Bair’s Bailout Plan | Turning the Corner on Torture

Bair’s Bailout Plan—Barack Obama’s Treasury Secretary-designate Timothy Geithner and senior economic adviser Lawrence Summers have dominated the shaping of policy and news coverage of the new White House economic team. Sheila Bair isn’t even part of it. The director of the Federal Deposit Insurance Corporation (FDIC) is a Bush appointee, whom many assumed would resign after Obama took the presidential oath on January 20. In fact, it was widely reported that Geithner, who served as chief executive of the New York Federal Reserve Bank before being named Treasury secretary, wanted Bair to go. But while Geithner was trying to explain how he became a tax scofflaw, paying $48,000 in delinquent income taxes on the eve of his nomination, Bair was selling her bailout program to the Congress and the public.

Her plan for mortgage relief, which would benefit both homeowners and lenders, was incorporated into a bill introduced by House Financial Services Committee chair Barney Frank (D-MA). Her pitch for an aggregator bank that will buy bad assets—then hold them, sell them, or securitize them—has been discussed in forums as diverse as the Wall Street Journal and Nouriel Roubini’s RGE Monitor. Bair’s aggregator bank provides more structure than the Paulson Plan, under which former Treasury Secretary Henry Paulson put money into private banks, many of which used it to pay dividends or acquire other banks, rather than lend it to ease the credit crisis. And Bair’s nationwide loan-modification program, which has already been road-tested in the FDIC takeover of failed IndyMac Bank, is designed to prevent mortgage defaults—which, the public has come to understand, has been the underlying cause of the financial crisis.

Frank now appears to have the Obama administration committed to dedicating $100 billion to relief for borrowers facing foreclosure, even if his bill defining the program is unlikely to pass the Senate. All in all, more structure and transparency than we got from the Paulson Plan, which was worked out with Geithner in the room with the former Treasury secretary—and which has already burned through the first half of the original $750 billion Troubled Assets Relief Program.

Turning the Corner on Torture—With just three words spoken before the Senate Judiciary Committee, Attorney General-designate Eric Holder took an enormous step toward returning the United States to membership in the community of civilized nations, which clearly define certain inhumane practices as “torture” and prosecute individuals who practice or ordain torture as state policy. “Waterboarding is torture,” Holder said. The simple declarative sentence stands in stark contrast to outgoing Attorney General Michael Mukasey’s tortured equivocation to senators’ questions on waterboarding on the occasion of his nomination to the office by George W. Bush in October 2008. “It is not constitutional for the United States to engage in torture in any form, be it waterboarding or anything else…If it amounts to torture, then it is not constitutional.” Mukasey refused to say, however, that waterboarding is torture.There was a reason for his reluctance. The attorney general is bound by law to prosecute individuals who break the law or violate treaties to which the United States is a signatory. Torture is a crime. By taking the position that waterboarding is torture, Mukasey would have been required to prosecute. President Obama has indicated that, as far as this issue is concerned, he intends to move on, because the country has so many pressing needs. It will be interesting to see in which direction Attorney General Holder moves.

Holder is not the only Obama appointee reclaiming the moral high ground on torture. Dawn Johnsen, who will direct the Department of Justice’s Office of Legal Counsel (OLC), has been an outspoken critic of Bush human rights abuses. “We must instead be honest with ourselves and the world as we condemn our nation’s past transgressions and reject Bush’s corruption of our American ideals,” Johnsen wrote in the online magazine Slate in March 2008. In an interview with the Washington Spectator in late November, more than a month before she was appointed to the OLC position, Johnsen said it will be difficult for President Obama’s attorney general to ignore crimes committed by the Bush administration (Washington SpectatorDecember 1, 2008).

Johnsen won’t be making prosecutorial decisions; the OLC advises the president and vice president. It was former OLC director John Yoo who wrote the infamous “torture memo” for Bush, green-lighting interrogation practices that most nations consider torture. Dawn Johnsen’s appointment as OLC director is a strong signal that the Obama administration will be attending to the nation’s human rights obligations.