Taxpayer Dollars Spent Defending Fannie and Freddie From Taxpayer Suits

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American taxpayers have spent $132 million on legal bills to defend the former executives of Fannie Mae and Freddie Mac since the government took them over in the wake of the subprime crisis. The cost--mostly financing a defense against many government investigations and securities lawsuits--was a well-kept secret until Rep. Randy Neugebauer, a Texas Republican, requested the numbers from the Federal Housing Finance Industry, The New York Times' Gretchen Morgenson reports.

Fannie and Freddie have cost the government plenty on losses on bad loans since the takeover in 2008. But the roughly $160 million total defending the companies from civil lawsuits is a different matter. Corporations typically cover such legal bills for their executives, unless they're found to have done something wrong, Morgenson writes. Since the government owns Fannie and Freddie, we have to pay those bills. Naturally, people aren't pleased to find this out.

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. ... 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. ... Something else we probably could have predicted: bailouts are very messy. If a firm needs a massive bailout, chances are pretty good that some shenanigans took place somewhere along the way that led to its collapse. If the government takes it over and becomes responsible for its legal fees, then it shouldn't be too surprised when the bills start stacking up. That will leave taxpayers will be on the hook for those legal expenses. ... If you consider the bailout's still growing $150 billion cost to taxpayers thus far, then these legal bills amount to one-tenth of one-percent, or 0.1%, of the total.
  • This Raises a Lot of Questions  "Who decided this was ok?" Fox News Greta Van Susteren writes. "And all these politicians run on the theme they want to stop fraud and waste and yet this stuff ... goes on and on and on. Second, how can a law firm run up these bills?  These are giant bills!  Who is policing the law firms? Who is checking their bills? Did anyone shop the matter to a law firm willing to charge less? Is anyone looking at these legal bills before paying them? Third, civil lawsuits accusing them of fraud? What about criminal fraud?  Are they at least looking to see if there was criminal activity?"
  • Nothing But the Best  "These are some pretty hefty attorney fees," Steve Gilbert notes at Sweetness & Light. "But nothing is too good for our bureaucratic masters. ... If they could not afford these lawyers, perhaps they should have gotten less costly ones. Or public defenders."
  • Really Bad PR, NPR's Frank James writes. "This new information will likely only serve as new fuel for a long and fiery antipathy towards the companies in GOP circles. ... That we're learning that taxpayers have paid the legal bills of ex-officials who were accused of overseeing, among other things, questionable accounting at the GSEs, is, if nothing else, a public relations disaster for Fannie and Freddie."
  • Moral Hazard, Chip Hanlon writes at Green Faucet. "In other words: in the public/private bizarro world of the GSE's the profits were private, the legal bills public..."

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