Steven Lubben reviews the lawsuit by Fannie and Freddie shareholders against the government for bailing out the firm in a way that killed the value of their investment (true, it certainly did that). Once again, you can see how the Takings Clause is basically the only way that the government's financial crisis actions are being reviewed by the courts. And, by the way, these sorts of claims have been brought in the past by bank shareholders against European governments that bailed out banks and zeroed out shareholders - you can imagine the case to be made by someone just pointing at the breakup value of those branches, ATMs and so on as a better deal for shareholders than a bailout.
In the US, however, Lubben identifies a potential problem:
The conservator process was enacted as part of the Housing and Economic Recovery Act of 2008. That law does not indicate which power Congress was using when it enacted the act. Arguably, the conservatorship provisions might be deemed an exercise of power under the Bankruptcy Clause, which gives Congress the power to enact bankruptcy laws.
While the Supreme Court has held that laws enacted under the Bankruptcy Clauseare subject to the limits of the Fifth Amendment, it has done so only in cases involving secured creditors. Our plaintiffs here are not even unsecured creditors; they are shareholders, meaning that they are at the bottom of the capital structure in the event of a bankruptcy.
Therefore, it’s not even clear that the plaintiffs have an interest in “property” that is protected by the takings clause of the Fifth Amendment. That would seem to be kind of important if one is bringing a takings claim.
It will be interesting to see how the Court of Claims rules on this - it has let takings claims by AIG shareholders and GM auto franchisees go forward.
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