Fannie Mae-No Politics (FNMA)

[Dallas66]

This is very telling

A fundamental question at the heart of the case — whether the government had the power to demand stock as a condition of the loan — was largely covered in the trial’s first two weeks, during testimony by the top lawyers for the Fed and the New York Fed, and by Paulson, Geithner and Bernanke.

In a preliminary ruling in the case in 2012, Wheeler wrote that he didn’t accept the government’s position that the Fed’s emergency powers allowed it to demand stock from a company.

Under questioning by a government lawyer, Scott Alvarez, the general counsel for the Fed testified that he concluded the board of governors could empower a reserve bank “to extend credit and in giving that authorization can set whatever limits and restrictions and rules the Federal Reserve Board believes is appropriate,” including demanding equity.

The emergency powers clause at issue doesn’t specifically mention equity, only that that Fed can set an interest rate for emergency lending.

According to a Starr filing yesterday, the documents Wheeler ordered the government to turn over include correspondence showing that regulators doubted their authority to demand stock as part of the loan deal,
“The government is on thin ice and they know it,” a Davis Polk lawyer wrote to colleagues. “But who is going to challenge them on this ground?”