Freddie Mac's CEO Richard Syron could get nearly $15 million, according to news accounts. Over at Fannie Mae, CEO Daniel Mudd could receive an exit package worth $9.2 million, including stocks he already holds.
Big rewards, indeed, for executives who helped cause one of the biggest federal bailouts in history. Sloppy accounting and overstating the firms' capital on hand precipitated the Sept. 7 bailout plan. In it, the hybrid groups will be under federal conservatorship with the power of the U.S. taxpayer to back them up.
The plan, led by Treasury Secretary Henry "Hank the Fireman" Paulson, has generally been hailed as a needed measure to buck up confidence in the U.S. financial system and prevent further deterioration in the mortgage securities business. Fannie and Freddie were deemed too big to fail. The bailout is also intended to reassure all-important foreign borrowers that their loans will somehow be secured.
What about shareholders? So sorry, out of luck. The takeover pretty much erased the value of their holdings. Don't try suing to get some satisfaction.
I see several more negatives:
- Others will want government bailouts, too, for their bad decisions. Leading the list will be the Big Three automakers in the U.S. Their wish list: about $100 billion.
- Bad performance is not necessarily punished.
- The fundamental levers of the U.S. economy -- the free market system -- are once again being bypassed. We are told that shareholders should have the power of companies since they are owners and they really take the risks. But they really didn't have any control or say over Fannie or Freddie. The CEOs who do bear responsibility get rewarded regardless of what happens. They should be assessed some of the risks for their actions but in this case, they are not, unless Congress gets mad, which it probably won't.
- All that theoretical talk about "Say on Pay" seems like so much tacky window-dressing.