More Fed Lawlessness: AIG

The Market Ticker ^ | 6/26/09 | Karl Denninger

[FromLori]

See what happens when Congress refuses to enforce The Federal Reserve Act's provisions that require that equity ownership be taken only in instruments that have the full faith and credit of the US Government behind them?

Under the agreement, AIG will split off AIA and Alico into separate company-owned entities called "special purpose vehicles," or SPVs. The New York Fed will receive preferred shares now valued at $25 billion -- $16 billion in AIA and $9 billion in Alico -- and in exchange will forgive an equal amount of AIG debt.

So now The Federal Reserve (actually the NY Fed) partially owns an insurance company through more off-balance-sheet Frankenstein monsters.

This is blatantly in violation of The Federal Reserve Act but nobody in Congress seems to care.

The FRA was written as it stands to explicitly preclude this sort of transaction. If we are to take an equity ownership position in AIG linked to the taxpayer it has to be done through an appropriation passed by and overseen by Congress, not through an administrative action by The Federal Reserve or one of its districts!

The New York Fed said in a statement that the agreements "further the goals of enabling AIG to fully repay the assistance that it has received from U.S. taxpayers and advancing the company's global restructuring process. The exchange of senior secured debt for preferred equity interests reduces AIG's financial leverage and facilitates the independence of these two key subsidiaries."

And who authorized The New York Fed to engage in that transaction? Where is the explicit legislative authorization permitting the creation of an SPV that amounts to EQUITY OWNERSHIP of an insurance company?

The NY Fed just nationalized an insurance company without a bill proffered in Congress and signed by The President!

WHERE ARE THE DAMN COPS?

[PubliusMM]

There is no way this crap is Constitutionally authorized, or even remotely legal.

When will people wake up to the 0bamunists’ March to Marxism? It is time to take back the country.

[Wuli]

Obama will argue that “constitutional” niceties NOT withstanding, he and Congress must have EMPATHY for the legal mess that AIG is in, a legal mess the Fed and the Treasury illegally created, and proceed without answering for their unconstitutional actions.

All it will take to bring this to the SCOTUS is a class-action lawsuit of AIG shareholders. Doing so, and proof of the illegality of the actions will not require proven greater shareholder returns were the transactions regarding AIG handled in a constitutional manner. It will only require proof that they lacked constitutional backing and thus legal standing and thus the actions threaten the legal basis of AIG shares, no matter what their value. If this is not put on a constitutional basis, any AIG shareholder needs to sell immediately as their shares’ values will forever-after be subject to legal dispute.