For Auto Bailout to Be Legal, Automakers Must Now be Considered ‘Financial Institutions’
December 19, 2008 - 4:31 PMSome critics are questioning the propriety and even legality of using money from the $700-billion financial-industry bailout bill that Congress passed in October to give a $17.4-billion bailout to Chrysler and General Motors.
That legislation, which created the Troubled Asset Relief Program (TARP), expressly limited the Executive Branch to using the funding the law approved to purchase assets from “financial institutions.”
A briefing paper put out by the conservative Heritage Foundation said that using the TARP money to bailout an auto company would be “legally wrong” since an auto company is not a “financial institution.”
CNSNews.com asked the White House press office whether the administration was in fact now defining the auto companies as “financial institutions” under the terms of the TARP law. The White House did not answer the question and referred CNSNews.com to the Treasury Department.
The Treasury Department has not responded to CNSNews.com’s question as to whether it is now considering General Motors and Chrysler “financial institutions” under the terms of the TARP law.
The actual legislative language gives the secretary of the Treasury the authority “to purchase and to make and fund commitments to purchase troubled assets from any financial institution.” Financial institution is defined in the law as, “any institution, including, but not limited to, any bank, savings association, credit union, security broker or dealer, or insurance company.”
Allowing the executive branch to define U.S. automakers – Chrysler, Ford and General Motors – as financial institutions greatly expands the meaning of TARP, said James Gattuso, a regulatory expert at the conservative Heritage Foundation.
“Frankly, this makes the TARP a personal slush fund for the president,” Gattusso told CNSNews.com. “There are no limits left. The only limit is to run out of money.”
Gattuso is the co-author of a Heritage Foundation report that asserts it is not legal to use the TARP funds for anything beyond financial institutions.
“I was very surprised. It looks like the administration didn’t even try to do an end run legally,” Gattuso continued. “They are just blatantly going to ignore the statute. The question is who would have legal standing to challenge that.”
The money for the auto-company bailout, announced Friday by President George W. Bush, comes from the $700 billion in TARP funds that Congress approved and the president signed in October that was intended to bailout the financial industry.
House Minority Leader John Boehner (R-Ohio) said the news of a taxpayer-funded bailout of the auto companies was disappointing. He also questioned the use of TARP funds.
“The use of TARP funds is also regrettable, the latest in a growing list of TARP money uses that were not discussed with or envisioned by Congress when the program was authorized,” Boehner said in a statement.
Joe Kaplan, White House deputy chief of staff for policy, stressed that using TARP money was never the administration’s first preference.
“We thought the right approach was legislation for any number of reasons, starting with the fact that it has always been our very strong preference to preserve the TARP for financial institutions of the kind that you have seen it used to assist previously,” Kaplan said during the White House press briefing Friday.
“Legislation didn’t pass, though, and the president was faced with a decision about whether, in the absence of legislation, to permit these auto companies just to fail,” Kaplan continued. “For the reasons he laid out in his remarks today, he did not think that was an acceptable or responsible alternative given our economic circumstances.”
Bush explained his decision in a speech this morning. “Unfortunately, despite extensive debate and agreement that we should prevent disorderly bankruptcies in the American auto industry, Congress was unable to get a bill to my desk before adjourning this year,” said Bush. “This means the only way to avoid a collapse of the U.S. auto industry is for the executive branch to step in.”
Sen. James Inhofe (R-Okla.) said the administration was “changing course regarding the implementation of the massive bailout without any input from Congress.”
“I also opposed the $700 billion bailout because I knew that more than just the financial industry would soon be lining up to ask for government assistance,” Inhofe said in a statement.
“Now, as the Bush administration has waffled and changed course again on implementation of the massive bailout, many of my colleagues who initially voted for the $700 billion bailout have been expressing regret over their decision to hand over such a massive blank check with little oversight to the administration,” Inhofe added.