Bush’s Auto Bailout: Illegal or Unconstitutional

by Hans Bader on December 15, 2008 · 25 comments

in Bailout Watch, Economy, Features, Legal, Politics as Usual, Regulation

The Bush Administration is planning to use money from the $700 billion financial system bailout for an auto industry bailout.  To do that, it is seizing on the fact that the bailout statute contains a very broad definition of “financial institution,” which the Administration claims includes virtually any institution, financial or not.  The bailout statute defines “financial institutions” eligible for the bailout as  ”any institution, including, but not limited to, any bank, savings association, credit union, security broker or dealer, or insurance company.”   Never mind that Congress listed as examples of ”financial institutions” only entities that were banks, insurance companies, or financial institutions, not automakers.

The Heritage Foundation and Michelle Malkin have made a strong argument that this violates the financial bailout statute under the principle of statutory construction known as ejusdem generis, which says that when a term’s definition includes examples that are all of a similar kind, it limits the meaning of the term to things similar in kind to such examples.

But if that’s not so, and the bailout was just a big slush fund for the Administration to dispense with as it chooses, then the bailout law itself was unconstitutional, since it conferred unbridled discretion in the hands of the President to do whatever he wanted with it.  The Supreme Court ruled in the Schechter Poultry case that giving the executive uncabined discretion violates the constitutional separation of powers between different branches of government, by giving the president essentially legislative powers.  (An earlier version of the bailout law was even more clearly a violation of separation of powers, since it failed to provide for judicial review of the vast discretion it gave the president, unlike past delegations of power upheld in cases like the Amalgamated Meat Cutters case).

In other news, the Washington Post reports that bailed-out companies may be able to evade limits on executive compensation Congress included in the bailout, because of a loophole.  The limits on executive pay apply only to companies that sell distressed assets to the government.  And the Administration, rather than buying up distressed assets as it said it would do with the bailout money, is instead buying up shares in banks with the money (a step toward bank nationalization).

The incoming Obama administration may be able to use the $700 billion dollar financial system bailout as a vast political slush fund.  All the bailout money, and Obama’s plans for extensive new regulation of energy and financial markets, are attracting a swarm of lobbyists.

Nancyf December 16, 2008 at 10:00 am

If past performance is a tool to judge with I'd say both.

Nancyf December 16, 2008 at 10:03 am

Here….you can borrow my shoe to throw at him.

Bob December 19, 2008 at 1:11 pm

The Heritage Foundation & Michelle Malkin are against it? Then it MUST be the right strategy!

otto December 19, 2008 at 2:10 pm

Postings like this are so fatuous. As a practical matter there is no alternative to bailing out the auto companies. Forget the bankruptcy nonsense their market share would collapse and thousands of parts manufacturers would go bust waiting to get paid while the bankruptcy process ground itself out. There are so many legal issues and so many interests with claims it would take months or even years to sort them out in the courts. That's why Paulson has had to act. No govt is going to stand by and watch 2-3 million jobs disappear when the country is in the worst economic situation since the depression. It makes neither economic, social or strategic sense.

Andy December 20, 2008 at 8:24 am

Otto, that doom and gloom crap is getting old.We were told by the wizard of Odd Hank Paulson that if we didn't buy up toxic mortages that the 4 horsemen of the apocalypse were going to ride out of a hole in the earth and signal the end of days.Last I checked, not a single mortgage has been bought, and the sun came up this morning just like it has every other morning to date.

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