Democrats' proudest moment in 2010 was when they passed the health care reform bill. If not for that legislation, the summer's gigantic financial regulation package probably would have been their most major accomplishment. Of course, each is as controversial as it is significant. As a result, we're already starting to see opponents of the health care bill challenge it in court. Before long we may see similar cases against the financial reform bill. In fact, its constitutionality could be even more questionable.
That's what former George H.W. Bush White House counsel C. Boyden Gray argues in a recent Washington Post op-ed. He says that some of the bill's most significant regulatory changes are flagrantly unconstitutional. His arguments are rather compelling.
He begins by questioning how the current structure of the new resolution authority, the regulatory capacity for the government to seize a giant firm and wind it down, could possibly be constitutional. This is probably the most important part of attempting to end "Too Big to Fail." He writes:
Take, for example, the resolution/seizure authority of Title II, ostensibly designed to end bailouts and "too big to fail" risks. The Treasury can petition federal district courts to seize not only banks that enjoy government support but any non-bank financial institution that the government thinks is in danger of default and could, in turn, pose a risk to U.S. financial stability. If the entity resists seizure, the petition proceedings go secret, with a federal district judge given 24 hours to decide "on a strictly confidential basis" whether to allow receivership.
There is no stay pending judicial review. That review is in any event limited to the question of the entity's soundness - not whether a default would pose a risk to financial stability or otherwise violate the statute.
The court can eliminate all judicial review simply by doing nothing for 24 hours, after which the petition is granted automatically and liquidation proceeds. Anyone who "recklessly discloses" information about the government's seizure or the pending court proceedings faces criminal fines and five years' imprisonment. As for judicial review of the liquidation itself, the statute says that "no court shall have jurisdiction over" many rights with respect to the seized entity's assets (thus apparently eliminating many actions that would otherwise be permitted to seek compensation in the federal Court of Claims).
This provides an enormous amount of power for the executive branch to have over the private sector, and it's relatively unchecked by courts and Congress.