The consequences of Fannie Mae and Freddie Mac's bailout continue to get uglier and uglier. We already know taxpayers will be on the hook for at least $150 billion of losses that the mortgage companies have incurred. Now we learn of another messy outcome: Americans are also on the hook for Fannie and Freddie's still growing legal bills. And their cost is already in the hundreds of millions of dollars. The natural reaction to this is outrage, but how angry should we be?
Gretchen Morgenson of the New York Times provides the numbers. She says taxpayers are on the hook for around $160 million in legal bills so far. A large portion of this total went to pay for litigation surrounding accounting manipulation by Fannie Mae prior to the mortgage crisis taking hold. Millions of dollars have also been spent since, as suits continue to be brought against the companies.
Why Bailouts Are Bad
The first sort of glaringly obvious lesson here is that bailouts are bad. When the government took over Fannie and Freddie it agreed to also cover all of its legal expenses. That created a very strange circumstance in some cases. For example, some of the lawsuits regarding the accounting manipulation were brought by government oversight offices. So that means the government is paying for both sides of the litigation now, since it's covering the defendants' bills and obviously its own.