Earlier this week the Wall Street Journal’s Dennis Berman reported on last month’s conference convened at Stanford Law School to address the the legality of the historic financial bailouts of 2008 and 2009. (Here is the lineup.) Even the most liberal proponent of the government’s TARP authority had a problem with the bailout of GM and Chyrsler:
[Columbia University] Prof. [Gillian] Metzger seemed skeptical of the U.S. involvement in another controversial constitutional issue: the GM and Chrysler rescues. Begun with short-term loans by President Bush, they were formed into full-fledged TARP bailouts in early 2009, eventually totaling nearly $80 billion in assistance for the car companies and related finance arms.
That assistance was originally designated by Congress to go to “financial institutions” as “established and regulated” under U.S. law. The law makes express mention of banks, credit unions, insurers and broker-dealers.
It doesn’t, however, come close to naming industrial companies as beneficiaries. And that appeared to make it a different matter for Prof. Metzger, who wondered aloud about the legality of instances when “the executive branch engages in aggressive interpretation of statutory authority in ways that Congress prohibited.”
[University of Virginia Prof. Saikrishna] Prakash said the auto bailouts were illegal, arguing that the Bush and Obama administrations said TARP didn’t cover autos “until they decided they did.” It is one thing to broadly interpret an emergency, another to violate specific language. “There is no suggestion that you can bail out any institution in the nation just because you’ve got the word ‘institution’ in the language,” Prof. Prakash said. Some Chrysler creditors tried to bring a case to the Supreme Court, arguing that the car maker’s government-controlled bankruptcy subverted the usual bankruptcy rules. The court declined to hear the case.
Berman refers disparagingly to “the likes of Sarah Palin” who deride TARP for “morphing into crony capitalism at its worst.” Yet that appears to be an astute judgment of the case, as Gary Jason documents in “Crony car capitalism.”