Government funding of auto bailout under attack

Washington Times:

The Treasury Department's bank bailout fund is starting to look more like an automaker bailout fund as the United States gets deeper into the car business and banks work furiously to cut their ties to the government and return their bailout money.

Growing numbers of lawmakers and auto company investors are starting to complain about the arrangement, asserting that the government lacks the authority -- and the expertise -- to divert funds meant for financial institutions to major manufacturers.

The George W. Bush administration made an eleventh-hour decision in December to dip into the bailout fund to lend $17.4 billion to General Motors Corp. and Chrysler LLC to get them through another few months, leaving it to President Obama to find a long-term solution to their problems.

Many lawmakers went along with that move out of expedience, but Congress never voted on diverting the bank rescue funds into a major bailout of the auto sector that has burgeoned to $80 billion in size, pushed both companies into bankruptcy and nationalized Detroit's largest manufacturer, GM.

"It is now clear that the federal government's bailout of the auto industry several months back was a mistake," said House Minority Whip Eric Cantor, Virginia Republican, noting that the full cost of the bailout for taxpayers is still far from clear.

Investors who are fighting the Chrysler reorganization plan and have appealed to the U.S. Supreme Court are challenging the legality of using the bailout funds to sponsor Chrysler's bankruptcy, saying it violates the law establishing the bailout fund for banks last fall. But that is only one area where the government stepped over the line and exceeded its authority, they say.

"This battle is of epic proportions," said Tom Lauria, an attorney for Chrysler lenders, arguing that the White House auto task force has not hesitated to abrogate the law and contractual rights of lenders to push through its bankruptcy plans for Chrysler and GM.

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With the Supreme Court now looking at the issue the legislative authorization may become critical. If the Court rejects the deal, the Obama administration will have a difficult time getting Congress to go along with a new authorization. The auto bailouts are deeply unpopular with voters with roughly two thirds opposing them. If he forces Democrats to vote for the deal he will be putting their majority in jeopardy next year.