In Defense of Madness

Remember when YOU saved Fannie Mae and Freddie Mac? Well, apparently your generosity knows no bounds.

In response to taxpayer demands, the Justice Department is currently investigating whether there was any wrong doing leading up to the collapse of the mortgage industry. And naturally, executives at companies like Fannie Mae and Freddie Mac are scrambling to cover their asses hire defense counsel to protect them from potential criminal charges. So that’s their problem, right? Not exactly. Fannie Mae and Freddie Mac had promised to cover legal bills for those executives – and since the feds now “own” Fannie Mae and Freddie Mac, taxpayers may be on the hook for those defense bills. Only those who are convicted of wrongdoing are required to give the money back, assuming of course, that they have it to give back.

And it gets even worse. The contracts also require Fannie Mae and Freddie Mac to pay legal fees for executives who are the target of shareholder lawsuits. If shareholders are successful in proving that the executives acted improperly, the federal government could be on the hook for the pay-off. And who do you think will pony up for those settlements? Oh yeah. Taxpayers.

How bad could it get? Remember that Fannie Mac and Freddie Mac own or guarantee nearly half of all of the mortgages in the US. It could be HUGE. The companies have promised to pay legal fees for all current and former board members, executives and employees charged or investigated as a result of the Justice Department review.

Neither company has revealed whether it has already paid out fees on behalf of former executives since the takeover. But if 2005 is any indication, the fees could be steep. In mid-2005, Freddie Mac alone had paid $16.8 million in legal fees after it restated its 2003 earnings.

So the bailout just got a little bigger. Crazy, huh?

Comments

  1. Charles Thomas

    As a former public defender, I used to be paid by the government to thwart and obfuscate the government, but this is ridiculous. Congress could legislatively bar the indemnity clause in the executives contracts, but that would a require a certain level of give-a-damn that lame duck sessions are famously lacking.

  2. chris

    Typical big government. They create these quasi-private corporations, lump all all the risk on the public sector, and politicians use it as a tool to set up buddies with ridiculous salaries and let them get away with accounting murder at the same time they are attacking wall street for the same crap. Is there any wonder why Wall Street has so many troubles? Seems like they just followed Uncle Sam’s example.

    Honest politicians have been railing against these pseudo corporations for years but nothing ever comes of it because the ones assuming the risk(taxpayers) don’t even know or understand the whole scheme.

    These entities have been a plaything and a bank account for democrats for years. A bunch of Bill Clinton people were set up there and and pilfered millions through “creative” accounting and Obama’s new chief of staff worked for Freddie. Prominent Democrat backers have also been convicted for abuses. It has been a social engineering and affirmative action test bed for years and now that the scandals have destroyed our housing prices and crushed the artificial bubble that all the easy money created, we somehow find a way to blame our economic woes on everybody but those that are truly responsible, like Barney Frank, Bill Clinton, and Franklin Raines, and the democrats who received enormous amounts of campaign contributions to keep the gravy train rolling like Chris Dodd, Barrack Obama, and all their Cronies who have enriched themselves at our expense, from their Freddie and Fannie buddies. (if you don’t believe me just google search it)

    We can all look forward to continued bailouts and continued corruption now that Freddie and Fannie’s favorite son is our president. No expense will be spared to save this Democrat cash cow.

  3. Suz

    As a non-lawyerly person…all I want to say is ‘NOT FAIR!’. Haven’t we given enough already?

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