The Geithner Plan and Congress

One aspect of the Geithner plan that I think people aren’t focusing enough attention on is that unlike the other main alternative approaches, it can be executed without further congressional approval. The reason is that there are federal agencies with a standing authority to make loans. And though the plan does have a potentially giveaway structure, technically what’s being offered aren’t subsidies but no recourse loans. Or to put it another way, the subsidies are in the form of no recourse loans rather than direct appropriations, so the government has the authority to move forward under existing TARP legislation and other laws. That, I think, clearly explains the somewhat byzantine structure of the plan’s operations and is also, if you’re sitting in the West Wing, a considerable advantage over a nationalization plan that would require large additional appropriations to cover the debts of nationalized institutions.

That’s all a bit on the underhanded side, and it certainly doesn’t count as a good economic reason to do things this way. But could it be a good reason, in general? Arguably, it is. In addition to a financial crisis, we have a crisis in our health care system and an ongoing climate/energy crisis. One thing you might want to consider as you read Paul Krugman’s columns is how you would feel about the idea of the administration burning political capital on the Hill to secure authorization for bank nationalization that could otherwise be used to secure support for the administration’s health care and energy policies.

I’m not even sure, personally, that I believe in the “political capital” metaphor. But people in Washington generally do. And if you’re Barack Obama and getting conflicting advice on the merits, I can easily see this kind of calculation tipping you toward conserving your chits on the Hill for the budget battle and related fights.