The bailout of GM and Chrysler was nothing compared to the giant TARP thrown to bankers and brokerages, or so the argument goes. A panel of constitutional experts, convened at a Stanford Law School conference about the constitution and bailouts, has a totally different opinion: Bank rescue o.k., car rescue not o.k.
“Their consensus: the Troubled Asset Relief Program, which sprayed some $475 billion into banks and finance companies, could stand up to the ghosts of Jefferson, Madison and Hamilton. The bailouts of GM and Chrysler, however, largely failed the constitutional test, said a number of scholars from across the political spectrum. They simply “were not plausible” under the law, according to one conservative scholar, University of Virginia’s Saikrishna Prakash.”
That is the bottom line drawn by the Wall Street Journal, a publication generally not opposed to money given to the private sector.
The Dodd-Frank Act gives a step-by-step guide for the triage of sick financial institutions. The scholars think that that act was violated. The first draft of the $700 billion TARP bailout fund, written in just a few pages by former Treasury Secretary Hank Paulson, definitely looked unconstitutional, said Mariano-Florentino Cuéllar, a Stanford Law professor. Congress denied Paulson’s original version. A 157 pager was created and approved. Even that was a bit iffy, but the legal experts think the rescue of financial institutions was within the emergency powers of presidents Bush and Obama. “Those powers would be difficult to grant in today’s political climate,” says the WSJ, especially when a Sarah Palin calls it “morphing into crony capitalism at its worst.”
The GM and Chrysler package was a totally different matter. The TARP money was for “financial institutions” as “established and regulated” under U.S. law. The law mentions banks, credit unions, insurers and broker-dealers. “It doesn’t, however, come close to naming industrial companies as beneficiaries,” says the WSJ, summing up the opinions of the assembly of professors. Columbia University law professor Metzger doubted the legality when “the executive branch engages in aggressive interpretation of statutory authority in ways that Congress prohibited.”
Prof. Prakash clearly said that the auto bailouts were illegal. Neither Bush nor Obama said TARP would cover autos “until they decided they did.”
Was the bailout against the law or was it not? Some Chrysler creditors tried to bring a case to the Supreme Court. The court declined to hear the case. Even the Detroit Free Press, also no enemy of automakers, has to concede:
“For now, nobody is legally challenging the water that already passed under this bridge. But the next time Detroit automakers find themselves in crisis, they might.”
why would you quote palin? plus, i really don’t get the point of the article. yes it talks about the bailouts and legality but lets’ be honest…who the hell cares now. large chunks of the money has been paid back and things “look” better than they have for US automakers in almost a decade.
That’s right, hines. Who cares about law when things turn out “better” than hitherto (a questionable assertion, since a general contempt for law always has larger social consequences)?
On the other hand, so many heretofore non-legal aspects of our lives have now become litigious that it’s hard to know what can and can’t be done, anymore. Especially when something as simple as downloading the latest tune from Apple require a five page EULA that no one reads (but submits themselves to), and no one could understand in any event even if they were to read it.
And don’t even think about trying to take an airplane trip, where one is criminally suspect the moment they enter the building. Or making a bank transaction.
When a government is corrupt, the rule of law can always be…umm…er…carefully massaged in order to exact certain required (mostly political) results whenever the right circumstances arise. But, once again, who cares about all that now that we can lease a Volt?
boy, it must be slow when alleged experts are debating events passed. where were these geniuses when the money STARTED flowing? What next? a spirited debate about whether it was lawful for Teddy Roosevelt to take San Juan hill?
Forget Teddy Roosevelt. I think it’s high time someone examined the Louisiana Purchase.
Sundowner, because scholarly study of the past is fascinating and leads to a greater understanding of our world and ways to improve future decision making.
Bailouts are old news, Government Motors already paid them back in full. Early.
http://media.gm.com/content/media/us/en/news/news_detail.brand_gm.html/content/Pages/news/us/en/2010/Apr/0421_fairfax
in full, or only in gm’s interpretation of full?
Or restructured by borrowing more money and paying back the original money with the newly borrowed money. IN FULL! But, you know, it sounds better the way they say it.
Some will probably be surprised by my saying this, but I do agree that this aspect of the bailout was contrary to the law. TARP was designed for troubled financial assets; non-financial sectors weren’t included.
Now, the reason for this is that you couldn’t have written the automakers in there any more than you could have corn farmers, oil drillers or Hollywood: politically speaking, it’s a regional interest with more than a little partisan baggage. Even though the impact would have been national and cross-political, no congressional rep or senator wants to be tied to something that their voters see as unpalatable. So the executive has to be the one to transcend regional and political pettiness and get things done.
So yes, it was illegal, but it needed to get done. Be careful before you criticize that logic because a lot of your pet causes might be similar.
Columbia University law professor Metzger doubted the legality when “the executive branch engages in aggressive interpretation of statutory authority in ways that Congress prohibited.”
Oh, that’s rich. The executive does that all the time, under both parties, and for much dirtier things. Good luck fixing it: the source of the problem is that there’s absolutely no appetite among the electorate to make hard choices, no political will in government to make the choices the electorate won’t make, and a lot of mileage in simply slagging your opponent rather than articulating a vision. As such, you’re going to see a lot more of this backdoor nonsense, be it nip-and-tuck taxation, buried clauses in bills and executive orders because it’s getting increasingly hard to do be aboveboard and not get booted out in a few years’ time. Hopefully we’ll still have the likes of Wikileaks bringing shadow policy to light.
It’s not often that I’d agree with AaronH, but he is right that democracy as practised needs a tune-up, and it’s we, the electorate, who are chiefly at fault.
We are a nation of laws.
Every time a law is broken, for whatever reason, we are truly less free.
There is that much less justice in the land.
To attempt to justify an illegal action as “necessary’ pains me to the soul. What seems to feel justified can be reflected upon years later and revealed for the wrong sin it was/is.
Case in point.
In the breakout of WW2, panic hit the land.
120,000 Japanese Americans were forced off their lands by a single order issued by President Roosevelt.
It was deemed necessary.
Forced to live in frozen worn-out army barracks for 4 years, because the President deemed it necessary.
Never use consensus or other arbitrary reasoning for breaking the law. The consensus of the land at one time was the earth was flat.
To attempt to justify an illegal action as “necessary’ pains me to the soul.
I agree with you in principle, but the system needs to change such that these actions can be tabled aboveboard.
Here is the problem: the electorate do not want to assume responsibility for necessary action (which usually means “don’t want to pay for it), but at the same time want the end result (a stable economy; one day to be the same as the next, more or less). That situation is just as untenable, and leads to a more catastrophic collapse.
Currently, the US political structure is set up precisely to avoid this happening. The is zero impetus and quite a lot of disincentive for politicians to do the right thing, and it has been since both sides became, effectively, corporatist flunkies spewing base populism. The Tea Party movement was a nice attempt, but it’s busy being effectively co-opted by the same forces for much the same reason that the Democratic party has been freezing out Nader et al.
If you want change, you are going to have to find a way to get more progressive, more visionary people into office (be they progressive-conservatives or social democrats), and you’re going to have to find a way to keep them from becoming slaved to a short re-election cycle that drives them into base populism. I haven’t the foggiest idea about how you’d do that in a country that expressly wired to prevent visionary, strategic governance—a good idea, mind you, right up until someone figured out how to game such a system. And game it they have.
“It’s not often that I’d agree with AaronH, but he is right that democracy as practised needs a tune-up, and it’s we, the electorate, who are chiefly at fault.”
Agreed. I never thought I’d say this, but we, the electorate have much to learn from the Europeans who take to the streets en masse. We don’t do that anymore, and we’re worse off for it. Seems like the only groups stateside that take to the streets when needed are organized labor unions (teachers and auto workers, specifically). And look at the money and favors being thrown at them…. at the cost of the rest of us.
Trailertrash: Your youthful idealism is a breath of fresh air. However, illegal is never a problem for any government. The indefinite detention without trial of US citizens is also unconstitutional as is most likely warrantless wiretapping but we still do it. From Nixon to Obama all administrations have done it. Governments do what they deem necessary – legal or not – and that is what the public elects and pay them to do. They are then more judged on the outcome rather than the legality and in the case of the bailouts the outcome seems to be quite good.
@trailertrash
Breaking some laws, e.g., speed limits, kinda makes me feel more free….
Also, in my mind, the main purpose of the government (should be) to protect the interests of the United States and its people. If certain laws must be broken to do that, so be it. Tricky part is where does it stop since no one has any common sense any more.
psarhjinian: Here is the problem: the electorate do not want to assume responsibility for necessary action (which usually means “don’t want to pay for it), but at the same time want the end result (a stable economy; one day to be the same as the next, more or less).
The majority of Americans were opposed to the bailout. It’s true that they didn’t want to pay for it, but nowhere did I see any evidence that they didn’t realize denying the bailout would have caused some pain.
Most of them probably, a. didn’t care, because it didn’t affect them personally, and b. realized that pain is part of the normal economic cycle.
If fact, the people I spoke to felt that those who worked for GM and Chrysler DESERVED to feel some pain, because of the junk that they produced over the years. In their eyes, it was a case of the guilty getting exactly what they deserved.
SpottyB,
“The United States” has no interests. Only individuals do. And the interests of “Its People” in pretty much no way aligns at all, beyond wanting something along the lines the Founders pointed out back when America was still somewhat civilized.
Of course it is in the interest of some of “its people”, UAW members, realtors in Michigan (assuming any are still left), as well as others, that the Federal Government hand them money. But it is certainly not i the interest of some car hating Californian who is simply forced to pay for charade at the point of a gun. Yet he is still one of “it’s people.”
The purpose of the Federal Government is to narrowly do exactly what is literally spelled out in the constitution, not have the tax feeders on it’s payroll engage in self aggrandizing nonsense about some mythical “The People” that supposedly justifies them running around robbing and harassing people without explicit individual consent.
stuki,
Yeah, that’s really pretty much what I said… but I do think the collective “United States” does have interests. How you want to define them is up to you. (Like defending American territory – yeah we can all take up arms, but I don’t think the vast majority would have what it takes, or the weaponry to defeat an organized aggressor.)
And I never said the government is doing a good job at any of this. They are failing in an epic manner.
Don’t forget that the bailouts were raised in Congress, which had hearings and then voted against the aid. Congress did approve the TARP fund which was for the express purpose of bailing out financial institutions.
After congress refused aid to GM and Chrysler, the financial people of the Bush administration (and ultimately Bush himself) took TARP money and used it 1) for purposes not authorized by the law passed by congress and 2) for purposes which Congress had expressly rejected in separate legislation.
I maintained at the time that this was illegal. We can all have a nice discussion about how the end justifies the means, and what a disaster we would have had if the money had not been funnelled to GM and Chrysler, but we should all be concerned when government goes off the rails and does whatever if feels like it needs to, legal or no.
Congress is also comprised of many lawyers who obviously didn’t have a problem with the auto bailouts.
The only meaningful effect of such a study will be for next time, but I suspect the findings of a few legal scholars won’t matter much when the issue is politicized.
You are incorrect. Congress had a specific vote and voted down the bill for aid to the auto industry. Only then did the Bush administration go to plan B which was to raid the TARP money.
Was the bailout against the law or was it not? Some Chrysler creditors tried to bring a case to the Supreme Court. The court declined to hear the case. Even the Detroit Free Press, also no enemy of automakers, has to concede: “For now, nobody is legally challenging the water that already passed under this bridge. But the next time Detroit automakers find themselves in crisis, they might.”
Excuse me, but doesn’t the second part contradict the first? Creditors were the somebody that already did challenge the thing, and the court declined to hear it. To me, this is an answer too.
The creditors challenged the legality of the bankruptcy proceedings, which is a different legal question. The bankruptcy proceedings were legal, the direction of funds from TARP were not.
Since the the bankruptcy was affected by the altered reality of the illegal bailout, it was the tainted fruit of the poison tree.
Fruit of the poisoned tree applies to evidence in a case. If an illegally obtained wire tap or search gets you the murder weapon, it can’t be used in court. But, one illegal action doesn’t mean that everything else is illegal that followed it.
Say someone obtains some money in an illegal fashion and uses that money to pay for a medical procedure for their sick grandmother. Because the money was illegally obtained, does it mean that the medical procedure is now illegal? The answer is no. The two are not linked together.
The illegal bailout greatly distorted the conditions under which the bankruptcy occurred.
The two are deeply linked with additional encumbrances of the UAW’s ties to one party.
But your comparison of GM and Chrysler to a sick old grandma is apt. Maybe that and a teddy bear with a bandage on his paw could be their new sympathy-pulling logos.
But you can still be prosecuted for obtaining the money in an illegal manner. Whether you use it for grandma’s operation or a luxury vacation to the Bahamas with your mistress is irrelevant.
Well, I’m glad I read this, because based on Geeber’s input, if I am ever placed in the position behind having to eventually go to jail after choosing between op for granny and concubine on the beach, well, then granny’s gonna die.
As psarhjinian notes, the challenge to the bankruptcy proceedings was on different grounds.
But the bankruptcy proceedings were just as flawed as the TARP bailout. To start with, as some have pointed out here, had the federal government not put the slush-fund money in the car companies, it would have had no rights in the bankruptcies. The government became a creditor of GM and Chrysler only because of its illicit investment.
It gets worse. Barack Obama had no right to appoint Steve Rattner as car czar. Rattner had no right to fire Rick Wagoner and appoint a new GM CEO. The bankruptcy judge had no authority to, in reality, convert the bankruptcy from a reorganization to a liquidation. And the federal government had no right to give the unions stock.
None of these things will ever be decided in court. Procedural rules of standing and mootness prohibit those of us who care about this from doing anything. Time has passed, blessing the actions of a federal government that does what the people in charge want to do, whether they have the right to do it or not.
It gets worse. Barack Obama had no right to appoint Steve Rattner as car czar.
Yes, he did. He can create and appoint cabinet as he likes.
Rattner had no right to fire Rick Wagoner and appoint a new GM CEO.
Yes, he did. GM took a loan that made the government a stake- and shareholder. Shareholders can, though directors, ask the board to terminate an employee. The board can say no, mind you, and then the board can find itself in the middle of a shareholder lawsuit and/or out of a job at the next AGM.
Debtholders can also lean on the board of directors to shuffle management if they feel their interests are not being met. Happens all the time.
The bankruptcy judge had no authority to, in reality, convert the bankruptcy from a reorganization to a liquidation.
Yes, he did. GM didn’t have the cash or assets for a re-org, given it’s debt.
And the federal government had no right to give the unions stock.
Yes, it did. No one else was buying, the government was the major creditor, all GM had was equity, and creditors can do whatever the hell they want.
Cabinet members have to be confirmed. Czars are not, which is why he had no right.
It gets worse. Barack Obama had no right to appoint Steve Rattner as car czar.
Yes, he did. He can create and appoint cabinet as he likes.
REPLY: Obama can appoint whatever advisors he likes. But not give them powers he does not have. Since Congress considered and did not pass the “car czar” law, Obama appointing Steve Rattner car czar and giving him and his inexperienced minions the power to re-structure the car industry was unlawful.
Rattner had no right to fire Rick Wagoner and appoint a new GM CEO.
Yes, he did. GM took a loan that made the government a stake- and shareholder. Shareholders can, though directors, ask the board to terminate an employee. The board can say no, mind you, and then the board can find itself in the middle of a shareholder lawsuit and/or out of a job at the next AGM.
Debtholders can also lean on the board of directors to shuffle management if they feel their interests are not being met. Happens all the time.
REPLY: As was pointed out to Steve Rattner, only the board of directors of a company has the right to fire its CEO. Yes, the government was a creditor. (It was not a shareholder.) Yes, it had the right to lean on the board of directors. But it did not have the right to fire Rick Wagoner. It did it anyway.
The bankruptcy judge had no authority to, in reality, convert the bankruptcy from a reorganization to a liquidation.
Yes, he did. GM didn’t have the cash or assets for a re-org, given it’s debt.
REPLY: The Chapter 11 bankruptcy (re-organization) could have been converted to a Chapter 7 bankruptcy (liquidation). It was not. Instead, the bankruptcy judge let the federal government liquidate GM instead of reorganize it. That’s the problem.
And the federal government had no right to give the unions stock.
Yes, it did. No one else was buying, the government was the major creditor, all GM had was equity, and creditors can do whatever the hell they want.
REPLY: Creditors can do whatever they want. Not the federal government. It’s bound by the law. Or at least, it’s supposed to be.
My point has been proven then. Just because the bailout was illegal, doesn’t mean that you can go back now, or then, and force a different type of bankruptcy. The money may have been illegal, but it wouldn’t be GM’s or Chrsyler’s fault. You would have to go after the federal gov’t and sue them. GM and Chrysler were like sick grandma, or mistress as someone posted. They benefited, but didn’t do anything illegal.
There was also a reason that Chrylser’s bankruptcy went to court and not GM’s. Some of Chrylser’s secured debt holders didn’t want to agree with the plan, while 97% of them did. That small percentage brought on the lawsuits, which had NOTHING to do with the bailout and everything to do with the bankruptcy proceedings. Which they quickly lost and lost quickly on appeal. GM didn’t have any lawsuits against them during the bankruptcy process. The secured debt holders agreed to the plans.
I read this and decided to do some research on it as well. Did TARP say the funds could be used? No, they didn’t. So I wondered, how did this happen. A few google searches turned up this.
http://www.opencongress.org/wiki/Auto_Industry_Financing_and_Restructuring_Act_of_2008
The Auto Industry Financing and Restructuring Act of 2008. It does give the authority to give money to the auto makers. I am not saying it was constitutional, because that I do not know. But I don’t see anything in the article mentioning this at all.
That’s because the bill passed the House but not the Senate. It did not become law.
That illustrates the point of this article. Congress specifically voted on the bailout plan. It voted against it. Bush, and then Obama, did it anyway. Makes you really respect government, doesn’t it.
Essentially, it could be argued that since the Federal Reserve was totally unconstitutional in the first place (please, someone with simple common sense find in the United States Constitution where it provides the right of Congress to pass off it’s responsibilities for coining money? – you won’t find it) – that every single thing done by government since 1913 is null and void, because quite frankly, by the people who supposedly act under the Constitution to preserve it ignore it, then nothing “they” or their hirelings do, is, strictly speaking, legal and valid.
Perhaps just perhaps, Ron Paul and others (such as many Libertarians and Constitutionalists over the decades) have actually been right in saying things like this, and the only way for our country to move ahead is to hit the “reset” button.
Frankly, after some 98 years, it’s to the point where we’d have to void all paper money, all debts, declare a Biblical Jubilee and essentially start over.
But we all know that’s got the same chance of happening as American Motors being resurrected alongside Pierce-Arrow and Packard.
The bottom line may be summed up with some comments from Bob Chapman’s International Forecaster from December 4th, pertaining to the banksters (who really run the governments of the world indirectly, of course): “There are no rules. The rules are what they want them to be.”
We no longer live in a nation of law. Ergo, we shall soon see a pandemic of anarchy (lawlessness).
Here’s how he describes it: “As we said austerity is the wrong thing at the wrong time. Tax revenues will fall and budget deficits will increase, as we have seen happen in the US. As we have often said, this condition will bring about an emergency meeting of all governments for the devaluation and revaluation of all currencies and multilateral debt default. Then either the US dollar reestablishes a gold backed world reserve currency or a group of currencies will be a gold backed international trading unit. Anything less will not work. If that does not happen every country in the world faces revolution. If that happens the elitist aristocracy will be destroyed, because today too many people know what they have been up too. The balance of power will be gone and the world will appear as it did after the French Revolution in 1799. There is no way back for the elitists this time.”
It’s a water under the bridge. Move along now, nothing to see here.
Bottom line: The government will do whatever it deems is in its interest, regardless of what individuals think, without caring what “America” means/stood for/stands for – insert favorite ideology here – “legal” or not in whoevers’ eyes.
The “bailouts” may be a last-ditch effort to keep the domestic auto industry relevant or not, but if it works, then the ones responsible are heroes. If it fails, oh well, thay can always say they did what they thought was right at the time and in those particular circumstances it delayed the inevitable.
In a few years they or anyone else won’t be able to blame China for their ills either, it’ll be someone or something else. Strap yourself in and enjoy the ride, for it will be interesting!
What we here at TTAC need are some more true CC’s that we can pick apart and glory in through the soft-focus of memory or tear down and revel in our experiences (apologies for the obbop-like prose)!
“That is the bottom line drawn by the Wall Street Journal, a publication generally not opposed to money given to the private sector.”
They’re not opposed when the money is being given to their primary audience, the financial sector. Everyone else can rot in hell as far as the WSJ is concerned. There’s good money to be made picking at the corpses of failed businesses so long as Wall St isn’t required to feel similar pain.
That has to be about the ugliest picture of the auot heads I’ve seen.
They look like Emperor Palpatine, Neville Chamberlain, Alan Shepard and Herbert Hoover.
Great call.
I’m no fan of Barack Obama or the bailouts, but these guys sound like the ‘birthers’. Gimme a break.