Senators Want Court Review Of Bailout

WASHINGTON - Although Treasury Secretary Henry Paulson told the Senate Banking Committee Tuesday that the taxpayer-funded rescue of the nation's financial sector should be subject to "strong oversight," his version of oversight apparently does not include judicial review.

A part of the Bush administration's bailout plan drafted last weekend would essentially inoculate the treasury secretary against lawsuits with respect to how he doles out up to $700 billion across the market. That section has drawn opposition from lawmakers on both sides of the aisle.

'Immune to Any Accountability'

"This provision makes your actions, and the actions of the future Treasury Secretary, completely immune to any accountability whatsoever," Sen. Michael B. Enzi, R-Wyo., a member of the Senate Banking Committee, wrote in a question submitted before the hearing. "Why is Treasury asking for blanket immunity for their actions?"

A spokeswoman for Enzi said the senator is still waiting for an answer from Paulson or any of the other witnesses at Tuesday's hearing, which included Federal Reserve Chairman Ben Bernanke and Securities and Exchange Commission head Christopher Cox.

Individual Control of Market

Congress has struggled to hash out the myriad of details on legislation that would trigger the most expansive government intervention into the economy since the Great Depression, potentially vesting enormous powers in Treasury to stabilize financial markets. And while Paulson has accepted the notion of oversight, critics inside and outside Washington worried about the complete lack of judicial review in the administration's plan.

"Vesting a single unelected official with the right to basically control a large part of the market is dangerous at best," said Darren Robbins, a partner with San Diego's Coughlin Stoia Geller Rudman & Robbins. "To also have that person be somebody who has immunity from any private right of action is a recipe for disaster."

The sheer size of the bailout and the number of high-stakes decisions to be made likely would generate many opportunities for lawsuits, according to veteran antitrust litigator Maxwell M. Blecher of Blecher & Collins in Los Angeles. For example, there could be disputes over who receives government aid and who does not, or over the issue of whether government intervention in a particular area restricts competition.

A proposal from Senate Banking Committee Chairman Chris Dodd, D-Conn., would allow courts to set aside the treasury secretary's decisions if they were found to be "arbitrary, capricious, an abuse of discretion, or not in accordance with the law."

But a version from Massachusetts Democrat Barney Frank, who chairs the House of Representatives' Financial Services Committee, mirrors the administration proposal in eliminating judicial review.

Congress's ability to give away the right to judicial review, which it has done before, depends on the type of challenges raised, said Jonathan D. Varat, a constitutional scholar at UCLA School of Law. Supreme Court cases have held that the release of review on statutory matters does not preclude review on constitutional questions, he said.

While the Dodd and Frank proposals differ on the potential for court involvement, they both call for transparency and accountability, mandating a congressional oversight panel, audits and other measures.

Paulson's embrace of oversight Tuesday was conditional, as he emphasized the need to act quickly.

"I want strong oversight, strong protections, great transparency - and as this develops, I'm sure it will evolve," Paulson said. "But right now we need to get up and running and deal with the market as it exists."

With the November election looming, Congress is scheduled to shut down at the end of this week. But David King, a lecturer at the Harvard's Kennedy School of Government, explained it is not unusual for lawmakers to go into the first week of October to finish important matters. And with a crisis of this magnitude, the members of the banking, finance and appropriations committees will be working overtime until they reach an agreement, he said.

"It won't be the Tuesday through Thursday club," King said.

robert_iafolla@dailyjournal.com

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