At his final press conference Monday, President Bush said, “I readily concede I chucked aside some of my free-market principles when I was told by chief economic advisers that the situation we were facing could be worse than the Great Depression.” That’s fair enough, but what’s his excuse for chucking those principles aside just to help Barack Obama avoid a messy political fight?

Congress has yet to release the second tranche of the $700 billion Troubled Asset Relief Program (TARP), but with credit spreads down and commercial debt issuance up, it looks as if the credit markets are to a large degree unfrozen and an additional $350 billion is not necessary at this time. Unsurprisingly, Obama doesn’t see it that way. He’d like to have that $350 billion to spend as he sees fit, and he’d like to have Bush’s help in getting a reluctant Congress to approve the funds.

Unfortunately, Bush seems happy to help. He announced during his press conference that he would not ask Congress to release the $350 billion unless Obama asked him to (wink wink). Within hours, Obama asked, and the White House made it official. Now the debate will move to Congress, which will have 15 days from the date of the request to pass a resolution of disapproval if it wants to block the funds. Otherwise, Obama gets them.

A number of lawmakers from both parties have expressed their dissatisfaction with the way the initial $350 billion of TARP money has been spent. But even if both houses of Congress were to vote against releasing the second installment, the TARP is structured so that the president could veto that vote, meaning that opponents would have to assemble a supermajority in both houses in order to prevail. The likelihood of getting two-thirds of the Senate to oppose Obama on this issue is very low, but senators should nevertheless vote no.

The bailout was hard enough to swallow in the weeks following the collapse of Lehman Brothers and the subsequent cessation of nearly all commercial lending. Free-market conservatives had strong reservations, but many, including us, found persuasive the argument of Treasury secretary Henry Paulson and Fed chairman Ben Bernanke that an immediate and massive government intervention was needed to stave off a total financial collapse.

The fear at the time was that the world would lose confidence in the U.S. banking system, with catastrophic repercussions. The U.S. government needed some pragmatic way of demonstrating that it stands behind the banks. The plan was pitched to Congress as a troubled-asset purchase program, but that proved too cumbersome to implement. Instead, Treasury switched tactics and injected capital into the banks to strengthen their balance sheets.

Since that time, the credit markets have started to thaw, and commercial lending has resumed at something resembling a normal pace. Granted, there is still a lot of bad debt to unwind, and we may yet see a few more large corporate bankruptcies. Growth will remain sluggish and unemployment high for the next few quarters, but these are lagging indicators; they can get worse even as things are getting better. At any rate, the acute crisis of confidence appears to have passed, and we don’t see the need for a continued infusion of taxpayer cash into banks. 

Nor do we see a need for the Obama administration to be given the kind of blank-check authority that Bush administration misused to bail out the auto companies. Last month, Congress explicitly rejected legislation that would have tapped TARP funds to save General Motors and Chrysler. The administration ignored Congress and did it anyway.

This comes close to an unconstitutional delegation of legislative authority to the executive branch, and if Congress releases the second tranche of TARP funds, we’re likely to see more of it. For instance, Barney Frank has proposed a bill that would set aside $40 billion of the second tranche of TARP money for foreclosure relief efforts. The experience of the auto companies demonstrates that even if his legislation fails in Congress, he can take his case to Obama directly, and Obama can spend the TARP money however he wants.

President Bush is acting deferentially toward his future successor, and understandably so. However, there is deference, and then there is giving away $350 billion unnecessarily. We hope Congress will not be so deferential. This is one instance when free-market principles should not be chucked aside.