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Was the Wall Street bailout constitutional?

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By Robert E. Beckner

In the first 10 days of September 2008, one of the worst crises in American history broke into public view. We saw several of the oldest and largest financial institutions in the world wiped out.

The government stepped in and rescued the largest insurance company in the world (AIG) and two quasi-public corporations, Fannie Mae and Freddie Mac, that invest in about half the mortgages in the U.S., were bailed out with $200 billion. The stock market lost more than 40 percent of its value but, thanks to vigorous steps to combat it, the loss has been abated.

Even the political races were transformed by the financial crisis. For years, there had been warnings that trouble was coming, from articles in the Wall Street Journal and others, but these efforts were unsuccessful because of political protection from Barney Frank, C. Cox and C. Dodd among others whose jobs were to oversee these areas. As you can see, it wasn’t done, mostly from the liberal left in Congress because supporting home ownership was popular, regardless of who got the homes.

There were other failures such as Bear Stearns, which was sold to JP Morgan Chase and Co. for pennies on the dollar, Lehman Brothers filed for bankruptcy, Washington Mutual Inc. collapsed and Merrill Lynch was taken over by Bank of America Corp., and Wachovia was bought out by Wells Fargo & Co. Also, Investment Bank, Goldman Sachs Group Inc. and Morgan Stanley transformed themselves into commercial banks overnight. It was not a pretty picture here in the states and all over the world.

This economic storm will pass in spite of our corrupt politicians. There are many who know that government departments should not grow beyond the scope intended for them by the Constitution. What happened here was just plain old greed, a moral vice.

Our Constitution is a document full of safeguards to defend our rights against oppressors both foreign and domestic and to limit government, so as to render it harmless to the liberties of those it governs. It is time for recovery economic and political; simply put,  we must recover the art of constitutional government.

This financial crisis has given ammunition to the enemies of liberty, the political saboteurs whose aim is to eradicate economic freedom with full-blown socialism. In all the talk, double-talk, lies and plain political discussion regarding the $700 billion “bailout” or now being called a “rescue,” the bottom line was to use taxpayer money to purchase troubled assets of the financial industry, Wall Street.

Then Henry Paulson, the “czar,” said he would use most of the first round of bailout money to invest in banks and lenders, including bad car loans, bad student loans and bad credit card debts. At this point, Congressman David Scott (D-Ga.) said, “they had been lied to and we’ve been bamboozled.”

While all this was going on,  it was rare to hear mention of the Constitution in any debate. Few questions were asked about the founding document and its limit on federal powers granted by it.

The bailout was officially called the Emergency Economic Stabilization Act of 2008 (EESA). Congressman Ron Paul (R-Texas) questioned the dubious constitutionality of EESA on CNN, in which he stated, “You are asking people to just totally defy the Constitution because there is no place in the Constitution that says we can do these things.”

He was referring to EESA authorizing the U.S. Secretary of the Treasury to spend up to $700 billion to purchase troubled assets. The Constitution does not contain any specific grants of powers to these departments. They all face the same constitutional restraints.

Robert A. Levy, Esq., of the Cato Institute says in his Oct. 20, 2008 Legal Times article, “Is the Bailout Constitutional?” He writes, “The federal government has no constitutional authority to spend taxpayer’s money to buy distressed assets, much less to take an ownership position in private financial institutions.”

The constitutional commerce clause authorizes Congress to “regulate commerce with foreign nations and among states.” Levy says the commerce power is to “regulate,” but commerce is not regulated by eliminating private risk and substituting tax funded handouts to favored economic actors.

The framers who crafted the commerce clause could not have intended to empower Congress to give executive officials virtual carte blanche over all financial institutions. Further, the legislative maneuvers utilized by Congress to pass EESA in spite of such widespread public opposition raise procedural questions about its constitutionality.

Bruce Fein, a former associate deputy attorney general in the Reagan administration wrote in the Washington Times that EESA was “unconstitutional at birth” since the bailout bill originated in the Senate (after the House had initially defeated it). This in spite of the constitutional provision requiring all appropriation bills to originate in the House.

So what we have is a very dangerous legal precedent in our nation’s history. However the idea of the Supreme Court overturning this clearly unconstitutional legislation (EESA) is not very likely.

It is easy to quickly lose hope as our country declines further into socialism and the government gains new and dangerous powers with each passing day. Our constitution is often ignored and circumvented, sorry to say, on many legislative acts but it is still the law of the land, with the framers delegating more power to Congress than either of the other two branches of the federal government.

If the public will only apply informed pressure to our federal lawmakers, both representatives and senators, reminding them to take seriously their oaths to the constitution. If so, they could be dismantling extra-constitutional programs such as EESA. It would also act to rein in federal judges and presidents who unconstitutionally abuse their power as they have done in this case.

“I believe that banking institutions are more dangerous to our liberties than standing armies” … Thomas Jefferson.

Robert E. Beckner lives in Majestic Oaks with his wife, Sarah. He is a retired private investigator and insurance adjuster. He has also been a photographer and served with the Military Police in the Marine Corps.