$100M Bonuses for Freddie and Fannie Executives Paid Out as They Ask Tax Payers for More Money
Greed is ...
Here’s a hypothetical situation for you:
Suppose that you are a business owner. As such, you have a level of executives whose job is to generate a profit for your business. Your business is suffering; in fact you need $7 billion just to continue operating. Would you offer your executive team a bonus?
Fannie Mae and Freddie Mac, the two mortgage giants who received the largest amount of the bailout money from taxpayers and is even requesting an additional $7 billion to keep functioning, is doing just that by paying out bonuses for Freddia and Fannie Executives. They are not only asking for $7 billion more, but they’re using the tax payer money already received to reward its top executives with bonus packages up to $95.4 Million in bonuses. That’s correct, if you run a business so poorly that you require billions of dollars to in tax payer subsidies, well, you must deserve to be compensated. Here’s what the acting director of FHFA, and the CEOs of the two firms, Edward DeMarco, has to say:
“I need to ensure that the companies have people with the skills needed to manage the credit and interest rate risks of $5 trillion worth of mortgage assets and $1 trillion of annual new business that the American taxpayer is supporting,” he wrote.
He continues by saying that the executives who were running the companies in 2008 when the problems occurred have left without any golden parachutes, and that effective management is needed to make sure that taxpayer losses at the firms do not rise and the companies continue to function. He said current executive pay at the firm is about 40% less than before the bailouts.
Of course, before the bailouts, they were making a profit and deserved to pay bonuses for Freddie and Fannie executives out of profits. But this money isn’t coming out of profits, it’s coming out of money given to them by the taxpayers.
Bonuses for Freddie and Fannie Executives | Congressional Reaction
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As you can imagine, the government is not acting all that pleased with the report.
Rep. Spencer Bachus, the chairman of the House Financial Services Committee, has scheduled a vote in his committee Tuesday on his own legislation that would suspend the compensation packages of top executives at the firms.
“The fact that the top executives of these failed companies are receiving multi-million dollar pay packages, plus millions more in bonuses, is an added insult to the taxpayers who are forced to foot the bill,” Bachus said in a statement announcing plans to hold the vote.
The Democrat-controlled Senate Banking Committee also plans to hold a hearing on the matter on Tuesday. Additionally, the Republican-controlled House Committee on Oversight and Government Reform is set to call Edward DeMarco, the acting director of FHFA, and the CEOs of the two firms, to a hearing on the pay packages on Wednesday. Sixty senators from both parties have already sent a letter to DeMarco asking that he change the compensation policy of the two companies. FHFA has final say on pay at the two companies. ”The idea that Fannie Mae and Freddie Mac, which rely on taxpayer funding to stay afloat, must offer excessive bonuses to its executives to attract effective management strains credulity,” the letter said. http://finance.yahoo.com/news/fannie-freddie-executives-score-100m-105300790.html
The latest cost estimate from FHFA is that the two bailouts will end up with a net cost to taxpayers of about $124 billion through 2014, though that figure could rise as high as $193 billion. Even the lower cost estimate will make it the most expensive bailout of the financial crisis — far more costly than bailing out the nation’s banks or automakers. The CEOs and the other top executives at Fannie and Freddie get all their pay in cash, and none of it in company stock , which is generally deemed worthless.
What are your thoughts? Do you believe that bonuses for Freddie and Fannie Executives should be given to allow them to attract top minds in the industry or do you think that bonuses should be awarded based on profits?
Picture Source: http://www.menstylepower.com/2011/01/greed-is-very-uncool/
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