In an astonishing breakthrough in Constitutional jurisprudence, U.S. District Judge Royce Lambeth yesterday discovered that, if Congress uses either of two magic words "receivership" or "Conservatorship", it can authorize the U.S. Treasury to take over any company in America and extract all of its profits, past, present or future. without having to compensate the owners for a "taking" under the Fifth Amendment to the Constitution.
Dismissing a lawsuit by several investors who held stock in Fannie Mae and/or Freddie Mac that was outstanding in July, 2008 when Congress passed the statute under which the Federal Housing Finance Authority launched its conservatorship of the GSEs in September 2008, Lambeth first construed the statute to bar all judicial review of actions taken by FHFA during the conservatorship.
Those actions included FHFA entering into an agreement, years after the terms of the U.S. Treasury's financing support had first been agreed, to transfer all of the GSE's net worth in perpetuity into the U.S. Treasury's coffers. The Judge further held that the impact of that depletion on the liquidation preference attendant upon the preferred shares held by plaintiffs was not "ripe" for judicial intervention, diplomatically side-stepping the question as to when something occurring in perpetuity would become ripe for review.