Former fed Chief Ben S. Bernanke, finally took the stand in the ongoing controversial AIG trial (see our earlier posts), but this long-anticipated event turned out to be anticlimactic. Bernanke said he couldn’t remember whether “specific details, such as various fees to AIG, were discussed before central bank officials voted.” Associated Press, Bernanke Defends AIG Bailout in Court, L.A. Times, Oct. 10, 2014, at p. B3. Of course, the amount of those “fees” — whether they were excessive or not; whether the government had the power to impose them — is a factor that lies at the heart of this controversy. And given that Bernanke was “one of the key decision makers on the bailout,” his lack of recollection of these matters does not speak well of his attention to details where, as we know, the devil dwells. Given the controversial nature of this monumental bailout, one finds it hard not to conclude that Bernanke did not make much of a perceptive, or credible, witness.
Then there was the matter of necessity, and here Bernanke, reflecting the feds’ general legal strategy, stressed the great need for federal action to prevent “basically the end” of the financial system. But what he and the feds don’t seem to understand is that great necessity may justify the use of eminent domain, but it does not justify an uncompensated seizure of AIG’s stock and the imposition of excessive interest on AIG.
Necessity goes to justification for a taking. It does not justify omitting payment of just compensation when the taking does occur. In other words, great necessity may have justified the feds’ seizure of that 80% of AIG’s stock, and their subsequent exercise of AIG corporate powers to give the big banks whose junk bonds had been insured against default by AIG, an unwarranted break. In other words, Uncle Sam was free to give away his own money, not AIG’s. The deal struck by the feds after they seized that stock allowed the insured banks to get off scot-free with their alleged misrepresentation of the quality of those bonds, at AIG’s expense. To say it again, it did not justify a seizure of AIG’s voting stock without compensation. As the US Supreme Court explained in 1906 in the Strickley case, dire necessity justifies the use of eminent domain in cases “where the very foundations of public welfare could not be laid” without it; 200 U.S. at 531. In other words, dire necessity may justify a taking, but it does not dispense with constitutional imperative of the government having to pay just compensation for what it takes. As President Harry S Truman found out the hard way in the Youngstown Sheet & Tube case, seizure of private property — even under prod of dire wartime necessity — is not allowed without the exercise of eminent domain and the payment of just compensation because neither the Constitution nor statutes allow it. Here, to make matters worse, there was no statute purporting to authorize the seizure of AIG’s stock.
Moreover, as the Supreme Court explained in the Pewee Coal case, when the government uses its power of eminent domain to seize and operate a private enterprise, it becomes liable for any losses that the seized company incurs while being operated by Uncle Sam. Of course, here there were no losses in the long run, but that goes to the issue of compensation, not to the issue of whether a taking occurred — i.e., whether Uncle Sam had the right to do what it did. There are eminent domain cases in which due to unique facts, the property owner receives no compensation. But that does not make them any less eminent domain cases.