McCain Says Obama Does Not Have the Authority to Use Bank Bailout Money to Bailout Auto Makers

May 7, 2009 - 1:20 AM

Sen. John McCain, R-Ariz. listens during remarks of the Fiscal Responsibility Summit, hosted by President Barack Obama, not pictured, Monday, Feb. 23, 2009, in the East Room of the White House in Washington. (AP Photo/Charles Dharapak)

Washington (CNSNews.com) - Sen. John McCain (R-Ariz.) said Wednesday that President Obama does not have the authority to use money from the federal Troubled Asset Relief Program (TARP)--the bank bailout law--to bail out the auto industry.
 
“I don’t think he does [have the authority],” McCain told CNSNews.com. “TARP’s intent is not to help out the auto industry.”
 
Other lawmakers said they believed either that Obama did have the authority to do what he was doing thanks to the vagueness of the TARP law or that they were uncertain whether he had the authority.
 
Sen. Jeff Sessions (R-Ala.) blamed the broad language of the bill for congressional inaction against what he said was the president’s misuse of TARP.
 
“I warned and one reason I opposed the TARP bailout last fall was because the language was so broad,” Sessions told CNSNews.com. “Honestly, they think they can do anything with the funds.”
 
 “I’m surprised there haven’t been lawsuits filed, but presumably the language that was in the bill that Congress passed gave him this kind of broad power,” he told CNSNews.com.
 
“This is really a congressional failure to set up strict standards of how people’s money should be spent,” he added.
 
Sen. Bob Corker (R-Tenn.) also blamed the bill’s language, saying: “There’s vague language in there that allowed him--both President Bush and President Obama--more leeway than I think was anticipated by members of the Congress.”
 
“Obviously, I disagreed with that. I think if we should’ve done anything, it should’ve been done legislatively, not just in the executive,” he said.
 
A Democratic senator echoed the sentiment that the language of the bill is vague and allows the president to allocate the $17.4 billion in TARP funds to the auto industry.
 
“I haven’t checked the language recently, but my recollection is that they might have directed the [disbursement of] funds but they have left it open for the president to take other actions with it,” Sen. Ben Nelson (D-Neb.) told CNSNews.com.
 
Nelson said he hasn’t checked the language “because I haven’t been back to look at it.” But he added, “I think there’s some authority for using it not just for banks, but for other actions.”
 
“Otherwise the president couldn’t -- President Bush couldn’t have [used TARP to bailout strugling automakers],” he added. 

The TARP law, however, specifcally states that the money it authorizes be used to purchase troubled assets from financial institutions.
 
The TARP law states: “The Secretary is authorized to established the Troubled Asset Relief Program to purchase and to make and fund commitments to purchase, troubled assets from any financial institution, on such terms and conditions as are determined by the Secretary, and in accordance with this Act and the policies and procedures developed and published by the Secretary.”
 
The term “financial institution” is defined as “any 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, the District of Columbia, Commonwealth of Puerto Rico, Commonwealth of Northern Mariana Islands, Guam, American Samoa, or the United States Virgin Islands, and having significant operations in the United States, but excluding any central bank of, or institution owned by, a foreign government.” 

In December, Heritage Foundation analysts Andrew Grossman and James Gattuso argued that for President Bush to interpret this language to mean he could take TARP money and give it to auto makers, which are manufacturing companies not "fnanncial institutions," would be legally wrong.  Bush had just attempted to get Congress to specifically approve money for an auto bailout, but the legislation failed.
 
Bush nonetheless went ahead and used TARP money to begin the auto bailout in December.
 
President Obama expanded the government’s intervention. Obama demanded that the CEO of General Motors, Rick Wagoner, resign and has also attached conditions that GM and Chrysler have to follow to receive additional federal funding. These include producing more “fuel efficient” vehicles and a Chrysler-Fiat merger. Chrysler declared bankruptcy last week.

Several senators, however,  indicated that they were originally under the impression that TARP was to be used only to aid financial institutions. 
 
“Initially, it was to take out toxic assets, and that’s where we all thought it would go, but they didn’t limit the language--the language didn’t limit the money to that,” Nelson told CNSNews.com.
 
“We were told about toxic mortgages, they didn’t buy any toxic mortgages,” Sessions said. “Then, as you know, they started using the money for automobile companies.” 

While some in Congress blame the language of the bill, others say they are uncertain of whether the president has the authority to use TARP funds to restructure the auto industry.

Sen. Kent Conrad (D-N. D.) told CNSNews.com Wednesday: “You’d have to ask a lawyer. I don’t know. I just don’t know. I have not researched that.”
 
Sen. Richard Lugar (R-Ind.), who favored assisting the auto industry last year, said the discussion of the president’s power over TARP funds is “ongoing.”
 
“The debate is continuing to whether that authority is there,” he told CNSNews.com.
 
“Essentially TARP is meant for troubled assets and banks but, as you pointed out, it has been utilized in the auto industry--not by unanimous consent,” Lugar said. 
 
In April, House Majority Leader Steny Hoyer (D-Md.) told CNSNews.com that he didn’t know where the president gained the power to use TARP funds to restructure General Motors, but, if needed, Congress would provide that authority.  Of course, Congress did not have the votes to provide that authority in December.

When Obama initially announced his action on the auto industry, Senate Banking Chairman Chris Dodd (D.-Conn.) said he did not know whether Obama had the legal authority to do what he was doing and that he, Dodd, had not been consulted at all.  
“I don’t know whether there is legislative action needed regarding all this,” Dodd (D-Conn.) told CNSNews.com. “There may be. I just don’t know enough details of this and obviously we’re going to be talking about it.”
 
“I wasn’t consulted at all on the process, not that I expected to be necessarily, but as the committee of some jurisdiction on this matter, I kind of expected I might hear something," said Dodd. "I’ve been reading about it in the papers basically.”