When the president takes an official action, let alone one fundamentally altering the relationship between government and a major industry, two questions must be asked: Is it constitutional? Does the president have legal authority to do it?
In the case of the auto-industry bailout and restructuring program begun under President Bush and now escalating under President Obama, the answer to both questions is: no.
The Bush-Obama intrusion into the auto industry is an illegal use of the Troubled Asset Relief Program (TARP) enacted by Congress in October, and it flatly violates a fundamental constitutional provision.
TARP authorized the treasury secretary to spend $700 billion, but it did not authorize him to spend it anywhere on anything. While the definition of what he could spend it on ("troubled assets") was broad, the definition of where ("financial institutions") was narrow.
"The secretary is authorized to establish the Troubled Asset Relief Program (or 'TARP') to purchase, and to make and fund commitments to purchase, troubled assets from any financial institution," says the law.
The law gives "troubled asset" a two-part definition -- and part two is admittedly a wild card.
"The term 'troubled assets' means -- (A) residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before March 14, 2008," says the law.
But part "(B)" says a "troubled asset" can also be "any other financial instrument that the Secretary, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability."
Definition "(B)" allowed then-Secretary Henry Paulson to use TARP funds to purchase ownership stakes in banks rather than the mortgage-backed securities he initially told Congress he intended to purchase.
Nonetheless, the "troubled assets" Paulson purchased were indisputably from "financial institutions" as defined by the law.
"The term 'financial institution,'" says the law, "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 ... ."
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