Gretchen Morgenson is shocked, shocked to report that $132 million in “taxpayer money” has been spent on the defense of three former Fannie Mae executives in myriad lawsuits. A stark paragraph in her piece (reeking of editorial insertion) reminds readers that such indemnification of legal expenses is perfectly — if regrettably — normal. It is perhaps too much to expect of a civil servant functioning as an “acting director” to ask Edward DeMarco to rock the bloat.  

Richard S. Carnell, an associate professor at Fordham University Law School who was an assistant secretary of the Treasury for financial institutions during the 1990s, questions why Mr. Raines, Mr. Howard and others, given their conduct detailed in the Housing Enterprise Oversight report, are being held harmless by the government and receiving payment of legal bills as a result.

“Their duty of loyalty required them to put shareholders’ interests ahead of their own personal interests,” Mr. Carnell said. “Had they cared about the shareholders, they would not have staked Fannie’s reputation on dubious accounting. They defied their duty of loyalty and served themselves. At a moral level, they don’t deserve indemnification, much less payment of such princely sums.”

Asked why it has not cut off funding for these mounting legal bills, Edward J. DeMarco, the acting director of the Federal Housing Finance Agency, said: “I understand the frustration regarding the advancement of certain legal fees associated with ongoing litigation involving Fannie Mae and certain former employees. It is my responsibility to follow applicable federal and state law. Consequently, on the advice of counsel, I have concluded that the advancement of such fees is in the best interest of the conservatorship.”

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This entry was posted on Monday, January 24th, 2011 at 10:30 am.