Indiana Challenges Constitutionality of TARP Money for Auto Bailout
In this Sept. 12, 2008 file photo, assembly operator Yolanda Germany looks over door molding on Chrysler's new 2009 Dodge Ram pickup at the Warren Truck Plant in Warren, Mich. (AP Photo/Carlos Osorio, file)
(CNSNews.com) – A lawsuit from the state of Indiana challenging the constitutionality of using federal Troubled Asset Relief Program (TARP) funds for automakers, is headed to a federal appeals court.
While most public attention this week focused on the bankruptcy of General Motors, the U.S. Court of Appeals for the 2nd Circuit in New York halted the sale of Chrysler to Italian automaker Fiat Group, announcing it would hear arguments from the Indiana State Police Pension Fund, the Indiana Teacher’s Retirement Fund, and the Major Moves Construction Fund on Friday at 2 p.m.
Among the challenges the state is making to block the sale, is that using money from TARP is not constitutional because Congress only approved the use of that money for financial institutions such as banks, insurance firms and credit unions.
“The administration misappropriated funds because it is stated in the law this is for financial institutions,” Indiana State Treasurer Richard Mourdock told CNSNews.com. “Is Chrysler a financial institution? Clearly not.”
This case will almost certainly impact the GM bailout as well, Mourdock said.
“If TARP money can’t be used in this case, how can it be used in the General Motors case?” Mourdock asked.
U.S. Bankruptcy Court Judge Arthur Gonzalez ruled on June 1 that Indiana did not have the standing to challenge the use of TARP funds. The court of appeals issued a ruling late Tuesday accepting the case.
The Indiana petition to the court of appeals cited a U.S. district court decision in Texas. The ruling found merit in the constitutional argument, but dismissed the case for lack of standing to bring suit.
“On its face, this definition (of ‘financial institution’ under TARP) would not appear to include automobile manufacturers and the terms of the act do seem to limit the use of TARP funds to assisting financial institutions. (See 12 U.S.C. § 5211(a)(1) (authorizing the Secretary of the Treasury to purchase troubled assets, as defined by the act, from ‘financial institutions’),” the ruling in the case of Texans Against Governmental Waste and Unconstitutional Conduct vs. U.S. Department of Treasury said.
“Plaintiffs' arguments have even more persuasive force given that a bill, HR 7321, specifically designed to authorize the distribution of TARP funds to auto manufactures passed the United States House of Representatives,” the U.S. District Court ruling continued.
“Passage of that bill by the House, even though not ultimately enacted, raises the question of why was such a bill necessary if the Act already authorized the distribution of TARP funds to the auto industry?” the court continued.
President’s violation of federal law ‘breathtaking’
In their original court documents filed at the U.S. Bankruptcy Court for the Southern District of New York, the Indiana pension funds accused the president of acting illegally in efforts to take possession of Chrysler.
“The violation of federal law, including non-bankruptcy law, being directed by the Executive Branch in this action under the guise of its Troubled Asset Relief Program (“TARP”) is breathtaking,” the pensioners argued unsuccessfully in their motion to have the issue removed from the jurisdiction of the bankruptcy judge.
The Indiana pension funds added: “The Government’s action is not authorized by any statute, including TARP, and violates the unambiguous provisions of the Emergency Economic Stabilization Act (the “EESA”) and the Constitution of the United States.”
Chrysler and the Obama administration have continually said that a purchase by Fiat is the U.S. auto firm’s only chance of survival after filing bankruptcy. Fiat has the option of dropping the deal if the sale does not close by June 15.
White House Press Secretary Robert Gibbs said the administration has the authority under the Troubled Assets Relief Program, the $700 billion bailout approved by Congress and signed into law by President Bush last fall.
Congress approved and President Bush signed the law creating the $700 billion Troubled Assets Relief Program (TARP) last fall. The legislation specifically said the money could be used only for financial institutions such as banks, insurance firms and credit unions.
In December, the Senate rejected a House passed auto bailout package using non-TARP funds. In lieu of authorization, the Bush administration used TARP money to provide a $13.4 billion bridge loan to GM and a $4 billion loan to Chrysler.
In March, President Obama expanded the auto bailout to also include a government guarantee on the warranties for new cars sold by the two companies. He also forced the removal of GM CEO Rick Wagoner and announced that Fiat would be purchasing Chrysler.
This week, Obama announced the federal government would be spending another $30.1 billion on GM and taking ownership of 60 percent of the company as it moves into bankruptcy.
The Indiana suit also contends that the deal as structured, unfairly favors the interests of the company’s unsecured stakeholders ahead of the secured stakeholders, such as the Indiana pension funds. Unsecured holders are getting 59 cents on the dollar, while secured holders are getting 29 cents, Mourdock said.
“Hoosier retirees and taxpayers are being deprived of millions of dollars in their funds while a foreign corporation receives a windfall at no cost, this is not equitable,” Mourdock added. “I look forward to Indiana’s day in court, and I will continue to pursue my fiduciary responsibilities and my oath of office.”
The Indiana lawsuit is significant because it is the only litigation challenging the constitutionality of this auto bailout, said Andrew Grossman, senior legal policy analyst at The Heritage Foundation.
“The administration lacks legal authority,” Grossman told CNSNews.com. “If the authority is as broad as the administration and some lawmakers say, then it is unconstitutional. Congress cannot pass the buck and give unlimited power to the executive.”
“This is the Indiana teacher’s retirement fund and the police pension fund -- government employees,” Grossman continued. “None of these are hedge fund holders, or the people the president tends to speak so ill of. These are people with middle class jobs.”
While most public attention this week focused on the bankruptcy of General Motors, the U.S. Court of Appeals for the 2nd Circuit in New York halted the sale of Chrysler to Italian automaker Fiat Group, announcing it would hear arguments from the Indiana State Police Pension Fund, the Indiana Teacher’s Retirement Fund, and the Major Moves Construction Fund on Friday at 2 p.m.
Among the challenges the state is making to block the sale, is that using money from TARP is not constitutional because Congress only approved the use of that money for financial institutions such as banks, insurance firms and credit unions.
“The administration misappropriated funds because it is stated in the law this is for financial institutions,” Indiana State Treasurer Richard Mourdock told CNSNews.com. “Is Chrysler a financial institution? Clearly not.”
This case will almost certainly impact the GM bailout as well, Mourdock said.
“If TARP money can’t be used in this case, how can it be used in the General Motors case?” Mourdock asked.
U.S. Bankruptcy Court Judge Arthur Gonzalez ruled on June 1 that Indiana did not have the standing to challenge the use of TARP funds. The court of appeals issued a ruling late Tuesday accepting the case.
The Indiana petition to the court of appeals cited a U.S. district court decision in Texas. The ruling found merit in the constitutional argument, but dismissed the case for lack of standing to bring suit.
“On its face, this definition (of ‘financial institution’ under TARP) would not appear to include automobile manufacturers and the terms of the act do seem to limit the use of TARP funds to assisting financial institutions. (See 12 U.S.C. § 5211(a)(1) (authorizing the Secretary of the Treasury to purchase troubled assets, as defined by the act, from ‘financial institutions’),” the ruling in the case of Texans Against Governmental Waste and Unconstitutional Conduct vs. U.S. Department of Treasury said.
“Plaintiffs' arguments have even more persuasive force given that a bill, HR 7321, specifically designed to authorize the distribution of TARP funds to auto manufactures passed the United States House of Representatives,” the U.S. District Court ruling continued.
“Passage of that bill by the House, even though not ultimately enacted, raises the question of why was such a bill necessary if the Act already authorized the distribution of TARP funds to the auto industry?” the court continued.
President’s violation of federal law ‘breathtaking’
In their original court documents filed at the U.S. Bankruptcy Court for the Southern District of New York, the Indiana pension funds accused the president of acting illegally in efforts to take possession of Chrysler.
“The violation of federal law, including non-bankruptcy law, being directed by the Executive Branch in this action under the guise of its Troubled Asset Relief Program (“TARP”) is breathtaking,” the pensioners argued unsuccessfully in their motion to have the issue removed from the jurisdiction of the bankruptcy judge.
The Indiana pension funds added: “The Government’s action is not authorized by any statute, including TARP, and violates the unambiguous provisions of the Emergency Economic Stabilization Act (the “EESA”) and the Constitution of the United States.”
Chrysler and the Obama administration have continually said that a purchase by Fiat is the U.S. auto firm’s only chance of survival after filing bankruptcy. Fiat has the option of dropping the deal if the sale does not close by June 15.
White House Press Secretary Robert Gibbs said the administration has the authority under the Troubled Assets Relief Program, the $700 billion bailout approved by Congress and signed into law by President Bush last fall.
Congress approved and President Bush signed the law creating the $700 billion Troubled Assets Relief Program (TARP) last fall. The legislation specifically said the money could be used only for financial institutions such as banks, insurance firms and credit unions.
In December, the Senate rejected a House passed auto bailout package using non-TARP funds. In lieu of authorization, the Bush administration used TARP money to provide a $13.4 billion bridge loan to GM and a $4 billion loan to Chrysler.
In March, President Obama expanded the auto bailout to also include a government guarantee on the warranties for new cars sold by the two companies. He also forced the removal of GM CEO Rick Wagoner and announced that Fiat would be purchasing Chrysler.
This week, Obama announced the federal government would be spending another $30.1 billion on GM and taking ownership of 60 percent of the company as it moves into bankruptcy.
The Indiana suit also contends that the deal as structured, unfairly favors the interests of the company’s unsecured stakeholders ahead of the secured stakeholders, such as the Indiana pension funds. Unsecured holders are getting 59 cents on the dollar, while secured holders are getting 29 cents, Mourdock said.
“Hoosier retirees and taxpayers are being deprived of millions of dollars in their funds while a foreign corporation receives a windfall at no cost, this is not equitable,” Mourdock added. “I look forward to Indiana’s day in court, and I will continue to pursue my fiduciary responsibilities and my oath of office.”
The Indiana lawsuit is significant because it is the only litigation challenging the constitutionality of this auto bailout, said Andrew Grossman, senior legal policy analyst at The Heritage Foundation.
“The administration lacks legal authority,” Grossman told CNSNews.com. “If the authority is as broad as the administration and some lawmakers say, then it is unconstitutional. Congress cannot pass the buck and give unlimited power to the executive.”
“This is the Indiana teacher’s retirement fund and the police pension fund -- government employees,” Grossman continued. “None of these are hedge fund holders, or the people the president tends to speak so ill of. These are people with middle class jobs.”
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