Mises Wire

Fannie Mae and Freddie Mac CEOs Get Huge Pay Raises

Mises Wire Ryan McMaken

Back when I was an economist for the State of Colorado, I sat on a panel/task force in 2006 in which some of the left-ish members suggested a new tax on Fannie and Freddie to pay for subsidized housing. 

The Fannie and Freddie reps were indignant. "Why, we're a private company," they protested. "It's just plain wrong to tax a private company." 

Even then, back before the 2009 bailouts, of course, Fannie and Freddie were not "private" in any meaningful sense of the word. Yes, they had shareholders, but they were government creations, and the companies derived a sizable amount of their value form the fact that everyone knew that the government would bail them out if they ever got into trouble. They were too big to fail from day one. The Fannie protests in favor of private property rights earned snickers from several members of the panel — for the right reasons.  

Then, to no one's surprise, after the financial crisis of 2008, they were bailed out as promised. However, Fannie and Freddie had become so dysfunctional, so unaccountable, and so broke, that they ended up becoming essentially government agencies; they entered a state of conservatorship under the Federal Housing and Finance Agency. 

Nowadays, FHFA is run by Mel Watt, one of the most vehement opponents of Ron Paul when Watt was in Congress. Watt was also a great defender of the Federal Reserve. According to the Wall Street Journal, Watt has now signed off on a multimillion dollar deal for the CEOs of Fannie and Freddie:

In separate Securities and Exchange Commission filings, Fannie Mae and Freddie Mac disclosed that their respective CEOs, Timothy J. Mayopoulos and Donald Layton, would have a total annual target compensation of $4 million each, effective Wednesday. The salaries of Messrs. Mayopoulos and Layton had been capped at $600,000.

In a statement, Mr. Watt said the new pay packages are “consistent with FHFA’s statutory responsibilities to ensure safety and soundness and a liquid national housing finance market.” He added that the structure of the identical pay packages, which include deferred salary of $3.25 million, would “promote CEO retention, allow reliable succession planning and ensure the continuity, efficiency and stability of Enterprise operations.”

Many in the private sector are also happy to perpetuate the fiction that Fannie and Freddie are "private" organization:

“I think you should pay people who are managing the largest private players in the mortgage market salaries that are competitive,” said Joshua Rosner, managing director of Graham Fisher & Co., a financial-services research firm.

Yes, those Fannie and Freddie executives work very hard running those bailed-out, taxpayer-guaranteed operations whose favored positions allow them to dominate the secondary mortgage market. How they must sit up nights worrying about making next month's payroll. 

Now to be sure, these $4 million salaries are quite small compared to the salaries of old. Franklin Raines was paid $90 million to oversee unrestrained corruption at Fannie Mae, and to eventually run it into the ground. 

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