The bail out of General Motors and Chrysler is turning out to be a bigger problem for the country than originally thought. In creating the bankruptcy the POTUS turned things on their heels by forcing the primary investors to take a secondary stance in recovering their objection to the UAW. Basically he bailed out the UAW more than the Detroit auto industry.

Earlier this week we found out that taxpayers face losses on a significant portion of the $81 billion in government aid the UAW though GM and Chrylser. The Congressional Oversight Panel (COP) did not provide an estimate of the projected loss in its latest monthly report on the $700 billion Troubled Asset Relief Program. But it said most of the $23 billion initially provided to General Motors Corp. and Chrysler LLC late last year is unlikely to be repaid. Just what we need in this time of great deficits.

It gets worse, because according to the COP, the entire use of Tarp funds to bail out the auto industry may have been illegal:

Congressional Report Questions Legality of GM and Chrysler Bailouts
By Matt Cover
– A report issued by the Congressional Oversight Panel (COP) tasked with overseeing the implementation of the 2008 Troubled Asset Relief Program (TARP) questions whether the Bush and Obama administrations had the legal authority to use TARP funds to bail out General Motors and Chrysler.

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The report, issued Wednesday, confirmed what had previously reported: that the law which created TARP–the Emergency Economic Stabilization Act (EESA)–did not grant the government specific authority to use taxpayers’ funds to rescue the auto industry.

“EESA does not explicitly state that the TARP is available to provide assistance to the automotive industry (or to any specific industry except arguably the financial and banking industry),” the report finds.

What the law did authorize was the purchase of distressed, mortgage-backed securities and other financial assets based on those securities, from American financial institutions.

“The Secretary [of Treasury] is authorized to… purchase, and to make and fund commitments to purchase, troubled assets from any financial institution,” EESA states.

The report notes that in the law Congress defined what a “troubled asset” and “financial institution” meant–definitions that did not seem to include car manufacturers.

“It defines a ‘troubled asset’ as ‘residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages…the purchase of which the [Treasury] Secretary determines promotes financial market stability,” the report states.

“A ‘financial institution’ is defined as: [a]ny 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…and having significant operations in the United States, but excluding any central bank of, or institution owned by, a foreign government.”

The report found that buying large amounts of auto company stocks or bonds might qualify as appropriate assets since then Treasury Secretary Henry Paulson determined that doing so was vital to financial markets, the auto company bailouts still might not be legally authorized under TARP because the automakers are not financial institutions.

“The next question is whether GM or Chrysler can be called a ‘financial institution’ under EESA. The language of the statute itself does not provide a clear answer,” says the report.

The Bush administration argued that a car company could qualify for TARP funds because of wording in the EESA that mentioned corporations “established and regulated under the laws of the United States or any State, territory, or possession of the United States…and having significant operations in the United States.”

The report notes that this view seems to contradict the law’s actual language, saying that Congress must have “had a purpose” in limiting the executive branch’s authority.

“Based on this interpretation, the term ‘financial institution’ means any institution organized under U.S. law with operations in the United States,” the report says. “This interpretation does not, however, seem to account for the phrase ‘including, but not limited to, any bank, savings association, credit union, security broker or dealer, or insurance company.’ It also would seem to lend little weight to Congress’s selection of the term ‘financial institution.’

“Congress must be presumed to have had a purpose in listing institutions that might typically be considered ‘financial’ institutions–banks, credit unions, broker dealers, and insurance companies.”

The report also questions whether the administration’s interpretation of EESA is worthy of judicial deference, a principle whereby courts give the executive branch the benefit of the doubt when interpreting ambiguous legal language.

“Whether Treasury would be due such deference in this case is not clear. Later Supreme
Court opinions have suggested that an agency must use some authority that has been, either explicitly or implicitly, delegated to that agency by Congress and that the authority has been used under ‘circumstances that Congress would expect the agency to be able to speak with the force of law when it addresses ambiguity in the statue or fills a space in the enacted law’.”

Congress’ rejection of a bill specifically designed to bail out the auto industry brings that principle into doubt, the report said, because it showed Congress had decided not to bail out automakers.

“Congress’s explicit consideration of legislation that ultimately failed to pass creates a troubling question regarding the Bush Administration’s decision to ‘step in’ and rescue the automotive industry.”

Both Congress and the public have been “kept in the dark” by the Treasury Department, the report concluded, and Treasury must provide the panel with detailed, legal reasoning supporting its use of TARP funds.

“Congress, and ultimately the American taxpayer, have been ‘left in the dark’ concerning the details of Treasury’s review process and its methodology and metrics at a time when Treasury committed additional TARP funds to these companies,” it says. “The Panel recommends that Treasury provide a legal opinion justifying the use of TARP funds for the automotive bailouts.”