Legal Commentary

David Zaring, the legal blogosphere's expert on the Fed, has been all over the developments in the financial markets of the last few days.  His latest post on the AIG bailout/takeover/bridge loan is a must read.  In questioning the legality of the discount-window-loan-for-equity deal, he writes:

There's really no statutory authority for the AIG takeover (the Fed and Paulson went to the Hill, and got nothing, not that they possibly could have in a couple of Tuesday evening hours).  I won't bother noting that the DC Circuit, were it to sit in judgment on whether the Fed could buy the world's largest insurer, would undoubtedly conclude that the plain language of its governing statute (which is to make emergency loans, not require takeovers in exchange) would not permit the takeover under Chevron USA v. NRDC.

So is there any legal rationale for the Fed's actions?  Well, he tries: "emergencies are emergencies, and when that happens the rules go out the window, and hopefully regular elections mean that the officials the people trust are dealing with the emergency.  Abraham Lincoln adopted that reasoning, and he won the Civil War. "  Umm, so we're saying that the Fed's bailout is the equivalent of the suspension of habeas corpus?

Meanwhile, on CNBC John Snow is comparing the U.S. economy to New England quarterback Tom Brady.  He also says "we" were "too loose" with lending, saying "We forgot to ask the fundamental question: How will we get repaid?"  Indeed.  Let's hope the Fed didn't forget to ask that question.