Dodd-Frank financial ‘reform’ law is unconstitutional violation of separation of powers

January 7, 2011 05:04

Their excuse must be that they had to pass the bill to find out what’s in it? Or was it that no one read it? Giving vast dictatorial powers to unelected bureaucrats is never a good idea either way.

Hans Bader at The Examiner


In the Washington Post, former White House counsel C. Boyden Gray recently argued that the sweeping Dodd-Frank financial “reform” law passed last summer is unconstitutional, since it gives the government virtually unchecked power to seize financial firms that supposedly might fail, and to legislate through regulation.  For example, under Dodd-Frank,

“ 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. . .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 . . .There is little precedent for this kind of unreviewable ‘Star Chamber’ proceeding.”

As Gray notes, this “almost unlimited, unreviewable and sometimes secret bureaucratic discretion, with no constraints on” seizures, is “a breakdown of the separation of powers” mandated by the Constitution, “which were created to guard against the exercise of arbitrary authority.”  (Gray chronicled some of the Dodd-Frank law’s other constitutional violations in a 12-page article last fall available at this link. Others have argued that the lack of judicial review in Dodd-Frank will lead to seizures of property without due process or unconstitutional Takings).

There is yet another way that Dodd-Frank violates the Constitutional separation of powers, that Gray doesn’t mention: Its delegation of power to officials not selected by the President and confirmed by the Senate.  The Financial Stability Oversight Council, which makes threshold determinations about which financial companies are subject to seizure by the government, includes four members who are not appointed by the president, but rather by groups of state officials. That violates the Constitution’s Appointments Clause, and the D.C. Circuit Court of Appeals’ ruling in Federal Election Commission v. NRA Political Victory Fund (1993), which forbids even nonvoting members of federal commissions from being appointed by people outside the executive branch.

As Gray notes, the Council is not only powerful, but also largely immune from oversight.  In addition to determining which companies are subject to seizure, it also has the power to “control virtually all of the activities of any financial institution for almost any purpose on a two-thirds vote of its members. The courts are not authorized to review whether the council has correctly interpreted the statute, though there isn’t much statutory direction for the courts to interpret in any event.”


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