

Fed Bailout of AIG Was “Illegal”, Government “Violated Federal Reserve Act” [pdf] - randomname2
http://online.wsj.com/public/resources/documents/StarrvUS06152015.pdf

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fraserharris
The meat of this fascinating ruling is in pg's 8 - 10. Quoting:

    
    
      Moreover, there is nothing in the Federal Reserve Act or in any other federal statute that would permit a Federal Reserve Bank to take over a private corporation and run its business as if the Government were the owner. Yet, that is precisely what FRBNY did. It is one thing for FRBNY to have made an $85 billion loan to AIG at exorbitant interest rates under Section 13(3), but it is quite another to direct the replacement of AIG’s Chief Executive Officer, and to take control of AIG’s business operations. A Federal Reserve Bank has no right to control and run a company to whom it has made a sizable loan.
    
      ...
    
      The analysis here leads to the conclusion that, if the Government had done nothing to rescue AIG, the company would have gone bankrupt, and the shareholders’ equity interest would have been worthless. Accordingly, the Court finds that the first plaintiff class prevails on liability because of the Government’s illegal exaction, but recovers zero damages.
    
      ...
    
      As the Court noted during closing arguments, a troubling feature of this outcome is that the Government is able to avoid any damages notwithstanding its plain violations of the Federal Reserve Act. Closing Arg., Tr. 69-70. Any time the Government saves a private enterprise from bankruptcy through an emergency loan, as here, it can essentially impose whatever terms it wishes without fear of reprisal. Simply put, the Government often may ignore the conditions and restrictions of Section 13(3) knowing that it will never be ordered to pay damages. With some reluctance, the Court must leave that question for another day.

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randomname2
So AIG head Greenberg was indeed correct in claiming the government
overstepped its legal boundaries in its "unduly harsh treatment of AIG in
comparison to other institutions" which was "misguided and had no legitimate
purpose."

Further interesting quotes:

"The weight of the evidence demonstrates that the Government treated AIG much
more harshly than other institutions in need of financial assistance. In
September 2008, AIG’s international insurance subsidiaries were thriving and
profitable, but its Financial Products Division experienced a severe liquidity
shortage due to the collapse of the housing market. Other major institutions,
such as Morgan Stanley, Goldman Sachs, and Bank of America, encountered
similar liquidity shortages. Thus, while the Government publicly singled out
AIG as the poster child for causing the September 2008 economic crisis
(Paulson, Tr. 1254-55), the evidence supports a conclusion that AIG actually
was less responsible for the crisis than other major institution."

The illegality of this decision may also have dramatic repercussions for all
future government/Fed bailouts of further banks.

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Shivetya
My favorite part... The court noted “a troubling feature of this outcome is
that the Government is able to avoid any damages notwithstanding its plain
violations of the Federal Reserve Act…Simply put, the Government often may
ignore the conditions and restrictions of [the Act] knowing that it will never
be ordered to pay damages.”

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randomname2
The Fed's answer to all this:

[http://www.federalreserve.gov/newsevents/press/other/2015061...](http://www.federalreserve.gov/newsevents/press/other/20150615a.htm)

"The Federal Reserve strongly believes that its actions in the AIG rescue
during the height of the financial crisis in 2008 were legal, proper and
effective."

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dummy7953
Oh god, this will probably be used by dummies that don't understand either the
Fed nor macroeconomics to flip out once again about the Fed like they're the
illuminati blahblahblah..

