http://www.nysun.com/opinion/unconstitutional-bailout/82095/

Unconstitutional Bailout
By ANDREW NAPOLITANO | July 17, 2008

When Treasury Secretary Henry Paulson announced that the government would provide a credit line to shareholders of Bear Stearns in order to prevent the giant investment bank from collapsing, he was consciously making a profound choice to use taxpayer dollars to save one bank and not to save another.

On Friday, IndyMac, a huge California-based institution, with billions in assets, was permitted to expire while depositors waited in long lines outside of bank branches to retrieve the portions of their deposits and investments which were insured.

The treasury secretary was at it again with an announcement on Sunday evening to the effect that the American government would grant a line of credit from the federal treasury to Fannie Mae and Freddie Mac in excess of the billions already granted by Congress.

Fannie Mae and Freddie Mac were once owned by the federal government, but no longer are. They now are owned by private investors, and thus it is simply unconstitutional for the feds to use tax dollars or bonds or guarantees of loans backed by tax dollars to bail them out just as it was unconstitutional to use tax dollars to save Bear Stearns.

There are logical reasons and constitutional reasons for this. The logical reasons are that poorly run businesses or those that do not adapt to changing economic forces should fail. It is a basic law of economics; you don't throw good money after bad. Someone will pick up the pieces and make a profit off of them. Someone else will buy and service the mortgages.

The constitutional reasons get us back to Mr. Paulson's choices. How can the feds decide who to bail out and who to let die? Virtually all banks are being challenged by the current credit crunch. So why save Fannie and Freddie but not Indy? In another generation, why Chrysler but not DeLorean? There is simply no line that can be drawn, with intellectual honesty and constitutional fidelity, separating those shareholders saved by federal taxpayers and those allowed the fate to which their risks have exposed them.

Here's why. The federal government is one of limited powers. It may only constitutionally engage in behavior that is specifically authorized in the Constitution. The Constitution's General Welfare Clause requires that all the federal government's expenditures be for the general welfare, such as a highway, or a national park, or a military installation; something from which everyone can directly benefit. Shareholders of Freddie, Fannie, and Bear Stearns are a small limited class of persons whose well-being hardly enhances the general welfare.

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http://www.nysun.com/opinion/unconstitutional-bailout/82095/