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TARP Spending: "A Violation of the Law"?

11:37 AM, Dec 8, 2009 • By MATTHEW CONTINETTI
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Democrats want to use "leftover" TARP money to pay for a "second stimulus." Obama outlined his proposals in a speech today to the Brookings Institution. There will be a debate over the merits and demerits of the president's various policy preferences. But it looks like there will be debate over the legality of spending TARP money on non-TARP-related projects, as well. Congressman Mike Pence:

The TARP legislation actually rightly demanded that any money not used to purchase toxic assets in the bill be used to pay down the national debt. The legislation specifically says that any leftover TARP money goes to deficit reduction. That's why I have to tell you, Madam Speaker, I was astonished when I heard Speaker Nancy Pelosi last week suggest that her source to pay for a new so-called stimulus bill would be leftover TARP funding. And if press reports are true, the President of the United States will address the Brookings Institute this morning and suggest the same. Let me be clear on this point. To use money from the TARP fund in the manner that is being discussed by the White House and Congressional Democrats would be a violation of the law, and it would betray the trust of the American people.

As it happens, lately I've been reading Robert Kagan's 700-page history of American involvement in Nicaragua from 1977 to 1990. One of the lessons of the book -- stick with me, here -- is that presidents ought to pay extremely close attention to the text of legislation. To get into the weeds a bit, the Reagan administration interpreted the original Boland Amendment to mean that America could fund the contras but not anything that would directly lead to regime change in Nicaragua. This was always something of a stretch, however, and by 1984 the realities on the ground in Nicaragua and mounting domestic opposition to the Reagan administration's Sandinista policies led to a huge D.C. battle over American aid to the contras and whether the White House had violated the law.

TARP, in my opinion, was necessary to forestall a major contraction of credit and a collapse in the global financial system. That was its original purpose. But the program has changed over time. For the president to repurpose the legislation once more, in the service of a partisan domestic agenda, would open up a major legal and policy debate. A debate that he may not win.