Jurassic Park

The financial news of late has been a bailout loan to GM. It is rather small change compared to what was given to the banks, but significant in that the money will almost directly flow into the hands of consumers that finance their purchase of GM vehicles. Some of this financing will be offered at 0%, for anyone willing to buy a SUV or large sedan in an era where gas can double in price overnight.

This amounts to a loan that will help GM dump its inventory of obsolete vehicles at loss. If it could not, then it would have to write much of its inventory off at scrap or parts value, for a far greater loss. For GM, this is all about slowing the blood loss.

Books will be written (if they haven’t already) on GM's rise and fall over a century. It made so many incredible collective mistakes and malinvestments, one has to question the limits of the corporate structure itself. GM was often compared to country, and it once was in terms of financial scope and number of employees. And like a country, unproductive bureaucracies grew with unnecessary levels of management, and made it far removed from the concerns of the populace, the consumers.

GM has been compared to a dinosaur much more often these days. It was well adapted to cheap oil, cheap input resources, and cheap consumer credit. All these used to offset relatively expensive union labor and costly executive failures. Take away even one component of that environment, however, or have a major shift in consumer tastes, and apparently it could not survive. One could argue the credit crisis was the meteor it could not see coming, but that would be beside the point. You see, the government has now intervened and decided it will not go extinct, and they have in fact created an artificial place for it.

I’d call it Jurassic Park for big cap dinosaur corporations. All funded by you, the taxpayer.

GM is not the only creature in this attraction. General Electric tapped the Federal Reserve for money no one would loan it. Then there’s AIG, a dinosaur so beloved by the populace it now gets round the clock care to the tune of hundreds of billions. There are of course several more species that simply cannot survive outside the park and its lush foliage of money growing off trees, or juicy consumers flush with government-supplied credit.

The dinosaur analogy very applicable because we all know that they were wiped out. Their time came, and went. Room was made for more new species, like mammals. With these dinosaur corporations being propped up past their prime, there is scant chance that new companies can scurry through their carcasses and create new wealth, technology, and opportunities.

That of course, would not be natural.

The Bailout Is Unconstitutional

Did you know we have another branch of our government called the Supreme Court? I have no idea what it’s been doing lately, probably handing down crack-user appeal reversals and assorted technical legal rulings.

In the meantime, the other two branches have walked over the Constitution like a placemat with the greatest monetary heist in human history. I’m of course referring to what is known as the bailout. The numbers are so large and staggering and disconnected from everyday experience, that a simple term like “theft” seems inapplicable. And after all, a majority of our representatives voted for it, so how could be even compared to as something so crass as outright robbery? (That will indeed be a topic for later, count on it.) But both of these branches, elected by the people, are acting largely in concert in the bailout, so there’s no constitutional dispute here, right?

Let me illustrate the other duty of the Supreme Court, with a bit of an extreme example to get my point across. Say a very bad majority faction got a hold of our government and decided to make laws that would hold summary executions of people it didn’t like. Clearly it would run flat into several constitutional Shall Not’s. What could a bunch of old men and a woman do about if they rightfully declared such brutal laws unconstitutional? Well, that is why every American soldier in our armed forces is sworn to uphold the Constitution, and not just follow direct orders from their commander-in-chief put there by the majority.

It is the right of the Supreme Court to declare any actions by the government it deems unconstitutional as such (a process known as judicial review); and not without great deliberation and approval from the states can the Constitution be changed. Be thankful for the Constitution being the ultimate check on the tyranny of a majority gone awry.

So what is so unconstitutional about the current situation that deserves the Court to act? No one is being dragged off to face firing squads. Nor does the Constitution make any statements about what constitutes good fiscal policy, so Congress could vote to give each and every one us a million dollars if so wanted. Or the banks a few trillion, for that matter. What’s the problem?

Let’s say it’s 1801 and you & I formed a political party, with most of our support forming a majority, but centered in a few states. We control the government, so we want to benefit our states the most, and we have no qualms about doing everything with our legislative and executive powers to benefit them, and further cement our control at the expense of other states not in our sphere of influence. Remember, the economy was far simpler those days, and the most overwhelmingly economically beneficial thing we could do at the time would be to force goods and services to flow through ports in our states-- by some new laws we cook up.

And that is precisely why it is unconstitutional. Certain states only agreed to join the union if the larger states could not simply direct such collective economic power into their own hands:

No preference shall be given by any regulation of commerce or revenue to the ports of one state over those of another: nor shall vessels bound to, or from, one state, be obliged to enter, clear or pay duties in another. [Article I, Section 9]

Now we can be literalists here and call this clause largely obsolete. After all, there are other types of ports these days like rail depots and airports that deal in commerce. So tough luck founding fathers and framers, you blew it by not foreseeing future modes of transportation and commercial activity. Or we can say we know exactly what the framers meant by saying it is unconstitutional to give commercial preference of one state over the other. Congress can therefore make no law doing so.

Wall Street is a modern day port of high finance, supplying much of the our nation’s economic banking and financial activity. Do you not think they have directly benefited, almost exclusively, by direct transfer of billions to specific firms within this highly concentrated area within New York? If that is not commercial favor, I do not what is. It is beside the point if we all agreed or even if Congress agreed it was necessary by law.

Now, this constitutional issue won’t be brought to a head until one state says enough is enough and sues the U.S. Government. If I was the state of Michigan watching Wall Street getting preferential treatment over my own centers of commerce, I’d have a problem. Perhaps it will be soon, somewhere, given the dire financial straits of many states and their constituent industries and their desire to get slice of the bailout pie. But nothing precludes the Court from acting on its own.

If count one is too archaic for the Court and constitutional lawyers, count two should not be:

The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States; [Article I, Section 8]

In the bailout congress has delegated this responsibility, otherwise know as the “power of the purse” to the executive branch in the form of the bailout bill (TARP). Even more so, the executive branch is now poised to spend billions bailing out the auto industry with no explicit legal or constitutional authority. Say what you will about the merits or not of such action, but it is as if the President had took some congressionally approved monies for one purpose and used them for another.

That’s unconstitutional.