Yesterday, in Nashua, New Hampshire, Obama said he hopes to take money repaid by Wall Street banks as part of the TARP $700 billion bank bailout to create the Small Business Lending Fund, which would provide capitol to community banks to spur economic growth on Main Street.

“These are the small, local banks that work most closely with our small businesses – that provide them their first loan, and watch them grow through good times and bad.

There is only one major thing wrong with that proposal, it is unconstitutional. The congress has directed that money to be used for TARP, once that money is paid back, the money cannot be used for a Presidential rainy day fund. The constitution provides that all spending plans must originate with the House of Representatives. The Congress cannot hand the President a pot of money and say go do with it what you like because the Constitution also says one branch of government cannot give its responsibility to another.

I am neither a constitutional lawyer (nor do I play one on TV), however based on the constitution (and based on the president’s transparency pledge) it seems that money has to be returned to the federal treasury bottom line and shown as part of a spending bill. In other words, the constitution say the program should not be hidden as a “free program” because it was money spent and paid back.

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Some in Congress agree

  • “Our TARP should not be a piggy bank. It was intended to stabilize the financial system. It has stabilized the financial system. As it is paid back with interest it should go to reduce the debt,” Sen. Judd Gregg, New Hampshire Republican and ranking member on the Senate Budget Committee, said in a brief interview. TARP money, Gregg said, is “not for a piggy bank because you’re concerned about lending to small businesses and you want to get a political event, when you go out and make a speech in Nashua, New Hampshire. That’s not what this money is for,” Gregg said, according to ABC News.
  • “They can do that?” asked Sen. Mark Pryor, Arkansas Democrat.“If we’re going to spend more money let’s be more transparent about that,” he said. “I think the American people want us to be clearer and more transparent about what we’re doing with their taxpayer dollars.”
  • Sen. John Thune, South Dakota Republican, has introduced legislation to end TARP and put the $320 billion toward immediate debt reduction. The bill attracted 13 Democratic votes in January, but Thune could not get his support past the 60-vote threshold, which was a condition for the bill’s appearance as an amendment.Thune spokesman Kyle Downey hammered the president’s proposal on Tuesday. “This is straight-up money laundering,” Downey said, calling it “Chicago politics on a $30 billion scale.”
  • Sen. Robert Bennett, Utah Republican, agreed.“If the president was serious about being fiscally responsible, he would end TARP and pay down the national debt,” Bennett said in a statement e-mailed to The Daily Caller.
  • Tony Fratto, a former Bush administration deputy press secretary who worked closely on the passage of TARP in 2008, said that the Obama proposal would be “making liars” of the Bush administration. “We said this was not going to happen,” Fratto said. “Everything we said and Congress said when we created the TARP was this would be temporary, that this would not go on forever. That was one of the main selling points.”

My Wife once bought a new outfit for $200 and a few days later she decided she really didn’t want it and brought it back to the store. She came home with different new outfit this one cost $300 dollars. She bragged to me that because of the exchange the outfit only cost $100. It didn’t really matter because my wife knows more about the family finances than I do, but her explanation was nonsense.

The President’s proposal for using TARP as his piggy-bank is just as nonsensical as my Wife’s $100 dress.

UPDATE:Senator Gregg ripped into the White House head of the office of Management and Budget regarding the subject on the Senate Floor (H/T Lonely Conservative)