Trump Moves to Fire Fed Governor & Threatens Chicago

0:00The Big Take podcast from Bloomberg News keeps you on top of the biggest stories of the day. My fellow Americans, this is Liberation Day. Stories that move markets. Chair Powell opened the door to this first interest rate cut. Impact politics. Change businesses. This is a really stunning development for the AI world and how you think about your bottom line. Listen to The Big Take from Bloomberg News every weekday afternoon on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts.

0:34You're listening to Bloomberg Law with June Grosso from Bloomberg Radio. In a significant escalation of his battle with the Fed, President Trump is moving to fire Lisa Cook, the first black woman to serve on the Federal Board of Governors. In a letter posted on Truth Social late Monday, Trump said he had, quote, sufficient cause to fire Cook, citing allegations that she submitted fraudulent information on mortgage applications, although she's not been charged with a crime. He reiterated his position in the Oval Office today. It seems to have had an infraction and she can't have an infraction, especially that infraction because she's in charge of, if you think about it, mortgages.

1:20And we need people that are 100 percent above board and it doesn't seem like she was. Cook says she won't step down. Her lawyer, Abby Lowell, says they'll sue and that Trump's attempt to fire her, based solely on a referral letter, lacks any factual or legal basis. Joining me is constitutional law expert Harold Krent, a professor at the Chicago-Kent College of Law. Can we assume that the president is giving in on one point that he needs cause to fire Cook because he said in a letter posted on Truth Social that he had sufficient cause to fire her? And that's a surprise is that the president has deviated from his earlier line, which said that he can fire anybody he wants to for any reason whatsoever.

2:08And by inserting in the letter that he had cause to fire Cook, that's suggesting the type of admission that he does need to have cause to fire her as a governor of the Federal Reserve. He could always abandon that later in court. But at least at this point, this is an unusual claim for him that he does need to have cause. This all goes back to FHFA director Bill Pulte alleged that she lied on loan applications for two properties, claiming she would use each property as her primary residence. And Trump wrote in a letter sent to Cook yesterday, at minimum, the conduct at issue exhibits the sort of gross negligence in financial transactions that calls into question your experience and trustworthiness as a financial regulator.

3:01Is that cause? So this discharge, of course, raises three issues, in my mind anyway. And the first is the one you've articulated. What is caused? And there is a dearth of precedent at the federal level as to what is caused to justify dismissal of someone who's otherwise protected in the government's employee. For instance, is there a reason to fire someone for something they do outside their job, something they did in terms of they got into a fight at a bar? Is that cause? What happened here is at least akin to that. It's like something that happened in her private life, not with respect to her job.

3:36That's one issue. But there are others. Can a judge second guess a president's determination that the individual is not fit for the office? That's a question of what kind of deference the courts will give to the determination of cause. And then there's the initial question of whether the president had to give any kind of notice and ability to respond before the discharge. If instead of being federal governor or cook, this was a question of an employee, the law is clear that the employer needs to give notice and opportunity to be heard prior to the discharge, except in an emergency situation. And this isn't one.

4:17So the procedural issue may well be raised in this case. And then there's a third issue that I think could be relevant, too, which is we don't have a lot of precedent about if a court says that there is not cause to dismiss the individual. Will the court in equity force the president to rehire someone or will they just say that you were unlawfully terminated and the government has to pay back pay? Obviously, in the famous Humphrey's executor case, which is still limping along, the court didn't have to decide on the reinstatement issue because the FTC Commissioner Humphrey had already died and the state was carrying on the case.

4:57So we don't know whether there's notice ahead of time. We don't know what cause means. And we don't know, even if there is no cause, whether the court would require reinstatement or would that be a trenching too directly upon the presidential powers. So the fact that he threatened to remove her and asked her to step down because of this, is that notice? Who knows? Did he say, I'm worried about the loan applications? What's your side of the story? I mean, that's what's supposed to happen for most federal employees. It's not a full hearing. It's just a notice, an opportunity to respond. And did he ever ask, you know, what about this finding by Pulte?

5:40What do you have to say about it? And will that be constitutionally required? We don't know what it is for employees. Maybe it's not for officers, but the courts will have to tell us. Also, this happened before she became a Fed governor. And her attorney is saying there's no factual or legal basis. This is all based on a referral letter from the head of the FHFA, Bill Pulte, who has sent similar referral letters for Democratic Senator Adam Schiff of California and New York Attorney General Letitia James, who are on Trump's enemies list. So there are no findings, and it appears not even an investigation.

6:19Yeah, I mean, the question then is whether this is all pretext and whether the court will second guess whether there is cause and effect. You know, the issue is just because someone is accused of doing something that may be unethical doesn't mean that they did something that was unethical. And, of course, who is to judge that anyway? So sort of the substance of the case about whether there's enough cause to remove the Federal Reserve governor is up in the air. And my guess is that if the courts do take that issue up, the courts would say that you can have cause to dismiss somebody for conduct unrelated to the conduct of their job.

7:00But you have to make some kind of determination whether or not, given what the government is convinced that she did, whether that would impair her ability to do her job effectively. So, you know, this case raises a lot of issues that have been circling around discharge of federal officers. And we simply don't know the answers. Looking at the ruling earlier this year where the Supreme Court said it would shield the central bank from the type of at-will removals of board members that they've allowed Trump to do at least temporarily at other independent federal agencies. Do you think that just stands for the fact that it has to be for cause or does it stand for the Fed is different?

7:41You could say that President Trump is doing a good trial balloon. And if it goes well and he can get away with dismissing Federal Reserve Governor Cook, then maybe he can remove Powell because of the overruns in terms of redecorating and restructuring his building. Right. I mean, that may be cause as well. So he may be trying this as a kind of trial boom to see what he can get away with. On the other hand, it's unclear what principled way that the Supreme Court could say that the president can't fire the head of the Fed, but they can fire all other officers in the United States. That helps the markets, but it doesn't seem to be very logical either.

8:22So we just don't know. And has the Supreme Court ever defined what for cause means? No, it has never defined it. It has said dereliction of duties is one word that they use. But I think that it's a small step from dereliction of duties to say, you know, if someone, I had a case, for instance, that had to do with an administrative law judge who was disciplined for having a fight with a family member. And the courts upheld that and said, that's cause. So it's a small step from dereliction of duties to say, you know, if someone didn't behave well, outside of office, and that casts a cloud upon the integrity and ability of the office to do its congressionally assigned tasks.

9:05So again, if the court ever reaches that, I would think that they would side with the president on that, that you don't want to limit cause just to what's happened in terms of carrying out the duties of your office. You'd want to expand it to say any kind of conduct then that would undermine your ability in the future to conduct your affairs in an inappropriate way. Coming up next on the Bloomberg Law Show, I'll continue this conversation with Professor Harold Krent of the Chicago-Kent College of Law. More on Trump's plans to expand the use of the military in American cities. And a Trump-appointed federal judge tosses the administration's lawsuit against all the federal judges in Maryland.

9:48I'm June Grosso, and you're listening to Bloomberg. The Big Take podcast from Bloomberg News keeps you on top of the biggest stories of the day. My fellow Americans, this is Liberation Day. Stories that move markets. Chair Powell opened the door to this first interest rate cut. Impact politics. Change businesses. This is a really stunning development for the AI world and how you think about your bottom line. Listen to The Big Take from Bloomberg News every weekday afternoon on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts. Mr. President, do not come to Chicago. President Trump is threatening to expand his use of the National Guard to crack down on crime in U.S.

10:34cities. And after deploying the Guard to L.A. and D.C., Chicago seems to be next on his list. When I have some slob like Britsker criticizing us before we even go there. I made the statement that next should be Chicago because as you all know, Chicago is a killing field right now. And they don't acknowledge it. And they say, we don't need him. Freedom, freedom. He's a dictator. He's a dictator. A lot of people are saying maybe we like a dictator. I don't like a dictator. I'm not a dictator. City and state officials condemn Trump's plans to deploy the National Guard. Mayor Brandon Johnson says the crime rate in Chicago has been falling for years.

11:15And Governor J.B. Pritzker says they'll take Trump to court if he tries to send the Guard to Chicago. If we are not even in the top 25 most dangerous cities, then why are we now being targeted by the Trump administration for a military occupation? We are being targeted because of what and who we represent. First thing we're going to do is take him to court because it's illegal, it's unconstitutional. Frankly, it's un-American to send troops into an American city the way that he wants to, to fight crime. There is literally a law in the books that says he's not allowed to do that. I've been talking to Professor Harold Krent of the Chicago-Kent College of Law.

11:58President Trump is threatening to expand his use of the National Guard to crack down on crime in U.S. cities. and after D.C. and L.A., Chicago seems to be the next on his list. Crime statistics for Chicago this year show a 30 % reduction in homicides, 35 % reduction in robberies, nearly 40 % drop in shootings. Chicago is not on the 25 most dangerous cities in the U.S. What authority does he have to and National Guard in? Whatever authority he has, it's certainly even less than he had in LA and less than he had in DC. In LA, there was a fiction that there was a type of invasion, if you will, of undocumented into the city, into Los Angeles, which prevented the regular law enforcement authorities in California from responding adequately.

12:56In addition, the fiction could be spun out that it was difficult to enforce federal law there because of the presence of so many individuals without documentation. And that's what necessitated sending in the National Guard. Those theories can't apply to Chicago. There is no invasion here and there is no problem with enforcing federal law here. With D.C., of course, the president serves, in essence, as a governor of the National Guard in D.C. And so he can call out and approve the use of the National Guard for whatever reason, even though there was a decline in the crime statistics in D.C. as well.

13:32So Chicago is another step forward, and I think it's a very dangerous step forward. Clearly, the framers didn't trust the idea of a standing army. They were worried about using the army for regular law enforcement. and there is no authority to use the National Guard for those sort of ordinary law enforcement mechanisms as well, and they're not even trained for it. So we have a specter. In other words, if the president can use, call out the National Guard for Chicago, he can call out the National Guard for any reason he wants. And we all should be very deeply concerned about that because that is edging us one step closer to autocratic rule because it means that the president can use the National Guard for his own bidding for whatever reason he wants to, and there are no constraints on his use of armed forces.

14:22How do you think that Trump might try to use Title 10 of the U.S. Code on Armed Services about the federal deployment of National Guard if there's a rebellion or danger of a rebellion against the authority of the government of the United States? Or could he try to invoke the Insurrection Act? I mean, there's no insurrection, and I don't think he's not even articulated a possible insurrection. He did try to do something like that for Los Angeles, but he hasn't tried to do that for Chicago, and I think it would be incredibly far-fetched. And I agree that if there were federal facilities that were in danger, then he could utilize those powers to protect federal facilities, but that's not the case.

15:06Or if ordinary law enforcement had totally fallen apart, he could call in for the Guard in that context as well. We do have a couple of precedents. We have the precedents of calling out the National Guard to help with desegregation efforts in the 1950s. We have the precedent of calling out the National Guard where there was really no general typical law enforcement because of the riots that tore the streets up in the 1960s, particularly after MLK was assassinated. assassinated. So we have some precedents, but they're not ordinary law enforcement as in Chicago. And so this is simply a dramatic expansion of the ability of a president to call the National Guard if he in fact does so.

15:48And I think it's something we should be deeply concerned about. So Chicago is a sanctuary city, right? So could he say, well, Chicago is blocking in some way, They're not helping with the federal immigration enforcement because they're not assisting us in finding out where people are. Yeah, I mean, it could be that the claim here is that Chicago authorities are frustrating federal law enforcement ability to apprehend and deport those without documentation. That's not his claim here. He hasn't stated that. And obviously, there's probably no proof of it anyway, but he hasn't even made that as a thin veneer to justify his use of troops.

16:33So that would be closer to the L.A. model for use of troops as opposed to what he said so far about Chicago. And we're waiting still on Judge Breyer's decision about posse comitatus in the L.A. case. But the appellate court there did allow Trump to keep the troops in L.A. They did. And of course, it was on a wasn't a full decision. It was just based upon a stay of what the lower court had had ordered. So even after Judge Breyer reaches his decision, there will be an appeal to the Ninth Circuit. But I think it's important. I mean, I think the governor, Pritzker in Illinois, is ready to file suit as well.

17:17And this is the only way, except for a military challenge, that the governor can contest the legitimacy of what the president is trying to accomplish. Also, Chicago's mayor called on Trump to release something like$800 million in anti-violence grants that were canceled in April by the Justice Department. No, I think the point is that, you know, if the president wants Chicago or Los Angeles to enhance their crime fighting ability, then why did it cancel the grants? And it should allow for these communities to hire more police to get better weapons or even surveillance mechanisms in order to fight crime.

18:01And so putting this on the National Guard, who are not trained for that, is probably counterintuitive and may result in worse kind of law enforcement than otherwise would take place. Another thing to note is that the president is selected, Los Angeles, D.C., and Chicago, which are all clearly Democratic strongholds, and he's making no mention of cities like St. Louis, New Orleans, and Memphis, which have crime in excess of those in D.C. and Chicago, but happen to be headed by Republican governors. So that, again, would give a strong flavor of what the president is trying to do is just sort of show his might in the face of states and cities, which would otherwise object to his governance style or, in fact, the substance of his governing itself.

18:54And a judge has ruled last week that the Trump administration can't deny funding to Chicago, L.A., Denver, and other cities because of policies that limit cooperation with federal immigration efforts because they're sanctuary cities or counties. Yeah, and this is a reprise of litigation back in the first Trump administration when he tried to remove funding from the so-called sanctuary cities. And simply, you can't do that unless Congress gives the green light and Congress has not allowed police grants, for instance, in this case, to be predicated on the police agreeing to be helpful to ICE agents in rounding up those without documentation.

19:38Congress could make that. It would be an interesting policy call. Congress could make it, but it hasn't. And that's what the courts have held. You know, and to go back to the National Guard issue, I'm hoping this is just a headline grabber, kind of in your face, move by the president. But if he really sends troops here, then he can send troops for any reason at all, including what's frightening most is around the midterms. You don't want to give the president an idea that he can frighten people or deter them from voting by sending National Guards to the polling places in various jurisdictions during the midterms.

20:19And so that's what frightens me the most. And I think it's important then to fight against the use of the National Guard for sort of personal political reasons, as he's doing in Chicago. And yesterday, Trump also signed an executive order establishing specialized units in the National Guard to address crime in cities, though it's unclear how the order will work in practice. What's your take on that? Well, I think that viewed charitably, the executive order is consistent with the Constitution. It's saying we want to have special training if there is a moment, such as with George Floyd or other kinds of rioting, if local law enforcement cannot exercise their authority to keep peace within the cities.

21:09that we're talking like a ready force just in case it's needed. By itself, I think the president could probably do that. The only question is when he can deploy this specially trained force. Can he do it again during the midterms? Let's hope not. But just the training by itself seems to me to be within his ability to coordinate as commander in chief. There was a lot of legal news today. Let's turn now to another development. A federal judge threw out the Trump administration's lawsuit against Maryland's entire federal bench. That means every federal district judge in Maryland. This was a suit over an order by the chief judge of the Maryland district court that stopped the immediate deportation of migrants challenging their removals for two days.

22:02And the Justice Department had said the automatic pause impeded the president's authority to enforce immigration laws. And it sought a court order blocking it. And Federal Judge Thomas Cullen, a Trump appointee, in an emphatic ruling that underscored the extraordinary nature of the suit, called the suit potentially calamitous. And he also criticized the administration's attacks on the judiciary, highlighting in a footnote that White House officials in recent months had described judges as rogue, unhinged and crooked, among other epithets. What was, I think, interesting about the opinion is that part of it is predicated on the unity of federal judges as well as the clerk of the court.

22:51That may be a little extreme, you know, in terms of the future. But what he also added was that in this context, you would never have an injunction, that the courts would never enjoin courts from enforcing an order that's simply unheard of in the courts of equity and is inconsistent with norms of separation of powers. And so that, in essence, the Department of Justice and the Homeland Security didn't have standing to bring the case. And that became much an easier sell because, indeed, as we discussed earlier, the government could have easily challenged the standing order in a different way by raising it on appeal in a case that it might lose in terms of the immigration matter before that court.

23:42So I don't know if all the reasoning will be upheld by the Fourth Circuit, but I think the underlying decision to dismiss this poorly crafted lawsuit will be upheld by the Fourth Circuit. It was hard to see why the Justice Department brought this suit, because it is unprecedented. And I use that word a lot lately. And the Trump administration has already filed a notice of appeal. So more to come. Thanks so much, Hal. That's Professor Harold Krent of the Chicago-Kent College of Law. Coming up next on the Bloomberg Law Show, who's in charge of the New Jersey U.S. Attorney's Office? I'm June Grosso, and you're listening to Bloomberg.

24:22The Big Take podcast from Bloomberg News keeps you on top of the biggest stories of the day. My fellow Americans, this is Liberation Day. Stories that move markets. Chair Powell opened the door to this first interest rate cut. Impact politics. Change businesses. This is a really stunning development for the AI world and how you think about your bottom line. Listen to The Big Take from Bloomberg News every weekday afternoon on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts. The Trump administration has tried various maneuvers to keep Alina Habba, Trump's former personal attorney, at the top of the U.S.

25:05Attorney's Office in New Jersey. But a federal judge has ruled that Habba's appointment was not lawful and disqualified her from participating in any ongoing cases. I am the pick of the president. I am the pick of Pam Bondi, our attorney general, and I will serve this country. The continuing maneuvering and confusion over Habba's role has led to federal criminal cases in New Jersey basically coming to a standstill because no one knows who's in charge. And the judge's decision could mean that any actions taken under HABA since July 1st are open to challenges by defendants. It could also reverberate across the country because the Justice Department has been using similar complex maneuvers to extend the tenures of other Trump loyalists as interim U.S.

25:56attorneys in California, Arizona, New Mexico, and New York. Joining me is Ann Joseph O 'Connell, a professor at Stanford Law School. Federal Judge Matthew Brand said that Alina Habba is not lawfully holding the Office of the United States Attorney and has been in the position without legal authority since July 1st. It gets quite complicated, Anne, so please take us through it. It is a lengthy decision with several rulings. Let's march through the opinion to see how the judge made various rulings. So the first thing the judge did was to decide whether Ms. Habba was lawfully serving under the specific interim U.S.

26:38attorney provision, 28 U.S.C. 546. And when he looked at that provision, he determined that the 120-day time limit started when the first appointment was made under the statute. So that first appointment was not actually Ms. Habba. It was Mr. Giordano. And his appointment started and the 120 days ran from that and ended, according to the judge, on July 1st. So although Ms. Habba had more days, if you were counting to 120, from when she started, the judge held that was not the right way to consider the clock. So that was the first decision, that starting on July 1st, Ms. Habba was not lawfully serving under Section 546.

27:26Now, there was a ruling kind of connected about whether the government could turn to the Vacancies Act because the criminal defendants at issue argued, well, if Ms. Hoppe was not lawfully serving under 546, the government could not turn to the Federal Vacancies Reform Act, which provides a way of getting in temporary acting officials, not just for U.S. attorneys, but a whole range of positions. And the criminal defendants argued that actually the Vacancies Act did not apply to U.S. attorneys because of 546. And this was the one place the judge actually ruled for the government. The judge said that 546 was not the only mechanism for temporary service for U.S.

28:08attorney spots. He said that the Federal Vacancies Reform Act was available. Now, that then turns to the next ruling. He said that Ms. Habba was not lawfully serving under the Federal Vacancies Reform Act. So the act applied, but she was not lawfully serving. And the primary reason for that ruling was that as he interpreted Section 3345 of the Federal Vacancies Reform Act, you cannot have a first assistant to the vacant Senate-confirmed rule be named after the vacancy in the position. And for the judge, the vacancy is not the end of interim service under 546, it's the end of when the last Senate confirmed U.S.

28:52attorney left. And so Ms. Habba was put into a first assistant slot after the prior confirmed U.S. attorney left, and the judge held that was not permitted under the Federal Vacancies Reform Act. What about her delegating to others? There was one more ruling about if she was not serving under the Federal Vacancies Reform Act, could she perform the job through what is known as delegation. And that was the final ruling by the judge in the 77-page opinion. And he held that under another provision of the Vacancies Act, 3347, that Ms. Habba could not perform the role of the U.S. attorney without the acting title and through delegation.