The proposed bailout legislation is fascinating, in a horrifying way, on so many levels - politically, economically, ideologically. What about its constitutionality?
The proposed bailout law, available here, gives the Secretary of the Treasury unreviewable discretion to buy mortgage-related assets from any financial institution in the United States and to exercise rights in those assets, manage them, and sell them. The law would grant the Secretary seemingly unfettered discretion in the performance of these actions. For example, Section 2(a) of the law states:
Section 2(a). The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.
Section 2(b) generally empowers the Secretary to "take such actions as the Secretary deems necessary" to carry out his powers under the law.
Section 2(b). Necessary Actions.--The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation:
(1) appointing such employees as may be required to carry out the authorities in this Act and defining their duties;
(2) entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code, without regard to any other provision of law regarding public contracts;
(3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;
(4) establishing vehicles that are authorized, subject to supervision by the Secretary, to purchase mortgage-related assets and issue obligations; and
(5) issuing such regulations and other guidance as may be necessary or appropriate to define terms or carry out the authorities of this Act.
Finally, Section 8 of the law insulates the Secretary's actions from review by any court or any other agency of the government.
Section 8. 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.
Congress derives its power to enact this law from two independent sources, both of which are very potent constitutional founts of authority. The first is the Tax and Spending Clause (Article I, Section 8, Clause 1), which states "The Congress shall have power to law and collect taxes ... and provide for the common defense and general welfare of the United States." Essentially any spending program you can think of - even a bridge to nowhere - is within the power of Congress to appropriate funding for. And the "spending" portions of the bailout bill sure grab your attention:
Section 6. 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.
Congress also has the authority, under the Commerce Clause, "to regulate commerce ... among the several states." There is no doubt that the buying and selling of mortgage-related assets constitutes interstate commerce.
As if the Spending Clause and the Commerce Clause were not enough, the Necessary and Proper Clause of the Constitution invests Congress with nearly as much implied authority as this statute confers upon the Secretary of the Treasury. The Necessary and Proper Clause states that Congress shall have power:
To make all laws which shall be necessary and proper for carrying into execution the foregoing powers and all other powers vested by this Constitution in the government of the United States, or in any department or officer thereof.
In light of these broad grants of powers to Congress in Article I, Section 8, there simply is no doubt that Congress has the authority to enact laws like this one.
Except for one problem. Congress has given the Treasury Secretary very little guidance in performing his responsibilities under the law. The only provision of the law that confines the discretion of the Secretary is Section 3 of the law, which states:
Secton 3. Considerations. In exercising the authorities granted in this Act, the Secretary shall take into consideration means for (1) providing stability or preventing disruption to the financial markets or banking system; and (2) protecting the taxpayer.
The principle of the separation of powers requires Congress to adopt the laws and for the executive branch to enforce the laws - to carry them out. But Congress cannot delegate its lawmaking authority to the Executive. The Supreme Court has stated that when Congress delegates power to the executive branch, it must articulate an "intelligible principle" for the executive to follow in performing its duties under the law. While the courts have granted Congress leeway to confer broad grants of statutory authority upon the executive branch, this law may stretch that idea to the breaking point.
Furthermore, the reason why the Supreme Court demands that the law set forth an "intelligible principle" to channel the execution of the law is so that the courts can determine when the executive has overstepped its powers - so that there is a judicially discoverable limit on the power conferred upon the executive. This law, however, makes the decisions of the Secretary unreviewable in any forum.
I don't have an informed opinion about the wisdom of this law. As for its constitutionality, the framers of the Constitution created a government of limited powers because they were distrustful of human nature, and they instilled a system of checks and balances so that no one person or group of people could exercise unfettered governmental power. In my opinion, the courts would probably uphold the constitutionality of the bailout law because they have upheld extremely broad grants of authority in the past. But you have to trust someone an awful lot before giving them $700,000,000,000 to spend, and one thing that the framers of the Constitution lacked was trust. I am not 100% convinced that the courts would rule this law to be consistent with the doctrine of separation of powers.
- 2012 (115)
- 2011 (368)
- 2010 (349)
- 2009 (397)
- 2008 (117)