December 09, 2008
Oversight, Constitutionality and the Auto Bailout
Posted by David Zaring

The auto bailout bill may be passed soon - it's a fast timeline, but one hears about a recalcitrant president and GOP senate caucus.  And this time, Congress is acting like it wants tough oversight.  Some observations on the bill language so far:

  • The administration is said to be opposed to a car czar, but the draft bill I've seen really wouldn't work without such a czar, through which all money would go, and all oversight be conducted.  Nothing in the bill prevents this person from being the Secretary of Transportation, by the way; indeed the czar is to be "1 or more officers from the Executive Branch having appropriate expertises in such areas as economic stabilization, financial aid to commerce and industry, financial restructuring, energy efficiency, and environmental protection."
  • The czar is powerful, in the ways of emergency administrators, and also in the way of a mighty loan officer.  Said czar can "prohibit the ... automobile manufacturer ... from consummating any [$25 million] ... sale, investment, contract, commitment, or other transaction," and "may establish procedures for conducting any review" of these contracts.  And the czar can accelerate repayment if there's a determination that the automakers aren't restructuring quickly enough, which presumably would bankrupt the recalcitrant auto company at the stroke of a pen.  But otherwise, the czar receives reports and evaluates them - he/she/it does not have the authority to take over the manufacturer and implement the czar's own restructuring plan.  For that, another trip to Congress is required.  So the government won't be running the auto manufacturers ... yet.  In some ways, it is nationalization without the joys of management.
  • Otherwise, the sorts of penalties/terms that we saw in the bank bailout are there, warrants and ballooning interest rates, and identically phrased executive compensation standards (though the auto bailout contains a prohibition on bonuses to the 25 most high compensated employees of each company, and there's a kinda mean and micromanaging requirement of aircraft divestiture).  The big difference is the prohibition of dividends, and there's a bit more reporting required.
  • As far as taxpayer protection, the loans get senior status, and there's GAO and a special IG with access to records.
  • Congress is hopefully providing that nothing in the bill prevents Treasury or the Fed from bailing out the automakers under the TARP or any of their other creative authorities.
  • And there's nothing about judicial review, which usually means that such review is available under the APA.

Two other perspectives worth thinking about:

  • As Barry Ritholtz says, banks get to pay dividends and bonuses, don't have to fire their management, and haven't been put through the ringer.  What is so different about them and auto companies?  You know, other than that the Treasury Secretary was a banker.
  • Eugene Volokh says that the condition in the bailout to drop legal challenges to state greenhouse gas regulation is likely unconstitutional.  I'm no constitutional scholar, but I'm surprised.  It can't be the case that when the government, like any private party would when it made an acquisition, couldn't condition that acquisition on some sort of a settlement and release clause, viz, "you hereby release any and all claims arising out of this contract and the events that created it forever and ever" (I used to litigate, so that's what I'd see, but deals often contain ADR provisions, I think).  The question would be whether the requirement of a release against third parties on a related matter - i.e., state regulation of auto companies - pursuant to an acquisition would be so different.  I don't think it would be.  But maybe that's because I've never understood the public-private distinction.  I've never really understood why if, say, Ford bought a solar power company and instructed it to drop its suit to compel the EPA to promulgate strong emissions standards, the state of West Virginia would be constitutionally incapable of doing the same thing.  I'm probably missing something, though.

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Comments (1)

1. Posted by IVSergio on December 9, 2008 @ 21:24 | Permalink

Зер гуд ставлю 5 балов.

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