Putting Geithner Under Oath and Otherwise Improving Federal Financial Credibility

Michael Greve’s post on the troubling allegations about Secretary Geithner’s alleged threats against  S & P underscore a very serious structural problem in modern democracy. Careful evaluation of the solvency of democracies is essential to protecting the property and prosperity of citizens. It is particularly important because these governments are structurally prone to overspend and run up debts. Adjusting the credit ratings of sovereigns is not simply commercial speech but the political speech of the highest order. The credibility of government finances goes to the heart of politics.

The difficulty is that those companies who can monitor these finances are themselves involved in the financial services industry. Given that this industry is massively regulated by government, they are subject to potential retaliation, not only through litigation, but probably more importantly through the regulatory discretion of the modern administrative state. Thus, even without explicit threats, rating agencies may pull their punches.

The danger is not a problem unique to the United States. The European Commission has recently forced rating agencies to jump through hoops if they want to rate the sovereign debt of European nations. These rules followed the massive outcry by government officials when rating agencies downgraded debt of many European nations—some toward junk status.

The problem is serious enough that it requires a legislative solution. First, the House Government Affairs Committee should immediately hold a hearing about the allegations that S & P was threatened after downgrading the debt of the United States. Former Secretary Geithner should be put under oath and forced to tell us exactly what he said his phone call to S & P’s chief executive. At the very least, such a hearing will discourage similar conduct to that alleged about the former Secretary. Second, Congress should enact a special whistleblower statute that should reward government employees for reporting threats made against those who report on government’s finances.

The complexity of modern government means that it easier for its leaders to hide the true state of the nation’s finances. The power of modern government also makes it easier for them to punish those who can deliver the message that the emperor has no clothes. We need to put into constrain such unjustified threats and punishments.  By assuring a free flow of information such constraints would in turn make government finances more credible, because government would be acting under the scrutiny of watchdogs with teeth.

Reader Discussion

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on January 24, 2014 at 12:23:48 pm

This 'should' happen and that 'should' happen...I'll tell you what 'should' happen: Every legislator and executive 'should' quit being in gross willful ignorance and/or denial of the obvious, plain-text meaning of the Constitution, and immediately set about working on the most expeditious way to dismantle the monstrosity that is our current Fed gov't, eliminating vast swathes of regs/agencies/dept's, freeing the economy from their deadly drag, returning the private sector to actually being a private sector, not a nearly wholly-owned subsidiary of the Fed gov't. Wealth and freedom would spread. The poor and middle class would particularly benefit. The debt would disappear.

O, I know, you are making sober, rational, and realistic proposals to try and limit the damage. So we can hit the wall at 90 mph instead of 120. This does not end well. But I can dream...

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Jeremy Klein
on February 12, 2014 at 23:24:02 pm

[…] Congress needs to investigate whether administration browbeat Standard & Poor’s over sovereign debt rating [John McGinnis] […]

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Financial and banking roundup | Internet Tax Lawyers

Law & Liberty welcomes civil and lively discussion of its articles. Abusive comments will not be tolerated. We reserve the right to delete comments - or ban users - without notification or explanation.