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Our government is based on the separation of powers. This means, as the Constitution states, that "All legislative Powers" are "vested in a Congress of the United States" and cannot be delegated to the executive branch. A new legal brief finds that the broad authority of the TARP "Wall Street bailout" legislation violates this legal doctrine and is unconstitutional.

On October 3, 2008, Congress wrote Treasury Secretary Hank Paulson a blank check— for $700 billion, which amounts to a quarter of the entire federal budget last year. Awash with fear of an impending financial crisis, Congress enacted the Emergency Economic Stabilization Act of 2008 ("EESA"), giving the Secretary staggering and unprecedented power to create the TARP program and intervene directly in our nation's economy.

BREAKING: This Analysis Featured in the New York Times.

When Congress debated this "Wall Street bailout" bill and explained it to the American people, most expected the Secretary would use his newly acquired authority to purchase "troubled" mortgage-related assets from major banks who were, in the catchword of the moment, "too big to fail." But with blank check in hand, the Secretary almost immediately began to spend it differently. Sec. Paulson has funneled tax dollars to banks both large and small, both troubled and healthy, and to non-bank institutions such as auto lenders and insurers. Further, instead of purchasing troubled assets, he has purchased direct equity stakes in these various institutions.

Putting aside any merits of these various actions, the process should raise alarm. The Secretary was enabled to stray from the originally envisioned approach because EESA granted him enormous power with very few limits on his discretion. In our view, EESA violates the core principle, rooted in the Constitution’s separation of powers, that Congress may not delegate its lawmaking authority to the executive branch.

The full legal brief explains the importance of the "nondelegation" principle to our constitutional system and concludes that EESA unconstitutionally violates that principle by delegating such a broad lawmaking power to the Secretary.

Read the legal analysis

Download a .pdf of the full report (2 MB)

"EESA violates the core principle, rooted in the Constitution's separation of powers, that Congress may not delegate its lawmaking authority to the executive branch."

FreedomWorks Foundation analysis of the legal and constitutional issues with the Emergency Economic Stabilization Act of 2008 (EESA)-- the TARP legislation.

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