The Obama administration tried to sneak this one under the radar by making it official on Christmas Eve. The Washington Post did a good job catching the story:
The Obama administration pledged Thursday to provide unlimited financial assistance to mortgage giants Fannie Mae and Freddie Mac, an eleventh-hour move that allows the government to exceed the current $400 billion cap on emergency aid without seeking permission from a bailout-weary Congress.
…But even as the administration was making this open-ended financial commitment, Fannie Mae and Freddie Mac disclosed that they had received approval from their federal regulator to pay $42 million in Wall Street-style compensation packages to 12 top executives for 2009.
The compensation packages, including up to $6 million each to Fannie Mae and Freddie Mac's chief executives, come amid an ongoing public debate about lavish payments to executives at banks and other financial firms that have received taxpayer aid. But while many firms on Wall Street have repaid the assistance, there is no prospect that Fannie Mae and Freddie Mac will do so.
Good catch. I totally missed this. Thanks, Alex.
Well, it is perfectly legitimate to protect the bonus pool in this case since a lot of politicians in the present regime will eventually land here after they are voted from office.
To support my previous comment I should have linked to this story:
http://politics.theatlantic.com/2009/12/odd_couple_of_norquist_hamsher_call_for_investigation_rahms_resignation.php
1. Maybe the bonuses are reasonable. What are the targets? How will success be measured?
2. Why isn’t Franklin Raines in jail?
These behemoths should be broken up and sold to the private sector even if we have to hold hundreds of billions of bad mortgages in a federally owned “bad bank”. Start the process today.
> But while many firms on Wall Street have repaid the assistance, there is no prospect that Fannie Mae and Freddie Mac will do so.
This isn’t necessarily true. While Fannie and Freddie are still underwater, they are probably overprovisioned for the losses due to loans currently on their books; in addition they are currently running very strong pre-provision profits (they lend long and borrow short, like any bank). John Hempton has done the numbers.
http://brontecapital.blogspot.com/2009/10/new-gse-as-zero-meme-laying-assumptions.html
plus his series in august / september on the same blog.
And Bill you are right — banks which are TBTF are implicitly backstopped by the USG. Making this backing explicit might be an attempt by the Treasury to recreate the international market in Agency debt.
Like Alex, I am shocked that executives of a financial firm so badly run that it needs government help are receiving large bonuses. The only thing to be said in mitigation, I suppose, is that these seem much smaller than those in some other institutions.
What evidence is there for an attempt to sneak this past anyone?
Are you thinking Christmas eve was a day when there were no reporters in DC?
But if something is released on Christmas eve to bury it, then the NY Times must have wanted bury this story and this quote:
http://www.nytimes.com/2009/12/24/business/24trading.html?em=&pagewanted=all
Banks Bundled Bad Debt, Bet Against It and Won
By GRETCHEN MORGENSON and LOUISE STORY
“The simultaneous selling of securities to customers and shorting them because they believed they were going to default is the most cynical use of credit information that I have ever seen,† said Sylvain R. Raynes, an expert in structured finance at R & R Consulting in New York. “When you buy protection against an event that you have a hand in causing, you are buying fire insurance on someone else’s house and then committing arson.†
Talk about textbook moral hazard.
@bernard
thanks for answering in the comments here. i agree with you in general.
i think that the “market process” that sets the general level of executive compensation is screwy. (i think it is rational in its own way, but i think that high salaries on wall street — or perhaps anywhere — do not result in the best people being in these jobs in most cases. or rather, i think some of the best people do get these jobs, but also high salaries attract people who are the best at who want large amounts of money and who are the best at gaming the system. most high level jobs, whether they are in the financial system or in C-level management, give people plenty of opportunities for gaming the system — in fact, ability to game the system is often a legitimate job requirement, often going by other names such as “leadership”.)
in fact, ability to game the system is often a legitimate job requirement, often going by other names such as “leadership”.)
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