Carping about TARP
In its story yesterday about Obama pushing for release of the second half of the TARP boodle, the New York Times reported that
Lawmakers are angry about many aspects of the bailout, which they intended for the government purchase of troubled assets, particularly mortgage‐backed securities, but instead has been used to recapitalize banks and even prop up failing Detroit automakers.
Initially, I had a lot of sympathy for this critique. I had a little burst of outrage myself right before Christmas when I read the following quote from White House spokesman Tony Fratto, explaining why the White House was going to use the TARP authority to bail out GM and Chrysler–despite Congress’s having just voted down the auto bailout:
“Congress lost its opportunity to be a partner because they couldn’t get their job done,” Fratto said. “This is not the way we wanted to deal with this issue. We wanted to deal with it in partnership. What Congress said is … ‘We can’t get it done, so it’s up to the White House to get it done.’ ”
So by not giving the president the power to bail out the automakers, Congress has “lost its opportunity to be a partner,” and the president’s going to do it anyway? By what authority? The TARP statute gives the Secretary of the Treasury the power to buy “troubled assets” from “financial institutions.” Yet in the past three months TARP’s morphed from a plan to buy toxic mortgage‐backed securities, to one that involves buying shares in banks (like Wells Fargo ) that aren’t themselves troubled, to a program giving loans to car companies, which surely can’t qualify as “financial institutions.”
More Bush administration lawlessness, I thought. We already knew they didn’t care about the Constitution. Now they’re showing they can’t be restrained by plain statutory language.
And then I looked at the statute. And it turns out the definitions of “troubled asset” and “financial institution” are so gobsmackingly, irresponsibly broad, that the administration has at least a colorable argument that it can legally reshape the bailout in the ways it has. “Troubled assets” include:
any… financial instrument that the Secretary, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability
And “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 [emphasis added]
That’s why, as the University of Chicago’s Randy Picker argues, you can probably “fit cars under the TARP.” (For a contrary argument, see here ).
Given how far the administration has pushed loose legislative language in the past, can Congress credibly claim to be surprised here? Lawmakers may, as the Times reports, be “angry” about the scope of the bailout, but when they write language that broad, their outrage is more than a day late and $700 billion short.
