Treasury Secretary Mnuchin recently asked the Fed to return some money appropriated by Congress to cover future losses on asset purchases that it might engage in during the Covid-19 epidemic. This action has been highly criticized as the (post-election) timing is suspicious and the pandemic is now getting dramatically worse.  But here I’d like to focus on the politics of the issue.


“The only justification for taking what is a legally questionable act of moving these funds out of the reach of the Biden administration is to salt the Earth, to limit their options, and leave the country in a more dangerous place for political purposes,” said Barofsky, now a partner at the law firm of Jenner & Block. “Full stop. There is no legal justification for this.”

Barofsky was appointed by President George W. Bush in 2008 to oversee TARP funds used to save banks, insurance companies, and automakers during the Great Financial Crisis.

He told Yahoo Finance that there is precedent to reallocating emergency funds, pointing to the Obama administration’s efforts to redirect $225 billion in TARP into the Treasury’s General Fund. Barofsky said an act of Congress was needed to move that money.

For the CARES Act money, Barofsky points to Sec. 4027 of the bill, which notes that on January 1, 2026, any remaining funds are to be transferred into the Treasury’s General Fund for deficit reduction.

“The statute doesn’t allow him to do this until 2026,” said Barofsky.

Ultimately, Barofsky said the Biden administration could choose to ignore Mnuchin’s move and shift the funds back into the ESF once the White House changes hands.

But it was the very next sentence that caught my eye:

But he said he does not expect the Biden administration to take such aggressive action, adding that he also would not bet on the Fed launching a legal challenge.

I don’t understand this claim.  Given that Barofsky believes the action is clearly illegal, why wouldn’t Joe Biden reverse the decision on January 21st?  And why would a reversal be viewed as “aggressive”?  It’s widely expected that Biden will reverse many executive decisions made by the Trump administration; why not this one?

In this post I’m not interested in debating the wisdom of this policy.  My own view is that some parts were useful and ought to be made permanent, while other parts were unwise.  What interests me is the politics of executive orders.  It seems like neither the Fed nor the Biden advisors are happy with Mnuchin’s decision.  So why wouldn’t they reverse it?