Monthly Archives: April 2009

Needless to say, things have been pretty busy for me lately.  Allow me to introduce our new son, Nathaniel Reed (Nate) Thornton, and his website, www.natethornton.net.  He gets around to it when he can.

As far as this website is concerned, I have about 3000 words of rambling that I have been piddling with that you may see in waves.  In the meantime, though, I have been researching caps on executive compensation for a class I’m taking, and through such, have realized that the American Recovery and Reinvestment Act, or Stimulus package, is in fact unconstitutional in three specific ways; these are the kind of things you uncover when you read a) the Constitution and b) the Stimulus, which is more than you can say for our Congress.  The following summarizes some of these findings.

Background

Yes, Wall Street executives took too much in salaries, bonuses, and privileges while their companies fell facedown in the rice paddies.  This provided the impetus for populist outrage, seen on the left and the right of the political spectrum.  With executive pay at the summit of public interest, the President himself called the redirecting (of $18 billion of the $700 billion) of TARP funds towards Wall Street bonuses “shameful.” 

Our political system further reacted with a serial set of actions, beginning with a statement from the President and the issuance of guidelines from the Treasury Department on February 4, 2009, which limited the total annual compensation of senior executives of TARP Recipients to $500,000; any compensation beyond that must be in restricted stock, and would be unavailable pending full repayment of TARP funds.  This measure also included a provision for reclaiming bonuses for “top executives engaging in deceptive practices,” an action called “clawback,” applicable for the top twenty-five senior executives.

Then, on February 17, 2009, the American Recovery and Reinvestment Act, or Stimulus package, was signed into law.  Title VII of the statute set a range of new limits on executive compensation for “any entity that has received or will receive financial assistance under the TARP,” by the “standards established by the Secretary” which allows for the “recovery… of any bonus, retention award, or incentive compensation” paid to the top twenty-five senior executives.  The act also included a limits on luxury expenditures and a ban on “golden parachutes.”  The New York Times reported that, “The restriction with the most bite would bar top executives from receiving bonuses exceeding one-third of their annual pay.  Any bonus would have to be in the form of long-term incentives, like restricted stock, which could not be cashed out until the TARP money was repaid in full.”

This statute was altered at the last minute, backing off the original language of Section 6012 of HR 1, the “Cap Executive Officer Pay Act of 2009,”which stated, “Notwithstanding any other provision of law or agreement to the contrary, no person who is an officer, director, executive, or other employee of a financial institution or other entity that receives or has received funds under the Troubled Asset Relief Program (or ‘‘TARP’’), established under section 101 of the Emergency Economic Stabilization Act of 2008, may receive annual compensation in excess of the amount of compensation paid to the President of the United States,” or $400,000.  Congress instead opted for the more intricate set of limits, albeit unbeknownst to those who weren’t involved in its crafting.

Then, in response to the AIG bonuses (doled out before the February 11, 2009, deadline, precisely inserted by one Senator, Christopher Dodd, at the behest of the White House), the House of Representatives acted “with lightning speed” to tax 90% of bonuses above $100,000 for institutions that took TARP bailout money.  Somewhere, that piece of legislation got lost as public sentiment ebbed away from the issue.  Perhaps the Constitution got in the way?

Let me be clear, although I disagree with this, I believe the federal government has the right to use Keynesian economic controls, with prudence, for the “general defense and common welfare” of the American taxpayer, and with respect to additional limits within the Constitution.  Placing restrictions or caveats on the use of public funds should be prefaced in contracts with the government; as the Stimulus Package goes beyond that, I feel it is unconstitutional on these three specific points.

Violations

Firstly, the Stimulus bill contradicts Section 9 of Article 1 of the United States Constitution, which states, “No bill of attainder or ex post facto Law shall be passed,” and then again in Section 10 which states, “No State shall… pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.”  What does no ex post facto mean?  It means Congress cannot go back in time, amend contracts or legislation, thereby criminalizing acts that were legal at the time of their commission.  This statute, on its face, is ex post facto.  When government intervenes to “clawback” bonuses, the bounds of government intervention and the Constitution are precariously tested.  The limits on public funds should have been spelled out before the money was handed out.  To change the rules afterwards is Indian-giving, but… what am I talking about?  Our Congress is the institution that defined Indian-giving.

Secondly, through giving and taking, the Stimulus bill violates the Fifth Amendment, which supports limited intervention, stating that no person shall “be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.”  When executives chose poorly, endangering their shareholders and their company largesse, these executives went further to request public funds for corporate survival; insomuch, the federal government may intercede on behalf of the public, as the economy is at risk and tax earnings are at stake.  Considering the verbiage of our Constitution generally, and the Fifth Amendment specifically, such intervention could be allowed if accompanied with proper judicial review.  Here, it was not; this bill was passed without reading, much less understanding, and the rule of law under the legal system of our free and democratic nation was therein violated.  Furthermore, so-called “equal justice under the law” described in the Fourteenth Amendment was jettisoned overboard, as some firms received funds, as defined by certain Congress members, and some did not.  Tell me:  What keeps corruption, the supposed spoils of mankind in the capitalist private sector from existing in the public sector?  As Ludwig Von Mises puts it, “If one rejects laissez faire on account of man’s fallibility and moral weakness, one must for the same reason also reject every kind of government action.”

Finally, the reach of the federal government is implicitly limited by the Constitution out of respect for individual freedom of contract.  The Supreme Court actually overturned pieces of FDR’s New Deal legislation for violating freedom of contract, inherent in the Constitution through the Ninth Amendment, which states, “The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people.”  That’s why FDR went a step further and tried to pack the courts.  The Ninth Amendment had been proposed by Alexander Hamilton in an attempt to limit the powers of Congress, as he expressed in the Virginia Ratifying Convention of 1788:  “That those clauses which declare that Congress shall not exercise certain powers be not interpreted in any manner whatsoever to extend the powers of Congress.  But that they may be construed either as making exceptions to the specified powers where this shall be the case, or otherwise as inserted merely for greater caution.”  I wonder for a moment what the founders at that Convention would think of the Stimulus package, considering Patrick Henry’s objection to the term, “We, the People,” as he considered even that too collectivist.  The powers of Congress are spelled out, or enumerated, in Section 1 of the Constitution; the Stimulus Package goes beyond these bounds, usurps power in violation of the Constitution.  As was the case in 1935 with the New Deal, I believe these actions demand a trial.

The reasoning of my claim isn’t new, and even outdates the founders, the U.S. Constitution, and the Declaration of Independence. These assertions of individual liberty and government restraint endeavor to conserve rule of law and due process in this country, theories dating back to the Magna Carta of 1215.  I believe the true motivations for the Stimulus package, and its associated executive pay caps, are twofold:  first, to quell public outrage; and second, to expand government control in the private sector.  Why?  Envy, basic to human nature, is one reason, and as Lord Acton put it, “Power corrupts, and…” well, you know the rest of it. 

“I go further, and affirm that bills of rights, in the sense and in the extent in which they are contended for, are not only unnecessary in the proposed constitution, but would even be dangerous. They would contain various exceptions to powers which are not granted; and on this very account, would afford a colorable pretext to claim more than were granted.   For why declare that things shall not be done which there is no power to do?” – Alexander Hamilton, Federalist No. 84