Debate: is the proposed big bank tax constitutional? John Carney presents a strong argument that it is not. Joshua Brown presents a strong argument that it doesn’t matter. My response, yes, and yes. – Ilene
TRB vs Carney on the Big Bank Tax
Posted by Joshua M Brown, The Reformed Broker
John Carney seems like a good bloke. I get the feeling that should he and I ever go out for a night of drinking, much of Manhattan would end up looking like the aftermath of Cloverfield and at least one of us would end up in the hospital/drunk tank.
Anyway, Carney, a lawyer by training and a kickass blogger at The Business Insider, wrote a well reasoned, point-by-point summary of why Obama’s Too Big To Fail bank tax is unconstitutional. I think his main error is supposing that we are actually operating under any system of constitutional law whatsoever.
When rich people panic, laws are thrown out the window. When the nation is under extreme duress, laws are suspended or shoved aside to make room for expedience. This may be objectionable or pragmatic, depending on your own philosophy, but as John says in his post, it is what it is.
My argument is a simple but elegant one:
Since neither the construction nor the operation of TARP or its sister programs was constitutional to begin with, it is an absurdity to argue that the addition to this program of a new recompensatory feature violates the constitution. This would be like arguing about what color a unicorn’s tail is supposed to be.
The Too Big To Fail Tax is simply the continuation of an unnatural progression that began the moment Bush’s team decided that the banks themselves were sacred. Once we tripped down into that gulch, the constitution became irrelevant to the bailout and by extension, to anything that came after the initial effort to save and support companies with taxpayer dollars.
I am not a lawyer and so am not as well-versed in constitutional law as Mr Carney, but I have an even better tool at my disposal – the perspicacity to see when rules are being made up on the fly or being discarded at will. No legal precedents could justify the subsequent randomness once Paulson and Bernanke constructed the tribute bailout itself. Consider the following two highlights of rescue-related lawlessness and then tell me why the funding of TARP via a new levy could even begin to be judged on case law citations:
1. Bear is rescued, Lehman is not…was a coin flipped or did someone not sit someone else at a good table near the dance floor at a Potomac, Maryland Bar Mitzvah 6 years ago?
2. In the cases of WaMu, Merrill, Bank of America, Fannie and Freddie etc the bondholders are rescued in some cases while the preferreds are wiped out, in other cases the equity holders are thrown a lifeline. Again, are we talking popularity contest or is this about who fessed up to Hank first?
Is there a single instance where the constitution provisions for the government to run a Survivor-style tribal council, randomly voting banks off the island and forcing the remaining investment banks to form alliances with each other?
If Wile E. Coyote could look down at this point, he would see nothing but air beneath him – certainly not the bedrock of established legal catechism. And don’t get me started on the auto bailouts (which were also union bailouts). For Obama to grab hold of that industry is in the same class as Henry the VIII’s taking over of the English church just to get with the latest chick who caught his eye at court.
I could go on forever about the unconstitutionality of wealthy ex-bankers turned regulators writing up wishlists on behalf of their former colleagues but all of this stuff has been well-documented.
So if the program was designed in violation of the rule of law, on what grounds can we expect the rule of law to apply to the payment of the program? The answer is we cannot, and the constitution has nothing to do with it whatsoever.
What say ye, John?
Source:
Oh No! Obama’s Bank Tax is Unconstitutional! (Clusterstock)
