By Kevin Meyer
As if we needed another reason why the government should stick to the very limited activities defined in the constitution while leaving everything else to the free market, here's another head-banger for you: we're suing ourselves. Really.
Of all the absurdities to emerge from the government’s never-ending bailout of the U.S. financial system, here’s a new one that’s hard to top: The government, through Freddie Mac, in effect is now suing itself. Never let it be said that Bailout Nation doesn’t have a sense of humor. It would be only a slight hyperbole to say this may be the stupidest lawsuit ever.
So how did we get in such a ridiculous pickle?
In July the Internal Revenue Service told Freddie Mac, the congressionally chartered housing financier, that it owed $3 billion of back taxes and penalties for the years 1998 through 2005. Rather than pay up, the McLean, Virginia-based company sued the IRS on Oct. 22 in U.S. Tax Court to contest its claims. Before Freddie Mac could do that, it had to seek written permission from its conservator, the Federal Housing Finance Agency. FHFA, whose mandate is supposed to include looking out for taxpayers, consented. Freddie Mac disclosed the suit last week in a footnote to its third-quarter financial report. Talk about biting the hand that feeds you. Here we have a government-sponsored enterprise — which depends on Treasury’s financial support to remain solvent — suing an arm of the Treasury Department.
So if they win they don't have to pay the government… which owns them. If they lose they have to pay the government… which owns them. The net is zero. Well almost.
The details of the tax dispute are beside the point. No matter how the case turns out, the result more or less should wind up being a wash for taxpayers. The only people who stand to make money from the litigation are Freddie Mac’s outside attorneys at Shearman & Sterling.
And that, my friends, is waste. Pure and simple. By the same entity that many would like to see grow larger. No wonder there was a bit of a backlash a week or so ago. What should have happened in this case?
But shouldn’t it also have been the job of someone in the government to exercise some common sense here? Surely the head of FHFA could have picked up the phone and called someone at Treasury to work out a truce. Or, if that wasn’t possible, FHFA could have told Freddie Mac to pay its IRS bill, tap Treasury for more bailout money, and stop ringing up legal fees.
No kidding. Our government at work. Sort of.