titel „u.s. public policy creation in response to the financial crisis … · 2017. 3. 10. · a...
TRANSCRIPT
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.
2
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.
3
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
4
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
6
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.
7
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.
8
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.
9
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.
10
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
11
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.
12
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.
25
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.
28
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.
36
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,
55
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
56
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
65
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.
101
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
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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.
115
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
142
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.
144
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.
155
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.
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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.
168
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.
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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
174
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/
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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
214
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
251
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.
255
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.
257
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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