Automaker Bailout: Such a Bad Investment, It Should Have Been Illegal. Oh Wait, It Was.

Nick Gillespie notes that today's report on the auto industry bailout from the Congressional Oversight Panel suggests the $60 billion or so given to G.M. and Chrysler is likely to prove a bad investment for taxpayers (which may explain why no one else was rushing to invest in these companies). The report also lays bare the shoddiness of the legal rationale for using money from the $700 billion Troubled Asset Relief Program—intended "to restore liquidity and stability to the financial system" through the purchase of "troubled assets" from "financial institutions"—to assist car manufacturers.

The Congressional Oversight Panel, which was established by the Emergency Economic Stabilization Act (EESA), the law that created TARP, notes that the Bush administration repeatedly said helping G.M. and Chrysler was not an appropriate use of the program's money, changing its position only after Congress declined to authorize the automaker bailout. The pretext for this reversal was that EESA's definition of "financial institution" was broad enough to cover any U.S. business (or, indeed, any organization that could be described as an "institution"):

A filing by the United States in the GM [bankruptcy] case stated that, according to the statute, a "financial institution" is "any institution...established and regulated under the laws of the United States or any State, territory, or possession of the United States...and having significant operations in the United States." On this basis, the United States concluded that "GM plainly fits within the statutory language because it is an "institution...established and regulated under the laws of the United States or any State, territory, or possession of the United States...and having significant operations in the United States."

Based on this interpretation, the term "financial institution" means any institution organized under U.S. law with operations in the United States. This interpretation does not, however, seem to account for the phrase "including, but not limited to, any bank, savings association, credit union, security broker or dealer, or insurance company." It also would seem to lend little weight to Congress‟s selection of the term "financial institution." The canons of statutory construction, which traditionally provide guidance on how statutes should be interpreted, generally frown on interpretations that render any part of the statute superfluous. The rule against superfluities assumes that legislatures, in general, mean what they say and that the inclusion of certain words or phrases is not accidental. Using that assumption, Congress must be presumed to have had a purpose in listing institutions that might typically be considered "financial" institutions—banks, credit unions, broker dealers, and insurance companies.

In addition to the statutory language, the report notes, "the record shows that the Members of Congress who debated this legislation in late 2008 believed they were debating a bill aimed at banks and the financial sector." The panel adds that "Congress's explicit consideration of [carmaker bailout] legislation that ultimately failed to pass creates a troubling question regarding the Bush Administration's decision to 'step in' and rescue the automotive industry." The report does not spell out the question, so I will: Does the president have to follow the law, even when he really, really wants to so something that happens to be illegal? We know Bush's answer, and Obama's. Congress is not interested in revisting this issue, because it got the bailout that most members wanted without having to take responsibility for it. As for the judicial branch, "the Panel is not aware of any court before which the issue is currently pending and therefore it may never be resolved."

The whole report is here (PDF). In the August/September issue of Reason, I explained why you can't support both the automaker bailout and the rule of law, while Matt Welch and Ron Bailey explored other flaws that should have doomed the whole illegal, illiberal, and ill-fated mess.

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • UAW: Proud American Collectivi||

    a bad investment for taxpayers

    Wait a minute! Union members are taxpayers too!

  • ||

    As for the judicial branch, "the Panel is not aware of any court before which the issue is currently pending and therefore it may never be resolved."

    I can't even imagine that anyone would have standing to bring a suit to unwind this travesty.

  • ||

    "I'm saying when the President does it, it's not illegal."

  • ||

    The legal analysis in this report is pretty shitty. Not a mention of the constitution's appropriations clause, the antideficiency act, purpose statute, or comptroller general opinions, which makes up the background controlling law on the issue. Instead they go to youngstown and treat it as some kind of executive authority issue. A congressman (Ron Paul perhaps) should ask the comptroller general for an opinion on this- it wouldn't lead to any sanctions, but at least it would be a definitive decision by an authoritative official.

  • ||

    They just didn't read that part of the bill.

  • robc||

    I know the courts dont rule this way, but shouldnt any taxpayer have standing when government money is being used?

  • ||

    robc,

    I think that would be going overboard- the government would do nothing but defend ridiculous lawsuits. It already does a ton of defending ridiculous lawsuits that are permitted under the liberal standing rules for many environmental laws. Some type of private standing in appropriations cases would probably be helpful though- it's extremely limited right now.

  • ||

    I think that would be going overboard- the government would do nothing but defend ridiculous lawsuits.

    Interesting. And the downside?

    Seriously, though, Adam, we have here a pretty good prima facie case of misappropriation of funds on a truly historic scale. Who should have standing to challenge it in court?

    Could a constitutional/legal order that doesn't allow this kind of thing to be challenged even really deserve the name any more?

  • ||

    "Interesting. And the downside?"

    I expected someone to make that comment. I don't want lots of my tax money going to lawyers to argue with crazy people. Enough of that goes on as it is.

    I think that a special standing rule might include members of congress, maybe some kind of taxpayer representative, maybe people who have a special interest in the particular case. I haven't thought it out. I completely agree with you that there should be a method to challenge it, it just shouldn't be extended to every taxpayer for every appropriation. Right now, the only person with standing is the executive branch, which is a pretty glaring conflict of interest.

  • ||

    I tend to agree, Adam, but I am troubled by any kind of standing to challenge government action that is limited to members of the government.

  • ||

    With the U.S. economy struggling, we need policies that will spark immediate business investment and encourage capital investment. We must continue to create overseas opportunities for American companies and chip away at the deficit by taking steps to control wasteful governmental spending. Read and learn about policies that need attention at http://www.friendsoftheuschamber.com/issues/index.cfm?ID=104 .

  • T||

    I don't want lots of my tax money going to lawyers to argue with crazy people. Enough of that goes on as it is.

    I would rather fund lawyers arguing with crazy people than TARP, GM, or Chrysler.

  • ||

    we need policies that will spark immediate business investment and encourage capital investment

    I've got a good one: eliminate all registration requirements for public sale of shares of small businesses. There's a hell of a lot of money in mutual funds that could be put to far better use if we could invest in our corner deli or bike shop.

    I know a lot of small business owners that I'd trust far more to watch out for my investment than any billion-dollar fund manager I could name.

    -jcr

GET REASON MAGAZINE

Get Reason's print or digital edition before it’s posted online

  • Progressive Puritans: From e-cigs to sex classifieds, the once transgressive left wants to criminalize fun.
  • Port Authoritarians: Chris Christie’s Bridgegate scandal
  • The Menace of Secret Government: Obama’s proposed intelligence reforms don’t safeguard civil liberties

SUBSCRIBE

advertisement