder13519whichwasissuedonNovember17,2009396CreatedbyExecutiveOrder13531whichwasissuedonFebruary18,2010397CreatedbyExecutiveOrder13564whichwasissuedonJanuary31,2011398CreatedbyExecutiveOrder13455whichwasissuedonJanuary23,2008

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cuts.Whilethesewerefocusedonfiscalpolicy,theywerenotrelatedtothefinancial

regulatorysystem,butinsteadweretargetedtoaseparateissuethatbecamehighprofilein

theyearsfollowingthefinancialcrisis.

Asstatedabove,thestepsthatweretakenduringthefinancialcrisis,wereminor

executiveordersthatpresidentsBushandObamaissuedinordertoaddresstheeconomic

problemsthenationwasfacing.ThemainexampleofthiswasExecutiveOrder13501which

wasissuedbyPresidentBarackObamaonFebruary6,2009.Thisexecutiveorder

establishedPresident’sEconomicRecoveryAdvisoryBoardasanentitywithinthe

DepartmentoftheTreasury.Thisboardwasdesignedtobeatemporaryboardthatwould

advisethepresidentonhowtoaddressthefinancialcrisis.Thisabilitytoestablishasub-

entityunderthetreasuryisusuallyapowerthatcongresswouldwield,butinthiscase,the

presidentwaswieldingthispower.AsimilarbodywasestablishedbyPresidentObamaby

ExecutiveOrder13564onJanuary31,2011.Thatexecutiveorderestablishedthe

President'sCouncilonJobsandCompetitivenessinordertoadvisethepresidenton

bolsteringtheeconomyandtheprosperityofAmericans.Otherexecutiveordersduringthis

periodtakestepstoincreasetheefficiencyofgovernmentornationalcompetitiveness

establishedthePerformanceImprovementCouncil,399NationalCommissiononFiscal

ResponsibilityandReform,400thePresident'sAdvisoryCouncilonFinancialCapability,401

IntellectualPropertyEnforcementAdvisoryCommittees,402thePresident'sAdvisoryCouncil

onFinancialLiteracy,403andanexecutiveordertostopearmarks.404Anotherattemptto

boosttheUSA’scompetitivenessistheSelectUSAInitiative,whichseekstohaveboth

foreignanddomesticbusinesschoosetoinvestinAmerica.Thisinitiativewasestablished

byExecutiveOrder13577andincludesmanyprovisionsinwhichthepresidentutilizes

powersthattypicallyareusedbycongresssuchasassigningfundsandstafffromthe

Commerceagencyforthisinitiative.Thisexecutiveorderalsorequiredgivingnew

responsibilitiestotheDirectoroftheOfficeofManagementandBudgettohelpimplement

theotherprovisionsintheorder.Oftentheseexecutiveorderstietheauthoritytoissue

399ExecutiveOrder13450400ExecutiveOrder13531401ExecutiveOrder13530402ExecutiveOrder13565403ExecutiveOrder13455404ExecutiveOrder13457

263

executiveorderstospecificlaws.ForinstancetheNationalExportInitiativethatObama

establishedinExecutiveOrder13534wasauthorizedthroughtheExportEnhancementAct

of1992.405ThisExportEnhancementActexplicitlydelegatedauthoritytothepresidentto

takethestepsinthisactandgavehimothergeneralpowerstopromoteU.S.exports.

Manyoftheseexecutiveorderstoucheduponfinancialpolicy,butnonehadfar

reachingconsequencesorwasdirectlyfocusedonreformingthefinancialregulatory

environmentoronrespondingtothecrisis.

Thusthoughthepresidentcouldhavetakenunilateralactiontocreatenewpolicy,

thebulkofthepolicycreationtakeninresponsetothefinancialcrisiswascreateddirectly

bycongress,wasformallydelegatedbycongress,orwasassertedbytheexecutiveagencies.

Thislackofunilateralexecutiveactionappearsinlargepartduetothefactthat

therewasconsiderablepublicsentimentforreformandaroundtheperiodofDodd-Frank

Act,whenmuchofthefinancialreformwasbeingdecided,DemocratscontrolledtheHouse,

theSenate,andthepresidency.Thustheywereabletoenactmuchortheirpreferredpolicy

changesinlegislationratherthanneedingtouseexecutiveorders.Manyofthechanges

thatDodd-Frankbroughtaremorepopularwithliberalratherthanconservativegroups.

Manytypicallyright-leaningorganizations,suchastheU.S.ChamberofCommerce,came

outagainstmanyofthenewrequirements,whilemanyleft-leaninggroupshavelaudedthe

additionalregulation.Lawmakersalsoemphasizesthepoliticaldivideonthisissue.Senator

Dodd,whowasatthetimetheChairmanofTheSenateCommitteeonBanking,Housing,

andUrbanAffairsandwasoneofthenamesakesoftheDodd-FrankAct,said,"Icouldhave

triedtodraftsomethingthatwas,sortof,alreadyacompromiseofideashere,butIthink

youmakeahugemistakebydoingthat.You'regivenveryfewmomentsinhistorytomake

thiskindofadifference,andwe'retryingtodothat."406Thebillpassedinaverypartisan

votewithessentiallynoRepublicansupport.Furthermorethepresidentputforwardsome

oftheprovisionssuchastheVolkerRulethatlaterbecamelaw.

Earlyinthecrisis,whenPresidentBushwasstillinoffice,hesitancytotakeexecutive

actionseemedinpartanattempttodistancethepolicyresponsesfromhimselfbecausehe

405PublicLaw102-429406ApplebaumandDenis.2009.

264

hadarealizationthathislegacywastarnishedandpolicythathecreatedtohandlethecrisis

wouldstartoutstigmatizedandpotentiallywithouttheadequatetrustthatwasneeded

duringthatperiodtosettlemarketsandboostpublicsentiment.HenryPaulsoninhis

memoireofthecrisisessentiallyascribedthesemotivationsforthereasonmuchofthe

policycreationwasdelegatedeitherexplicitlyorimplicitly.407Itseemslikelythat

motivationsfordelegatingwouldalsobeareasonableexplanationforforgoingunilateral

executiveaction.TimothyGeithner’sassessmentofBush’sroleinthefinancialcrisisseems

largelyconsistentwiththatofHenryPaulson’sandthusitlendscredibilitytotheattribution

ofthesemotivationssinceunlikePaulson,Geithnerwasfarmoreliberalandlesslikelyto

paintPresidentBushinaflatteringlight.

5.5UseofImplicitDelegation

Therewerenumerousinstancesofdelegationthattookplaceduringthisperiod.

Thesedelegationsdidnotalltakeplaceinthesameway.Therewereaprofusionof

methodsofdelegation.Therewerebothactsofexplicitdelegationwherecongresspassed

alawgivingpowerandauthoritytobureaucratsandimplicitdelegationwherethe

administrationassertedapowerthathadnotbeenexplicitlydelegatedorwhichcamefrom

theconstitutionandthecongressdidnottakeactiontoquestionthispotentialtransferof

authority.

Byimplicitdelegation,thispaperreferstoinstanceswheretheadministrationora

governmentalentitydeclaresthattheyhaveapowerandusethispowertoaffectpolicy

despitethefactthatthepowerwasnotexplicitlydelegatedtothatpoliticalentity.This

paperwillrefertothisasdelegationbecausethecongressandthecourtsdidnotchallenge

thesetransfersofpowerfromthelegislativetotheexecutivebranchandthesepowers

becomeinformallysolidifiedinthenewbranchsothatevenafterthecrisis,remnantsof

thesenewpowersremainwiththeirnewwielders.Insofarascongress,whichhasthe

407Paulson,Jr.,HenryM.OntheBrink:InsidetheRacetoStoptheCollapseoftheGlobalFinancialSystem.NewYork:BusinessPlus,2010.

265

powertoforestallsuchtransfersofpower,takesnostepstodoso,theyareaffectively

lettingpowerbetransferredtoanagenttoactontheirbehalforinotherwordsare

effectivelydelegatingtotheotherentity.

Therewereseveraltypesofimplicitdelegationduringthisperiod.Anexamplewas

whentheFedandTreasuryDepartmenttookextraordinaryactionstostopfinancial

companiesfromfailingthoughtheyhadnotformallybeengivensomeofthepowersthey

exercised.Stillcongressgavethemslackanddidnotquestionthisdeclarationofauthority

thoughitcertainlycouldhavecontrolledthepowerthisway.Infact,theacceptanceof

congress’acceptanceofthetransferofpowertotheadministrationcanbeseeninBarney

Frank,ChairmanoftheHouseCommitteeonFinancialServices,toldSecretaryofthe

Treasurythatheshouldstretchtheauthoritiesthathehadinhispositioninordertoresolve

thecrisisandthathewouldnotbequestioned.408Thisledtoaquickresponsetothecrisis

andallowedforamorevigorousgovernmentresponsethaniftheSecretaryoftheTreasury

stayedwithinmoreestablishedpowers.

Whencongressisatoddswiththebureaucracyorthepresident,congressholdsthe

finalsay.Almostallactionsofagenciesorunilateralactionsofthepresidentcanbeundone

bycongress.Congresshasthefinalwordinlegislativemattersandwhenalawpassedby

congressconflictswithagencyregulationsortheunilateralactionsofthepresident,the

actionsofcongresshavetheforceoflawandtheotheractionsareeffectively

countermanded.Thusassertionsofpowerthatarenotcontainedintheconstitutionand

whichhadnotbeenpreviouslydelegatedbytheadministrationorthebureaucracyare

effectivelyanimplicitdelegation.

Oncethedepthofthecriseshadpassedandgovernmentbegantofocuson

regulatoryreformandavoidingfuturecrises.Thetypeofdelegationthatwasusedforthe

bulkofthepolicycreationrelatingtotheoverhaulofthefinancialregulatorysystemis

explicitdelegation.Acommonexampleofthisiswhencongresspassesalawthattransfers

powertotheexecutivebranch.Explicitdelegationwasoneofthekeymethodsusedduring

thecrisis.

408Paulson.2010.Pg.XIX.

266

IninstancessuchasTARPorthecreationofConsumerFinanceProtectionBureau

therewasanexplicitdelegationtoanagencyandmembersoftheadministrationthatwas

writtenintolaw.InothercasessuchastheactionsoftheTreasurySecretarytopropup

banksortheFederalReservelendingtoorganizationsthathadnotbeenapprovedof.

TheTermAsset-BackedSecuritiesLoanFacility(TALF)wasanotherprogramthatwas

createdtodealwiththecrisis.Inthiscase,theFederalReservewastheagencybehindthe

programandwithittheFederalReserveattemptedtoincreaselending.Becausethefunds

fortheprogramdidnotcomefromtheTreasuryDepartment,congressdidnothaveto

approvethefunding.However,congressdidpassanactforcingtheFederalReserveto

showhowthemoneywasused.Thisprogramhelpedincreasecreditavailabilityforasset

backedsecuritiesandtherebyincreaseliquidityinthesesecondarysecuritiesmarkets.This

programwasshutdownwellbeforeithadspenttheamountitwasinitiallydesignedto

spend.ByhavingtheFederalReservedeterminethatithadauthoritytoimplementthis

programanditwasabletoself-fundtheprogram,itwasabletotakeactionwithoutgetting

approvalfromcongress.Ultimatelycongresspassedalawthatgaveitoversightofthis

program.

Whilethispaperhasmostlyfocusedonmoreformalmethodsthatcongresshasused

tocontrolorconstrainthosethatweredelegatedto,Congresscanalsouseinformal

methodstosetthefocusofanagency.Forinstance,inJune2008,theSpeakerofthe

House,NancyPelosi,wantedtheCommodityFuturesTradingCommissiontolimit

speculationintheenergymarketandsentalettertothepresidentaskinghimtoguidethe

CFTCtouseitspowerstoenactthischange.Thedemocratsalsoattemptedamoreformal

approachaswellandproposedasimilarmeasureintheEnergyMarketsEmergencyActof

2008thoughtheRepublicans,despitebeingintheminorityhadenoughvotestoprevent

clotureandthusavoteonthemeasure.

Anextensiveviewofitsownpowercanallowanagencytoexpanditsactions

beyondthelimitsofitsformalpowers.Thisisparticularlytruewheretheexactextentor

boundariesofdelegationwerenotspecific.AnexampleofthiswasFDICinsuringforeign

deposits.ThiswasausefulpowerthatenabledittosupportCitibank,whichwasonthe

vergeofcollapseandhadahighpercentageofitsfundscomingfromforeigners.Becauseof

267

Citibank’srelianceonforeigndeposits,itwouldbemoreatriskofabankrunifitcouldnot

insurethesefundssincethemoneycouldbetakenoutanddepositedinanothercountry

wherethedepositswouldbeinsured.

Inaddition,aconsiderableamountofpowerhadbeenpreviouslydelegatedinsucha

waythatpowerswererealizedoncetherewasacrisis.Thedefinitionofemergencywasill-

definedsothattheadministrationandagenciescouldmaketheirowndeterminationon

theirpowers.Manyofthesepowersweregivenbypriorlaws,buthadneverbeforebeen

used.Thesepowersweregivenincaseaneedwouldeventuallyariseinmuchthewaythat

suppliesareprepositionbeforeastormtobetherewhenneeded.

Substantialpowershadpreviouslybeendelegatedandcouldbeusedbymembersof

theadministrationwhenanemergencycalledforthesepowerstobeused.However,asthe

presidentandbureaucracywherethemainindividualsthatcoulddeclareastateof

emergency,thesepowerswereinessencedelegatedtotheadministrationasthe

administrationsawfit.Inordertogivetheadministrationsignificantpowersthese

delegationswerebroadlywrittenandgaveconsiderableleewaytotheadministration.

Thesepriordelegatedpowerswereusedextensivelyduringthecrisis.

6. Conclusion

Congress,thepresident,andthebureaucracyallcancraftandshapepublicpolicyas

canotherentitiesaswell.Themethodbywhichpolicyiscreatedcanexplainsomeofthe

resultsofthepublicpolicysuchasthepoliticalresultsforthoseinvolved,thestructureof

thepolicyandwhatthatmeansforitsdistributivebenefits,itsadaptabilityand

responsiveness,aswellastowhatextentitmeetstheneedsofthenationinthepresent

andmovingforward.

Therearemanyavenuesofpolicyadoptionopentomultiplepoliticalactors.Eachof

theseavenueshasitsownparticularcharacteristicssuchaswhomayutilizeit,whether

therearechecksontheaction,thetimeframethepolicydealswith,itsflexibility,itsability

268

toleverageexpertiseinafield,thetimeframeforitsadoption,anditseffectonpopularity

andpoliticalfactors.Therehasbeenanincreaseinthecapabilitiesandresponsibilitiesof

thebureaucracyandthathasledtomuchpolicymakinggettingshiftedtoexecutive

agenciesaswellasotherentitiessuchasadhoccommitteesandprivateentities.Thispaper

investigatedthemannerinwhichpolicywascreatedtoaddressaseverefinancialcrisisin

hopesoflearningtheconsequencesofthesemethods.

Inacrisisthereareoftenmanyfactorsthatarenotineffectwhenenactingpolicyin

otherperiodswherepolicycanbecreatedinmoredeliberativeway.Whennotinacrisis,

politicalactorsmakedeterminationsaboutwhatpolicyareastheywanttoapproachand

theycancraftabillandgainsupportoftenoveryearsforaspecificcourseofaction.

Likewise,whentheyarenotinthemidstofacrisis,agenciescanstudyanissueuntilthey

haveafullunderstandingandarepreparedtoissuenewpolicy.Inacrisis,duebothtothe

crisisandtohigherscrutinybythepublic,thisisnolongerpossibleandactionneedstobe

takenquicklyandoftenwithoutallthefacts.Thisisnotidealandcanleadtopoorpolicy

beingcreated.Thusbydelegatingtoanexecutiveagency,congressisabletoavoidarushed

policyresponsetoanimportantissueareaandallowanagencywithmoreavailable

resourcesandexpertisetodeterminepolicyinamoredeliberatemanner.Evenwhenthe

policytobecreateddealswithfuturecrises,congressstillfeelsaneedtoactquicklytoquell

theclamorofthepublic.Congressthuscancomplywiththewishesofthepeopleforaction

withoutrushingintopolicycreationwithoutthenecessarygraspoftheconsequencesof

thatpolicy.

Thepresidenthasanumberofpolicy-makingtoolssuchasexecutiveordersand

executiveagreements.However,aswehaveseen,thepresidentplayedarelativelyminor

directroleduringthefinancialcrisisinthatheneithertooksignificantunilateralexecutive

actionnorwasthepresidentdelegatedsignificantnewpowersbycongresstodealwiththe

crisis.Rather,inresponsetothecrisis,thepresidentreliedlargelyonhispowerof

persuasiontoshapepolicyandactedinamannersimilartothatdescribedbyNeustadt.

Wealsosawthatthereweresignificantamountsofimplicitdelegationearlyinthe

crisis.Inthesecases,membersofthebureaucracyassertedpowersandmadepolicy

decisionswithoutexplicitlybeinggrantedpowersbytheconstitution,congress,orthe

269

president.Theamountofimplicitdelegationdecreasedasthecrisisrecededandthefocus

ofgovernmentshiftedfromforestallingthedeepeningcrisistopreventingfuturecrises.

Delegation,bothimplicitandexplicit,wasusedtocreatealargepercentageofthe

financialpolicyduringthisperiod.Thisappearedinparttobeduetocongresslookingto

delegateawaydifficultdecisionstoexecutiveagencies.Aswesaw,therewasconsiderable

supportduringthisperiodfortheabdicationhypothesis.Congressonmultipleoccasions

madeastrategicdecisiontodelegateawayauthorityandresponsibilityinordertohelpits

memberspolitically.

Theactsofdelegationduringthisperiodwerealsomadeinastrategicwayinwhich

theagentsofdelegationandtheconstraintsontheagent’snewpowerweremadewith

specificendsinmind.Agentswereselectedorcreatedforavarietyofreasons,themost

commonofwhichduringthisperiodweretoensureagentindependence,toleverage

agencyexpertise,toensurecoordination,andtofocusattentiononaspecificissueorpolicy

sphere.

Theuseofconstraintsvariedquitewidely,withdifferenttypesofconstraintsbeing

usedfordifferentpurposesaswellasfordifferentcircumstances.Amongthemost

commonconstraintsusedweretimelimits.Thesewereusedbothtoensurethatactions

weretakeninatimelymannerbythosethatweredelegatedpowersaswellastoprovide

enddatesafterwhichadditionalpowersthatweredelegatedtodealwiththecrisis,but

whichwenotneededbeyondthatperiod,wouldrevertbacktocongress.

Thereareoftendifferenttimehorizonsforpolicyindealingwithacrisis.Theremay

bepolicydesignedtodealwiththeimmediateeffectsofthecrisis,policywithaslightly

longertermthatseekstodealwiththeunderlyingcausesofthecrisisandstopthecurrent

crisis,andalongtermtimehorizonthatseekstostopsimilarcrisesfromoccurringinthe

future,fixsystematicweaknesses,orprovidedsafetynetsshouldsimilarcrisesarise.The

needsofthemomentarenotalwaysthelongtermneedsandthereisalwaysthepotential

foroverreactioninwhichforpoliticalreasonsorshortsightednesspolicyiscreatedthat

servesthecurrentinterests,butwillbeunneededlongtermorcouldpotentiallyhave

negativelongtermramifications.Thesepoliciescanbecreatedandenshrinedinlawand

arehardtoundogoingforward.Congressseemstohavetackledthischallengebyrelying

270

heavilyontimeconstraintsandsunsetprovisionsonthepowersthatitdelegatedduringthe

crisis.

Anothercommonconstrainttypeusedduringthisperiodwereconsultation

requirementsthatensuredthatagencieswereworkingtogethertodealwiththecrisisand

werenotmakingunilateraldecisionsandthattheywereinformingcounterpartsor

proposedpolicychangesinatimelymanner.Thiswasdesignedtoensurethatinputfrom

multiplepoliticalactorsweretakenintoaccountandamoreholisticresponsecouldbe

craftedtodealwiththefinancialcrisis.

Rule-makingrequirementsandrecommendationswerealsousedextensivelyduring

thisperiodandhelpedcongressshapethedirectionofpolicyevenwhenmuchofthe

lawmakinghadbeendelegatedtootheractors.Rule-makingrequirementsallowedthe

agentofdelegationtousetheirjudgmentandtakeaction,butitlimitedthescopeofthe

actionorprescribedmethodsbywhichpolicyshouldbecreated.

Bywayofcontrast,othertypesofconstraintssuchasspendinglimitconstraints,

appointmentpowerlimits,compensationconstraints,andjudicialreviewconstraintswere

usedrelativelyinfrequentlyduringthisperiod.Furthermoretheirusehadrelativelyminor

effectsonpolicycreation.Inparttheirdisusewasbecausetheywerelessfocusedonthe

needtoimmediatelycreatepolicyandtherequirementsofhavingmultipleactorwork

togethertocraftacohesiveregulatorysystem,thewaythattimelimitsandconsultation

requirementswere.

Theimplicationsofthisstudycanbeusedindetermininghowbestpolicyshouldbe

madeduringacrisisandthestructureandfeaturesthatwouldbeappropriatetoaccomplish

thenation’sgoals.Italsolaysouttheoftenmorecomplexinterplaybetweenvarious

politicalactorswhichcanbeinvestigatedmoregenerallyinfuturepapers.Inaddition,a

quantitativestudyofalargerperiodmayfindtrendsandtendenciesthatwouldbemore

generalizablethaninthecasestudybasedapproachthispaperputforward.Inadditionthis

paperhasmostlylookedatarecenttimeframe,butaninvestigationcouldbedonetosee

howpolicymakingincrisissituationshaschangedovertimeorifindeedthereare

similaritiesbetweenothercrisessuchastheresponsetoWorldWarII,theGreat

271

Depression,andtheterroristattacksofSeptember11thandtherecessionthatbeginin

2007.

Thispapertriestoanswersomequestions,butitalsoleadstoadditionalquestions.

Oneareaforpotentialfurtherstudyistoinvestigateothertypesofcrisestoseeifpolicy

responseshadsimilarcharacteristics.Itcouldbeusefulindeterminingtheextentof

similaritiesbetweenthegovernment’sresponsetovarioustypesofcrises,betheypolitical,

economic,social,defense,environmental,etc.Forinstancethegovernmentalresponseto

thiscrisisseemedtohaveaparallelinthegovernmentresponsedealingwiththeaftermath

oftheSeptember11th,2001terroristattacks.Itwasvastandconsistedofavastnumberof

governmentalactionstakeninseveralpolicyspacesandbyalargenumberofpolitical

actors.Thisinparticularcouldbeagoodcasestudythatwouldallowforagood

comparison.

272

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