Sweeping acts of government power are certain to have unintended consequences. Americans have seen this truth played out in the conduct of recent wars.
But what are the potential unintended consequences of the sweeping move the government is making now to purchase $250 billion worth of shares in American banks?
One possibility: Government holds the banks indefinitely.
The bailout law hastily enacted by a frantic Congress before its members scurried out of Washington to campaign for re-election does not require the government to surrender the assets it buys from the private sector.
Nor does the law plainly say the government can buy an ownership interest in banks. What it does say is that between now and Dec. 31, 2009, the treasury secretary is authorized to buy "troubled assets." What are those? The law provides two definitions.
Definition "A" is: "residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages." This is probably what many Americans understood to be the target of the bailout.
But definition "B" is a wildcard. It includes "any other financial instrument that the secretary, after consultation with the chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability ... ."
This is the language used to justify government buying stakes even in financially sound banks.
The language controlling what the government must do with these assets once it owns them gives great "flexibility" to the treasury secretary. It says: "The secretary is authorized to take such actions as the secretary deems necessary to carry out the authorities in this act, including, without limitation, the following: ... In order to provide the secretary with the flexibility to manage troubled assets in a manner designed to minimize cost to the taxpayers, establishing vehicles that are authorized, subject to supervision by the secretary, to purchase, hold, and sell troubled assets and issue obligations."
In "minimizing cost to the taxpayer," how long can the secretary "hold" these assets? The law sets no limit.
"We can hold them for as long as we want," Treasury spokesperson Jennifer Zuccarelli told Matt Cover of CNSNews.com earlier this month.
To be sure, permanent government ownership in the banks is not Secretary Paulson's intended consequence. But he won't be treasury secretary next year.