If G.M. Fails, the Terrorists Win


Since Congress declined to approve the auto industry's Bridge Loan to Nowhere, President Bush says the Treasury Department will have to help G.M. and Chrysler on its own, using some of the $700 billion Congress appropriated for the Troubled Asset Relief Program (TARP). Along with the usual economic and philosophical objections to an auto industry bailout, this move should provoke concern about the rule of law. The Emergency Economic Stabilization Act of 2008 (PDF), which created TARP, authorizes Treasury Secretary Henry Paulson "to purchase, and to make and fund commitments to purchase, troubled assets from any financial institution." Paulson already was stretching the law when he decided to instead purchase stakes in banks (presumably on the theory that shares of their stock constituted "troubled assets"). But a carmaker is not a "financial institution," and loaning it money is not purchasing a "troubled asset." In other words, Bush is acting not only without legal authority but contrary to the stipulations of a law that Congress passed at his behest. That much is familiar. But usually he does this sort of thing under the banner of national security. Is the failure of the Big Three automakers to produce cars that people want to buy part of an Al Qaeda plot?

Addendum: Episiarch suggests the Bush administration could argue that the automakers' finance divisions makes them "financial institutions." But GMAC and Chrysler Financial are no longer wholly owned subsidiaries of the carmakers: A consortium of investors, including Cerberus Capital and Citigroup, owns a controlling interest in GMAC, while Chrysler Financial became a standalone company in 2007. Ford Credit is still wholly owned by Ford, but a manufacturer with a finance division is plainly not what Congress had in mind when it passed the law authorizing TARP. Ford, in any event, is not seeking a government loan right now.