Home > Uncategorized > Fannie and Freddie and Barack and Chris(Dodd)

Fannie and Freddie and Barack and Chris(Dodd)

Conveniently lost amidst the oil spill news,  the Kagan nomination to the Supreme Court, and the US guarantee to the IMF to bail out Greece was the news that Freddie Mac and Fannie  Mae were asking for more money from the U.S. Government. Freddie wants 11 billion more dollars, while Fannie wants a mere 8.5 billion more. That’s on top of the 127 billion already plowed into the failing companies. According to Timothy Geithner, “The government expects to suffer ‘very substantial losses’ on its investments in the lenders, with recent estimates ranging around a minimum  of $85 billion….” Mr. Geithner is the guy  who lifted the $400 billion bailout limit on Fannie and Freddie last Christmas Eve. And now they want more.

And Obama and his crew will hand it to them. Why? A number of reasons. First, between 1989 and 2008, Senate Banking Committee chairman Chris Dodd and Barack Obama received more campaign funds from these two companies than anyone else. Dodd got $165,000 and Barack got $126,000. Dodd, of course, has been leading the charge against reforming these two toxic assets. Yesterday, the ever alert senator declared,  “We all should have done a better job.” But not just yet, if he has his way.  He opposed Arizona Senator John McCain’s amendment to his financial regulatory-reform bill to shrink the mortgage giants, raise their underwriting and capital standards, cap the taxpayer losses (now $145 billion and counting) and eventually shut down the failed enterprises.

Instead, the heavily subsidized Dodd floated a plan to authorize Geithner to conduct a study. What has Treasury been doing for the last 17 months? Now Mr. Dodd promises that this will be “a tough study.” I suppose if Mr. Dodd wants to keep raking in the cash, it won’t be too tough.

Second,  Democrats in Congress have sought to preserve the quasi-governmental status of the mortgage giants, seeing Fannie Mae and Freddie Mac as places to locate former top Democratic Party operatives, where they have earned millions in compensation, despite a continuing series of financial scandals. Enron-like accounting manipulation, for example, boosted earnings to a level at which massive executive bonuses could be paid.

In the aftermath of the U.S. government takeover, attention has focused on three Democrats: Franklin Raines, former Clinton administration budget director; James Johnson, former aide to Democratic Vice President Walter Mondale; and Jamie Gorelick, former Clinton administration deputy attorney general. All three executives earned millions in compensation from Fannie Mae.

Johnson earned $21 million in just his last year serving as Fannie Mae CEO from 1991 to 1998; Raines earned $90 million in his five years as Fannie Mae CEO, from 1999 to 2004; and Gorelick earned an estimated $26 million serving as vice chair of Fannie Mae from 1998 to 2003, according to author David Frum, a fellow at the American Enterprise Institute. And yet there was no outcry about excessive executive compensation at these companies. Only at the private ones, like GM and Exxon.

And, lest you think that’s all in the past, after the government took over the companies, salaries remained high. For the CEOs, annual compensation consists of a base salary of $900,000, deferred base salary of $3.1 million and incentive pay of as much as $2 million. When Mr. Haldeman was hired by Freddie in July, the company set his base pay at $900,000 and said his additional “incentive” pay would depend on a decision by the regulator. At Fannie, Mr. Williams was chief operating officer until he was promoted in April to CEO. As COO, his base salary was $676,000. He also had annual deferred pay of $2.3 million and a long-term incentive award of as much as $1.5 million. And this is all funded by you and me, in the form of TARP payments.

And more importantly, it is funded by people who received campaign contributions from the company they’re bailing out. Yet, mirabile dictu, nary a word in the press. We have seen McCain-Feingold upheld by the Supreme Court when it comes to issue advocacy,  and people hailed it as some sort of victory for free speech. Here we have Fannie and Freddie giving money to Dodd and Obama, and now Dodd and Obama are prepared to hand them 20 billion additional dollars, bringing the grand total to almost 150 billion. What we need is a law that prevents anyone who receives federal money from contributing to any federal candidate’s campaign. Freddie and Fannie shouldn’t be allowed to buy 150 billion dollars for 300,000 dollars in campaign contributions.

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