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Can Geithner, Legally, Just Keep it 'Rolling'?

University of Pennsylvania Wharton School of Business professor David Zaring filed this guest blog post:

House Democrat Brad Sherman (Calif.) and Senate Republican Jim DeMint (S.C.) are both troubled by the Treasury Department’s position on repaid bailout money. In his testimony before the Senate Banking Committee yesterday, Timothy Geithner claimed that the funds from the Troubled Assets Relief Program “roll,” that is, for every one dollar paid back, another can be loaned out.

"So it's your understanding that you have $700 billion to use permanently as you see fit?" DeMint asked – “incredulously ,” according to The Ticker. DeMint’s question raises the issue of how long the bailout era will last. If Treasury can loan out $700 billion, but not a penny more, then it is already near the end of its ability to commit funds, and it doesn’t matter if it gets those bailout dollars back. If it can roll those funds, then the bailout may last for years, as money repaid is loaned out again.

The question is of some interest not just to the denizens of 1500 Pennsylvania Avenue, but also to those insurance companies that recently requested TARP dollars, and other firms interested in obtaining cheap Treasury money.

I think Treasury can roll its TARP funds. Section 115(a) of the TARP statute provides that Treasury must manage its appropriation so that there is no more than “$700,000,000,000 outstanding at any one time.” If Treasury cannot reloan money repaid to it, then the language “outstanding at any one time” would be meaningless. And usually lawyers and judges presume that Congress intends to give meaning to every word in its statutes. Those familiar with judicial review, moreover, will know that Treasury’s interpretation of this language does not need to be the best interpretation of a statue Congress charged it with administering, it only needs to be a reasonable interpretation, at least, if the question is litigated.

There is a complication, however. Section 106(d) of the statute provides that “[r]evenues of, and proceeds from the sale of troubled assets purchased under this Act, or from the sale, exercise, or surrender of warrants or senior debt instruments … shall be paid into the general fund of the Treasury for reduction of the public debt.” Senator DeMint, I suspect, thinks that this means that any TARP money paid back is immediately obligated elsewhere, and does not rebound back to Treasury’s bailout overseers.

I think he is wrong. I suspect that section 106(d) was meant to cover the profits of the TARP, and to make clear that it was not a lump sum appropriation to Treasury. Section 106(d) precludes Treasury from using its TARP money to, say, set up a venture capital fund and plow any profits from its loans back into that fund. It also means that after Treasury stops using TARP money for bailouts, it probably cannot use the $700 billion to hire more IRS auditors, or meet any of its other responsibilities.

But I do not think it means anything more than that. There is still that “outstanding at any one time” language, and it isn’t crazy to think that it means something. Treasury’s interpretation that the statute is accordingly a reasonable one, and that means that, if it comes to litigation, Geithner’s interpretation of the language yesterday would probably stand up in court.

--David Zaring is an assistant professor of legal studies at the Wharton School of Business. He also blogs at the Conglomerate.

By Sara Goo  |  May 21, 2009; 11:04 AM ET
Categories:  Banking  
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