Tuesday, September 9, 2008

Fannie Mae takeover is unconstitutional -- as is Fannie Mae itself

In my post yesterday on the Fannie Mae/Freddie Mac takeover, in which I concluded that it might be nice that the feds are trying to clean up their mess, but that they're the worst people to do anything of the sort, I overlooked one really important point: Does the federal government have the authority to seize private corporations -- even don't-look-too-closely "private" corporations that it creates?

Andrew Napolitano -- a former judge and constitutional law professor, and current judicial analyst for Fox News -- points out that not only is the bailout bill passed in July (which authorized the takeover) unconstitutional, but the government never had the authority to create Fannie Mae and Freddie Mac to begin with. You can see his full take in the video below.

Writing in the New York Times, Martin Mayer of the Brookings Institution passes over the creation of the two mortgage giants, but agrees about the unconstitutionality of the bailout bill.

First, the Treasury will be allowed to advance money to Fannie and Freddie (and even to buy their stocks) in unlimited quantities to keep them afloat — in any fashion Mr. Paulson sees fit. Yet the Constitution requires that “no money shall be drawn from the Treasury, but in consequence of appropriations made by law.” Even in wartime, budgets for the military specify how much is to be spent for what purposes.

Second, as an alternative to increasing the national debt, Mr. Paulson wants to let the two mortgage lenders become preferred customers of the Fed’s discount window, with the authority to pawn their own securities for cash. But only Congress has the constitutional power to borrow on the credit of the United States.
Is any of this important now that the horse is out of the barn?

Sure it is. After all, taxpayers are on the hook for -- potentially -- hundreds of billions of dollars. If the federal government had stayed within its boundaries to begin with, none of this would be a problem.

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