As if it is not bad enough that taxpayer money (in the amount of more than $100 million) is being used to defend Fannie Mae executives accused of accounting fraud, taxpayers stand to be on the hook for the damages if those executives are convicted[1]. Investors who are suing government-controlled Fannie Mae for the losses that they sustained due to “alleged corporate mismanagement [and] shareholder feuds” are demanding billions in compensation. If Fannie Mae loses, the government has to pay up – and that means the taxpayers have to pay up as well.
Randy Neugebauer (R-TX), calls the situation a catch-22, pointing out that either way, taxpayers are going to suffer and the investors, as taxpayers, have suffered and will continue to do so both as investors and taxpayers. “The only people benefitting on this are lawyers,” he said. On the other hand, “30 million specific individuals…were wronged” according to lead plaintiff Ohio attorney general Mike DeWine, who believes that some type of compensation is mandatory from Fannie Mae regardless of extenuating circumstances.
Fannie Mae is required to pay defense costs due to legal indemnification agreements with former executives. The government agreed to take over these agreements when it placed the GSE in conservatorship. Neugebauer insists that the federal government did not have to take over these agreements and could have refused to do so at the time of entrance into conservatorship[2]. Other officials disagree, saying that not only would overturning the contracts have been “inappropriate and possibly unconstitutional,” but that it would have made it difficult to attract other skilled professionals to the company.
The entire issue is becoming more convoluted as the federal government makes clear its intentions to attempt to unwind or otherwise diminish both Fannie Mae and Freddie Mac in the coming years. Do you think that it is reasonable to demand the investors take the loss because the government took over Fannie Mae? Where is the compensation for those investors to come from?
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[1] http://www.washingtonpost.com/wp-dyn/content/article/2011/03/08/AR2011030805698.html
[2] http://dealbook.nytimes.com/2011/02/16/legal-fees-at-fannie-are-called-avoidable/
And the typical waste and stupidity goes on and on at the taxpayers expense. It seems no one is held responsible in Government jobs.
WE THE PEOPLE HAVE BEEN TAKING IT RAW FOR YEARS BY THE GSE’S. THE IDEA THAT THEY WERE TOO BIG TO FAIL…WAS AGAINST THE PRECEPTS OF CAPITALISM’S TRUE NATURE. LOOK AT WALL STREET, EVERYDAY THERE ARE LOSERS AND WINNERS….THAT’S THE NAME OF THE GAME. FANNIE,FREDDIE AND ALL GSE’S SHOULD BE DIVIDED UP AND USED TO TAKE CARE OF THE TAX PAYERS WHO DID NOT CHOOSE TO INVEST IN THESE MONSTER ENTITIES, LIKE THE INVESTORS DID. THE INVESTORS ARE USED TO TAKING RISKS AND ACTUALLY CHOSE TO. THE TAX PAYER HAD NO CHOICE IN THE MATTER. THE IDEA THAT BETTING ON A TAX PAYER BACKED VENTURE AS A SURE THING, SHOULD BE A THING OF THE PAST. FINALLY TAX PAYER SHOULD NOT PAY MILLIONS TO DEFEND THE EXECUTIVES AND ASSOCIATES WHO DID WHAT THE SOVIET UNION DIOD NOT DO….BRING OUR COUNTRY TO ITS KNEES.