Rescue by Fiat

Our Reason magazine colleague Jacob Sullum’s column for Creator’s Syndicate is an excellent analysis of the Chrysler bailout and what it says about modern-day presidential politics. The stimulus package and the aggressive managment of industry by the federal government undermines the core system of checks and balances that is a hallmark of the U.S. system of federalism. As Jacob observes,

Although he ran on a promise to respect the legislative branch’s constitutional role, Barack Obama applauded the Bush administration’s illegal loans [to the U.S. auto industry], and since taking office he has not sought congressional approval for a bailout that is still operating outside the law. President Obama’s high-handed engineering of the pending merger between Chrysler and Fiat, a deal that flouts well-established bankruptcy principles, confirms he is no more committed to the rule of law in this area than his predecessor.

The Obama administration continues to subsidize Chrysler and G.M. (and even the companies that sell them parts) with money that Congress allocated to the Troubled Asset Relief Program (TARP). As the name suggests, the Treasury Department was supposed to use that money to buy troubled assets from financial institutions, the aim being “to restore liquidity and stability to the financial system.” There is not a word in the Emergency Economic Stabilization Act, the law that created TARP, about automobile manufacturers.

President Bush acknowledged as much, saying it was inappropriate to use TARP money for loans to G.M. and Chrysler. He changed his mind only after a bill authorizing a carmaker bailout failed to win Senate approval.

On the strength of TARP loans that never should have been made, Obama has dictated one business decision after another. He fired G.M.’s CEO, urged brand consolidation on the company, insisted on Chrysler’s merger with Fiat, and demanded the production of cleaner, more fuel-efficient cars, even if that strategy hurts the automakers’ bottom lines.