While they haven't said that Fed decisions are unreviewable as a matter of law, courts have steered clear of reviewing both monetary policy decisions and bailouts very substantively. Augustus Hand concluded that he couldn't guess at what might be wrong with a legally constituted bank making loans to other banks and setting interest rates for those loans in Raichle v. Federal Reserve Bank, 34 F.2d 910 (2d Cir. 1929). And after the Franklin National Bank failed, and was bailed out by the Fed, the Second Circuit concluded that
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.
Huntington Towers, Ltd. v. Franklin National Bank, 559 F.2d 863, 868 (2d Cir. 1978).
Authority that old always makes me nervous though, so there may be a more recent case out there that takes a different perspective. After the jump, a not very on point reference to the Fed's already extant conservatorship powers - the Fed can order banks into receivership (not insurance companies, though), but Congress gave the administration responsibilities to the FDIC. And if you think that Treasury might be good at running an insurance company, here's a paper on what has happened when it takes on broad new responsibilities.
A tiny bit more on Fed receivership practice: the Federal Reserve Act section 11 envisions the Fed calling for a receivership - but that's for federal insured banks:
The Board may appoint the Federal Deposit Insurance Corporation as conservator or receiver for a State member bank under section 11(c)(9) of the Federal Deposit Insurance Act.
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1. Posted by Jonathan Silverman on September 17, 2008 @ 10:22 | Permalink
I could be mistaken, but believe that the FRB (a) has sovereign immunity and (b) is not subject to the waiver sovereign immunity effected by the Federal Tort Claims Act. If so, discussions about theories under which one could sue the Fed are moot.
2. Posted by Jonathan Silverman on September 17, 2008 @ 10:31 | Permalink
On further reflection, it's likely that the NY Fed, and not the FRB consummated this transaction. In which case there may not be sovereign immunity.
Next issue, though, is who would have standing to sue.
3. Posted by fedgovernor on September 17, 2008 @ 11:45 | Permalink
Jonathan has hit the point.
Nobody can sue, because there are only two parties to this transaction:
a) The Fed, a private banking company
b) AIG, a private insurance company
The owners of AIG (its shareholders) have authorized its sale (through their representatives ... the board of directors) to the Federal Reserve, a private bank.
Why would anyone sue?
4. Posted by David Zaring on September 17, 2008 @ 11:48 | Permalink
Don't think the Fed has sovereign immunity in all actions. And standing is always tricky, but there only has to be one aggrieved AIG shareholder. Heck, someone could take a run at competitor standing.