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From Kelo to Starr: Not Merely an Unlawful Taking but an Illegal Exaction

A property case even more important than Kelo v. City of New London (2005) began to wend its way toward the Supreme Court a few weeks ago. The new case is Starr International Company, Inc. v. United States, and unless the Supreme Court repudiates the lower courts, the case will lay down a strange principle: that the government can unlawfully deprive shareholders of their ownership and control as long as it does not seize their shares.

Starr International, and other shareholders of American International Group, are seeking with this suit to recover their ownership interest in AIG. The case may therefore seem just a footnote to the c. 2008 financial crisis, when the government supported many companies for the sake of the economy. The shareholders’ claim is that in the course of propping up AIG, the government, in violation of federal statute, demanded nearly 80 percent of equity in the company—ultimately depriving shareholders of their share of ownership and their voting control. Although the government did not physically take their shares—their formal indicia of ownership—it ignored federal law to seize most of their real share of ownership and their control.

Government interference in property rights is often associated narrowly with the Constitution’s Taking’s Clause, which bars government from taking private property for public use without just compensation. This was the provision that the Supreme Court notoriously misread in 2005, when it concluded in Kelo that government can take private property for transfer to a private developer.

But the Takings Clause centers on compensation for lawful takings, and it thus is not the only protection for property rights. Even more basically, government cannot exact property unlawfully. It must return any property that it acquires through an unlawful exaction.

Thus, whereas the Takings Clause requires just compensation for lawful takings, the more central constitutional point—at stake in Starr International—is that the government must return any property it gets hold of unlawfully. And here, where the government has sold the property it exacted, it ordinarily must return its ill-gotten proceeds—not as damages, but in lieu of the property itself.

If the government had acted with legal authority to take private property for public purposes, this would have been a taking, for which the shareholders would be owed just compensation. But if the government acted without legal authority, the shareholders have a right to get back their share of ownership. The distinction matters, for even when a company is illiquid and in this sense insolvent, ownership can have residual value.

In this case, the residual value was that AIG might recuperate, and the government unlawfully took advantage of this possibility. Sure enough, after the bailout the company came to be worth many billions. The government seems to assume that because the company could not have recovered without government aid, the government does not have to comply with longstanding doctrine requiring the return of the property or proceeds. The implication is that when the government provides crucial assistance, it can escape its legal limits.

The case is thus even worse than Kelo. It involves not a lawful taking, but an illegal exaction—the sort of confiscation that is familiar from other parts of the world. And as in those regions, the exaction is justified as a necessary response to an economic emergency. Both the exaction and the excuse are what one would expect in a tinpot dictatorship.

Disturbingly, the lower courts have repeatedly failed to require the government to return the unlawfully seized property. The trial judge expressly found that the government engaged in an “illegal exaction” in “plain violation[] of the Federal Reserve Act,” but he did not restore the stolen property. His explanation was that there were no damages—a puzzling argument, not least because the remedy for an illegal exaction is the restoration of the property itself or the proceeds, not damages.

On appeal, the circuit court did not deny the illegal exaction; nor did it dispute that the remedy would ordinarily be a restoration of the confiscated property or the proceeds. But like the trial court, the circuit court avoided giving a remedy—this time on a theory of prudential standing.

One might think the circuit court had a point. Rather than lose their shares, the plaintiffs suffered a dilution of their equity and voting control, and on this basis one might assume that the suit should have been a derivative action (on behalf of the corporation). But the brutal reality (undisputed by the circuit court) remains that the federal government unlawfully deprived the shareholders of their share of ownership and their voting control, and by ignoring this reality the court has announced that the government can get away with a massive illegal exaction.

Tellingly, the circuit court did not use the derivative-action point to argue that the Constitution barred standing. Instead, it avoided the substantive issues by concluding that the shareholders should be denied standing as a prudential matter. The theory that some standing questions are merely prudential rather than constitutional has long aroused fears that judges will rely upon it (even if not consciously) to evade doing their duty. This circuit court decision exacerbates such concerns.

Why have both the trial and the appellate courts so persistently avoided giving a remedy? It is difficult to know for certain, but it is also difficult to ignore that, according to the trial judge, the government went out of its way to make AIG a scapegoat for the financial crisis. The judge observed that the government  “publicly singled out AIG as the poster child for causing the September 2008 economic crisis”—even though “the evidence supports a conclusion that AIG actually was less responsible for the crisis than other major institutions.” AIG’s shareholders may therefore seem distinctly undeserving. It thus seems important to state bluntly that no one, however unpopular—or however unpopular they have been rendered by government—should be denied legal recourse on this account.

Of course, it cannot and should not be presumed that the lower courts acted in anything but a principled manner. Even the best of judges, however, can unselfconsciously veer away from conclusions that they sense will be unpopular.

Whatever underlay the decisions of the lower courts, the case leaves the disturbing impression that judges are hesitant to give a remedy. It suggests that the government can get away with an illegal exaction where it is providing crucial aid and where it singles out the target for public delegitimization.

The petition for certiorari is therefore of profound importance. The Supreme Court nowadays often uses certiorari to resolve circuit splits, but certiorari has never lost its role as a mechanism for correcting the refusal of lower courts to do justice. And the necessity of Supreme Court action is all the greater in Starr International because the case, as it stands, is so dangerous a precedent.

Reader Discussion

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on October 25, 2017 at 10:31:29 am

Helpful summary of the complex Starr. But I am unclear as to your grounds for asserting that what's at risk is more important than the adverse consequences of Kelo. I am not disagreeing with you, only seeking clarification/argument as to why "failure to give a remedy" for unlawful federal action (as you allege occurred) is necessarily a greater inducement to arbitrary government than allowing state and local bureaucrats to take private property for their publicly-approved uses.

BTW: I have read your Separation and your Is AdLaw Unlawful books. Terrific stuff! Perhaps in Lucia vs. SEC or in one of several related cases, relying in part on your groundbreaking admin law work, the Court will strike the Deep State Monster a severe blow.

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timothy l. harker
on October 25, 2017 at 10:45:39 am

Brilliant (as usual).

There is so much more to this saga (think pleas on behalf of French Banks to Paulson, e.g.).

Here again, looking at the purpose of the "exaction" (and it was an exaction) - we must "follow the money" that went into AIG (and subsidiary).

A part of individual liberty is found in the concept of "Property."

The concept of property is a relationship of an individual to material substance (whether represented by something tangible or intangible). Freedom **from** interference with relationships is an essential element of Liberty. Freedom from the use of governmental mechanisms and coercions for such interference has been (though now being "qualified") a Constitutionally ordained statement of that liberty. Quo Vadis?

But -- "prudential standing?"

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R Richard Schweitzer
on October 25, 2017 at 11:30:50 am

Notwithstanding the fire-prone conditions in the area, a wealthy homeowner decides to have a bonfire in the back acres of his estate. The fire gets out of control and begins burning everything in sight. He flees to his house, but the fire cuts off his chance for further escape. So he calls 911. As the fire descends on the house, Fire Rescue Ranger MacGyver barely survives driving his jeep up to rescue him. MacGyver realizes he’ll need better heat reflection if they are to survive the return journey. So MacGyver takes the sheet metal off of the ductwork of the soon-to-be destroyed house to plate his jeep, and then drives the guy to safety. News of this heroic rescue hits the news, and MacGyver auctions off his now-famous metal-plated jeep at a profit to help offset the cost of the fire rescue department.

The homeowner then sues, arguing that MacGyver had a duty to give the jeep to him. After all, the jeep incorporated the homeowner’s private sheet metal, and the homeowner never said that MacGyver could have that metal.

What result?

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nobody.really
on October 25, 2017 at 11:57:19 am

This is a very interesting (and slightly appalling) set of circumstances and implications present in this case; and one worth watching closely.

Wondering aloud,purely on theoretical grounds:

Does this case beg the question, "was there more gain to be had in AIG's failure, which the government interference denied"? - i.e. derivative investment, hedge fund investing, and the like?

"Government interference in property rights is often associated narrowly with the Constitution’s Taking’s Clause, which bars government from taking private property for public use without just compensation." - Might this, in a very broad "too big to fail" stretch of the meaning also be akin to a suspension of the writ of habeas corpus (in the seizure of shares & voting control for an indeterminate period)?

Article I, Section 9 of the Constitution says, "The privilege of the writ of habeas corpus shall not be suspended, unless when in cases of rebellion or invasion the public safety may require it."

"[U]ltimately depriving shareholders of their share of ownership and their voting control" - thereby, to also deny them their liberty...? This following along the lines of Mr. R Richard Schweitzer’s premise, “A part of individual liberty is found in the concept of “Property"?

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Paul Binotto
on October 25, 2017 at 12:14:38 pm

Yeah, but MacGyver never trashed the homeowners residence or the aesthetics of the home - unlike the Obamaites.
Also, the homeowner, as a matter of law, never owned MacGyver's jeep at the onset of the conflagration - unlike the AIG shareholders who must now contend with a previously "unrecognized" owner, i.e., the gubmint!

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gabe
on October 25, 2017 at 12:18:24 pm

Hey, so maybe The Dawg is correct in his repeated assertions that the Black Robes will shirk their duty to 'do the law" and are reticent to render an unpopular determination.

From Hamburger's essay, this would appear to be the case.

Wonder what, if any, the implications of a shareholder victory in Starr would have on the various civil forfeiture *exactions*?

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gabe
on October 25, 2017 at 12:18:49 pm

lt has always amazed me how conservatives, who see Kelo as one of the most outrageous decisions in recent memory, stand behind the massive land-grab known as lsrael. Never mind that the Arab farmers held deeds issued by the Crown, and were forced from their land at gunpoint. And it wasn't even a mishpucha discount; it was more of the five-fingered kind.

Property rights are sacred, unless you are non-persons in bedsheets. "Bring me the black magic marker. Uh, what Matt. 7:12?"

lMHO, Kelo was wrongly decided ... and as l regard property rights as a sine qua non of individual liberty, l am forced to concede that the Palestinians' claim has merit.

What isn't clear is whether cert has been granted. l could easily see the Court denying it, but l'll have more to say about cert in another post.

"The case is thus even worse than Kelo. It involves not a lawful taking, but an illegal exaction"

This case could easily be resolved by the maxim, "de minimis non curat lex." AlG management engaged in massive fraud, and the enterprise was dangerously insolvent. Had we been talking normal times, bank regulators would have shut it down and rightfully so, and the shareholders would have nothing. Goldman Sachs should have been interred, as well--but owning the government has privileges.

We saw this during the S&L debacle. Silverado would trade you their dead cow for your dead horse, and value the deal for ten times what it was worth. As the malfeasance was engaged in by the shareholders' agents, it is hard to have much sympathy for the shareholders.

As to whether the government acted "illegally," if you want to have the benefits of being a bank or insurer, you have to submit to the appropriate regulations, and l won't accept the charge of official wrongdoing on the author's word alone. But as a practical matter, any damages in this case should be nominal, as there was literally no equity in AlG at the time action was taken.

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Trevor Chase
on October 25, 2017 at 12:27:52 pm

Dawg:

I thought you would take the opportunity to comment on the "shirking" aspect raised by Hamburger (and previously by Posner).

But not only AIG engaged in fraud (I could tell you what the buggers did to an annuity I had set up for family member, but...) but so did the credit firms, the banks, the mortgage clearing houses. Why just punish AIG?

Also, take another look at Israel and the Palestinians ( a "mythical", made-up people, BTW). The "gun-toting" was not, as you allege one-sided. The Jews were also forced off lands they had held for centuries, not to mention having to endure the egregious "ministrations" of the Arabs - slaughter, outright theft, destruction of property / farms etc was the expected result of intercourse with the Arabs

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gabe
on October 25, 2017 at 12:30:51 pm

What result?

The government confiscates the proceeds of the auction. The state DMV asserts that MacGyver made alterations to a motor vehicle without a permit and subsequent inspection. Not only do they seize the proceeds of the auction, they seize the vehicle from the auction purchaser. A month later the EPA decides that some of the metal used may have previously diverted rainwater from the house, and therefore affected navigable waters of the United States. The homeowner is fined 1.8 million dollars. A sharp eyed ethnic studies major notices that persons of Scottish descent are not particularly known for their skill with ductwork, and so MacGyver must have appropriated his idea from another culture. A social media storm ensues, and the fire district publicly disavows MacGyver, and requires training of all employees in "inclusive" emergency improvisation. MacGyver's Twitter account is suspended.

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z9z99
on October 25, 2017 at 12:45:24 pm

[T]he homeowner, as a matter of law, never owned MacGyver’s jeep at the onset of the conflagration....

True, just as the shareholders of AIG never owned the $85 billion that government poured into AIG, thereby rescuing it from a disaster that was (partially) of its own devising.

MacGyver never trashed the homeowners residence or the aesthetics of the home – unlike the Obamaites.

No idea what you're talking about. But, at a minimum, it may interest you to know that AIG was bailed out during Bush's Administration, not Obama's.

Now, recall how you previously said that Reagan created the 401k, when it was Carter? Are you seeing the pattern here, gabe?

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nobody.really
on October 25, 2017 at 13:30:01 pm

I suspect that, to most of the legally trained minds reading the main post, Mr. Hamburger's description of the case stimulated all sorts of ideas and arguments regarding legal principles, precepts, maxims, and precedents, and those are undoubtably of utmost significance. But my first impression was of an old joke, actually something of an allegory:

A woman and her young child are walking along a beach. During a moment of inattention of the mother, the child wanders close to the surf and a giant wave engulfs him, and sweeps him into the sea. The mother is frantic. She drops to her knees and lifts her eyes to heaven and implores "He is my only child, he is everything to me, I don't know if I could go on without him. Please save him!" A few moments later a giant wave deposits the child back on the beach. The mother is overjoyed; she hugs her child in a tight embrace for several seconds, then steps back, again lifts her face to heaven and says "You know, he had a hat!"

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z9z99
on October 25, 2017 at 13:35:07 pm

"True, just as the shareholders of AIG never owned the $85 billion that government
**poured into AIG,** thereby rescuing it from a disaster that was (partially) of its own devising."

Poured into AIG? Did AIG ever "own" that money?

Where did that (taxpayer) money go -- to whom, for what; AND why?

Was that money needed for the AIG's subsidiary's obligations crucial to the "Tier Status" of assets at European banks?

Here "exaction" is a polite name for economic cannibalism.

Disclosure: I did not get "burned" because I got out of my position in AIG soon after Greenburg left.

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R Richard Schweitzer
on October 25, 2017 at 14:07:35 pm

Good God, enough!
Some of these comments are asinine, well beneath the intelligence of Hamburger's post and suggest reasons why lawyers have a well-deserved bad reputation.

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timothy l. harker
on October 25, 2017 at 14:16:20 pm

Oh by the way, THE pattern that I detect is one in which nobody provides information that misleads. Yep, Carter was President when 401k provision was included in the tax code. But gee, it seemed to have lost itself for a number of years until 1981 and 1982 when the Reagan Admin formalized rules that made it both open and attractive to the average taxpayer AND employer.

And AIG was an ongoing situation - the initial momnies came during the mis-remembering Bush's terms but the central issue here is what occurred after Bush left office is it not.

How is that for a pattern?

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gabe
on October 25, 2017 at 14:17:57 pm

And if MacGyver pulled off this emergency action, he would have been fined / jailed for practicing engineering without a license.

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gabe
on October 25, 2017 at 14:21:04 pm

Your description of the initial formation of Israel is incredibly inaccurate, to put it as politely as I can. Anyone who bothers to check the facts (and doesn't look through a racial lens) can easily stand behind Israel and against Kelo (in fact, it would be hard to do otherwise, ethically).

The land in question, while privately held, was under British rule. The British formed a new country, to which they gave that land. None of that inherently changed the private ownership of any of the land in question.

In response, several other countries in the invaded the new country, and many of the Arab residents fled (many on the advice of those neighboring countries, who were made of the the exact same people group, Arabs - the people commonly referred to as "Palestinians" are, full name, "Palestinian Arabs", or "Arabs who happen to reside in the region known as Palestine").

I will make no claim that everything after that was handled in a perfectly legal fashion, because full-scale wars generally throw all of that out the window for a time (see... well, almost any war, anywhere, ever). But to simply claim that the land was "stolen" is utterly inaccurate.

In fact, Israel would likely have been better served in the long run if they had simply done what you are suggesting and finished the segregation that the Arabs started. As it is, Israel has a significant minority of Arab citizens (those in the occupied territories are not citizens and would revert to citizenship in whatever country the land was returned to... if any of those neighboring countries would simply recognize Israel - that deal has been offered many times), who have full rights under their law (including property rights). They even have Arabs in their elected legislative body.

Now, you want to see some land and property straight-up stolen involving the dirty Jews? Check what has happened to Jews in almost every other country in the Middle East in the last 50 years. They have been systematically ejected, and in many cases, had their property confiscated, for the crime of being Jewish. But hey, that doesn't fit the narrative, so nobody cares.

For the record, I am not Jewish, nor do I live in Israel (I have never even been there). I am an uninvolved third party, whose interests in any of this are essentially nil (I live in the same world and want stability and justice - that's about as unrelated as it gets) - these facts are all quite easy to find and verify.

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Deoxy
on October 25, 2017 at 14:36:53 pm

Deoxy:

Thank you for that commentary - Spot-on!

And one need not mention the "tender care" and affection offered by the Grand Mufti of Jerusalem prior to and during World War II, who in conjunction with Hitler's SS, had plans to implement the Arab's own version of the Final solution.
Enough of these apologias for those wretched *Palestinians*.

And no, I am not Jewish - BUT were I forty years younger I would enlist in the IDF!

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gabe
on October 25, 2017 at 14:43:17 pm

[Before the government bailout,] the shareholders of AIG never owned the $85 billion that government poured into AIG, thereby rescuing it from a disaster that was (partially) of its own devising.”

Poured into AIG? Did AIG ever “own” that money?

Uh ... I guess.

Now, the feds didn't bail out AIG on a whim; they knew that AIG was sinking in debt. So when they pumped in the money, they knew that it wouldn't just sit in a vault somewhere. AIG would promptly use it to pay off debts.

Where did that (taxpayer) money go — to whom, for what; AND why?

Well, the Why was to keep AIG solvent in order to stem the cascade of financial institutions that was leading the economy into gridlock--you know, that whole To Big To Fail thing.

Different people give different accounts, but here's the end of the story according to Wikipedia:

The U.S. Department of the Treasury in December 2012 published an itemized list of the loans, stock purchases, special purpose vehicles (SPVs) and other investments engaged in with AIG, the amount AIG paid back and the positive return on the loans and investments to the government.[77] Treasury said that it and the Federal Reserve Bank of New York provided a total $182.3 billion to AIG, which paid back a total $205 billion, for a total positive return, or profit, to the government of $22.7 billion. In addition, AIG sold off a number of its own assets to raise money to pay back the government.

On December 14, 2012, the Treasury Department sold the last of its AIG stock in its sixth stock stale for a total of approximately $7.6 billion. In total, the Treasury Department realized a gain of more than $22 billion from the sale of AIG common stock and $0.9 billion from the sale of AIG preferred stock.[78][79]

AIG began an advertising campaign on January 1, 2013, called "Thank You America"....

Ok, according to this, the bailout wasn't $85 billion, but closer to $185 billion; my bad. But hey--what's an extra $100 billion among friends?

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nobody.really
on October 25, 2017 at 14:47:43 pm

[T]he central issue here is what occurred after Bush left office....

Ok--what happened? Citations appreciated.

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nobody.really
on October 25, 2017 at 15:02:03 pm

....unlike the Obamaites.

Obamians? (Akin to Bahamians?)

Or, disparagingly, Obamaniacs?

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nobody.really
on October 25, 2017 at 15:07:53 pm

The government lent money to AIG all of which was repaid with interest. Also the government sold the shares of AIG that it took for somewhere between 20 and 30 billion dollars profit. The bailout of AIG cost the government minus 20 to 30 billion dollars.

The crisis was not caused by AIG but by the government, through three idiotic policies. First was demanding that banks make mortgage loans in poorer areas at the same rate as those in richer ones, with fearsome penalties for not doing so.
In defense someone got the brilliant idea of forming packages of large numbers (1000 or so) mortgages which were balanced exactly as the government required. Then the combined security was divided into tranches, with various interest rates depending on risk. The highest tranche, which big banks bought, were entitled to first call on income from the mortgages' once they were paid, lower tranches, in order were entitled to their shares. Thus defaults hit the lowest tranche first, and then up the line.
The highest tranches as far as I know never defaulted at all, and never lost their intrinsic values.
Banks were still suspicious. However the mortgages were in addition guaranteed by quasi federal agencies, fannie mae and freddy mac. But the banks wanted greater security. AIG was an enormously successful insurance company. The government tried to attack it, and succeeded in ousting the man, Hank Greenberg, who ran it. The people who took his place decided to issue additional insurance for the bank mortgage packages. These were things called swaps, in which banks could swap their package assets for cash.
The government and international government did several other things that caused the panic and crisis of 2008. One was imposing the principle of "mark to market" on banks. This is a bad idea in general since the value of long term loans deteriorates when interest rates rise, so that making such loans when interest rates are low is dangerous for banks when forced to mark them to market. But the government did worse. When the crisis began, the market for AIG's swaps disappeared, and the government therefore marked their value to 0, and took over AIG on the basis of that idiotic evaluation. (On the mark to market principle unless you have an offer for your home or other property, its value is zero.)
The second principle that was insane was imposed by an international banking consortium in Switzerland. It was transparency. This consortium ruled that agencies that rated the value of securities should understand them fully. The rating agencies realized that they had no way to evaluate packages of a thousand mortgages fully. Their ratings ran from AAA to C- or and these ratings had official government status. Those securities rated AAA could be used by banks as part of their reserves.
One day in the Fall of 2008. the rating agencies decided that they could not rate the tranches of these mortgage packages. They removed their previous AAA ratings and rated them as "unrated" which is even worse than C-.
This action was the immediate cause of world wide panic. Many large US banks had insufficient reserves, if their holdings in these previously AAA rated tranches were no longer rated, and were forced to close their doors. The government quickly gave some of these banks to other banks, but allowed one big one, Lehman Brothers, to go bankrupt. The market for tranches disappeared, and banks were forced to mark their value to 0 though they were actually as good as ever and have never since defaulted or caused any trouble, other than this idiotic debacle. Fannie Mae and Freddy Mac, which had been considered government agencies, went bankrupt and their guarantee of mortgages became worthless.
All this caused panic throughout the world. The banks of Iceland, for example, had been in strong financial condition, but they owed money in different currencies than the ones they had assets in. In the panic nobody would accept anything but their own currency. Thus all the Icelandic banks went bankrupt, and since they owned large banks in Britain lots of those were forced to close. And so on.
The crisis lasted until March of 2009 when the government discontinued "mark to market" requirements. which obviously make no sense when there is no market. The economy as gradually improved since then.
The US government took over AIG and lent it the money to make good on the credit default swaps which it had issued. AIG subsequently paid these loans off in full with interest charges which I think were over 10%.
It also took over what I remember as 93% of the company, without the consent of the stockholders. The government came out way ahead by these transactions, once the value of the securities returned to normal.
Of course the government vilified AIG as being the cause of the crisis (not Fannie Mae or Freddie Mac or the rating agencies or the swiss bankers or the US government for not saving the banks from this totally artificial crisis.
The big losers were the AIG stockholders, who lost 99% of their investments. Particularly hard hit were their employees who had gotten stock options over the years. AIG had many successful businesses such as selling insurance to private parties in China. Much of salaries were paid as bonuses. The government vilified AIG for paying bonuses when AIG was the cause of the panic, a slur and a lie.
I notice that some commentors assert the AIG caused the government to lose lots of money. It did not. All the money that was loaned to AIG went to paying off the swaps. All of those loans were paid off with interest. AIG not including the swap insurance was a very large and successful company and the government takeover of that company stock and subsequent sale thereof to its own profit, is a dangerous precedent for government theft of private property..

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Daniel Kleitman
on October 25, 2017 at 15:18:56 pm

http://www.insurancejournal.com/news/national/2012/12/10/273421.htm

This show timeline and it does demonstrate that significant actions WERE taken under the Obama administration - to include another re-structuring and re-capitalization.

https://www.nytimes.com/2014/09/29/opinion/finally-the-truth-about-the-bailout.html

"At the heart of the controversy is the fact that the government has never provided a plausible explanation for why the Federal Reserve Bank of New York, which had enormous leverage over banks like Goldman thanks to its role as their regulator, didn’t lean on them to accept less than 100 cents on the dollar in their payouts from A.I.G.

Former Treasury Secretary Timothy F. Geithner, who orchestrated the bailout from his previous perch as New York Fed president, insists that extracting these “haircuts” would have shattered the market’s confidence and undermined the A.I.G. bailout.

But this explanation is both counterintuitive — the haircuts would have helped save A.I.G. and stabilize the financial system — and ahistoric. The Fed has long used its leverage over banks in similar situations, to great effect. During the Asian financial crisis of the late 1990s, an episode Mr. Geithner observed up close as a senior Treasury official, the New York Fed president, William J. McDonough, leaned on Korea’s creditors to roll over and lengthen their loans and prevent that country’s financial collapse.
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Which leaves only two possible explanations for the overly solicitous treatment of Goldman and the others. The first is that their own financial position was so precarious that accepting anything less than the billions they expected from A.I.G. would have destabilized them, too. Which is to say, it really was a backdoor bailout of the banks — many of which, like Goldman, claimed they didn’t need one. Alternatively, maybe Mr. Geithner simply felt that Goldman and the like had a more legitimate claim to billions of dollars in funds than the taxpayers who were footing the bill."

This may support Richards assertion about Tier assets. AIG asserts that a) it did not need as much as the government insisted it take and b) that paying Goldman 100 cents on the dollar was unprecedented and done ONLY so that goldman could pay off foreign bamks (German / French). Interesting.

But yes, it may have been TOO strong to claim that the *central* issue is what happened after the dolt GW Bush left office.

BTW: I DO NOT have much sympathy for the AIG supporters. I am, as always, hesitant to endorse government bailouts / takeovers of private companies.

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gabe
on October 25, 2017 at 15:28:38 pm

We mustn't overlook that this is also happening under our very noses (and mine, like most of Mediterranean decent, is a very large one), to Christians as well as Jews, across the Middle East and northern Africa, and not only have they been divested of their land, but of their heads. In this respect, perhaps the Palestinian Arab have gotten off easy; their so-called, "Jewish overlords" have not been so barbaric. I cannot say, but certainly nor would I advocate that the Israelis should be.

The larger "sticking point" to re-solving the Israeli-Palestinian issue has been and remains the so-called "right of return" of millions of Palestinian Arabs currently residing elsewhere, most especially in Jordan.

But, this whole line of commentary, though interesting, is not really staying on topic, is it? Dawg Chaser likes to employ a favorite Prog. tactic of changing the subject to divert eyes and minds away from the real issue, because otherwise it might lead to some uncomfortable conclusions to be drawn.

Whether the Executive did or did not error in regards to AIG depends largely on how willing one is to believe its failure would/could cause serious enough damage to the U.S. economy as to represent a serious threat to our national security, thereby leaving the U.S. in such a weaken state as to make it (more) vulnerable from without.

How the SCOTUS views the threat remains to be seen. How the Lower Federal Benches saw it might seem ironic, when juxtapositioned to their view of the so-called, “Travel Ban”, where they seeming do not find they can rely on a so-called, “theory of prudential standing.” But, again, this digresses.

I am cynical by nature, but also by experience, and my gut feeling is the plaintiff in this dispute is waging it because they have an interest much greater and well beyond simply the altruistic desire to see that the Constitution and rule of law is upheld when in fact, they would be just as likely to see it violated if it were to their advantage.

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Paul Binotto
on October 25, 2017 at 16:01:36 pm

"The petition for certiorari is therefore of profound importance. The Supreme Court nowadays often uses certiorari to resolve circuit splits, but certiorari has never lost its role as a mechanism for correcting the refusal of lower courts to do justice. "

lt is amazing how little even law professors know about cert. This case will probably be heard, but it is not cert-worthy. Not within light-years.

At common law, certiorari is a supervisory writ, apprising a superior court of “jurisdictional error, failure to observe some applicable requirement of procedural fairness, fraud and ‘error of law on the face of the record.’” Craig v South Australia (1995) 184 CLR 163, 175 (H.C. Austl.) (citations omitted). At common law, certiorari has pretty much the same effect as a writ of error, demanding supervision: “The underlying policy is that all inferior courts and authorities have only limited jurisdiction or powers and must be kept within their legal bounds. This is the concern of the Crown, for the sake of orderly administration of justice, but it is a private complaint which sets the Crown in motion.” Surya Dev Rai v. Ram Chander Rai, (2003) 6 SCC 675 (India). lt was not intended to remedy mere incorrect decisions (at common law, the appropriate court heard appeals on the merits). lt was only intended to fix self-evident travesties, and this case does not even approach that threshold. Bank and insurance regulators have been doing what the government did to AlG for decades (l've been involved peripherally), and no one has ever gotten all that upset.

ln creating "one supreme Court," the Framers intended to preserve this common law remedy. In one of his lectures on comparative law, Justice James Wilson (drafts of Article lll are preserved in his own hand!) observed that he modeled our Supreme Court after the English court of King’s Bench, which had a duty to "superintend and govern" inferior tribunals, thereby ensuring fealty to the law of the land. In so doing, he explained the problem he intended to address:

"In every judicial department, well arranged and well organized, there should be a regular, progressive, gradation of jurisdiction; and one supreme tribunal should superintend and govern all the others.

An arrangement in this manner is proper for two reasons. 1. The supreme tribunal produces and preserves a uniformity of decision through the whole judicial system. 2. It confines and supports every inferior court within the limits of its just jurisdiction.

If no superintending tribunal of this nature were established, different courts might adopt different and even contradictory rules of decision; and the distractions, springing from these different and contradictory rules, would be without remedy and without end. Opposite determinations of the same question, in different courts, would be equally final and irreversible." [2 Works of James Wilson 149-50 (James D. Andrews ed., 1896)]

To abandon the task of “revision and correction” is quite literally to abandon the role of a supreme court. Either it is the Supreme Court’s “prerogative alone to overrule one of its precedents," State Oil Co. v. Khan, 522 U.S. 1, 20 (1997), or it is not, and if the Supreme Court won’t do error-correction, it isn’t. Furthermore, if the only practical value of the United States Reports is as a bird-cage liner, it literally becomes impossible for anyone to know what the law is. But that is just what our judiciary did.

The right to certiorari review was extinguished in The Judges’ Bill, 43 Stat. 936 (Feb. 13, 1925). Fittingly, it was enacted on Friday the 13th, and it has resulted in a ninety-year run of bad luck for litigants victimized by judicial bias, sloth, and caprice. The practice of discretionary cert has been challenged, but no judge would accept jurisdiction over the matter, Smith v. Thomas, No. 09-cv-1026-JDB (D.D.C. Jan. 21, 2010), aff’d, No. 10-5041 (D.C. Cir. Jul. 1, 2010), and when this official capacity action was appealed to to the Supreme Court, the Justices recused themselves en masse. Order, Smith v. Thomas, No. 10-395, entered Mar. 7, 2011 (mass recusal); cf., Cheney v. United States District Court for the District of Columbia, 541 U.S. 913 (2004) (Scalia, J., memo) (Scalia took a bribe, and still sat).

What American courts call “certiorari” is a conflation of common-law certiorari and discretionary appellate review, and if SCOTUS Rule 14 mattered, this petition wouldn't stand a snowball's chance in Phoenix in July. First, we don't have a circuit split on a question that matters, which is usually a pretty safe ticket to the Promised Land. Second, it isn't a case that is likely to recur. This is not a high-priority case for a court that likes to avoid work.

But then, there is the Roberts Rule. Whenever CJ Roberts hears the word "Exxon-Mobil," he gets a woody even a Long Dong Silver would envy. There are many more deserving cases, but cases involving oligarchs get his interest. Gorsuch will follow suit--he is an elitist who hates hoi polloi--and Thomas and Alito are likely to follow suit. lt shouldn't be heard, but on Animal Farm, some animals are more equal than others.

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Trevor Chase
on October 25, 2017 at 16:11:42 pm

Facts matter, Deoxy. And it is my understanding that yours are materially in error.

First and foremost, under British law, transfer of sovereignty does not effect chain of title. Those who held title issued by the Ottomans retained it as a matter of Commonwealth law.

Second, the Brits promised self-determination to the Palestinians in Transjordan, who outnumbered Jews about 50- 1 at the time of the transfer. Specifically, if a Jewish state was to be created, it would only be so if the people of the region agreed.

Third, the Zionists forced farmers off their land before actual hostilities broke out. Both the Jews and the Nazis thought that they were the Master Race.

Fourth, as a condition of their recognition and admission into the U.N., lsrael promised to make the Arab farmers whole. Not a single shekel has been proffered to date.

Under the facts as l understand them, "lsrael" is Kelo on a national scale.

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Trevor Chase
on October 25, 2017 at 16:52:41 pm

I do, however, predict SCOTUS "will send the case back with instructions to dismiss it as moot, even while Justice Sonia Sotomayor will indicate that she would have left the ruling in place, and she would have dismissed the case as improvidently granted, rather than moot." *

*paraphrasing Amy Howe from here: http://www.scotusblog.com/2017/10/justices-strike-second-travel-ban-case-docket/

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Paul Binotto
on October 25, 2017 at 17:21:22 pm

And let us not forget the efforts of the Arabs themselves to "force" their own people off the land either because they thought this could be used as a propaganda tool and / or because the Arabs were intent on initiating hostilities. In fact, there was a rather sustained effort on the part of the Arab authorities to influence the poor Arab farmers to move off their land. to their eternal dismay, it was a successful effort.
Also, remember that many of the Arab farmers sold their land to the Jews at rather high prices, BTW.

There is, nevertheless, a certain irony in your assertion that equates Israel with the Nazi *beast* as old Winnie would say. Consider the actions of the Grand Mufti of Jerusalem who aligned himself, and the Arabs of the Middle East with one of Himmler's henchmen and IN FACT caused a brigade of Arab SS to be created and deployed as part of the Mufti's plan (along with the SS) of implementing his own persecution of the Jews. But it wasn't only in the Levant - he also had brigades deployed in Serbia, etc - and all reports indicate that they were as vicious as their brethren in Germany.

Try reading Bat Ye'Or or some others for a sense of what the Jews in the Levant had to endure. It is actually quite enlightening.

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gabe
on October 25, 2017 at 18:41:29 pm

No! more like the Hittites - albeit eminently less sensible!

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gabe
on October 25, 2017 at 18:45:11 pm

OMG!

Thank you for that. I had forgotten about "mark to market"

And BTW, let us not forget what the government did to Chrysler shareholders and Gm shareholder / creditors - with a sweetheart deal for the unions - Oh yeah, that's right the unions provided votes - so i guess in their world it was all good!

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gabe
on October 25, 2017 at 18:56:58 pm

Dawg:

Heck of an exposition. Accepting what you say about *cert*, it's history, it's "de-formation" since the 1920's, and all, would you not allow that even if all factors line up as you suppose, that SCOTUS could *properly* accept the case as there may in fact be a legitimate question regarding the government's action. Barnett, quoting Madison, claims that the constraints upon government power are not only to be viewed through a lens of "delegated" powers but also in the means / methods that the government uses to exercise those powers.

Is there not a hint of that in this case?

BTW: Really did like the exposition on cert; but it is unsubstantiated that Gorsuch does not like the hoi-polloi. A bit much.

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gabe
on October 25, 2017 at 20:35:36 pm

You seem to have forgotten the terrorist Menachem Begin and lrgun. The Zionists were plotting to swindle that land since the Balfour Declaration.

My understanding is that the confiscations in the Arab world were in retribution for Zionist purges.

l am familiar enough with the evidence to have an informed decision.

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Trevor Chase
on October 25, 2017 at 21:36:50 pm

Not if you are familiar with Gorsuch's body of work on CA10.

SCOTUS only hears what it wants to hear. The Court favors the obscenely rich, despite oaths to the contrary. lt shouldn't hear this one, but it probably will.

My view is that if you have a right, someone in the government owes you a corresponding duty. A matter of first impression s/b a golden ticket to SCOTUS.

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Trevor Chase
on October 25, 2017 at 21:42:36 pm

Civil forfeiture is one area that deserves examination by the Court.

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Trevor Chase
on October 25, 2017 at 23:57:23 pm

That is just Angus-quality [email protected], Dan! The banks fraudulently passed off high-risk (low-doc, no-doc, and no equity -- a loan that is 75% LTV is as sound in poor neighborhoods as wealthy ones) loans as investment-grade, with the blessing of S&P and Moody's. Most didn't have any loans to speak of on their books. Let us not forget the time when Merrill Lynch owned more oil than Exxon and Shell combined. And how can we forget derivatives? FRAUD was the core problem.

A classic speculative bubble, brought to you by Goldman Sachs and Alan "Bubbles" Greenspan. This was what caused the 1929 crash, as well.

The real culprit was Gramm-Leach-Bliley. Senator Dorgan predicted the melt-down, almost to the month. (Mark-to-market goes back to FAS 115 (1983).) We had reserve requirements and the Chinese wall of Glass-Steagall to keep banks solvent. But when those were knocked down, the casinos were open for business.

Canada didn't melt down because they didn't allow those stupidly reckless practices.

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Trevor Chase
on October 26, 2017 at 00:02:28 am

lceland jailed 29 banksters for fraud. More than Eric Holder and Preet Bharara.

ln America, the corporations own the government. ln lceland, men are still free.

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Trevor Chase
on October 26, 2017 at 08:40:28 am

Fascinating discussions. Interestingly I find myself agreeing with Mr. Chase on this history of Israel but not completely on the reasons and history for the Great Financial Crisis. Perhaps my "Classical Liberal/Libertarian" paradigms color my opinions a bit....Nevertheless, superb article Professor Hamburger. I love your works.

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Bruce Schultz
on October 26, 2017 at 10:22:42 am

"My view is that if you have a right, someone in the government owes you a corresponding duty. A matter of first impression s/b a golden ticket to SCOTUS."

Let me revise that a tad bit:

If you have a right, YOU also have a corresponding obligation to recognize that same (and similar) right(s) in others; the government has a corresponding duty to *secure* your right and that of others.

A slight, but I think, significant difference and one that tends to enhance comity.

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gabe
on October 26, 2017 at 10:42:30 am

Work that rule through the NFL protest. See if it yields the answer you want.

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Trevor Chase
on October 26, 2017 at 16:11:59 pm

"ln lceland, men are still free."

So ARE the women; check out the hot sulfur springs one day! Ha!

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gabe
on October 29, 2017 at 11:28:50 am

While objections to Kelo mistakenly assumed the validity of the Incorporation Doctrine (the dog that didn't bark in your Separation of Church and State, chapter 11), the government behavior at issue in this case seems authentically unconstitutional.

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Kevin Gutzman
on October 31, 2017 at 14:20:59 pm

Senator Lyman Trumbull, chairman of the Senate Judiciary Committee and draftsman of the 14Am, stated that "the great fundamental rights set forth in this bill [are] the right to acquire property, the right to come and go at pleasure, the right to enforce rights in the courts, to make contracts, and to inherit and dispose of property. These are the very rights set forth in this bill." Cong. Globe, 39th Cong., 1st Sess. 475 (1866) (emphasis added). "No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law." 14Am., § 1. lf there is any situation where incorporation would be more likely, it is hard to imagine one. But does it even matter?

"[N]or shall private property be taken for public use, without just compensation." 5Am.

"The property of no person shall be taken for public use, without just compensation therefor." Ct. Const. art. l, § 11.

lf the lncorporation Doctrine doesn't apply, this case doesn't even get to SCOTUS. The State can do whatever it wants, consistent with limitations imposed by its own constitution. But as the standard is identical, the only question was one of which court got the final say.

On the merits, Kelo turns on the question of what constitutes "public use." More specifically, can we take land from a Palestinian farmer and give it to an lsraeli entrepeneur because it is likely to enhance the tax base? According to the Connecticut Supreme Court:

"The trial court concluded that this language did not violate the public use clauses of either the state or the federal constitutions. In so concluding, the trial court relied on decisions from this court and the United States Supreme Court, but especially Hawaii Housing Authority v. Midkiff, 467 U.S. 229, 239-40, 104 S. Ct. 2321, 81 L. Ed. 2d 186 (1984), Berman v. Parker, 348 U.S. 26, 31-32, 75 S. Ct. 98, 99 L. Ed. 27 (1954), Katz v. Brandon, 156 Conn. 521, 532-34, 245 A.2d 579 (1968), Gohld Realty Co. v. Hartford, 141 Conn. 135, 141-43, 104 A.2d 365 (1954), and Olmstead v. Camp, 33 Conn. 532, 546 (1866). After reviewing the authorities, the trial court concluded that both this court and the United States Supreme Court consistently have taken a broad, purposive view of the concept of public use, and accordingly have taken a deferential approach to legislative pronouncements of public use. ...

Moreover, the court in Olmstead laid the foundation for our deferential approach to legislative declarations of public use, stating that "[t]he question is asked with great pertinence and propriety, what then is the limit of the legislative power under the clause which we have been considering, and what is the exact line between public and private uses? Our reply is that which has heretofore been quoted. From the nature of the case there can be no precise line. The power requires a degree of elasticity to be capable of meeting new conditions and improvements and the ever increasing necessities of society. The sole dependence must be on the presumed wisdom of the sovereign authority, supervised, and in cases of gross error or extreme wrong, controlled, by the dispassionate judgment of the courts." Kelo, 268 Conn. 1, __ (Conn. 2004) (unpaginated copy).

While it may offend our mutual sensibilities, it can't honestly be said that the governmental conduct was "authentically unconstitutional." The remedy lies with the legislature, and a few states took corrective action. (Notably, Connecticut did not.)

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Trevor Chase
on November 07, 2017 at 00:21:12 am

[…] who were unsecured creditors. And it was all considered perfectly legal. AIG shareholders are still in court trying to get back what they believe was wrongfully taken from them in the financial […]

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Is Socialism Compatible with the Constitution? - Fairfax Free Citizen
on May 03, 2018 at 07:19:36 am

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