Legal News

Did the Federal Reserve Follow Federal Law?

By Ashby Jones

Over at Legal Blog Watch, Carolyn Elefant has provided a valuable service — a roundup of the blawgosphere’s take on whether the Federal Reserve’s takeover of AIG was, in fact, sanctioned by law.

The experts are torn, it seems. Writing at Balkinization, Georgetown prof Marty Lederman finds authority in the Federal Reserve Act of 1932, section 13(3) which provides that “in unusual and exigent circumstances” the Fed may authorize any federal reserve bank to discount notes without limit. But Washington & Lee’s David Zaring seems to think otherwise. He writes on the Conglomerate blog that “there’s really no statutory authority for the AIG takeover.”

But does it matter? Maybe not. Zarig writes that while courts have not definitively held that the Fed’s actions are unreviewable, they’ve voiced hesitation at getting involved. He cites a 1978 case in which the 2nd Circuit held:

“Absent clear evidence of grossly arbitrary or capricious action on the part of [the Fed or the Treasury Department] … it is not for the courts to say whether or not the actions taken were justified in the public interest, particularly where it vitally concerned the operation and stability of the nation’s banking system.”

Photo: AP

Full post as published by Law Blog - WSJ.com on September 18, 2008 (boomark / email).