According to SEC filings, the troubled government-
sponsoredowned mortgage companies Fannie Mae and Freddie Mac's CEOs may earn as much as $6 million each for 2009. Compensation restraints have been at the forefront of the government bailouts. As the other large firms taking money from Uncle Sam, these companies complain that they need lofty compensation to attract the best talent. While I concede the point in the case of some of the other firms involved, I have trouble understanding why anyone at Fannie and Freddie should earn such outlandish pay.
BusinessWeek/Bloomberg (I can no longer tell who's who, or what to call the new entity) reports on this story today. It reminds us:
Washington-based Fannie Mae, which has lost $120.5 billion over the last nine quarters, has requested $60.9 billion from the Treasury Department this year. McLean, Virginia-based Freddie Mac has tapped $50.7 billion in government capital since November 2008 and recorded $67.9 billion in cumulative losses over the last nine quarters amid a three-year housing slump.
I have a lot of trouble grasping the idea that these firms are being rescued, instead of wound down. AIG got a huge amount of money too, but other than its ill-advised financial derivatives business, it actually would have been just fine -- and doesn't appear to need any more money than it already got. Fannie and Freddie, however, were flawed on a far more fundamental level. And they're still hemorrhaging cash.
To make matters worse, the firms always had an implicit government guarantee, which is one of the reasons the U.S. came to the rescue. But that alone should result in their not being nearly as profit-seeking as a firm like AIG, but far more cautious. Obviously, they weren't. But given their very nature, I would argue that their top executives should never have earned such lofty salaries -- they've always been virtually government employees, even before the bailouts.
Unlike with the big banks, there's not much tangible chance that Fannie and Freddie will get taxpayers all that money back. It doesn't have separate, healthy divisions that can be sold off to help raise capital like AIG and the auto companies. It probably won't be able to interest investors in a new stock offering like the big banks either. So the U.S. should really just accept its losses and wind down these troubled mammoth firms. It shouldn't take $6 million talent to do that.