Courts Could Derail Fannie and Freddie Bailout Plan

9-10-08 5:00am PST –

Lehman Losses Double Expectations – No Deal in Sight

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Latest News Link:  Lawsuit Filed to Block Fannie Freddie Bailout

According to legal analysis by Constitutional Law expert Judge Andrew Napolitano of Faux News, the Courts could end the Fannie and Freddie Bailout “…with the stroke of a pen.”

Napolitano argues that the special status of the GSE’s as a quasi-government agency has no bearing on the legality of what amounts to the United States Government’s illegal seizure of private property.

Each share of Fannie and Freddie amounts to a vote in the GSE’s governance.  These votes have been effectively seized illegally in violation of both the Fourth Amendment and the Fourteenth Amendment to the Constitution of the United States of America.

In a case of Illegal Seizure of property by the Government, it would be highly likely that the Courts would order that the Government to compensate those damaged by the seizure with the fair market value of the seized property.

This would put a big damper in the Government’s Plan to screw the stockholders while they Bailout Their Chinese Overlords – remember, we have to keep these guys happy so they will keep lending us money to keep the Government Open and functioning –  as well as rescuing the soon to be Fondooed Regional Banks.

My Take:  It’s nice that the Markets are on Fire with news of the Government’s Takeover of the GSE’s, but that does not mean the end to the troubles that the failed giants will cause already tenuous markets.

The courts will not just decide to intercede – the Judicial Branch does not work that way – they only react after there is a case and set of facts to examine in the context of Constitutional, Common and Case Law. 

First, the Government has to fully implement their Seizure and Bailout Scheme.  Then someone will have to file a lawsuit.  at that point the courts could intervene. 

Realistically – unless a private party aggressively pursues a case against the Government seeking an immediate injunction, nothing may happen for months while the logistics of such a case are examined and a legal strategy conceived.

When a case does come down the pike, it could literally seize world markets, and place the future of the GSE’s in a legal limbo for an indefinite period of time.  Markets hate uncertainty – uncertainty is a major risk factor.  Watch for that uncertainty drive markets down once this threat to the Bailout is recognized market-wide.

This is only the first instance where the GSE’s will have a triple-digit effect on the Markets – and I am sure they won’t all be gains.

Like on a roller coaster, we are still making that initial assent – maybe nearing the peak.

Hold on tight for the ride of your life, folks.

 (Don’t fall prey to those who call bottom – they want you to throw your money away).