Ethics laws can’t work
Richard Painter, who drafted and approved the ethics agreement signed by Hank Paulson when he became treasury secretary, has come to the conclusion that such agreements can never really work as intended:
This essay concludes that government ethics law in its current state is not up to the task and that the United States is not prepared to implement bailouts in a manner that will instill public confidence. Although these problems could be alleviated through stricter ethics rules or a more systematized approach to bailouts, most solutions would be more costly than the problems they attempt to solve. Bailouts thus impose a substantial burden on government ethics that may be impossible to remove, in addition to the economic cost bailouts impose on taxpayers. Designing a bailout free economy may be the only acceptable alternative.
Painter’s essay is excellent, and highly recommended, precisely because he offers no solutions to what is an intractable problem. Here’s a little bit:
Requiring Treasury officials coming in from Goldman Sachs or other investment banks to dump their bank stock and stock options may not have been enough when they retain close ties to their former employers. There were also probably too many senior Treasury Department officials from Goldman; perhaps there were too many from the banking industry in general.
This is very true. The saga of the government’s response to the financial crisis is one where all the key decisions are made by bankers, be they of the commercial, investment, or central variety. In a parliamentary system like the UK’s, the finance minister is an elected representative of the people. Of course, as we’ve seen in the UK, that doesn’t necessarily make bank bailouts any more taxpayer-friendly. But at least it serves as some kind of check on the banking industry bailing itself out whenever it gets into trouble.
The impression I get from the current spate of crisis books is that the likes of Paulson and Geithner became entirely consumed with the problems in the financial sector, and viewed political considerations, and the will of the people more generally, as an obstacle to be overcome rather than as any kind of guiding light. That may or may not have been a good thing. But either way, it’s fundamentally undemocratic.