With the Senate’s rejection of a bailout for Detroit’s ailing automakers, there now comes word that President Bush is actively considering using funds allocated by Congress for the Trouble Asset Relief Program (TARP) to prop up the automakers for the time being. Such action would be wrong legally, wrong economically, and counterproductive to turning around these troubled businesses. And by opening the door to such open-ended use of taxpayer money for virtually unlimited uses, a unilateral decision to employ TARP funds would jeopardize George W. Bush’s legacy as a friend of the taxpayer.
Until now, the Bush administration has resisted repurposing TARP funds for industrial policy, though this morning comes word that the Treasury may have reversed course. TARP, administration officials have said, was intended to shore up the stability of the financial markets and stave off economic collapse, not to inject capital into failing non-financial businesses. Moreover, only $15 billion remains of the initial $350 billion in TARP funds disbursed by Congress.
More problematic, Treasury lacks the statutory authority to direct TARP dollars to the automakers. While the statute, passed by Congress in October, grants the secretary extremely broad discretion to decide how to employ the funds, it clearly limits the recipients to “financial institutions.” And the definition of that term is quite clear:
FINANCIAL INSTITUTION- The term ‘financial institution’ means any institution, including, but not limited to, any bank, savings association, credit union, security broker or dealer, or insurance company, established and regulated under the laws of the United States or any State, territory, or possession of the United States, the District of Columbia, Commonwealth of Puerto Rico, Commonwealth of Northern Mariana Islands, Guam, American Samoa, or the United States Virgin Islands, and having significant operations in the United States, but excluding any central bank of, or institution owned by, a foreign government.
This doesn’t leave much room for interpretation.
In this case, due to the enumeration of included institutions in the statute, the term “any institution” is necessarily defined, in part, by the list that follow it: “bank, savings association, credit union, security broker or dealer, or insurance company.” An automaker is unlike any of these things, being a manufacturer of goods, not a financial intermediary.
It is a closer, but still not close, question as to whether the automakers’ financing arms, such as GMAC qualify. GMAC is not a bank, having failed so far to attain such status. It and other such financing arms are, to be sure, more like banks than the divisions responsible for stamping sheets of steel into auto bodies. But providing customer financing is a function that many non-financial institutions, from department stores to bars and taverns, engage in regularly. If merely offering loans or other financing to customers would transform a manufacturer, wholesaler, or retailer into a “financial institution,” then any business in the nation would qualify for TARP funding. This is an absurd result, one that would render Congress’s attempt to limit the pool of “financial institutions” a nullity, mere surplusage without meaning. This interpretation, then, must be rejected.
Even if the Administration were inclined to do so, it simply lacks the power under the statute passed by Congress to tap TARP funds to prop up auto manufacturers. This makes sense: why else would have Congress spent the past month taking testimony from auto executives and then crafting politically contentious bailout legislation if the whole thing was unnecessary, because it had already passed the bailout back in October?
The Administration must reject calls for it to trample the law, and accomplish an end-run around our representative democracy, by moving forward with a bailout. Giving in would be both unprincipled and, ultimately, illegal.
Worst of all, it would be counterproductive. Reorganization in bankruptcy continues to represent the best chance for General Motors and Chrysler to survive and prosper.
ahh.. but
"due to the enumeration of included institutions in the statute, the term “any institution” is necessarily defined, in part, by the list that follow it"
is easily trumped by the initial
"including but not limited to…"
Never think for a moment that was put in there NOT to be used.
Call the Whitehouse-Tell them NO, No Bailout with taxpayer money-202-456-1414. "We The People" have had quite enough!!!
Couldn't they just give the money to one of the banks they've nationalized and have that bank loan it to the Automakers?
(…reading this site on a PDA, for some reason the "mobile version" won't load… is there one?)
Well, from what I'm able to read of this post, I wonder if the preamble, which gives Paulson power to by whatever means necessary to "insure the economic well-being" of everyone on the planet. /sarc
Face it, we'll fight on, but this *will* happen, and b/c GWB is hot to show the winning team he loves them, I am mostly certain it will happen during GWB's time.
After all, this bail-out was his gift to the Liberal's election effort, he can't let the Socialists down in the clinch, right?
Or, as they say in my home state, The Great State of Texas: Whole Hog or None!
Dear moderator:
Curious, I ask if telling the truth, with a somewhat sarcastic tone, is verboten?
I of course, refer to my previous comment. No need to let this question post, but I can back-up my sarcastic comments abt GWB with facts, as I'm sure you guys there can, too. You're a good solid honest conservative organization after all.
Either way, no problem. Its your house after all, I just want to know where the line is, so I don't accidently stray over it. I tend to kid around, but if that's frowned on here I'll flip my switch & stay in "serious mode" when I make comments here.
Because of my long-windedness, let me restate: no need to stink up your comments section w/this, just point me (via email, perhaps) to a full set of what is frowned on and I'll be happy to color within the lines.
You moderators have a thank-less job. I say this sincerely: thank you!
Have a great weekend! Go treat yourself to a dagwood, (I like mine to incl. liverwurst, but I'm an odd bird[grin],) you deserve it!
I'd love to applaud your catch, but you failed to recognize the 4 most important words of that paragraph — '…but not limited to'. Looking very carefully at the definition, a financial institution can include anything in the list, or anything else Emperor Paulson and friends can dream up. There are no limits! Sleep with one eye open America, trust NO ONE.
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Dear Mike-
We never censored your first comment. We do have to approve each comment before it is posted though. The only thing we censor for is inappropriate language. Unfortunately we don't get to every comment as fast as we want so some times there is a lag. We are working to make this lag as short as possible.
All the best.
-Conn
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"a unilateral decision to employ TARP funds would jeopardize George W. Bush’s legacy as a friend of the taxpayer"
Are you serious? So I guess we should just overlook the deficits and debt, then? Who do you think will eventually pay all of it off? I would guess the taxpayers, which means that W has actually stuck it to us once again. Oh wait, maybe the Chinese will want to buy more bonds. My bad.
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It's illegal to redirect more than $4M in funds to another account. An executive agency head must obtain Congressional authority to redirect funds over a certain threshold. Bush can't now steer the bank bailout funds to another entity. The UAW isn't doing enough to make these car makers competitive. The fact they won't set a date for reducing benefits means they are negotiating in bad faith. They have no intention of being competitive. The $14B lowball amount will need to be followed my more and more. The GOP is right to stop this rip off of the taxpayers.
My last comment wasn't posted. Oh, well. Basically, the UAW is negiotiating in bad faith. They have no intention of reducing benefits or pay to make the car companies competitive. Proof of that is they wouldn't give Sen. Corker a date for when they would reduce their benefits. And without vast changes there is no way these companies can EVER be competitive.
NO MORE BAILOUTS! NO MORE BAILOUTS!
SICK OF IT>>>>> NO MORE BAILOUTS!
Do away with our DEMOCRATIC CONGRESS!
NO MORE BAILOUTS! NO MORE BAILOUTS!
SICK OF IT>>>>> NO MORE BAILOUTS!
Do away with our DEMOCRATIC CONGRESS!
ALSO DRILL DRILL DRILL DRILL…EVERYWHERE IN USA.
BECOME DEPENDENT ON OURSELVES…
BUILD REFINERIES….
Where there's a will, there's a way
– The TARP law authorizes loans only to financial institutions
– GMAC (also owned by Cerberus!) is trying to become a bank
– and therefore qualify for TARP funds
– to turn around and give out as needed
Talk about money laundering!
Ugh….
http://www.thestreet.com/story/10452831/3/five-du…
GMAC better come up with a Plan B quickly. Shoving its way into the government's bank rescue package doesn't seem to be working out too well for the besieged auto lender.
In a do-or-die effort to drum up needed funds Wednesday, GMAC, the financing arm of General Motors(GM Quote – Cramer on GM – Stock Picks), extended the delivery time for its cash tender offers by three days. The move marked the third time that the company, which is majority-owned by private equity giant Cerberus Capital Management LP, has pushed out its cash-raising deadline since launching its bid to become a bank holding company and qualify for the government's $700 billion bailout fund.
The Federal Reserve is requiring GMAC to have at least $30 billion in regulatory capital before granting it bank status. So far, the lender has raised just $8.3 billion, and it's pinning its survival on purchasing or swapping $38 billion of debt held by its divisions and mortgage business, Residential Capital, for cash, new notes or preferred stock.
If, by some miracle, GMAC raises the cash by the extended deadline, converts itself into a bank and gets government assistance, then GMAC says it will use the money to make loans to car buyers unable to get affordable financing.
If not, then GMAC said it would have a "near-term material adverse effect" on its business. Or in other words, game over. And we mean really over
Assuming that TARP funds can only be used for financial institutions (and that is subject to debate), what would prevent a financial institution from loaning huge sums to the big 2.5 with the understanding that the U.S. Treasury would buy up the loans using TARP funds? That would appear to be legal, too.
I voted for President Bush twice – mostly because I didn't feel that I had much of a choice. Now that he's destroyed the GOP and the capitalist system, I see that this was a mistake. Even Senator Kerry becoming president wouldn't be this bad.
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No TARP funds for auto bailout. Have e-mailed the WH, and will phone also.
I too supported and voted for Bush twice, and now have buyers remorse.
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Then why doesn't Heritage sue Paulson? I'd be surprised if they don't have the legal authority to do this. And forget bankruptcy because it would be a process that would take many months given the number of contending interests, all of which would have to be resolved in the courts. This would be a lawyers field day. Meanwhile their market share would collapse, they are still taking over 40% of a much diminished market, and much of the parts manufacturing infrastructure would also collapse while it waited to get paid. As a practical matter if the US wants to retain a domestic auto industry this is the only way to do it as I'm sure Paulson has decided after looking at all the options.
Turning from the business to the politics of the situation. The folks at Heritage need to reflect a little on the political advisability of the GOP tying itself to a policy that would economically devastate the rustbelt states of the midwest and northeast where the party is already in trouble.
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Therefore when we choose to invest in TARP funds, we are making the statute that we expect that Congress is going strong. Why would you buy an older product, for taxpayer money as a newer product. It's just the statute that are scheduled to be released.
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In English 101 I was taught that in defining a word or phrase, one could not use any part of the word or phrase in the definition. Example 1- Marriage: is a marriage between a man and a woman. With this definition, one still doesn't know what marriage is.
Example 2- Financial Institution: The term financial institution means an institution which ….
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