On Tuesday, the
House Financial Services Committee passed, by a 52-4 margin, a
bill designed “to stop future bonuses at Fannie Mae and Freddie Mac
and suspend the current multi-million dollar compensation packages
for the top executives.”
The rest of the Committee’s press release on the bill:
Earlier this month, the Federal Housing Finance Agency announced
the CEO of Fannie Mae received $5.6 million in compensation and the
CEO of Freddie Mac received $5.4 million. Under the bill, the top
executives of Fannie and Freddie could only have earned $218,978
this year.
H.R. 1221, the Equity in Government Compensation Act, ensures
that executives and employees of Fannie Mae and Freddie Mac will
receive compensation that is in line with pay practices at federal
financial regulatory agencies. The bill does not make them Federal
employees, but it aligns their compensation with that of Federal
employees.
“The taxpayer-funded bailout of Fannie Mae and Freddie Mac is
the biggest bailout in history. Adding insult to injury, the
top executives of these failed companies receive multi-million
dollar pay packages, all courtesy of American taxpayers who are
having a difficult time making ends meet these days. These
lavish compensation packages and bonuses are unfair, unreasonable
and unjust to the taxpayers whose assistance is the only thing
keeping Fannie and Freddie afloat,” said Chairman Bachus.
Since their bailout Fannie and Freddie have received $170
billion in taxpayer dollars. While the GSEs have continued to
report losses and receive additional bailout money, the executives
of the companies have received millions in compensation and
bonuses. On Christmas Eve 2009, Treasury and FHFA ratified $42
million worth of Wall Street-style pay packages for the GSEs’ 12
top executives. In 2010, FHFA approved similar pay packages.
According to its SEC 10-K filings, Fannie Mae paid its top six
executives $15.4 million in salaries and bonuses. Fannie Mae CEO
Michael Williams earned $5.6 million. Freddie Mac paid its top five
executives nearly $18.5 million. Freddie Mac CEO Charles E.
Haldeman, Jr. was paid $5.4 million. Earlier this month it was
revealed that Fannie and Freddie would award $12.8 million in
bonuses to the top executives.
“Today the Committee approved a bill to stop rewarding the
executives of these bailed out companies. Never again should
Americans be forced to send their hard earned tax dollars to be
wasted on multi-million dollar pay packages for Fannie and Freddie
executives,” said Chairman Bachus.
And who wouldn’t be angry at these organizations having
incinerated more than a hundred billion dollars of taxpayer money
in a quest to fulfill politicians’ mandates to increase home
ownership regardless of whether new owners could actually afford
those homes?
But if you were a talented financial manager (and I have no
opinion of the talent level of current GSE management), would you
likely work at a place which paid you no more than a senior manager
in any division of government? People have a handful of prime
earning years in their lives. We have a responsibility to our
families to earn what we can. This is, of course, not the only
factor which would go into a decision about where to work.
Everything from job enjoyment to patriotism could fit into
someone’s willingness or desire to try to clean up the mess made by
politicians from Jimmy Carter to Barney Frank to George W Bush.
But just because the companies have failed does not mean the
current executives have failed. And with so many billions
of taxpayer dollars at stake, don’t we want to incentivize the best
possible care-taking of our money by those entrusted to clean up
the mess?
What I would propose, rather than telling these people that they
will never be able to earn a decent living trying to save billions
of taxpayer dollars, is an incentive program by which a third party
analyst group projects expected results from the GSEs and where
executives at the GSEs can be financially rewarded for beating
those results. Perhaps a bonus pool could be created equal to some
fractional percentage of the savings of taxpayer dollars, with the
pool capped at some dollar amount.
There is little doubt that current multi-million dollar bonuses
for executives of Fannie Mae and Freddie Mac appear inappropriate,
and the politics of opposing them makes for easy populist
soundbites. But to go to the other extreme and make it impossible
for someone who can earn seven figures in the private sector only
to be able to earn $100,000 or even $200,000 at a GSE is penny-wise
and pound-foolish.
