Fannie Mae & Freddie Mac CEOs paid millions for getting fired

http://www.businesssheet.com/2008/9/outrageous-severance-deals-for-ceos-who-blew-up-fannie-and-freddie ^ | September 7, 2008 | Henry Blodget

[too_cool_for_skool]

" .. Dan Mudd, the CEO of Fannie Mae, is getting $9.3 million of severance for destroying his company. Richard Syron, the CEO of Freddie Mac, is getting $14.1 million .."

"But the severance money comes right out of the pockets of taxpayers, who didn't agree to the severance deals and aren't ponying up to save the companies because they want to. Taxpayers are saving Fannie and Freddie because they have to--because Mudd and Syron were incompetent.

'Incompetent'? Is that too harsh? Absolutely not. Both men gambled big and lost bigger. The fact that they may not have appreciated how big a risk they were taking is no defense: If they didn't, they should have."

[cherry]

incompetent?...no, I think they knew exactly what they wanted and they got it....

[too_cool_for_skool]

Fannie Mae was originally the Federal National Mortgage Association (FNMA). The housing market was seeing turmoil similar to today. Real estate had crashed and banks trying to avoid further bad loans made very strict rules about qualifying for home loans. Many people could not qualify for a loan so they were not able to buy houses, driving down real estate prices even more and sending the entire housing and banking markets into vicious downward cycle.

FNMA was introduced to break this cycle by essentially providing mortgage insurance for the banks - if people did not pay their mortgages FNMA would cover it. This encouraged banks to give out more loans, allowing more people to buy houses and revive the housing market.

Over the next few decades, FNMA (nicknamed Fannie Mae due to the acronym) started taking a bigger role in the mortgage markets and became a gigantic issuer of mortgage bonds. At this point Fannie Mae was still a government agency and all those mortgage bonds was essentially government debt and it was making the national debt look bad. So in its infinite wisdom, the federal government decided to privatize the company in 1968 in order to get all that debt off of the government books.

Fannie Mae and Freddie Mac still were instrumental in keeping mortgages flowing and the housing market humming, but they were now private corporations, beholden to the interests of their own shareholders. In their quest for more profit, they pushed for deregulation - which they got by spending millions lobbying the federal government - that enabled them to make incredibly risky gambles in order to juice profits.

Just last week we reaped the consequences of privatizing Fannie Mae (and Freddie Mac) and letting them run wild with minimum supervision. The federal government has guaranteed Fannie and Freddie’s debt to the tune of $500 BILLION. Who owns a ton of this debt? Yeah that’s right, China & Russia. But hey, instead of addressing this issue at all, our two presidential candidates and media spend the whole time arguing about the meaning of “lipstick on a pig”.

Sorry, I meant for this post to be informational about the history of Fannie Mae & Freddie Mac but it turned into a rant. Apologies if you’ve read this far.