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July 22, 2008
The Facts
With the obvious bailout of Fannie Mae and Freddy Mac on the horizon, some lawmakers are finally questioning the “reward for failure” pay packages of Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron. Mudd received over $12 million in compensation in 2007 and Syron received nearly $20 million. In the case of Freddie Mac, this was during a time when the company’s stock dropped by one-half its value, on its way to the crisis they face today, with a similar result for Fannie Mae.
My View
The supply-siders are quick to tell us that big institutions can not be allowed to fail, and if necessary, should be “saved” using taxpayer money (abandonment of the “free market” philosophy). However, they never seem to have a problem with the “pay for failure” rewards given to those who led the company into bankruptcy. Usually, this is justified by claiming the money from the taxpayer is just a “loan” and will be paid back; therefore it’s not really a bailout, so compensations should stand. But reasonable minded people know that after all the hullabaloo has died down deals will be struck to not pay the entire loan back, if any at all. By that time, those who were rewarded for failure are long gone, and the “loan” is laughed off by those same defenders. Unfortunately, the taxpayer will still be stuck with the bill.
With Fannie Mae and Freddie Mac being a GSE (Government Sponsored Enterprise), it’s a little tougher to not call a bailout a bailout, thus it’s a little tougher to ignore executive compensation. However, it is also going to be tough to do anything about the current CEO’s compensation for failure. Employment contracts were signed and law suits will follow if anyone tries to “take their rewards”. And if that happens, payment in full will be justified by “it’s less expensive to pay the contract than it would be to fight it”, and/or “we’ve put in place some guards that will prevent this in the future”. In the end, the results will be the same; they (CEO’s and supply-siders) win, and the taxpayers loose.
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These CEO’s need to be held accountable, and the practice multi million dollar packages for executives needs to be curbed, at least for now. The constant bailing out of companies is making investors local and foreign lose faith in America.
There’s an interesting take on this situation at http://www.wallstrip.com/2008/07/21/fannie-mae-and-freddie-mac-fnm-fre/
I’m not sure where I stand on this issue in the longterm.
I have no problem compensating performance but these 2 idiots headed the worst losses in the history of the 2 companies. If a private firm (ie: Emron, Worldcom) misstated earnings like this they would be in jail.
Doesn’t this all sound familiar??? Franklin Raines former CEO of Fannie misstates earning by 11 billion dollars, fraudulently collects $20 Million in salary and bonuses (FY 2004) for the misstatement and doesn’t spend 1 day in jail??? This time looks like the taxpayers will be on the line for 12-25 billion, will Dan Mudd or Richard Syron spend 1 day in jail????
[...] one-half its value, on its way to the crisis they face today, with a similar result for Fannie Mae. more To help me along (I thought ), I looked up just the basic bio’s of George Bush’s 3 Treasury [...]