Law professor Robert Lawless says taxpayers are still largely in the dark about exactly why the unprecedented bailout is needed and how it would avert potential economic disaster.
CHAMPAIGN, Ill. – Americans deserve more than just vague warnings of economic doom before their tax dollars are poured into a massive $700 billion rescue of Wall Street, a University of Illinois legal expert says.
Law professor Robert Lawless says taxpayers are still largely in the dark about exactly why the unprecedented bailout is needed and how it would avert potential economic disaster, even as key Democrats and Republicans reported agreement in principle on a deal today.
“The American public is being treated a little like children who can’t be trusted with reality,” said Lawless, a national authority on bankruptcy and corporate law. “Before taxpayers wind up footing the bill, it’s time for government officials to be very specific and upfront.”
Officials likely fear too much detail might set off a panic that could disrupt already teetering financial markets, said Lawless, one of seven regular contributors to Credit Slips, a blog that focuses on credit and bankruptcy.
“I’ve not heard an explanation of what happens if we don’t do this, beyond some very vague generalities, or an explanation of how the mechanisms in the bailout would prevent credit markets from seizing up,” Lawless said. “The American people deserve more specifics.”
Under the rescue plan, the government would buy up mortgages and other bad debt of cash-strapped financial firms in an effort to keep them from going under, which officials warn could spark a potentially severe recession.
Lawless says any bailout should provide for congressional oversight, rather than handing unfettered control to an executive branch that has invoked executive privilege with ever-increasing frequency during the last two presidential administrations.
“I think the latest proposals for a congressional oversight commission are a step in the right direction, but Congress needs to reserve the right to examine any aspect of this bailout plan, even if they don’t exercise it,” Lawless said. “It’s Civics 101, dividing up power among the three branches of government so no one branch becomes tyrannical.”
Lawless supports a Democratic push that would allow bankruptcy judges to rewrite mortgages to ease the financial load on homeowners facing foreclosure by reducing interest rates or even home values for primary residences.
He says bankruptcy judges can now rewrite debt on secondary residences, boats and other loans, and that adding primary residences merely restores powers judges had until they were stripped by a U.S. Supreme court ruling in 1993.
“It’s not as though the sky fell in back then,” Lawless said. “There are benefits for both sides. It protects the lender up to the value of the property and at the same time keeps people in their homes.”
Editor’s note: To contact Robert Lawless, call 217-244-6714; e-mail rlawless@illinois.edu
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