UNINTENDED CONSEQUENCES – OUR VIEW

First it was insurance giant American International Group that was found to have spent $440,000 of taxpayer bailout money on an executive retreat that included spa treatments, golf outings and parties.

Now the government has found an area of the bailout with unintended consequences that allows companies such as Fannie Mae and Freddie Mac that are targeted for portions of the $700 billion bailout fund to pay for lawyers to defend against charges brought by the government.

It seems the abuse of this money just won’t stop.

Doug Heller, executive director of Consumer Watchdog, a California group that’s been critical of the bailout arrangement, expressed dismay.

"Who’d have thought we might be on the hook for paying the defense costs when we’re also paying the prosecution costs? To defend the economy from the havoc that’s been created, we’re going to defend the havoc creators?"

Mr. Heller’s questions drive right to the heart of the matter.

And apparently there’s not much the Bush administration can do about it since the companies, now technically controlled by taxpayers, have contracts with their top executives to defend any legal action against them.

That arrangement is not uncommon and is usually divulged in the annual proxy statements.

The Bush administration, however, is trying to avoid paying the legal fees insofar as it can legally. The Federal Housing Finance Agency, which controls Fannie and Freddie, said it will issue regulations explaining exactly how such legal fees may be paid out from the bailout.

But outright prohibition of paying such fees may instead lead to even more litigation, again paid by tax money, on who exactly gets which legal fees.

This classic Catch-22 is precisely what happens when Congress moves too quickly on unprecedented legislation without taking the time to cover such anomalies that affect taxpayers directly.