What is the Constitutional basis for the recent bailouts?

[XMan]

It seems to me that bailing out failing businesses is a dangerous precedent to set. Already the airlines and car companies are talking about coming to the people, hat in hand.

To which I say, so what? What do you say?

If a business takes undue risk, why should the American people have to bail them out? That's not a right enumerated in the Constitution so far as I know.

 

[Corporate Thug]

Commerce clause FTW?

 

[Pliablemoose]

"Moral Hazard

What does it Mean?

The risk that a party to a transaction has not entered into the contract in good faith, has provided misleading information about its assets, liabilities or credit capacity, or has an incentive to take unusual risks in a desperate attempt to earn a profit before the contract settles.

Investopedia Says...

Moral hazard can be present any time two parties come into agreement with one another. Each party in a contract may have the opportunity to gain from acting contrary to the principles laid out by the agreement. For example, when a salesperson is paid a flat salary with no commissions for his or her sales, there is a danger that the salesperson may not try very hard to sell the business owner's goods because the wage stays the same regardless of how much or how little the owner benefits from the salesperson's work.

Moral hazard can be somewhat reduced by the placing of responsibilities on both parties of a contract. In the example of the salesperson, the manager may decide to pay a wage comprised of both salary and commissions. With such a wage, the salesperson would have more incentive not only to produce more profits but also to prevent losses for the company. "

 

[her209]

Heads I win. Tails you lose.

 

[Infohawk]

Originally posted by: Corporate Thug
Commerce clause FTW?

Bingo.

Congress has the right to regulate interstate commerce. This also happens to be the basis for a huge portion of federal law.

 

[XMan]

Originally posted by: Corporate Thug
Commerce clause FTW?

Judge Napolitano would suggest not


Second was a fear the Framers had that if the government became a market participant, it would tilt the playing field in favor of itself or its patrons. That's why they wrote in the Contracts Clause that no state may interfere with a contract, and in the Due Process Clause in the Fifth Amendment that the federal government as well may not do so.

If Fannie Mae or Freddie Mac or any entity collapses because of market forces or poor management, and the Congress insulates the shareholders of the collapsing entity from the consequence of the collapse, it is favoring those shareholders over other shareholders of other companies that might also be on the verge of financial demise.

It simply does not matter whether Congress favors the shareholders by loaning them money, by guaranteeing to their lenders that the taxpayers will repay the loans, or by purchasing their equity. The result is the same. Their contracts ? their agreements with Fannie Mae and Freddie Mac ? are not being enforced. And they are being relieved of a debt while other shareholders of other corporations are not.

 

[bamacre]

http://www.amazon.com/Who-Kill...-Liberty/dp/0307405753

 

[XMan]

Originally posted by: bamacre
http://www.amazon.com/Who-Kill...-Liberty/dp/0307405753

:thumbsup:

I've read one of Thomas Woods' books. I'll have to pick that one up.

 

[Infohawk]

Originally posted by: XMan

Originally posted by: Corporate Thug
Commerce clause FTW?

Judge Napolitano would suggest not


Second was a fear the Framers had that if the government became a market participant, it would tilt the playing field in favor of itself or its patrons. That's why they wrote in the Contracts Clause that no state may interfere with a contract, and in the Due Process Clause in the Fifth Amendment that the federal government as well may not do so.

If Fannie Mae or Freddie Mac or any entity collapses because of market forces or poor management, and the Congress insulates the shareholders of the collapsing entity from the consequence of the collapse, it is favoring those shareholders over other shareholders of other companies that might also be on the verge of financial demise.

It simply does not matter whether Congress favors the shareholders by loaning them money, by guaranteeing to their lenders that the taxpayers will repay the loans, or by purchasing their equity. The result is the same. Their contracts ? their agreements with Fannie Mae and Freddie Mac ? are not being enforced. And they are being relieved of a debt while other shareholders of other corporations are not.

This is just a newspaper opinion, not binding legal precedent. Napolitano was a state court judge (and now a fox analyst) and his arguments are weak. It's my understanding that the shareholders of these companies are screwed. The general welfare has arguably been served. It's like arguing that we can't spend money on the military because it benefits military contractors more than other citizens. It has also been established that government can be a market participant.

THis is not a constitutional issue, it's a policy issue.

 

[XMan]

Originally posted by: Infohawk

Originally posted by: XMan

Originally posted by: Corporate Thug
Commerce clause FTW?

Judge Napolitano would suggest not


Second was a fear the Framers had that if the government became a market participant, it would tilt the playing field in favor of itself or its patrons. That's why they wrote in the Contracts Clause that no state may interfere with a contract, and in the Due Process Clause in the Fifth Amendment that the federal government as well may not do so.

If Fannie Mae or Freddie Mac or any entity collapses because of market forces or poor management, and the Congress insulates the shareholders of the collapsing entity from the consequence of the collapse, it is favoring those shareholders over other shareholders of other companies that might also be on the verge of financial demise.

It simply does not matter whether Congress favors the shareholders by loaning them money, by guaranteeing to their lenders that the taxpayers will repay the loans, or by purchasing their equity. The result is the same. Their contracts ? their agreements with Fannie Mae and Freddie Mac ? are not being enforced. And they are being relieved of a debt while other shareholders of other corporations are not.

This is just a newspaper opinion, not binding legal precedent. Napolitano was a state court judge (and now a fox analyst) and his arguments are weak. It's my understanding that the shareholders of these companies are screwed. The general welfare has arguably been served. It's like arguing that we can't spend money on the military because it benefits military contractors more than other citizens. It has also been established that government can be a market participant.

THis is not a constitutional issue, it's a policy issue.

If there were a legal precedent, I would have posted.

Seems Ron Paul agreed. Points to him for that.

Another issue to consider, is the effect that the perception that government will bail out failing businesses has on their practices. Did Fannie and Freddie act as good stewards intent on keeping their business intact? Or did they run it into the ground knowing Uncle Sam had their back? I'd submit that it was the latter.

Subsidize something, and you get more of it.

 

[Lemon law]

Lets face the facts, it is GWB and his cabinet who are making these decisions without consulting congress or the courts. As GWB's chickens all come flying home to roost.

Poor GWB, he was just four months from skating away before the bottom inevitably dropped out, if that is not just bad luck, I do not know what bad luck is?

But cheer up folks, the government has a bunch of printing presses able to print money lickity split. It may not create any wealth, but it may buy GWB the needed four months before really inflation kicks in.

Just sell your old stuff on ebay, soon you may be able to get a million dollars for that item you bought for a dollar yesterday.

Invest in wheelbarrows, you may soon need them to cart all the money they can hold to buy a loaf a bread.

Weeeeeeeeeeeeeeeeeeee, four more years, four more years.

 

[dmcowen674]

Originally posted by: XMan
It seems to me that bailing out failing businesses is a dangerous precedent to set. Already the airlines and car companies are talking about coming to the people, hat in hand.

To which I say, so what? What do you say?

If a business takes undue risk, why should the American people have to bail them out? That's not a right enumerated in the Constitution so far as I know.

Completely Unconstitutional and Anti-American

Every one of these companies that have been getting bailed out should be out of business.

The country cannot recover without them being dissolved so real Americans can step in with new companies not being run by corrupt politicians.

 

[sportage]

I'd like to ask and know what is REALLY going on with these companies failing?
It seems strange they just blame the market or speculators or deregulation or Greenspan.
But there must be some core reason these companies are failing, and can not make it in today?s world after having been successful in years past.
Something else is going on here.

Here's a nightmare scenario:
The tax payer bails out these companies, with tax money they claim WE will be paid back on. But even with the bailouts, these companies still fail anyway down the road in a few months or years (or less).
Then not only have we lost our bailout $$$ as tax payers, the company(s) still fail also.

Its like being so far in debt that you are heading for bankruptcy, then you get a new $10,000 visa credit card in the mail, out of the blue.
Do you think that new visa will save you from bankruptcy?
Or just end up as another creditor on your bankruptcy list in 8 months?

One clue this scenario may hold truth is how the stock market reacted on 9/16 after the announced bailout. They seen this as a plus. And so would the ?Joe? that just received his new $10,000 visa card in the mail...

 

[jjones]

Unfortunately there is precedent from previous bailouts, but it's also not a constitutional issue. This quote regarding the Lockheed bailout three and a half decades ago seems a pretty good forecast of today's woes.

"If the inefficient or mismanaged firm is insulated from the free-market pressures that other business firms must face, the result will be that scarce economic and human resources will be squandered on enterprises whose activities do not meet the standards imposed by the marketplace." - Senator James Buckley, 1971

 

[bamacre]

The federal government loves to abuse the Commerce Clause and define it as they see fit.

Good example...
http://en.wikipedia.org/wiki/Gonzales_v._Raich