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Bailouts as Coup d'Etat of the Legal System

Government Without Laws

by RALPH NADER

Over thirty years ago, a book came out titled How the Government Breaks the Law by Jethro K. Lieberman. Even then it was old news and the examples cited seemed small compared to today’s chronic law-breakers in the White House and at many federal departments and agencies. Many recent books have been written on the expansive outlaw behavior of George W. Bush and Dick Cheney.

Less attention has been devoted to the explosion of unauthorized actions by the Executive in recent years. What should be the most frequent question by reporters to government officials — namely, ?By what authority are you acting?? ? is the rarest of inquiries.

A two part series on Treasury Secretary Henry M. Paulson Jr. in the Washington Post by David Cho in late November brought this point out in a stunningly frank admission by the Corporate bailout czar himself.

Speaking of the takeover of Fannie Mae and Freddie Mac,  as well as other megaseizures of failing Wall Street firms, Mr. Paulson expressed these anarchic words: "Even if you don’t have the authorities ? and frankly I didn’t have the authorities for anything ? if you take charge, people will follow."

Whew! There you have it! He becomes the law and the law is what he says it is because no one ? neither a rubber-stamping President, nor a supine Congress, nor any citizen, deprived of any standing to sue, is going or can do anything about it.

Reporter Cho goes on to write: "Senior government officials said Paulson helped craft rescue programs for financial firms, though he was not sure he had an unquestionable legal basis for the initiatives including the bailouts of the failing investment bank Bear Stearns in March and the wounded insurance giant American International Group (AIG) in September."

Mr. Paulson went further. Playing Congress, he backed the Federal Reserve ? already a government within a government funded by banks? to unprecedented unilateral expansion of its powers and  its self-made assets. The Post reported that officials from the Treasury and the Fed ?never knew whether they had the legal authority to interfere with the market for  such derivatives but did so anyway because the opaque trading threatened the wider financial system."

Unauthorized Executive Branch actions tend to be contagious. Noticing that the crisis left Wall Street on its knees and willing to unilaterally assume over $8 trillion in a variety of loan, subsidy and capital obligations, the Bush regime kept making more of its powers all by itself. Why not, they may have been thinking? Look what they’ve gotten away with in the areas of military and foreign policy actions.

Weekend gigantic corporate bailouts ? a more recent one being the $300 billion plus assumption of Citigroup’s financial risks ? engineered by Citigroup co-boss, Robert Rubin–were very secret affairs.

The  more public grab of power was the $700 billion goliath to rescue the casino capitalists on Wall Street which was submitted in only 3 ½  pages of proposed legislation to Congress by Paulson and Ben Bernake, the Fed’s chairman in September.

This was too much for the ideologies of House Republicans who beat it on the first round. Even the spineless Democrats thought the requested authority was too much of a blank check. So what happened? Bush told Paulson to give various members of Congress "sweeteners" such as pork and tax breaks for favored lobbyists to get the required votes.  Consequently, Paulson was granted staggering discretion to spend the $700 billion when, where and to whom he wanted under whatever conditions or no conditions at all.  All in the name of socialism saving capitalism from massive collapse.  Ironic.

Mr. Paulson came away from Capitol Hill with Congress in his hip pocket ? not exactly what the framers of our Constitution had in mind in 1787.

Thus embolden, Paulson initiated a unilateral, administrative repeal of a Congressional enactment in the tax code ? section 382 ? to give the banks a huge windfall of about $140 billion. George K. Yin, former chief of staff of the Congressional Joint Committee on Taxation, rejected the legality of the Treasury Department’s decision. He told the Post: "I think almost every tax expert would agree that the answer is no. They basically repealed a 22-year-old law that Congress passed [and Reagan signed] as a backdoor way of providing aid to banks."

Section 382 of the Tax code ?sharply restricts a company from using the tax losses of a company it acquires to reduce its own tax liability," according to the respected Citizens for Tax Justice. The Treasury’s two-page notice generated a brief specialized display of outrage from members of the Tax writing committees in Congress and a hundred national, state and local organizations signed a joint letter to Congress demanding the legislators reverse the Treasury? unauthorized edict.

So what did the House of Representatives do?  It passed, later rejected by the Senate a provision in the auto bailout bill, a provision that would have extended the unauthorized  Treasury ruling to the automobile industry!

What is going on here is a revolutionary coup d-etat of our legal system by executive branch diktats.

Is the organized legal profession through their bar associations in challenge mode? Are law professors churning over this mockery of the legislature and executive branch administrative law? Are conservative groups ? always upset about judicial activism ? going into high gear against the new monarchy in and around the White House in downtown Washington, D.C.? Are all those futurists worried enough about the trillions of debt dollars being piled on our children and grandchildren to protest and act?   Not really.

Obviously, all this is a developing story. Stay tuned, unless you are willing to be turned out.

RALPH NADER is a consumer advocate and three-time presidential candidate.