Be Angry (maybe even sleep raw in the park to show your rage)

Executives at a couple of the firms that most helped precipitate the credit crisis are again raking in big bucks. According to Politico, “the Federal Housing Finance Agency, the government regulator for Fannie and Freddie, approved $12.79 million in bonus pay after 10 executives from the two government-sponsored corporations last year met modest performance targets tied to modifying mortgages in jeopardy of foreclosure.”

The story continues "The executives got the bonuses about two years after the federally backed mortgage giants received nearly $170 billion in taxpayer bailouts -- and despite pledges by FHFA, the office tasked with keeping them solvent, that it would adjust the level of CEO-level."

Freddie and Fannie are dangerous chimeras. They produce private profits and public losses.

I am not a champion of equality in pay. I can understand that Charlie Sheen made $2 million per episode of "Two and a Half Men". I think it is silly, but evidently those paying thought their money was well spent. I can understand that sports stars make more in one season than I will make my whole life. I don't really like these things, but it is not any of my business. But I do pay taxes so I draw the line at taxpayers paying those big bucks.

According to the story again, "President Barack Obama in the past has derided Wall Street "fat cats" for raking in seven-figure bonuses even though their banks and finance companies needed billions of dollars in government bailouts just to stay in business. Yet the White House so far has remained largely silent about comparable bonuses at Fannie Mae and Freddie Mac."

This is my simple idea. If your company is losing money, you should not get a bonus. If your company is in hock to the Federal government, you should not get a bonus.

Bonus comes from the Latin word that means "good." It also means honest, brave, noble, kind & pleasant. I have an old fashioned idea that you should get bonuses when you do something good, maybe honest, brave, kind or at least pleasant. Running a firm that is down billions of dollars and still is messing up doesn't qualify as "bonus," IMO.

I am sure that most OWS and most Tea Party members agree with me. Now if we can only get President Obama on our side.

Posted by Christine & John at November 1, 2011 6:59 PM
Comments
Comment #331350

Oh, I can’t wait to hear the left defend the Freddie and Fannie exects on this one.

Posted by: Mike at November 1, 2011 9:04 PM
Comment #331351

No mention of the dozens of non-bank lenders who basically took over the market, leaving Fannie and Freddie scrambling to keep up. No mention of the immense house of cards that the investment banks created in derivatives.

This is sort of like talking about AIDS as being a disease of homosexual lifestyle, rather than being the result of a virus called HIV. Sure, it’s politically convenient to make this entirely about the Housing sector, and scapegoating the companies (then private) that had the taint of government on them.

But it’s inaccurate to blame them. For one thing, they weren’t originating anything. They were secondary market buyers, always were. That mean that private companies had to make these decisions from the start. You could say they were influenced by Fannie and Freddie’s stance, but then you have to look at the other players in the market, who were dominating about 4/5ths of the market that Fannie and Freddie once dominated 4/5ths of.

But that’s not even the end there. You leave out an incredible portion of the story. You leave out the fact that those dominating the business, squeezing Fannie and Freddie out, originating the loans depended on derivatives to fund and to sell off mortgages in the secondary markets.

You leave out the chicanery with the ratings agencies, and the whole mess of derivatives that made this such a terrible thing for Wall Street.

Without those unregulated, poorly accounted for derivatives, the banks would not have had such uncertainty regarding what was on their books, which is why we had a credit crunch. Without them, the bubble would have died down faster, and the secondary markets would have cooled faster, too.

Wall Street distorted the housing market. Fannie and Freddie were not the cause of that distortion. They were required by law to disregard the riskiest loans, which many companies that went under (long before Fannie and Freddie did) snapped up.

They also weren’t part of the commercial real estate market, where the same exact things happened. The rich also defaulted at a comparable rate on their properties to the poor, and those in other markets.

Long story short, you are deliberately forgetting and ignoring the institutional problems that made this a Wall Street fueled bubble, and a Wall Street caused crisis. Fannie and Freddie are your scapegoats, to remove the responsibility from the fat cats you wish to protect, and place it on government and government regulation. (That despite the fact both companies were privatized long ago, and regulated away from taking the riskier loans.)

Of course, this scapegoating is more than just political manuevering, it’s a way of avoiding having to deal with the root causes of the crisis, and preserving the Bush status quo on regulating Wall Street. Hell, while you’re at it, you’ll even go and deregulate them further!

That is why we have OWS. I know you want us to think no further than the surface of your argument, but policies like the ones you would promote help make the source of the outrage you’re twisting to your benefit here possible. You’re just trying to paralyze our willingness to challenge those policies, by alleging nobody is without sin enough to be worthy to change it.

Well, screw it, people and policies are imperfect, but I’ll be damned if I’m going to allow that to be the reason to let things degenerate further.

Posted by: Stephen Daugherty at November 1, 2011 9:05 PM
Comment #331353

Didn’t take long, did it? If you mention Freddie and Fannie, you have to expect the expert on the subject to start the old razzle-dazzle with numbers and facts. It doesn’t really matter that he has no idea what he is talking about.

Posted by: Mike at November 1, 2011 9:19 PM
Comment #331354

Mike-
Why did the banks fall if Fannie and Freddie, Mortgage Security selling companies, were at the heart of this?

If their mortgages were undervalued, the banks could have kept them and waited for them to appreciate. Overvalued, sell them and take the hit before it gets worse. The toxic assets were marked not by one end of things or another, but by the fact that nobody was sure what to sell them for, or whether to sell them at all.

Because the mortgage securities had become a big part of their assets, this meant that the banks literally did not know their own worth, which is problematic since banks need to know what their asset levels are in order to remain solvent.

Several parts of the overall deal are impossible, though, without folks other than Fannie and Freddie at play. Why was AIG involved? Why were so many of these risky mortgages labelled AAA, or equivalent in risk to a US Treasury Bond?

More to the point, how are Fannie and Freddie the cause of all this, when you had Mortgage lenders outcompeting them before the collapse, and outdying them after the bubble burst?

There is a big elephant in the room here: the derivatives market. Without it, few of the mortgage lenders that did the riskies business would have even had the ability to originate the notes themselves. Without it, there would be no insuring the risky mortgages to hedge them into a AAA rating. Without it, non-bank mortgage lenders would have never gotten away with a business model which basically had them inflate the costs of the mortgage at the homeowner’s expense, and then sell that inflated asset off to the secondary market.

Without the investment banks being heavily involved, you don’t have Lehman Brothers’ collapse as a plausible trigger for the whole implosion. Without it, the banks would have remained fairly stable, and not needed a bailout.

Without Wall Street’s activity, nothing could have broken down the way it did without the market correcting the problem first.

You’re so concerned about playing gotcha with the Democrats, that you’re leaving huge plot holes in the story of how this tremendous market distortion came to be, and how it camed to threaten the larger credit markets.

And without a grasp of those things, the policies you would prescribe would do little to help things. In fact, they would seem destined to either make things worse, or continue them along the status quo that existed in the run up to the crash.

Posted by: Stephen Daugherty at November 1, 2011 9:29 PM
Comment #331356

“Oh, I can’t wait to hear the left defend the Freddie and Fannie exects on this one.”

Mike,

I, for one, am not going to defend the executive salary and bonus arrangement of Fannie and Freddie. While, the base compensation arrangement is, “in fact, 40 percent below pre-government takeover levels, according to the FHFA”, it is still ludicrous, particularly the bonus compensation.

The argument that Fannie and Freddie need to compete with the private sector financial companies for executive talent only highlights the ridiculous compensation excesses of the entire financial industry.

If the federal government cannot hire an executive at its normal federal pay scale, then maybe the OWS crowd has a point about the excesses of Wall Street.

Posted by: Rich at November 1, 2011 9:38 PM
Comment #331359

Stephen

Freddie and Fannie made lots of sub-prime loans. In their defense, it was politics that pushed them. Of course, that shows why such institutions are always hazardous.

However, no matter the cause, you evidently believe that it is a good thing to give out millions in taxpayer money to bankers who aren’t making money. On the other hand, you object to bankers getting private money. How does that work?

I also wonder how “Wall Street” distorted the market while the actual lenders, like Fannie did not. What do you mean by “Wall Street” anyway? I don’t suppose you are talking about the pavement.

Fannie and Freddie did okay, BTW, with $170 billion in taxpayer bailouts. It is not hard to survive when you can suck up to the government teat, no matter how much you mess up.

Rich

I bet that Fannie and Freddie could hire competent help at government pay scale, which can go to almost $200,000 a year. It is hard to figure out how an ordinary slob could do worse than the high priced slobs running the show now.

I think we agree on the “Emperor’s New Clothes” idea of executive payment. It seems to me that anybody can lose money. You probably don’t have to pay somebody millions of dollars to do that.

Maybe you or I could not lose $170 billion like the executives at Fannie and Freddie, but we could at least lose some.

Posted by: C&J at November 1, 2011 9:59 PM
Comment #331367

First they laugh at you…

Posted by: Tom Jefferson at November 2, 2011 1:20 AM
Comment #331371

Tom

People always laugh at me. But it might be good were you to explain what you are laughing about here or, alternatively, what you think others are laughing at in regard to the bonuses “earned” by executives at Fannie and Freddie.

Posted by: C&J at November 2, 2011 5:52 AM
Comment #331378

Stephen-

Did I miss where C&J put the blame for the entire housing crash on Fannie and Freddie? The most he even mentioned to that end was “a couple of the firms that most helped precipitate the credit crisis”…

Your entire post tries to shift the focus to whether or not they are the crux of the financial meltdown, but that is neither the point, nor truly relevant to the merit of giving executives $12.79 million in bonus pay after their agencies just required $170 billion in taxpayer bailouts. Whether the collapse was their fault or not, the very nature of requiring a bailout proves they don’t deserve the bonus’s. Would you have defended the motor companies if they decided to both not pay back their bailout and give bonuses instead?

Without even going into culpability of the financial crisis, wouldn’t it be more prudent to take those bonuses and actually pay back some of the bailout?

Posted by: adam at November 2, 2011 10:52 AM
Comment #331688

adam-
I did a post early on that basically laid out this: when the Real Estate bubble was inflating, the non-bank lenders, not Fannie and Freddie, were dominating the market.

It’s a red herring, basically, and intentionally thrown out there by those on the right who want government to be to blame for what private capitalists basically did to themselves, and asked taxpayers to bail them out of.

It’s worse than a denial of what went wrong, it’s a move to perpetuate it. That’s why I reject the argument: it’s both factually incorrect, and an immoral deflection of responsibility to boot.

As far as the bonuses go, yes, I think they’re excessive, but that bonus amount is split up among about ten to a dozen people. Meanwhile, out in the real capital world, private firms that take billions of dollars a year from taxpayers, or expect trillions of dollars in tax cuts give a hundred times that to one person.

Posted by: Stephen Daugherty at November 9, 2011 8:51 AM
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