It is an extraordinary remedy for extraordinary situations, and if we reach for that remedy we should be prepared for the consequences.
Over at his Economics One Blog, (link no longer available) economist John Taylor discusses a recent speech by the former Wells Fargo Chairman and CEO Dick Kovacevich, who explains how he was forced to take TARP funds by U.S. Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke:
In his speech, Kovacevich first described how he and the other bankers were told at that meeting that they had to accept the funds. He then paused and said to the Stanford audience: “You might ask why didn’t I just say no, and not accept TARP funds.” He then explained: “As my comments were heading in that direction, Hank Paulson turned to Chairman Bernanke, who was sitting next to him and said ‘Your primary regulator is sitting right here. If you refuse to accept these TARP funds, he will declare you capital deficient Monday morning.’ This was being said when we were a triple A rated bank. ‘Is this America?’ I said to myself.”
At that time Wells Fargo was in process of acquiring Wachovia and such a declaration would have killed the deal. According to Kovacevich: “It was truly a godfather moment. They made us an offer we couldn’t refuse.” It was also truly a deviation from the principles of economic freedom, such as those I have highlighted in my book First Principles—predicable policy, rule of law, reliance on markets, limited scope for government. One can debate whether those deviations were appropriate, but they were clearly deviations.
During the question and answer period after his talk, I asked Dick Kovacevich why more business people were not speaking out on this important issue. He explained how he had in fact waited a long time after he left Wells Fargo before speaking out because he did not want to risk some kind of retribution. He said he thought many others had a “fear” of speaking out.”
Obviously, this is reprehensible. It clearly indicates how big government can stifle freedom. But the more interesting question for me is whether these are impeachable offenses.
Let us assume, as seems evident, that Paulsen was threatening to take government action for illegitimate and illegal reasons. If the government had declared Wells Fargo capital deficient and somehow explained the reasons for its decision, the action would be illegal and would be declared so by a court in a heart beat. Presumably Paulsen’s action here – threatening to engage in an illegal action if someone does not agree to one’s request – might violate other civil or even criminal laws unless there are special exceptions for government officials.
There is some controversy about whether a government official must violate the law in order to have committed an impeachable offense. It is my impression that a majority of scholars who have studied the matter hold the view that the official need not violate the law so long as he violates an important norm of government action. If one assumes the truth of Kovacevich’s account, Paulsen’s action certainly violates an important norm of government action. But Paulsen is no longer “a government servant.”
If Paulsen is arguably guilty of an impeachable offense, then what about Bernanke? He sat there and allowed Paulsen to claim that he, Bernanke, would take an illegal action unless Wells Fargo took the action both Paulsen and Bernanke wanted it to take. Since the two of them were representing the government in the meeting and were speaking for one another, it is easy to conclude that they were engaged in a joint enterprise. Thus, I think there is a reasonable basis for concluding that Bernanke is also guilty of an impeachable offense.
So why doesn’t the House now undertake an investigation to determine whether to impeach Bernanke? Well, I suppose there are numerous reasons, including the political one that Paulsen and Bernanke were Republican appointees. Still, one would hope that the more anti-big government faction of the Republican Party in the House — the Representatives associated with the Tea Party, and Ron Paul, who still sits in the House — would consider the action. It would both serve the cause of freedom and help to show the dangers of big government by both parties.