No longer exactly news but still noteworthy and worth noodling over: on November 19, U.S. District Judge Paul A. Engelmeyer (Southern District, NY) dismissed Starr International’s lawsuit against the Federal Reserve Bank of New York (“FRBNY”), arising over the 2008 bailout of AIG. The ruling is right, but it raises very troublesome questions about both the financial system and the rule of law.
Recall the 2008 rescue: in the wake of Lehmann’s collapse, the FRBNY lent AIG close to $182 billion (in several tranches), on draconian conditions. In the course of the operation, Starr’s lawsuit alleges, the FRBNY repeatedly violated fiduciary duties owed to AIG shareholders (prominently including Starr) under the law of Delaware, where AIG is incorporated. Judge Englemeyer’s 89-page opinion dismisses these allegations in terms that are gently described as firm and conclusive.