Government Using TARP to Take Over Business

Government Using TARP to Take Over Business

By Rich Lowry - April 10, 2009

The National Security Act of 1947, a reorganization of the foreign-policy and military apparatuses of the U.S. government, created what historians call "the national-security state." Critics complain that the national-security state vastly empowered government and cut the executive branch loose from legislative accountability. It marked the beginning of a hyperactive interventionism abroad.

Domestically, all the same criticisms apply to the consequences of the Troubled Assets Relief Program, which marks a new era in American economic policy just as the 1947 act did in foreign policy. Since last fall, we have seen the rise of the TARP state, characterized by sweeping interventions in the economy undertaken by the executive branch on its own authority or in defiance of the legislature.

Even its harshest detractors have to admit that the National Security Act did what it said; TARP is one the great misnomers in U.S. government. So far, the program has had nothing to do with troubled assets and has been used for purposes far afield of the justification -- getting such assets off the balance sheets of the banks -- presented to Congress when it passed last fall.

How many legislators thought that in supporting TARP they were giving the federal government the power to bail out the auto industry, let alone fire a CEO and effectively run companies? When word came down in October that GMAC, the financial arm of General Motors, was considering becoming a bank holding company to get TARP funds, it seemed a violation of the spirit of the law. But GMAC needn't have bothered. Through TARP, government funds went directly to GM and Chrysler, even after Congress declined to authorize them.

As he was using the leverage created by TARP to fire GM's CEO, Pres. Barack Obama guaranteed warranties for GM and Chrysler cars. He set up special warranty accounts -- funded, naturally, with TARP dollars. TARP is an endlessly flexible slush fund that has given the federal government warrant to intervene in the private sector however it pleases.

A lawlessness has inhered in TARP since Bush Treasury secretary Henry Paulson sold it to Congress under essentially false pretenses. The Obama administration continues in the same tradition. The Washington Post reports that the administration will use middlemen to funnel TARP funds to certain financial firms -- explicitly to evade congressional pay restrictions on firms' receiving the money directly.

The administration gets to decide not only who gets TARP funds and on what basis, but whether firms can give the money back. In a meeting with bankers at the White House, Obama told those bank CEOs wanting to return federal dollars that they couldn't yet. The administration is on the verge of extending TARP funds to life-insurance companies, the latest sector of the economy agitating for government largesse. And TARP funds will contribute to the administration's $1 trillion public-private plan to remove toxic assets from the banks, a plan structured to do a naked bootleg around any need for congressional approval.

The last time we had a financial crisis, during the savings-and-loan meltdown in the late 1980s, Congress debated, modified, and passed the Bush administration's plan for what became the Resolution Trust Corp. In the era of TARP, no such legislative signoff on the specifics of a complex, wide-ranging rescue scheme is necessary.

Whatever he thinks of Obama's policies, former vice president Dick Cheney should be delighted as an advocate of executive power. Obama has pocketed, in fact or in theory, all the presidential war powers defended by Pres. George W. Bush, while expanding with relish the executive's role in the economy. In Obama, the national-security state has met the TARP state.

The national-security state is necessary given America's preeminent global role. And some sort of rescue had to pass during last fall's financial panic. But TARP has become a disgraceful transgression of democratic accountability and the wedge for a retrograde, highly politicized industrial policy. Nothing good can come from the TARP state.

Rich Lowry is the editor of National Review.

© 2009 by King Features Syndicate

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