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Legal fees may add insult to injury for taxpayers

November 10, 2008 by  

Another government bail-out?Taxpayers could find themselves footing the bill for much more than just bad mortgage and investment decisions, amid reports that some executives involved in the situation may be entitled to recover millions of dollars in legal costs from the government.

According to the Associated Press, executives at Freddie Mac and Fannie Mae had contract stipulations that would pay their legal bills if needed. The report notes that following the government’s $200 billion bailout of the two mortgage entities, many former executives are now hiring defense lawyers – and could still face shareholder lawsuits.

Meanwhile, the housing crash and mortgage problems did not come as a surprise to everyone. Five years ago, Congressman and former presidential candidate Ron Paul introduced legislation to remove government subsidies from the two entities, warning of a situation similar to what is happening today.

"Ironically, by transferring the risk of a widespread mortgage default, the government increases the likelihood of a painful crash in the housing market," said Paul in September of 2003 as he introduced his Free Housing Market Enhancement Act.

He added that "the special privileges granted to Fannie and Freddie" and "distorted the housing market by allowing them to attract capital they could not attract under pure market conditions."
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