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U.S. ATTACK ON LAW FIRM THREATENS US ALL

No one ever dreamed that deposit insurance would result in the destruction of our legal system, but by busting the Treasury that is what is happening.

Consider the woes of a prosperous and well-heeled law firm with 400 lawyers, whose partners enjoyed an average income of $660,000 in 1990.If government prosecutors can blame Kaye, Scholer, Fierman, Hayes & Handler for the failure of S&Ls whose legal work it handled, freeze the assets of the law firm and its partners, and sue the firm for $275 million in damages, the government can do what it wants to the rest of us who don't have 400 lawyers to mount a defense.

The government's suit against Kaye, Scholer is a frontal attack on the attorney-client privilege, without which everything we tell our lawyers would become evidence against us in court. The government's prosecution of the law firm is based on a "theory" by federal judge Stanley Sporkin that lawyers should be held accountable for the acts of their clients. In practice, this means that lawyers who don't snitch on their clients have not met their "obligation to the public" and can be sued by the government for damages.

In other words, the government has no statutory basis for its suit and is going for a legal precedent that will turn everyone's lawyer into a government informer - just as the government has done with our bankers. The Bush Administration has so overspent its budget that it sits silent while the federal government illegally assaults our basic legal protections.

It is all part of the government's determination to find private sector scapegoats to stick with the bill for the real estate and S&L debacles. Ill-considered federal legislation and regulation have destroyed real estate values and cost taxpayers $500 billion to bail out federally insured depositors. Rather than admit that it made mistakes, the government is dismantling our legal system in order to blame the innocent. Are Americans so gullible that they believe that the country's most prestigious law and accounting firms, with an endless flow of legitimate clients, had to resort to "S&L fraud" in order to make money?

Two generations of Americans have lost sight of the extreme danger to liberty that is posed by our own government. The 45-year struggle against the Soviet Union focused our attentions on the external threat to our freedom and liberty. Meanwhile, at home the erosion of our property rights and legal protections against government predation accelerated, as traditional watchdogs such as the American Civil Liberties Union limited their attention to our First Amendment rights to print four-letter words, view dirty pictures, and burn the flag.

Now we are reaping the consequences as aggressive government prosecutors run roughshod over such basic legal protections as innocent until proven guilty. Increasingly, there are cases of government prosecutors fabricating evidence, lying to the court and relying on perjury by government witnesses to convict innocent defendants.

Whenever governments establish new legal precedents that undermine liberty, they pick a defendant who doesn't elicit the public's sympathy. Few Americans can identify with the tribulations of a rich and powerful law firm, and many believe that lawyers deserve all the punishment that can be given. But in the end, the same abusive precedent that gets the "S&L crook," "junk-bond king" and arrogant law firm gets us all.

(Paul Craig Roberts is the William E. Simon professor of political economy at the Center for Strategic & International Studies in Washington and is a former assistant secretary of the U.S. Treasury.)