Hamilton, Madison, and Jay

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Friday, December 12, 2008

The president to give TARP money to the Big 3? Can you say "illegal?"

When I heard that the president was considering dipping into TARP funds to bailout the Big 3 -- an idea posited by Harry Reid, as well -- the first thing I thought of was "where's the authority?" Over at the Heritage Foundations The Foundry blog Andrew Grossman lays out the argument that doing such a thing is illegal:

With the Senate’s rejection of a bailout for Detroit’s ailing automakers, there now comes word that President Bush is actively considering using funds allocated by Congress for the Trouble Asset Relief Program (TARP) to prop up the automakers for the time being. Such action would be wrong legally, wrong economically, and counterproductive to turning around these troubled businesses. And by opening the door to such open-ended use of taxpayer money for virtually unlimited uses, a unilateral decision to employ TARP funds would jeopardize George W. Bush’s legacy as a friend of the taxpayer.

Until now, the Bush administration has resisted repurposing TARP funds for industrial policy, though this morning comes word that the Treasury may have reversed course. TARP, administration officials have said, was intended to shore up the stability of the financial markets and stave off economic collapse, not to inject capital into failing non-financial businesses. Moreover, only $15 billion remains of the initial $350 billion in TARP funds disbursed by Congress.

More problematic, Treasury lacks the statutory authority to direct TARP dollars to the automakers. While the
statute, passed by Congress in October, grants the secretary extremely broad discretion to decide how to employ the funds, it clearly limits the recipients to “financial institutions.” And the definition of that term is quite clear:

FINANCIAL INSTITUTION- The term ‘financial institution’ means any institution, including, but not limited to, any bank, savings association, credit union, security broker or dealer, or insurance company, established and regulated under the laws of the United States or any State, territory, or possession of the United States, the District of Columbia, Commonwealth of Puerto Rico, Commonwealth of Northern Mariana Islands, Guam, American Samoa, or the United States Virgin Islands, and having significant operations in the United States, but excluding any central bank of, or institution owned by, a foreign government.

This doesn’t leave much room for interpretation.

In this case, due to the enumeration of included institutions in the statute, the term “any institution” is necessarily defined, in part, by the list that follow it: “bank, savings association, credit union, security broker or dealer, or insurance company.” An automaker is unlike any of these things, being a manufacturer of goods, not a financial intermediary.

Kudos to Andrew Grossman for laying this case out. It's very simple. TARP isn't a slush fund for everyone who is in financial trouble. That goes for media outlets, automakers, airlines, Starbucks, Circuit City, etc. TARP was designed specifically to aid faltering financial institutions, and keep them afloat to avoid any financial panic.

Dear President Bush.

The idea that you can use TARP money to save these companies is illegal. Tell the Big 3 to file Chapter 11, restructure and reorganize. There aren't any more Lee Iacocca's out there, and neither Chrysler or GM are willing to do what he did to save Chrysler back in the 80s. Filing Chapter 11 gets the debt off the books, and they'll be able to reorganize themselves. Don't do something that is illegal to save them. Let the market work. Thank you.


The American people

HT to Michelle Malkin

Publius II


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