September 20, 2008
The Bailout Statute
Posted by David Zaring

The terms of the mega-bailout are out there, and they are interesting.  I have never seen a shorter statute that commits $700 billion taxpayer dollars.  Generally, if Congress legislates in the economy, it can do whatever it wants, usually underscored by a vague allusion to the commerce clause.  No such allusion here, but probably no matter (you'd have to stretch the point to get there with the use of the phrase "commercial mortgages," and anyway, the statute permits intervention in residential mortgages too.  Clarence Thomas is the only localist I can think of who might be bothered by residential mortgages, and by paying much attention at all to the commerce clause, we are digressing.). 

Congress bailed out S&Ls before, and survived constitutional challenge then, I can't see why it wouldn't be able to bail out other financial institutions now.  So: can it do this?  Yes.  However:

  • Has Treasury been delegated an unconstitutionally broad amount of power?  This question always gets asked, and the answer to it is always no, but the exercise is worth a little attention here.  The statute is clearly focused on a topic: bailouts.  That's good for cabining Treasury's authority.  It also directs Treasury to protect the taxpayer as well as provide stability to the markets (also a sign that the statute is focused on particular goals), but it does, in authorizing the bailout, permit the secretary to run banks (or appoint the employees to do so), buy stuff, issue regulations, and so on.  These powers are broad, and because of a weird clause in the preamble of the statute, not the only things Treasury can do: "The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation" sales, appointments, regulations, etc.  It's that "without limitation" language - suggesting that the powers granted to Treasury are examples, rather than limited authorizations, that might give a nondelegation afficianado a little pause.  You know, can Treasury take this new sovereign wealth fund and buy anything it likes?  Isn't that unconstitutionally broad?  Maybe so .... but your first presumption is that broad grants of power haven't been held to be unconstitutionally broad since 1935.  I think this easily passes muster.
  • Treasury is allowed to sell "securities" to raise the $700 billion necessary, and can't go above that number ("The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time.")  Let's hope the crisis isn't a $1.5 trillion crisis, as some are saying
  • There's a two year sunset clause, sunset clauses being something Congress now wisely does as a matter of course.
  • And there's no judicial review. ("Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.")  Courts don't like these clauses - but particularly in civil or constitutional rights cases (see the Supreme Court and GITMO).  And for constitutional questions like non-delegation or commerce clause violations, they'd probably just ignore this clause.  But otherwise, for run-of-the-mill review of how Treasury implements this scheme, I can't see there being a problem keeping the courts out.  Heck, judges probably want to be cut out of the supervision of Treasury's supervision of the economy.

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