The government has no standing to complain about these companies' high compensation levels as long as it allows these firms to exist
Congress is angry about bonuses again. But instead of focusing on banks that no longer owe the government any money, politicians' latest outrage is directed at the biggest bailout recipients of them all: Fannie Mae and Freddie Mac. Reports indicate that 10 executives will be paid $12.79 million in bonus pay this year after hitting performance targets. This week, we learned that taxpayers will have to plow another $14 billion into the troubled firms after a bad third quarter. Their net bailout exceeds $150 billion. While frustration over these bonuses is rational, the only legitimate way to ensure that the big bonuses stop would be to dissolve these firms.
Upon hearing about these bonuses, several members of Congress have demanded that these bonuses be rescinded. They may try to pass legislation that curbs Fannie and Freddie pay. Instead of solving the problem, this would just make matters worse.
These Bonuses Are Necessary for Fannie and Freddie to Exist
Let's say that you're a seasoned housing finance expert with a decade or two of experience in the industry. You have a job on Wall Street or at some other financial firm that pays well into six figures, possibly even seven. A recruiter calls you and tells you that a firm is interested in hiring you. It has a terrible reputation and probably won't exist in a couple of years. What would it take to get you on board? If you're rational, then it would take an awful lot of money.