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.