Of Largesse and oversized executive pay

"If you have a bazooka in your pocket and people know it, you probably won't have to use it." - U.S. Treasury Secretary Hank Paulson said at a July 15 Senate Banking Committee hearing referring to the fact that if he has a blank check for bailing out Freddie and Fannie, people will continue to trust the institutions without him having to resort to writing taxpayer monies on the blank check that was ultimately offered to him.

The Treasury department rescued Fannie Mae and Freddie Mac by placing them into a conservatorship. Paulson was proved spectacularly wrong on his bazooka based thinking when the ever falling markets combined with creditors from Asia demanding fair share for their invested bucks threatened to topple these fair handmaidens of the mortgage industry. It is indeed ironic that the bastion of free market enterprise, the United States has to resort to government backed bailouts at the end of the day. Unclear still is the cost of the bailout - which could either be $25 billion or $100 billion depending on who you talk to. We are not even sure what the exact amounts the taxpayer will have to bear.

If one assumes that a conservative 20% of the holdings of Fannie and Freddie (assets currently at $5.3 trillion) are toxic, the amount that the government will have indirectly committed would be approximately $1030 billion – or about a trillion dollars of taxpayer monies. I feel for our children who will see the effects of this played out in their lifetimes…

All said and done, this might have been the right thing to do to restore needed faith and credit in our local economy and stabilizing the global markets at large.

However, I ran into the following bit of news that smacked of double standards.... Normal wisdom and classic free market principles would allow one to punish stewards of companies by slashing pay and withholding perks for jobs poorly done. Yes, bigger screwups bestow smaller paychecks - or so the saying goes - not so for the CEO's of Freddie Mac and Fannie Mae.

From here:

Daniel H. Mudd, the departing head of Fannie Mae, stands to collect $9.3 million in severance pay, retirement benefits and deferred compensation, provided his dismissal is deemed to be “without cause,”

Richard F. Syron, the departing chief executive of Freddie Mac, could receive an exit package of at least $14.1 million, largely because of a clause added to his employment contract in mid-July as his company’s troubles deepened.

Looks like the chiefs were fattening their pockets for many years…

Mr. Mudd’s predecessor at Fannie Mae, Franklin D. Raines, took home more than $52 million while he was chief executive from 1999 to 2004 while Mr. Syron’s predecessor at Freddie Mac, Leland C. Brendsel, took home more than $28.4 million from 1993 to 2003