- The Washington Times - Monday, October 20, 2008

Sen. Charles E. Schumer, New York Democrat, last week tried to ease concerns the government bank bailout is creating a constitutional crisis and putting the United States on the slippery slope toward socialism.

“I think our Constitution has a great deal of flexibility on these things,” Mr. Schumer said during an interview.

Under the plan, the government would buy up bad mortgages from lending institutions, then try to recover at least part of the debt rather than foreclosing on homes. In return, the government would get part ownership of the banks.

“Constitutional provisions” … that give Congress authority … “to make laws for the public benefit would apply,” Mr. Schumer said.

He was referring to the taxing and spending clause in the Constitution, which says Congress is authorized to tax and spend for the general welfare of the nation.

Some members of Congress either never have heard of the taxing and spending clause or interpret it differently from Mr. Schumer.

Rep. Ron Paul, Texas Republican, said the $700 billion bailout was “an immoral act, it’s an unconstitutional act that makes no economic sense either.”

Sen. Jim Bunning, Kentucky Republican, said “… the free market for all intents and purposes is dead in America.” The bank bailout “will take away the free market and institute socialism in America.”

Like other times in history, Congress is trying to use its spending power to encourage some behaviors but discourage others.

One of the biggest Supreme Court cases to confront the issue was South Dakota v. Dole, a 1987 ruling that endorsed the National Minimum Drinking Age Act. The act withheld 5 percent of federal highway funds from states that did not adopt a minimum legal drinking age of 21 years old for alcoholic beverages.

South Dakota, which allowed 19-year-olds to purchase beer, sued, saying the act violated the taxing and spending clause.

The Supreme Court disagreed in a decision that more closely defined the rights of Congress to spend tax revenue.

The spending is authorized if it promotes the general welfare, is unambiguous and supports “the federal interest in particular national projects or programs,” said the 7-to-2 ruling written by former Chief Justice William Rehnquist.

Mr. Schumer said provisions of the bailout that make participation voluntary for banks ensure that the free market they help to fund would be protected.

Meanwhile, major law firms are organizing teams of specialists in securities law, banking, real estate and bankruptcy to help corporate clients manage economic upheavals that reach their doorsteps.

The Emergency Economic Stabilization Act approved by Congress Oct. 3 would unleash hundreds of billions of dollars into the nation’s economy, much of it requiring lawyers to argue about how much of it their clients should get.

One provision is particularly vexing to the kinds of high-powered corporate executives most likely to seek legal assistance.

The bailout would forbid some executives from receiving golden parachutes or large amounts of severance pay that can reach into the millions of dollars.

The firm of Seyfarth Shaw LLP tried to reassure them in a statement this week.

“In this culture of dissecting key executives’ earnings, Seyfarth Shaw is partnering with clients to implement executive compensation programs that are fully compliant and represent a balanced approach to achieving value for shareholders and allowing businesses the freedom to compete for top talent,” said Peter C. Miller, a lawyer for the firm.

Seyfarth Shaw calls its specialists the Strategic Economic Response Team. Holland & Knight LLP calls its business specialists the Financial Recovery Team.

Above the Law runs on Mondays. Call Tom Ramstack at (202) 636-3180 or e-mail tramstack@washingtontimes.com.

“I think our Constitution has a great deal of flexibility on these things.”

- Sen. Charles E. Schumer

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