Friday, December 12, 2008

Congress folds on yet another wasteful bailout

Congress is abdicating its authority to president Bush again. As always, they are laying down the law then looking the other way when Bush ignores their legislation. This time it's the Emergency Economic Stabilization Act, the bill that established the $700-billion Troubled Assets Relief Program (TARP). The terms are very specific that "the program will be available to qualifying U.S. controlled banks, savings associations, and certain bank and savings and loan holding companies engaged only in financial activities that elect to participate before 5:00 pm (EDT) on November 14, 2008." Note that there's no mention of automobile manufacturers in that qualifier and that it's now almost a month past the application deadline.

Congress has already betrayed its constituents' trust by authorizing the Emergency Economic Stabilization Act in the first place. Americans overwhelmingly -- almost to unanimity -- opposed a bailout of the financial services sector. Yet congress passed the bill anyway. If congress doesn't rescind the bill, then congress is obligated to ensure that the TARP funds are used as designated in the bill. There is no way that the Act could be construed as to permit TARP funds to be allocated to automobile manufacturers or that it is now before November 14, 2008.

Secretary Paulson insisted that the funds are needed to provide liquidity to financial services firms when he first requested them. He claimed that if the TARP were not immediately implemented, the economy would precipitously collapse. His logic was that the TARP funds would increase availability of credit. But now the Bush administration is talking about bailing out General Motors and Chrysler with TARP funds.

Detroit's Big Three are claiming that a big part of their problem is that potential car buyers are not receiving the credit they need to buy automobiles. If the Bush administration redirects TARP funds from financial institutions to automobile manufacturers, then according to Secretary Paulson's logic, there will be even less credit available for banks to loan to car buyers. That would not only exacerbate the Big Three's problem but it would also enable them to perpetuate their failed business models, thereby only delaying their inevitable position in the market (and risking the collapse of the economy, according to Secretary Paulson's original position).

The Department of the Treasury has already been an abysmal failure at managing the TARP, vacillating wildly from one ineffectual tactic to another. Now it will continue to do so in direct contradiction to what congress has authorized the Treasury to do. No one in congress has voiced any recognition that the Bush administration is yet again acting in contempt of congress.

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