Under Paulson's new interpretation of the law, a "financial institution" is whatever he says it is. Having decided that carmakers qualify, the Treasury last week declared that businesses tied to carmakers, such as parts suppliers, also can be covered by TARP.
In fact, the official rationale for the GMAC bailout, which included another $1 billion for GM to help it buy equity in the new bank holding company, was not GMAC's restructuring but its role in "a broader program to assist the domestic automotive industry in becoming financially viable." As far as Paulson is concerned, TARP aid to a money-losing lender is justified not by its relationship to restoring the financial system's liquidity and stability, the purpose for which Congress created TARP, but by its relationship to helping carmakers, a purpose not covered by the law that authorized the program.
You might think Obama -- who proudly told The Boston Globe a year ago, "I reject the view that the president may do whatever he deems necessary to protect national security" -- would have something to say about the misuse of TARP. He does. He likes it.
Obama endorsed Paulson's illegal loans to GM and Chrysler, saying they were "a necessary step to help avoid a collapse in our auto industry that would have devastating consequences for our economy and our workers." Evidently, Obama opposes only the unnecessary abuse of executive power. All the debate over what form the Obama-backed stimulus package should take may be pointless because our next president seems to think he may do whatever he deems necessary to protect economic security, no matter what Congress says.