Feds-Vs.-Feds Dispute Called ‘Stupidest Lawsuit Ever’

Bloomberg opinion columnist Jonathan Weil calls it the “stupidest lawsuit ever.” Freddie Mac, the hopelessly busted government-sponsored mortgage enterprise, owes $3 billion in back taxes to the Internal Revenue Service, or at least so says the IRS. The management at Freddie disputes this, and has filed a lawsuit in Tax Court contesting the bill. This might have made some sense back in the days when the outfit was putatively private, but in the mean time Freddie has become an explicit and complete ward of the federal treasury. So if it wins its case, the taxpayers will not be obliged to pay anything to the taxpayers, while if it loses, the taxpayers will have to shell out a goodly sum to the taxpayers.

There will, of course, be transaction costs. Freddie has hired the highly rated, very expensive law firm of Shearman & Sterling to make sure the dispute is litigated fully, rather than being resolved by flipping a coin, arm-wrestling or just marking the whole mess to zero, as some actual taxpayers might prefer if consulted about the matter.

You’d think as various sectors of the economy have slid (or been pushed) into the “public sector” in the past few years, we would at least have the slight consolation of not having to pay to litigate disputes between them and the rest of the government. But no such luck. Incidentally, a few years back, hyperactive Connecticut attorney general (and now U.S. Senator-elect) Richard Blumenthal filed a lawsuit alleging that an entity called the Connecticut Siting Council was violating the law; the Connecticut Law Tribune pointed out with some bemusement that the CSC was itself an arm of the state government, which meant Blumenthal was in effect suing his own client. He should feel right at home when he arrives in Washington.