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30 Cato J. 451 (2010)
The Rule of Law of the Rule of Central Bankers

handle is hein.journals/catoj30 and id is 457 raw text is: THE RULE OF LAW OR THE RULE OF
Lawrence H. White
Economists often prescribe that countries seeking economic
development should embrace the principle of the rule of law. I want
to suggest that we listen to our own advice and apply it to our mone-
tary and financial system. The principle of the rule of law could use-
fully guide us in resolving the extraordinary situation we have been in
for the past two years or so, and even more importantly help us to
avoid future crises.
The approach of Federal Reserve and Treasury officials during
this crisis, unfortunately, has been to consider every possible remedy
but applying the rule of law.
In case you think I exaggerate, let me quote Ben Bemanke. At a
strategy meeting with other Fed and Treasury officials early in the
crisis he declared, as reported by the New York Times: There are no
atheists in foxholes and no ideologues in financial crises (Baker
2008). Over at the U.S. Treasury, when Neel Kashkari, the Treasury's
chief bailout administrator under Secretary Hank Paulson, was asked
by a reporter how the Treasury would spend the $700 billion in
bailout money that Congress had provided (essentially without
instructions), Kashkari replied that nothing was ruled out. To quote
a news account:  We are looking at everything,' he said. We are try-
ing to figure out what will provide the most benefit to the financial
system'  (Ellis 2008).
If we unpack Bernanke's and Kashkari's messages, here is what
they were saying: 'When we in authority declare that it is time to
Cato Journal, Vol. 30, No. 3 (Fall 2010). Copyright @ Cato Institute. All rights
Lawrence H. White is Mercatus Professor of Economics at George Mason


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