Unlike the case with Bush and Iraq, however, the courts would get involved in government seizure of a non-bank. (Youngstown v. Sawyer, 1952.) An independent judiciary serves as a genuine check on executive overreach in domestic economic matters.

Ezra Klein got the Admin line over the weekend - here is the scenario that worries them if an investment bank chose to live free or die hard:

""Many of the critics," one official sighed to me, "are underestimating the difficulty of their counterfactuals." Ben Bernanke does not appear to think the administration has the legal authority to forcibly take investment banks into receivership. What happens if a legal challenge disrupts the process?

Virtually no one thinks that Congress is willing to quickly offer either the legislation authorizing such an action nor the massive upfront money that receivership would require. Will Ben nelson and George Voinovich vote to take control of the banks? And what happens to the market while Congress is debating? And to Congress if the market dives? "

LINK: http://www.prospect.org/csnc/blogs/ezraklein_archive?month=03&year=2009&base_name=its_the_pricing_stupid_1

First, does the FDIC have the legal authority to take over a big bank or not? I could be mistaken, but I'm under the impression they do--no additional Congressional authority required. Please correct me if I'm wrong (somebody addressed this for me yesterday, but not to my satisfaction).

With regard to giving Treasury the authority to initiate seizure of non-bank financial institutions, I'm for it for the same reason that most of us continue to support allowing the FDIC to take seize banks when necessary--to protect depositors and the rest of us. I trust that they would only use such authority as needed (subject to legislated criteria), just as the FDIC only uses their authority when necessary.

Again, the word "nationalization" doesn't fit here, and Robert Waldmann should stop using it.

The law of unintended consequences strikes again...I bet Gramm et al didn't consider this situation when they repealled Glass-Steagal back in 1999, eh?

Let them eat stock certificates...

- PonB

Go with the populism if it sounds relatively harmless. Because sooner or later the Repubs will figure out that they have populist platforms they can bring forth to, and those won't be harmless in the least.

I'm with phaedrusonbass here: When Phil Gramm succeeded in breaking down the walls between banks and other sorts of financial companies, FDIC-like power over them should have been established at the same time. The Obama administration's desire for the power to take over non-bank financial companies is appropriate (and overdue).

Why seize them? Let them go bankrupt. The courts will sort it out. This is a bullshit red herring.

CJ: The FDIC has authority only over commercial banks - banks that receive deposits from & offer loans to individuals & businesses. Before Glass=Steagell was ended in the 90s, these banks could not be involved in any other kinds of financial transactions. All FDIC funding comes exclusively from fees assessed against these commercial banks.

After Glass-Steagall was ended, many of the largest banks immediately became involved in stocks & derivatives trading. Thus Citigroup ended up the owners of the 4 Citibanks + added a securities division. If one of the commercial bank divisions became insolvent, FDIC could take that division into receivership, but not the other divisions. In this case, the holding company, Citigroup, is in trouble even though each of the commercial divisions are each healthy.

Remember the takeover of Washington Mutual? In that case, the FDIC found the bank itself to be insolvent & took it over, while leaving WaMu's holding company intact. Even though the FDIC decision on its face appears legal, WaMu's holding company brought suit against FDIC for illegally handling the takeover. This is exactly the type of situation Obama is trying to avoid by getting Congressional authority to take over other financial institutions which are not commercial banks.