Federal Court: No, the Government May Not Prevent Further Discovery of the Takeover of AIG

This week we broke the story of possible criminal wrongdoing in the government takeover of insurance giant AIG. In the last several months, the US government has tried, unsuccessfully, to throw out plaintiff Kevin Murray’s case, alleging that the government’s takeover of AIG puts it in the position of supporting and promoting Islam and Shariah finance.

In the discovery process attorneys for Murray, David Yerushalmi and Robert Muise (of the Thomas More Law Center), discovered that the takeover itself may have been illegal, and have attempted to get Treasury Secretary under oath to try and untangle this mess. Again, the Fed and the Treasury Department tried to stonewall.

This past Tuesday, Federal district court judge Lawrence P. Zatkoff rejected the Treasury Department’s and the Fed’s effort to prevent any further discovery while the government attempts to convince the Sixth Circuit Court of Appeals to overrule Judge Zatkoff’s earlier ruling rejecting the government’s motion to dismiss the federal lawsuit challenging the government’s takeover of AIG on First Amendment-Establishment Clause grounds.

Tim Geithner: The “extraordinary move to depose a sitting Treasury Secretary”

The lawsuit, captioned Murray v. Geithner et al., was brought by attorneys David Yerushalmi and Robert Muise, representing the plaintiff, Kevin Murray, a tax payer and former combat Marine who served in Iraq. The federal lawsuit alleges that the U.S. government’s takeover and financial bailout of AIG was in violation of the Establishment Clause of the First Amendment.

Specifically, at the time of the government bailout (September-December 2008), AIG was (and still is) the world leader in promoting Shariah-compliant insurance products. Shariah is Islamic law, and it is the identical legal doctrine that demands capital punishment for apostasy and blasphemy and provides the legal and political mandates for global jihad followed religiously by the world’s Muslim terrorists. By propping up AIG with tax payer funds, the U.S. government is directly and indirectly promoting Islam and, more troubling, Shariah.

After the court rejected the government’s motion to dismiss the case and granted Plaintiff’s attorneys until May 2010 to conduct discovery into the AIG takeover, the government filed a motion asking Judge Zatkoff to certify the case for immediate appeal of his denial of the motion and to stay all further discovery. Today the government got its answer: No and no.

In what is an extremely well-written opinion, Judge Zatkoff scolded the government lawyers for filing the wrong motion at the wrong time and then proceeded to tell them they would have lost in any event because his earlier denial of the motion to dismiss was proper and well-considered.

The Court’s recent decision is especially timely and critical for Plaintiff Kevin Murray because his attorneys had previously filed a motion to compel Secretary Timothy Geithner to sit for a three-hour deposition. The basis for the “extraordinary move to depose a sitting Treasury Secretary” arose because Plaintiff’s counsel had earlier deposed the witnesses provided by the Treasury Department and the Federal Reserve Board and the government witnesses either testified inaccurately or feigned ignorance. The only one with all the answers turns out to be Secretary Geithner.

While forcing high government officials to sit for a deposition in civil litigation is extraordinary, federal rules allow a court to take this step when the government official has personal knowledge of a relevant element of the litigation and where the moving party has no reasonable alternative. In this case, attorneys Yerushalmi and Muise argued in their court papers that this exception fits their circumstances in spades.

“The witness designated by the government to testify on behalf of the Fed was less than forthright in his sworn testimony,” Plaintiff’s counsel Robert Muise of the Thomas More Law Center explained. “To his credit, he admitted he had prepared for his deposition by reading media reports and not actually reviewing the relevant documents. That might suggest that his lack of candor was willful blindness.”

David Yerushalmi, who is co-counsel with Robert Muise, laid out the grounds for the motion:

At the time of the takeover decision, Secretary Geithner was the head of the Federal Reserve Bank of New York and he was the leading advocate of the AIG takeover.

Moreover, he designed how the U.S. government would not only bail out AIG with tax payer dollars, but how the government would illegally take control of 80% of the voting shares through what was patently an illegal and invalid trust arrangement. It is apparent from the discovery we’ve conducted to date that this was done purposefully and with an intent to conceal the illegal takeover with a fraudulent trust.

* Why he forced AIG to take on so much debt that AIG’s credit rating, already in peril, was sure to collapse without yet additional government funds, essentially guaranteeing AIG would remain a ward of the state?

* Why he imposed such Draconian terms on AIG that there was no way it could survive without additional billions from U.S. tax payers?

* Why he then used AIG to secretly funnel 100% payoffs to AIG’s counterparties, including his colleagues and friends at Goldman Sachs, Merrill Lynch, and the European giant, Société Générale. In other words, why did Geithner decide to destroy AIG’s chances of survival as a private entity while surreptitiously saving and preserving private ownership of other domestic and foreign financial companies? And,

* Why he took control of 80% of AIG’s voting shares without legal authority to do so and used a fraudulent trust arrangement to conceal the illegal takeover?

BREAKING NEWS:

The court just today granted plaintiff Murray’s motion for leave to amend the complaint to include yet additional TARP funds provided to AIG after the filing of the complaint. While the court did not allow the plaintiff to add AIG as a defendant as he had also requested, Murray’s attorneys tell us that they had accomplished enough discovery to know where to look for the skeletons in AIG’s closet in any event.

But where the rubber meets the road is in the situation rapidly approaching, wherein the paper which the government demands you take as legal tender is rapidly depreciating in value because the government has issued too much of it.

Did I miss the onset of double digit inflation? You do realize that Fed's balance sheet is basically the same as it was in 2008. IOW, there has been no "printing". And we have suffered a huge deflation due to the crash that destroyed $15 trillion.

This is all about freedom. If you don’t have the freedom to demand to be paid in gold and silver, or to have a contract promising payment in gold and silver enforced, you have lost a vital attribute of freedom.

What about those who prefer the freedom they currently have? I.e. the freedom to not have to pay you in gold or silver. Should their freedom be curtailed?

Or think about what just happened in North Korea: suddenly all the old currency was called in to be exchanged for new currency at a fraction of the former value.

You're going to base your argument on North Korea? That may be even lamer than using Zimbabwe.

You are correct that the Fed’s balance sheet held pretty steady from late 2008 on at just over two trillion dollars, though its quality deteriorated substantially (MBS up, Treasuries down). And you are certainly correct that inflation has not increased commensurate with Fed balance sheet growth at all, because, in part, contracting credit has offset the balance sheet expansion. But the Fed has been whittling away at the money value now for 100 years, and long run inflation seems inevitable. I believe it will be sooner and faster, but credible cases can be made for deflation, at least in the near term.

As to those who prefer the freedom they currently have, if that freedom is gained at the expense of others, it is not “freedom” in any defensible sense. With specific reference to your freedom to pay with paper, if you have entered into a contract that does not specify the medium of payment, so be it. But if you have entered into a contract that requires payment in gold, your “freedom to pay in paper” is freedom to steal. At any time when someone is trying to enforce the obligation to pay in gold, it is because the paper has depreciated.

North Korea is an extreme example, but consider Argentina. A hundred years ago it was the equal of the United States in many respects, and many considered its potential as great. But those who preferred the “freedom” to live at the expense of others came to power sooner. And now we see the Obama Treasury beginning to sniff around retirement accounts just like Argentina: we will protect the people by forcing them (or would you say “giving them the freedom to”?) buy our government debt rather than what they might wish to hold in retirement accounts.

As to those who prefer the freedom they currently have, if that freedom is gained at the expense of others, it is not “freedom” in any defensible sense.

Sort of like a person who demands the government force his countrymen to use gold/silver in their daily transactions. Whether it's a metal or paper, the government is still using force. Why is the force of gold/silver "freedom"?

But if you have entered into a contract that requires payment in gold, your “freedom to pay in paper” is freedom to steal.

As far as I know, gold clauses have been re-legalized. So, who is doing this? Has anybody entered into a contract since the 70s that had a gold clause and refused to honor it?

And now we see the Obama Treasury beginning to sniff around retirement accounts.

Again with the hyperbole. Obama couldn't get his healthcare plan passed by a Democrat controlled Congress, but somehow he is going to "steal our 401k's". If only we funded our 401k's with gold, they would be safe from Obama.

It is a mystery to me how you can possibly misunderstand this. If the federal government does not possess the power to pass a tender law, as was intended by the Constitution, how can it possibly “force” citizens to use gold and silver in daily transactions? I am for freedom, not tender laws, which are utterly unnecessary, and inherently wrong, hence the Thomas Paine remark quoted above.

I see, you simply read what you want and skip over the rest -- mystery solved. In post #129 I indicated that the Piece of Eight (otherwise known as the Spanish Dollar) was made legal tender by an Act of Congress. This act was not repealed until 1857.

If you liked Paine's idea about legal tender, you'll love his idea for a welfare state. That way you can enjoy the freedom of giving your gold and silver to your less fortunate countrymen and not have to worry about sticking them with worthless paper.

You are still missing the point. If Congress made Pieces of Eight “legal tender” until 1857, it was still exercising a power not granted by the Constitution, and if it barred their use as legal tender, it was also exercising a power not granted. I am simply advocating a straightforward interpretation of the Constitution that would bar Congress from exercising the power to say what must (or must not) be used as legal tender.

BTW, I am wondering if you have a citation to any statute making the Spanish Dollar legal tender, as opposed to the 1857 statute outlawing it, which I did find (and learned something, thanks). There is supposed to be a definitive work on the subject, The Monetary Powers and Disabilities of the United States Constitution, by Edwin Vieira Jr., which collects this sort of material.

As for Thomas Paine, nobody is perfect. I have never read his Agrarian Justice tract, so I am not too familiar with how far he may have strayed. But I remain mystified by your evident hostility toward gold and silver.

If Congress made Pieces of Eight “legal tender” until 1857, it was still exercising a power not granted by the Constitution...

Well, Congress started doing this right away (there was no federal currency, and, thus, the U.S. used a variety of foreign coins for a loooong time. Interesting that Congress had to pass new laws regularly, but nobody ever complained, not even those Founders.

Here is a decent source for Monetary Acts over the first 80, or so, years of the Republic.

As for Thomas Paine, nobody is perfect. I have never read his Agrarian Justice tract, so I am not too familiar with how far he may have strayed.

He strayed far enough to advocate a guaranteed wage for all. Paine played an instrumental role in the American revolution. However, his philosphies were in line with the French Revolution (which is where he ended up). Another great force in American history who was basically an economic kook. If you want to cite him as an authority on monetary matters, don't be surprised if someone raises his interesting socialistic ideas.

But I remain mystified by your evident hostility toward gold and silver.

I have no hostility to gold or silver, nor do I have hostility toward paper.

Thanks for the source. All I can say is that declaring that foreign gold and silver coins could pass as legal tender may be construed as some sort of foreigh affairs power properly consigned to the United States, and does not really infringe the remaining power of the States to make nothing but gold and silver coin legal tender in payment of debts.

Of course, under my view, Congress could not have declared that no copper coins but its could pass as legal tender, as it did in 1792. In the Webster quote I provided, he said that “regulate the value thereof” had something to do with foreign coin; I know at one time there was concern about Chinese copper coins, but would be surprised if that were back in 1792.

I still think the Constitution was intended to prevent Congress from issuing paper money and forcing people to take it as legal tender, and I still think that the erosion of this Constitutional limitation is the root of our economic woes.

Um...no, nothing to do with foreign affairs. A country that has absolutely no monetary system and does not have the resources to build one for many, many years needs a lawful way to legalize an ad-hoc system. This is what the Constitution did.

If the Federal Govt did not have the power to declare a foreign coin as legal tender, there would have been no monetary system in the U.S. As it was it took decades for the U.S. Mint to catch up.

The fact that phrases like "two-bits", "pieces-of-eight" and "picayune" persist to this day stand as a testament of Congress's power to declare a foreign coin as legal tender. Even the NYSE continued to use the "one-eighth" system until very recently.

I assure you that studying monetary history from Columbian time onward will only add to your appreciation of our Republic. Good luck.

What continues to mystify me is your belief that a country sort of inherently needs to “build” a “monetary system” by virtue of passing laws in aid of such a construction. The “magical time” of U.S. history before the most offensive of the tender laws (you must take government paper) seems to prove to me that such is not the case. What is wrong with the free market in this context?

What continues to mystify me is your belief that a country sort of inherently needs to “build” a “monetary system” by virtue of passing laws in aid of such a construction.

I guess the government could say "Pay your taxes with whatever coin makes you most comfortable." My guess is that country would be a footnote in the history of North America. If you have a real world example of a country that existed for a substantial amount of time without legal tender, provide the example.

The “magical time” of U.S. history before the most offensive of the tender laws (you must take government paper) seems to prove to me that such is not the case.

Plenty of legal tender paper in colonial times. Perhaps if the Continental Congress had the power to tax to support the military, they wouldn't have inflated the paper money. Whatever the case, there was no time of zero legal tender in the Colonies or the U.S.

What is wrong with the free market in this context?

Nothing. You can have the free market now and you could have it in 1792, whether people want your money is another matter.

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