Lawmaker shock: Bernanke has legal authority to loan Fed Reserve's $888bn to any entity on any terms

While most lawmakers said they trust Bernanke's judgment, (Barney) Frank said he was troubled to learn in the meeting Tuesday that Bernanke has legal authority to use the central bank's reserves, which total $888 billion, to make loans to any entity under any terms he deems economically justified.

"No one in this democracy -- unelected -- should have $800 billion to dispense as he sees fit," Frank said. "It may be that there is so much bad debt out there clogging our system that we may have to have some intervention. But it shouldn't be the unilateral decision of the chairman of the Federal Reserve with the backing of the secretary of the Treasury."

The frenetic pace of the financial crisis has forced the Treasury Department and Federal Reserve to make rapid-fire decisions in recent days, leaving Capitol Hill lawmakers effectively impotent -- and frustrated.
Lawmakers on both sides of the aisle expressed concern yesterday that they have had no control over when and how federal money has been used to curb the panic on Wall Street. While many have been convinced that the moves so far have been necessary to prevent a wider financial meltdown, they said they felt confined to the sidelines as power to make momentous decisions has been concentrated in very few hands.

House Speaker Nancy Pelosi (D-Calif.) said she has dispatched Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, to determine whether Federal Reserve Chairman Ben S. Bernanke should retain authority to unilaterally bail out failing firms, as he did Tuesday with a loan of $85 billion to insurance giant American International Group.

.....

Paulson and Bernanke have taken the lead not only from lawmakers but from President Bush. Bush has left direct management of the crisis to them and other advisers, and has limited his public remarks on the economy. On Tuesday, he canceled plans to brief reporters after meeting with his economic advisers.
Yesterday, asked by reporters why Bush had not addressed the issue of the economy more directly in the midst of a crisis, White House spokeswoman Dana Perino said Bush was wary of holding news conferences in general because he didn't want to distract from the presidential campaign.

.....

Republicans in the House have scheduled a news conference for today to protest the string of bailouts that began in March with Wall Street investment bank Bear Stearns and extended in recent weeks to mortgage-finance giants Fannie Mae and Freddie Mac, as well as AIG. The latest decision was particularly hard to swallow, some lawmakers said, because it came just one day after Paulson refused to intervene to save Lehman Brothers Holdings and indicated that further rescues were unlikely.
"Just how long can the poor beleaguered taxpayer be expected to bear all the losses and bear all the risk?" said Rep. Jeb Hensarling (R-Tex.), one of the protest's organizers. "Lehman Brothers must have the worst lobbyist in town, since they are the only ones that appear to have lost out on the bailout mania."

Republicans and Democrats alike said the crisis is in part the result of insufficient government regulation on Wall Street. Frank and Rep. Henry A. Waxman (D-Calif.), chairman of the House Committee on Oversight and Government Reform, both plan hearings aimed at exposing regulatory failures and developing a new system for managing the bad assets of financial institutions collapsing under the burden of their investments in a plummeting housing market. ..... Pressed by lawmakers at the Tuesday meeting to justify the AIG rescue, Bernanke argued that the insurance giant was deserving of government help because of its broad reach into global financial markets. But several lawmakers said it was not clear to them how Bernanke and Paulson were deciding which firms would be allowed to fail and which would be saved.

.....

Rep. Barney Frank, D-Mass., and chairman of the House Financial Services Committee, said Paulson and Bernanke had not requested any new legislative authority for the bailout at Tuesday night's meeting. "The secretary and the chairman of the Fed, two Bush appointees, came down here and said, 'We're from the government, we're here to help them,' " Frank said. "I mean this is one more affirmation that the lack of regulation has caused serious problems. That the private market screwed itself up and they need the government to come help them unscrew it."

Yet even while emerging as a Washington power broker, Norquist has held on to the irreverent, in-your-face style that has been his trademark since his earliest days as a college activist in the 1970s. "I've been a 'winger' from way back," he says. "I was an anti-Communist first, and then I became an economic conservative. I think I've gotten more radical as I've gotten older." Today, he can barely suppress his glee at how much the movement has succeeded, saying that politics is shifting to the right while he remains constant. "I started out as a right-winger, and when I retire I want to be a squishy middle-of-the-roader," he jokes, chortling at the thought. To Norquist, who loves being called a revolutionary, hardly an agency of government is not worth abolishing, from the Internal Revenue Service and the Food and Drug Administration to the Education Department and the National Endowment for the Arts. "My goal is to cut government in half in twenty-five years," he says, "to get it down to the size where we can drown it in the bathtub."