In a memo published Dec. 12 by the Heritage Foundation, legal analyst Andrew Grossman and regulatory policy analyst James Gattuso argued that bailing out auto companies with money from the $700 billion Troubled Asset Relief Program (TARP) that Congress enacted in October would be "legally wrong."
"Even if the administration were inclined to do so, it simply lacks the power under the statute passed by Congress to tap TARP funds to prop up auto manufacturers," said Grossman and Gattuso.
The authors point to the language of the TARP law, which gives the treasury secretary significant discretion as to what he can spend the money on but sharply limits where he can spend it to "financial institutions."
The law says the treasury secretary "is authorized to establish the Troubled Asset Relief Program ... to purchase, and to make and fund commitments to purchase, troubled assets from any financial institution ."
It specifies that 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 ."
Grossman and Gattuso argue it is not plausible to stretch this definition to encompass manufacturing companies. "An automaker is unlike any of these things, being a manufacturer of goods, not a financial intermediary," they write. Therefore, providing TARP money to auto companies "would be both unprincipled and, ultimately, illegal."
President Bush, of course, failed to get Congress to enact legislation to provide money to auto companies.
That brings us back to the Constitution. Article 1, Section 9 reads, "No money shall be drawn from the treasury, but in consequence of appropriations made by law."
In his commentaries on the Constitution, Justice Joseph Story explained why the Framers gave Congress this power. "If it were otherwise," he said, "the executive would possess an unbounded power over the public purse of the nation; and might apply all its monied resources at his pleasure."
President Bush may think his auto bailout spared his legacy a bad mark. In fact, it leaves America to be haunted by the precedent of an executive who unilaterally spends the people's money without the legal authority required by our Constitution.