DARN RIGHT IT WAS A “TAKING”: A federal judge has ruled that the federal government’s forcible multi-billion dollar bailout of insurance giant AIG constituted a “taking” of private property without just compensation to its shareholders, in violation of the Fifth Amendment. The bailout required AIG to turn over 80 percent of its stock to the US Treasury. After an 8-week bench trial, Judge Thomas Wheeler of the U.S. Court of Federal Claims concluded:

[T]he Federal Reserve Bank of New York had the authority to serve as a lender of last resort under Section 13(3) of the Federal Reserve Act in a time of “unusual and exigent circumstances,” 12 U.S.C. § 343 (2006), and to establish an interest rate “fixed with a view of accommodating commerce and business,” 12 U.S.C. § 357. However, Section 13(3) did not authorize the Federal Reserve Bank to acquire a borrower’s equity as consideration for the loan. . . .

[T]here is nothing in the Federal Reserve Act or in any other federal statute that would permit a Federal Reserve Bank to take over a private corporation and run its business as if the Government were the owner. Yet, that is precisely what FRBNY did. It is one thing for FRBNY to have made an $85 billion loan to AIG at exorbitant interest rates under Section 13(3), but it is quite another to direct the replacement of AIG’s Chief Executive Officer, and to take control of AIG’s business operations. A Federal Reserve Bank has no right to control and run a company to whom it has made a sizable loan.

Despite agreeing with the takings claim, Judge Wheeler denied the plaintiffs’ request for $40 billion in damages, concluding that “if not for the Government’s intervention, AIG would have filed for bankruptcy. In a bankruptcy proceeding, AIG’s shareholders would most likely have lost 100 percent of their stock value.” The lead plaintiff, former AIG CEO Maurice Greenberg, has stated he will appeal the denial of damages.

RELATED: Seth Lipsky cogently argues that the decision illustrates the need for Congress to enact tougher restrictions on the Federal Reserve:

[T]he Fed handed over to the Treasury $22.7 billion in profit it made selling the equity it illegally seized in an AIG that supposedly was without value. That’s quite an incentive for the government to break the law.

All the more reason for Congress to address the larger questions raised by this astonishing case. Who watches the watchman? If ever a case put that question into sharp relief, this is it. And who better to answer than the Congress that created the Fed and has the formal oversight of the nation’s central bank?

It’s not as if the press has been on the job. It spent this trial down at the local bar having a drink with Marx and Engels—and laughing at the Bill of Rights. At the center of this case is a violation of the Fifth Amendment, the Constitution’s bedrock protection for private-property rights. It requires due process and just compensation before property can be taken for public use.

This seemed almost to offend the press. One dispatch in the Times called the case “ludicrous,” another “asinine.” The New Republic called it “mostly insane,” the New Yorker “absurdist comedy.” A headline in The Week called it “comically despicable.” A Bloomberg piece likened it to the slapstick courtroom classic “My Cousin Vinny.”

It strikes me that even the richest of Americans deserve more than such cynicism. How could the governors of our central bank, all of whom are bound by oath to support the Constitution, be so oblivious—or even hostile—to the parchment’s central protection of the property right?

Answer: because it was convenient for them to do so. As for Lipsky’s lamentations about the media’s cheerleading over the bailout’s terms. the mainstream media knows so pitifully little about the Constitution that they would cheer the forced quartering of troops in private homes next week if they thought it served some liberal/progressive cause.