The TARP That Covers Everything

The GMAC bailout highlights the lawlessness of the Bush administration.

Last week the Treasury Department bought a $5 billion stake in GMAC as part of a plan to transform the lender, formerly the financial arm of General Motors, into a bank holding company. The New York Times reported that GMAC wanted to become a bank mainly so it could be considered a "financial institution" and thereby qualify for money from the $700 billion Troubled Asset Relief Program (TARP).

Yet the Treasury used TARP funds to invest in GMAC. In other words, if the Times has the story right, GMAC received TARP money so it could be eligible for TARP money.

This paradox highlights the lawlessness of the Bush administration, which has ignored statutory restrictions on TARP and treated it as a slush fund for politically favored supplicants. Although he has strongly criticized President Bush for flouting the law and exceeding his constitutional powers, President-elect Obama has applauded the latest manifestation of that tendency.

GMAC, which lends money to car dealers and buyers and also has dabbled disastrously in mortgages, has been bleeding billions for more than a year. In November, when it asked the Federal Reserve Board for permission to become a bank, the decision was based largely on the understanding that only financial institutions could receive help from TARP.

That was the Treasury's position, and it's not hard to understand why. The Emergency Economic Stabilization Act, which created TARP, authorized Treasury Secretary Henry Paulson "to purchase, and to make and fund commitments to purchase, troubled assets from any financial institution," the aim being "to restore liquidity and stability to the financial system."

But by the time the Federal Reserve approved GMAC's application, Paulson had decided that G.M. and Chrysler, which make not loans but cars, nevertheless could receive $17.4 billion from TARP to tide them over until Congress approves more aid. His epiphany about the meaning of the TARP law came immediately after Congress declined to approve emergency short-term assistance for the carmakers.

"While the purpose of [TARP] and the enabling legislation is to stabilize our financial sector," Paulson said, "the authority allows us to take this action. Absent Congressional action, no other authorities existed to stave off a disorderly bankruptcy of one or more auto companies."

To Paulson's mind, a "disorderly bankruptcy" of G.M. or Chrysler was unthinkable. Since Congress had not authorized a bailout of the automakers, he decided to pretend it had.

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 G.M. 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 G.M. 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, since our next president seems to think he may do whatever he deems necessary to protect economic security, no matter what Congress says.

© Copyright 2009 by Creators Syndicate Inc.

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  • nobody u no and a big fan of j||

    misstrepresenting obamas progressive nature should be beneith you reason. you are becoming a characture of bill oreilley.

  • nobody u no and a big fan of j||

    why is reason ignoring apples move at progressivism? dropping drm on most of their store is huge news.

  • Somebody you know and a big fa||

    misstrepresenting obamas progressive nature should be beneith you reason. you are becoming a characture of bill oreilley.
    ...
    why is reason ignoring apples move at progressivism? dropping drm on most of their store is huge news.

    Please stop hurting me.

  • ||

    "But by the time the Federal Reserve approved GMAC's application, Paulson had decided that G.M. and Chrysler, which make not loans but cars, nevertheless could receive $17.4 billion from TARP to tide them over until Congress approves more aid. "

    Very disappointed that a Reason staff member still believes that US carmakers make their money in selling vehicles. All they ever wanted was to get you into one of their cars so they could make money on the interest. The profit from making cars and selling them is quite small, its all in the financing. Ford Motor Credit, GMAC, etc. make the overwhelming majority of the profits. Now, credit is expensive and the whole machine is broken. GE is a financial company masquerading as a industrial manufacturer, too. Most of the growth in our economy came from financial leverage (as did hedge fund growth). That party is over. GMAC becoming a "financial" company was simply paperwork. Their foray into financial services was the only way to stay afloat when they knew they couldn't compete anymore. This happened about 10 years ago.

  • ||

    Jacob,

    An "illegal, illegal loan"? Say it ain't so! ;)

  • LurkerBold||

    We should just nationalize the corporations and be done with the anticitizen problems they bring.

  • Elemenope||

    We should just nationalize the corporations and be done with the anticitizen problems they bring.

    Like Gordan Freeman and that fucking crowbar.

  • ||

    I'll be filing for 'bank holding co. status' momentarily. Now ship my funds to this offshore acct...

    We're officially a kleptocracy and soon as I set up a broadband pipe the 'American scam' emails will be flowing worldwide, I'll show those damn Nigerians how to run a proper scam.

  • ||

    Freedom is CHAOS!

    Ve musst haf OHRDUHR!

  • ||

    George Will's take on it.

    I'm not in political lockstep with anybody, but George Will's pieces are always intelligently written and usually correct.

  • ||

    This tendency of government to do what they please, never mind the law, is hardly specific to the presidency of GW Bush - it simply reached supercritical mass on his watch.

    Money and power have been piling up in the executive branch for decades, far beyond the blueprint set out in the Constitution. The trend probably reaches back to the Income tax of 1913. But it became a self-sustaining chain reaction with the so called New Deal, which was actually the imposition of state socialism.

  • ||

    So, instead of "bailing out" GM, Chrysler, and vicariously Ford, why didn't the Federal Government just buy up $18B worth of cars from the Big "Three" and give them away to poor people? They would have gotten rid of a lot of excess surplus, put "Americans behind the wheel of American cars", and "we" would have gotten a lot more out of it than we will in the end.

    Of course, doing this would have shown that even when selling that many cars, The Big 2.5 don't do very well. Like was said above, they don't make cars very well, ergo don't make a lot of profit on cars. They may have been able to make decent money in this sort of arrangement, where they would have sold the government all those cars at sticker value, aka whatever price they wanted.

    Hell, how many GM Volts could the federal government have bought and given out to poor people? Think of the environmental impact of that!

    (Tongue firmly in cheek)

  • cunnivore||

    The profit from making cars and selling them is quite small, its all in the financing. Ford Motor Credit, GMAC, etc. make the overwhelming majority of the profits.

    GM does not own GMAC.

    Chrysler does not own Chrysler financial.

    Ford isn't getting any bailout money.

    But by all means go ahead and lecture us about something you don't know a thing about.

  • ||

    The profit from making cars and selling them is quite small, its all in the financing. Ford Motor Credit, GMAC, etc. make the overwhelming majority of the profits.

    GM does not own GMAC.

    Chrysler does not own Chrysler financial.

    Ford isn't getting any bailout money.

    But by all means go ahead and lecture us about something you don't know a thing about.



    Thank you cunnivore. I pointed this out a couple of weeks ago as a reason that TARP couldn't be used for bailing out GM and Chrysler.

    BTW, I think GM still owns 49% of GMAC but that is a whole fucking different company that doesn't make cars.

  • ||

    BTW, I think GM still owns 49% of GMAC but that is a whole fucking different company that doesn't make cars.

    They had to go down to 10% ownership so GMAC could qualify as a bank holding company.

    Which it did, I believe, so that it wouldn't have to share any bailout money that it got with GM.

  • ||

    It's all play money at this point.
    If you still think you must work and be productive to earn their "money" you're just a patsy.
    Better to bribe a pol -- much more lucrative.

  • Richard Stands||

    I found an interesting full page ad for the big 2.5 here.

  • ||

    GMAC didn't really do anything that American Express, Morgan Stanley or Goldman Sachs wasn't allowed to do. All three applied for bank holding company status with the Federal Reserve Board of Governors and soon thereafter were approved.

    Morgan Stanley and Goldman Sachs were approved prior to the TARP bill. They didn't even have to wait for TARP. They were approved to get in line at the Fed's overnight discount window.

  • ||

    We should have protested TARP in its entirety. All this action was, was the gold ol' boy network, bailing out their banking buddies so they could perpetuate the fraud of fiat money against America for another year or two, until those entities leave office. It's a shame America can't wake up and smell the roses and stop this nonsense. When are people going to realize that the U.S. government is writing checks its body can't case? Henry Paulson is a treasoner. He's the one who told certain congressional leaders that if they didn't vote for TARP, martial law might have to be declared. Where does he get off? Who gave him that authority? What he did telling Congress that amounted to a terroristic act. Henry Paulson reminds me of a dildo with ears ... must we tolerate this kind of behavior in the future?

  • John||

    Well Obama has picked up and spent even more than Bush did. The spending has gotten out of hand for both parties.
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