It’s common for companies to indemnify their officers and directors against lawsuits. But what happens when the company gets taken over by the government? Oh, you know….
Since the government took over Fannie Mae and Freddie Mac, taxpayers have spent more than $160 million defending the mortgage finance companies and their former top executives in civil lawsuits accusing them of fraud. The cost was a closely guarded secret until last week, when the companies and their regulator produced an accounting at the request of Congress.
This would be amusing if it wasn’t so outrageous. Remember, most of these allegations date back to the early part of the decade, when Fannie and Freddie got caught cooking the books. That in turn led to a lot of litigation, much of it aimed at the officers and directors.
Of course when the government took over the companies, having utterly failed to address the problem back in the early part of the decade, they got the continuing bills as well.
Or rather, we did.
“One of the things I feel very strongly about is we need to be doing everything we can to minimize any further exposure to the taxpayers associated with these companies,” Mr. Neugebauer said in an interview last week.
How are you going to do that, other than cutting off these firms from the public teat?
Yes, that’s what you should do – even though doing so would potentially expose the holders of their MBS to losses. That, too, we should do – after all, the black-letter of their prospectus’ have said since the beginning that there was NO government guarantee.
Got Political Will?
