http://www.businesssheet.com/2008/9...deals-for-ceos-who-blew-up-fannie-and-freddie Outrageous Severance Deals For Fannie/Freddie CEOs--Paid For By You Henry Blodget | Sep 7, 2008 9:20 PM Taxpayers are now on the hook for tens of billions of dollars of capital necessary to save Fannie Mae (FNM) and Freddie Mac (FRE). The CEOs of both companies--the ones who ran them into the ground--have thankfully been shown the door. But they're taking a nice pot of money with them. Specifically, 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--in part because of a clause he added to his employment contract two months ago, when it was clear the company was headed for disaster. richardsyron.jpgThese severance payouts, of course, are chump-change relative to the usual CEO departure deals. And Mudd and Syron have taken it on the chin with shareholders, as their options and restricted stock are now largely worthless. 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. Both Mudd and Syron chose to run their companies at an astronomical level of leverage, borrowing more than $50 for every $1 they put to work. Why? Because, in the good years, the companies made more money than they would have had they been levered, say, 20-to-1. Just because a housing crash of the current magnitude hasn't happened since the 1930s doesn't mean Mudd and Syron shouldn't have guarded against it. Instead, they chose not to, and the companies--and shareholders and taxpayers--have paid the price. Mudd and Syron should voluntarily renounce whatever severance they are "entitled" to and walk away empty-handed (like the shareholders whose interests they were hired to look out for). If they don't, Paulson and the Treasury should refuse to pay them.
^unfortunate, but if its in their contract, they'll be paid and no, they won't "renounce" their severance package...who would? Great synopsis of what's happened...I for one don't agree with it, but understand why this happened...Bear Stearns, Fannie and Freddie , who's next?
obama and biden have their issue to pound the republicans on right here. its the pink elephant in the room
Personal question: I'm closing on a house in 2 weeks, and I'd like to re-negotiate my rate, if possible. How low are mortgage rates expected to fall in the next few weeks? And how fast, too?
Can you send this memo to Sarah Palin, because she doesn't understand what is happening... TIA <object width="425" height="344"><param name="movie" value="http://www.youtube.com/v/eO4k1fIjivg&color1=0xb1b1b1&color2=0xcfcfcf&hl=en&fs=1"></param><param name="allowFullScreen" value="true"></param><embed src="http://www.youtube.com/v/eO4k1fIjivg&color1=0xb1b1b1&color2=0xcfcfcf&hl=en&fs=1" type="application/x-shockwave-flash" allowfullscreen="true" width="425" height="344"></embed></object> http://www.huffingtonpost.com/2008/09/08/palin-makes-her-first-gaf_n_124792.html?a Gov. Sarah Palin made her first potentially major gaffe during her time on the national scene while discussing the developments of the perilous housing market this past weekend. Speaking before voters in Colorado Springs, the Republican vice presidential nominee claimed that lending giants Fannie Mae and Freddie Mac had "gotten too big and too expensive to the taxpayers." The companies, as McClatchy reported, "aren't taxpayer funded but operate as private companies. The takeover may result in a taxpayer bailout during reorganization." Economists and analysts pounced on the misstatement, which came before the government had spent funds bailing the two entities out, saying it demonstrated a lack of understanding about one of the key economic issues likely to face the next administration. "You would like to think that someone who is going to be vice president and conceivable president would know what Fannie and Freddie do," said Dean Baker, co-director of the Center for Economic and Policy Research. "These are huge institutions and they are absolutely central to our country's mortgage debt. To not have a clue what they do doesn't speak well for her, I'd say." Added Andrew Jakabovics, an economic analysts for the progressive think tank, Center for American Progress: "It is somewhat nonsensical because up until yesterday there was sort of no public funding there. Even today they haven't drawn down any of the credit line they have given to Treasury. 'Gotten too big and too expensive' are two separate things. The too big has been a conservative mantra for a while and there is something to be said of that in that they hold about half of the mortgage guarantees that are out there. And in the last year they have been responsible for roughly 80 percent out there. The 'too expensive to tax payers,' I don't know where that comes from." Even conservative analysts acknowledged that the statement simply did not hold true. "Heretofore, if the treasury had a balance sheet there would have been a liability but there was never a taxpayer payment before [the bailout]," said Gerald P. O'Driscoll, an economist with the Cato Institute. "[Fannie and Freddie] were not taxpayer funded. They had taxpayer guarantee, which is worth something, especially in the stock market..." The Palin misstatement comes as Fannie and Freddie are set to be placed under control of the Federal Housing Finance Agency, created by President Bush in late July to help regulate the two housing giants. Both presidential candidates have been critical of Fannie and Freddie but neither is opposed to the government's plans for the companies. The treasury is hoping that the government's role will help stabilize credit markets and incentive more mortgage lending. "With the takeover they will be taxpayer funded," said O'Driscoll. "As I understand it they get to withdraw funds with permission going forward." How politically significant a "gaffe" it is remains to be seen. The major concern about Palin's position on the ticket is that she lacks the economic and foreign policy wherewithal to serve as vice president. This certainly doesn't help on that front. At the same time, the remark went almost entirely unnoticed over the weekend and discussions on the developments of the housing market can be difficult to process for even the most attuned voter. There are varying explanations that could be offered for Palin's defense. As O'Driscoll noted, both Fannie and Freddie "were hybrid institutions because they had private ownership but... an implicit government guarantee which people thought at the end of the day was explicit." Meanwhile, as Baker noted, as of July the two lenders were being offered low market interest rates by the fed again, theoretically, at the taxpayer's expense. But, he added, "I kind of doubt she had any sense of that."
Even T_J would be appalled by this. Talk about utter cluelessness. This isn't the type of thing you explain away as a Freudian slip. To make a statement like that betrays a complete lack of understanding of the housing market and the problems facing it. 1) Up until the bailout, FNM and FRE were private companies that had zero taxpayer funding. 2) The problem wasn't that they were too big, the problem was that they were actually getting too small as investors were taking their capital and bailing, causing insolvency problems. Wow.
And you do? I don't see anything wrong with her statement, those two companies' debt are backed implicitly by the US government (i.e. tax payers). Because of this agreement, the agency papers were able to trade at their price, and be a favorite of foreign investors. For any investment, there is a cost for its spread to be at a certain level, and guess what, the cost of agency spread is US government backing. And that's not even mentioning the low borrowing cost for these guys. Cost nothing to the tax payers? Tax payers have been funding freddie's paper for a long time, we just have chosen to pay up in a lump sum today. Try to understand the topic a little more before calling someone else clueless.
So, Dean Baker doesn't know anything either? Lemme guess, he's just a sexist liberal trying to bash Palin...
The standard republican line is they should be broken up and privatized so they have been speaking as if they are some kind of government give away and frankly the nature of the federal guarantee makes them unique among private companies. I'm sure Ms. Palin is no more confused about the mortgage guarantee business than the average ____________. The zeal of deregulation, foxes running the hen house if you will, is the campaign issue.
1) There was no "implicit guarantee" by the government. There was a generally accepted impression of one, but the government was under no obligation to bail them out -- they were entirely private corporations by charter. 2) FNM and FRE did not get "too big and expensive". They got where they were because frightened investors were taking their capital out and fleeing by the numbers, from small institutions to large foreign countries. If you can't see what's wrong with that statement, you are even more clueless than she is.
Maybe he does, maybe he doesn't, I am just saying "its expensive to tax payers" is not really a wrong statement.
There was no "implicit guarantee" except there IS one. Let me try to keeps this simple, a "AAA" paper has a different spread than a "BBB" paper, just like an agency paper has a different spread than a non-agency paper. When you have different spreads, someone is picking up the cost, that would be the tax payers. Do you really think we are just going to let FRE die and default on its papers, do you really think we will allow US debt to be downgraded and dollar tank? Actually investor fled because the companies are having trouble getting liquidity to run their business, their business model is getting crushed from the sub-prime mess.
What are you trying to tell me, that AAA paper is government guaranteed? Inference by association does not apply here. GSE debt is not the same as government debt. At least it wasn't until yesterday. There was no guarantee. What happened had to be done, but it wasn't the result of a taxpayer obligation. The subprime mess ruined much of their asset base, but we're kind of talking chicken and egg here -- there wouldn't have been a need for a government bailout if there hadn't been a massive exodus of investors. We're talking about large foreign governments who held large amounts of their foreign reserves in GSE debt ... the implications were colossal.
Her statement shows that she believed The FM and FredM were supported by taxpayers and somehow became too big of a burden on them. It is not possible to become too big of a burden when they weren't supported by taxpayers until now. Palin had no clue what she was talking about.
nah they were too big for the capital they had. they were leveraged like 70:1. further they were also bald faced liars about the capital they claimed. the problem wasn't investors taking capital away it was simply these two companies not being able to raise enough capital to back the losses they were sustaining.
It appears you have no clue how FRE and their investment products work. I am trying to tell you that agency papers gets their higher rating and their tighter spread because of the implicit guarantee from the US government. Anytime when there is a difference in spread, someone is paying that cost. Its obvious that the tax payers are paying the cost. If there was no obligation, then you wouldn't have see the big spread difference. The subprime mess didn't ruin much of their asset base, in fact majority of their loans are prime, its the high leverage that's the big problem, where a small amount of loss can cause them have liquidity problems. Also it would appear that you are confusing debt holders with stock holders, there was no mass exodus of foreign investors from GSE debt, the equity holders however did run for the hills, hence the drop from 70 to zero. Its rather funny when someone who lacks the understanding calling others clueless.
Please see my previous reply, the GSE were always supported by the taxpayers. You have no clue what you are talking about.
The buyers are willing paying the higher cost up front because they are agency papers with government backing. Tax payers are picking up the cost for risks over the life of the paper. (well a fraction of the cost anyway). Its no different than getting a wrap for your bond.
