The Unconstitutional Bailout

When you get beyond the rhetoric of change, it is astonishing how close President Barack Obama is following his predecessor in economic policy. Just as George W. Bush attempted to jump-start the economy with a jolt of hundreds of billions of dollars, Obama is doubling down on the bailout bets. In the Troubled Assets Relief Program process, the legislative branch is authorizing nearly a trillion dollars in spending.

But isn’t this backward? Doesn’t Congress have the sole power to authorize executive branch spending, and the president, the power to veto congressional spending authorizations?

I opposed the $700 billion bailout legislation because, among other objections, I believed it to be an unconstitutional delegation of congressional authority to an unelected official in the executive branch. Both the short history of the legislation’s implementation and a new legal analysis published by FreedomWorks Foundation confirm my original fears. This dramatic role reversal, with the executive telling Congress what to do, is exactly why the bailout is unconstitutional and must be stopped.

The bailout legislation violates the bedrock constitutional principle of nondelegation by investing the treasury secretary — an unelected member of the executive branch — with too much discretionary authority to exercise too much power.

In a recent legal analysis prepared for FreedomWorks Foundation, attorneys note, “Rather than making the policy choices necessary to guide the secretary’s discretion, Congress has given the secretary far-reaching power to intervene in the nation’s economy and effectively to nationalize American businesses — upon the thinnest reed of statutory constraints. And in doing so, Congress has effectively chosen not to make law but, rather, to make the treasury secretary the lawmaker.”

The debate over the second half of the bailout being authorized continues this backward approach to lawmaking. It has members of the Congress asking the Treasury Department to make promises that it will do better this time than it did before. But it is Congress’ constitutional duty to tell Treasury what to do, not ask.

Critics may say government being bound by the Constitution is a quaint idea, and the current crisis allows no time for it. But the Constitution is as relevant as ever. Drawing on their firsthand experience with King George, the Constitution’s Framers made the exercise of power difficult by design to protect liberty, to force deliberation, and to ensure accountability — all of which are threatened by the continuation of the bailout.


It took the former secretary of treasury just three months to remind us of the timelessness of this wisdom. With the $700 billion bailout, Congress gave him the authority to spend up to a quarter of the government’s budget. With blank check in hand, then-Treasury Secretary Henry Paulson almost immediately began to spend our taxpayer dollars differently than he had said he would.

First, he funneled money to small and large banks, as well as to other institutions such as insurers and consumer lenders. Then he shifted the bailout’s entire approach from purchasing assets to purchasing equity ownership stakes in troubled institutions.

And in the most dramatic shift yet, and with unambiguous disregard for congressional intent, the Bush White House decided to use more than $17 billion of the funds to prop up failed Detroit automakers — after Congress voted against doing so. Talk of more bailouts, in more industries, not only continues apace but also is being detailed by members of the new president’s team as they ask for more money.

This is alarming, but it should not be a surprise. Paulson was allowed to abandon the original plan because Congress granted him enormous power with very few limits on his discretion. What Paulson has done, he has done with the broad power Congress granted him. As the secretary readily admitted, “While the purpose of [the bailout] is to stabilize our financial sector, the authority allows us to take this action [of bailing out the automakers and buying ownership stakes in businesses].”

This is precisely the sort of action the Framers intended to prevent when they so deliberately separated powers among the branches of government — so an executive would not be able to say he is going to do what he wants, whether or not the elected representatives of the people like it.

Partisans in Congress may remain divided on the merits of spending $700 billion on the bailouts, but they have a chance to come together as the legislative branch and take back the power the Constitution gives to them. In doing so, they will do much more to preserve our great nation than any bailout could.

Matt Kibbe is president of the FreedomWorks Foundation, a grass-roots education organization advocating lower taxes, less government and more freedom.

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