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Debating The Legality Of The Bailout

Publication Date: 
December 07, 2010
The Wall Street Journal - The Deal Blog
Dennis K. Berman

The Wall Street Journal covered a Stanford Law School conference titled, "The Constitution in the Financial Crisis." One of the constitutional experts who spoke at the conference was Professor Mariano-Florentino Cuellar:

The historic financial bailouts of 2008 and 2009 may have been necessary. But were they legal?

We'll never really know; none of those extraordinary turning points—from the frantic American International Group rescue to the government's takeover of General Motors—has since faced constitutional review in the way, say, Guantanamo Bay terrorist cases have.

Two years on, however, constitutional scholars are re-examining those fretful days, taking on the questions that went unasked or ignored in the frenzy to avert financial calamity.


In that spirit, the often ham-fisted responses of Presidents Bush and Obama largely fell within a president's emergency powers, said constitutional experts who convened at a Stanford Law School conference about the constitution and bailouts, the first of its kind. Intriguingly, former Treasury Secretary Hank Paulson's first draft of the $700 billion TARP bailout fund may have violated the constitution. Written in just a few pages, it appeared to give away too much spending power from Congress to the White House, said Mariano-Florentino Cuéllar, a Stanford Law professor. Congress voted down Mr. Paulson's original version and eventually crafted the slim TARP proposal into a 157-page law instead.