Podcast blurb:
Before January, most Americans had probably never heard of the Bureau of the Fiscal Service (BFS), a Treasury Department agency that distributes payments from the federal government. But over the last month, this corner of government has appeared again and again in the headlines, as aides working with Elon Musk’s quasi-governmental DOGE initiative successfully gained access to BFS’s payment systems. After a flurry of litigation, a temporary restraining order now bars these aides from accessing data—but the crisis is not over. It’s still not clear precisely what happened within BFS or what access political actors within the administration might gain in the future, and DOGE continues to access similarly sensitive systems in other agencies, such as the Social Security Administration and the Internal Revenue Service.
To understand what’s happening, Senior Editor Quinta Jurecic spoke with Wendy Edelberg, director of the Hamilton Project and senior fellow at the Brookings Institution, and Jacob Leibenluft, who served in the Treasury Department and under the Biden administration. Why is it so alarming to have political appointees accessing BFS systems? What does this tell us about the administration’s political goals? And what manner of crises could result from this kind of meddling?
Lambert here: OMG, the Hamilton Project. And now from the transcript, where the words “Nathan Tankus” do not appear (concealed by Edelberg’s “So what we learned” right at the start).
Jacob Leibenluft: Well, I would just say that, you know, I think you could describe the Bureau of the Fiscal Service as a core part of our financial and governmental infrastructure that you almost at least until earlier this year never had to think about. You know, I think as Wendy says, it’s this core plumbing that allows the government to make payments and it’s really serving traditionally a ministerial purpose.
It’s not determining who is supposed to get paid or how much. It is processing files that agencies send over based on the amount that Congress has appropriated to those agencies and just ensuring that the funds actually get sent to where it needs to go. It’s really the last mile of that process from Congress appropriating money to agencies carrying out those appropriations to Treasury ensuring that the money gets in people’s bank accounts.
And so that’s how we’ve thought about it traditionally. It’s why, as Wendy says, it’s always been run by career officials who are highly trained, who have been, you know, undergone a clearance process. And any effort to mess with that system, I think, you know, then creates a lot of concerns, either A) why do you want to mess with that system, and then secondly, what are some of the either intentional or unintentional consequences from, from, from doing that?
Jacob Leibenluft: And I just add to that, you know, I think you’ve spoken on this podcast before about the issue of impoundment—this concept that essentially the executive branch cannot just unilaterally decide not to spend money that Congress has appropriated.
And I think of the arguments that the administration has been using, that DOGE has been using to get access to the BFS systems really suggests that they see this as one of the places where they can essentially engage in illegal impoundment. We typically thought about that happening often at the agency level. So you know, the secretary of HHS chooses not to make a payment or the president tells the secretary of HHS not to make a payment. But this is sort of taking that process downstream.
And I think it’s important to realize this isn’t just an idle or hypothetical concern. If we just look at what Elon Musk has tweeted, as soon as the story about BFS started becoming public, he talked about, you know, rapidly shutting down what he would describe as, quote unquote, illegal payments to, for example, any institution with Lutheran in its name, which sounds ridiculous, but this is what, you know, he was himself saying, and then, you know, I’m sure we’ll talk more about this. We also have some pretty concrete evidence, including now from the administration in the administration’s own words that they in fact did see this as a place to try to stop payments, for example, coming out of USAID.
So this is not what—the BFS’s role again has never been to determine who gets paid or how much they get paid. That’s supposed to happen at the agency level. Somehow this is sort of contemplating that no, in fact, as the last mile in the process we can use BFS as a place to impose policy priorities on what money goes out.
Wendy Edelberg: So I, I would love to expand on one of the recipients of this, of this Treasury money that, that Jacob mentioned, which is participants in, you know, financial markets who own Treasuries. So this is the system that gets interest and principal payments to Treasury holders. And that’s a system that you don’t want to make errors in.
Lambert here: Unlike, say, Social Security. Liberals!
[Edelberg, continued] And, you know, so if the system were mucked with and they just by mistake didn’t get payments to the right people at the right time, I think that that would make financial markets quite jittery.
What I’m actually even more worried about is that they are looking carefully at the code. ….
If by getting into the nuts and bolts of this payment system, DOGE and, you know, as representatives of President Trump are figuring out a method for withholding, let’s say, principal and interest payments to certain holders of Treasuries, that is a threat that could really destabilize financial markets.
So in Trump’s first administration, it was widely reported that the administration was very, you know, was annoyed by what they saw as China’s role in the pandemic. And it was widely reported that they were trying to figure out if one of the ways to punish China would be to cancel some of its debt. So people who are just watching, you know, listening to this on, audio can’t see that I’m making air quotes on the, on the cancel, because it’s not totally clear what that means. But it was widely reported that they were trying to figure out if they could specifically identify the Treasuries that were held in, in public funds in China and not make payments on those.
It seems totally plausible to me that they are working to get that ability to be able to threaten countries, you know, or threaten sovereign funds or individual investors who the heck knows and say, we’re not going to make interest payments to you. And now we can actually make good on that threat because we’ve worked it out in the payment system.
So let’s come to what I was saying about if by getting access to the payment system, Trump then was able to make credible threats about not making interest payments to you know governments that he thinks are, are adversarial. And I worry that—the Treasury market is a $28 trillion market. It is easily the largest financial market in the world. It serves as the backbone of the global financial system. And of course, as part of that, it serves as the backbone of our domestic financial system. The interest rates that we pay on mortgages, the interest rates, you know, that, that businesses face when they want to borrow to, you know, start up a new investment—like all of that runs because of, because of Treasury markets working. That is the lifeblood of our economy and our financial system.
And I can imagine Trump saying something irresponsible about, you know, maybe we’re not going to make this interest payment to these Treasury holders, and financial markets now realizing, oh, they can make—they mean it because they can make good on that threat, and financial markets start freaking out.
Now, even at that point, you’re at a fork in the road. Are we in our Liz Truss moment where President Trump says, oh, oopsies, take back; I realize now that, you know, that’s a really bad idea. And he, you know, reassures markets that no, no, no, he, he completely believes in the rule of law; he completely believes in, you know, the full faith and credit, you know, safety and soundness of the Treasury market.
And what that means is that in financial markets, we have a very, very bad week. Maybe a very bad month. So that’s bad, but not nearly as bad as Trump digging in and saying, no, no, no, this is my system. This is my system to operate, and I get to choose. And then, I think you’re talking about a full blown financial crisis, because I think no holder of Treasuries will feel, should feel confident anymore that they’re going to get paid on time. And that’s going to make those Treasuries worth a lot less. ‘
Wendy Edelberg: One thing that I have found most remarkable in this whole episode is that DOGE, you know, acting on behalf of President Trump has figured out how to politicize of all things the BFS. And I find it breathtaking that, like, they are, they are that deep into the machinery of the, you know, the basic operating of the federal government.
And like, you know, as they, as, as, as we see that they’re going through Social, that now, you know, the Social Security Administration, the you know, Internal Revenue Service, like, I have every reason to believe that they are deep into the machinery of every other part of the federal government as well.
Lambert here: Given DOGE’s known proclivities, we should therefore assume that data has been exfilitrated “from every other part of the federal government” as well.
Wendy Edelberg: As to why people are taking it lying down—I mean, this is outside my lane, but, but my intuition is that people elected Donald Trump to like knock heads together, to shake things up, to, to be muscular in tearing the system inside out. And so I think for a lot of people watching this from the outside, like so far, so good.
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