There Are Bonuses, And There Are Bonuses

My colleagues Rick and Rodney have both discussed the bonuses awarded to the top bozos at Fannie Mae and Freddie Mac and the “curious case of the ass that didn’t bray in the night,” but it’s such a fascinating story that I feel almost compelled to talk about it, too. The core query of both of their articles is that why did President Obama denounce the bonuses awarded execs at bailed-out institutions such as AIG, but said nothing about the Fannie/Freddie bonuses — but his proxies defend them.

 

It’s a question I share.

 

I recall the AIG story fairly clearly. Several of the execs in one division ran up huge losses, and would have wiped out the entire company if it hadn’t been for the bailout. After the dust settled and the inept fired, AIG found it needed some very talented people to take over that division, straighten out the mess, recover as much money as they could, and shut it down.

 

Obviously, this assignment wouldn’t be either overly profitable or a real resume’-enhancer. And even more obviously, I wasn’t privy to the conversations that went into recruiting these new people. But from what I read and heard, it played out something like this.

 

“So, Bob, I have a special assignment for you. We need you to go in and clean up the mess in the Credit Swaps division. We need someone to ride herd on those idiots woulda taken down the entire company, but someone’s gotta pick up the pieces, and I think you’d be perfect for it.”

“No problem, George. I’ll get right on it after I stick my dick in the blender.”

 

“Come on, Bob. The company needs you.”

“And I need my reputation, George. Let’s be blunt — that’s a thankless job. Whoever takes it on will be getting all the blame for what the idiots did, and there’s no money to be made there anyway. Plus, I’ll get to go through the rest of my life with that entry on my resume’, and everyone will think I was one of those idiots. No, thanks.”

“Tell you what, Bob — we’ll set up a bonus program. Not based on profitability, of course, but on recovered assets. We’ll set up a program where you’ll get a bonus based on how much you cut the losses.”

 

“Getting warmer, George.”

“OK, we’ll toss in a ‘survival bonus’ — stick it out for six months, and we’ll toss in more money. And I know you didn’t cause the mess, but it’s still the company.”
“OK, George, I’ll talk about it. Lemme put this blender back in the lunch room.”

 

That was how the deal at AIG was spelled out — the bonuses were not for the idiots who took down the company, but the folks who came in after to clean up the mess. One of those guys was a man named Jake DeSantis, who agreed to work for $1 a year and clean up the mess, with the promise of that bonus. And the government signed off on those bonuses when they were offered. It was only after the fact, when the salvors had done their job in good faith, that there was an uproar about those bonuses and demands they be refused.

 

On the other hand… I don’t recall any large-scale purges at Fannie and Freddie. I don’t recall too many government officials (apart from a few cranky Republicans) in Congress demanding answers for their incompetence (I’m being generous here) in costing the taxpayers so goddamned much money.

 

I have a theory, of course. It’s because Obama et al see Fannie and Freddie as their people. It’s been a great dumping ground for Democratic hacks and apparatchiks for decades — Barney Frank spent several years… romantically paired… with one of their top execs. Jamie Gorelick, the “Typhoid Mary” of colossal fuck-ups, left the Clinton Justice Department (where she helped set up the “wall” that kept the FBI and CIA from sharing intelligence) to take a top job at Fannie Mae (despite no history in finance), during which time it suffered a $10 billion accounting scandal. Then, after she left, she signed on to advise Duke University when it tried to railroad its entire lacrosse team on a bogus rape charge. Gorelick’s former boss at Fannie Mae, Franklin Raines, was the one who oversaw the accounting fraud that vastly overstated Fannie’s earnings — and, by a wild coincidence, directly led to Raines collecting some very huge bonuses. Raines later became one of Candidate Obama’s top advisors. And Raines’ mentor and predecessor at Fannie Mae, Jimmy Johnson, was also a major Obama advisor and tapped to help Obama pick his running mate.

 

Plus, Fannie and Freddie were the engines who drove so much of the liberal/progressive social agenda. They were the ones who led (read: coerced) banks into making loans and issuing mortgages that they had little to no hope of ever recouping. To go after them would be like admitting the liberal agenda was doomed to fail.

 

So to expect Obama to ever denounce Fannie or Freddie would be like asking him to denounce his own pastor, or his own grandmother. It just ain’t gonna happen.

 

But AIG? They were in the private sector. They were greedy corporate fatcat greedheads who were only out for themselves. They weren’t high-minded civil servants out to push the liberal agenda. They not only didn’t merit defending, their contracts didn’t merit honoring, but they were damned lucky that the wise, benevolent, gracious federal government deigned to protect them from the mobs with pitchforks. Mobs that the government had helped rile up, but never mind that.

 

That’s how things roll in the Obama regime. If you back him, he’s got your back — as long as you aren’t a net liability.

 

Should the pressure on Fannie and Freddie grow too intense, I’m sure we’ll see President Obama regretfully denounce the greed and corruption that brought down such fine, noble, institutions, and how we must not let the misdeeds of a few taint all the good they did — and how we must continue their good works.

 

Some things are just too damned predictable.

 

 

Chris Matthews has lost that tingly feeling
President Obama's Worst Nightmare
  • Anonymous

    They were the ones who led (read: coerced) banks into making loans and issuing mortgages that they had little to no hope of ever recouping.

     “The banks” (and non-bank mortgage originators) sold off the mortgages as soon as they got them, so they didn’t have to worry about “recouping” them.

    That is a fundamental feature of the problem.

  • herddog505

    Jay TeaFannie and Freddie were the engines who drove so much of the liberal/progressive social agenda. They were the ones who led (read: coerced) banks into making loans and issuing mortgages that they had little to no hope of ever recouping.

    Fannie / Freddie and other US agencies made (IIRC) something like 70% of the subprime and otherwise dodgy loans.

    Jay TeaTo go after them would be like admitting the liberal agenda was doomed to fail.

    This is the crux of the problem: the dems, both for reasons of ideology and greed, cannot let their little schemes be disturbed.  The canoe must not be rocked, the gravy train must not be derailed.

    Back in ’03 when Bush first tried to reform Fannie / Freddie, the dems (specifically Chris “Countrywide” Dodd) blocked him.  NYT, Sep 11, 2003:

    The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.
    Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

    The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.

    Fast forward almost exactly four years.  Bloomberg, Aug 9, 2007:

    President George W. Bush said Fannie Mae and Freddie Mac must complete a “robust reform package” before the government will allow the two largest mortgage finance companies to buy home loans beyond current federal limits.

    Congress needs to get the companies “reformed, get them streamlined, get them focused, and then I will consider other options,” Bush told a White House news conference today in response to a question about whether the two companies would be allowed to buy more mortgages to help spur the housing market.

    The Bush administration’s stance threatens to slow a recovery of mortgage lending, said Jim Vogel, head of agency debt research at FTN Financial. Allowing the two government- chartered companies to buy mortgage assets would help revive demand and fill a gap left by other buyers who fled as borrowers with bad credit started defaulting at the fastest pace in a decade.

    Fannie Mae and Freddie Mac own or guarantee 40 percent of the nation’s $10.9 trillion residential mortgage market and profit by holding mortgages and mortgage-backed securities as investments. They also charge a fee to guarantee and package loans as securities for sale to investors.

    The U.S. Treasury and Federal Reserve since 2005 have characterized the companies’ holdings more as a threat to market stability than a lifeline in times of shrinking credit. The regulators, including Ofheo, have called on Congress to mitigate the “systemic risk” by creating a regulator with power to pare the companies’ assets.


     
    Fannie Mae and Freddie Mac could destabilize global financial markets should they fail to hedge the holdings against interest rate changes and other risks, the regulators have said.
    [emphasis mine – hd505]

    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aYn2.zVtU7vQ&refer=home

    The article goes on to cite various democrats who claimed that the only problem was Bush refusing to let Fannie / Freddie make MORE mortgages.  Chris “Countrywide” Dodd, who refused to follow the (democrat-controlled!) House’s lead to introduce legislation to more strongly regulate the two firms, had the nerve to complain that Bush wasn’t doing enough.

    This is how the dems work: set up a crisis (mostly through their own greed and incompetence), refuse to do anything to fix it, blame the GOP for the resulting mess, and let MiniTru turn that blame into historical fact.

    It’s great to be a dem.

    But if you’re NOT a dem and attempt to make some money, well!  The pitchforks (or a pack of smelly OWS hippies) are coming for YOU!

    • Anonymous

      Freddie and Fannie are sleazy organizations full of trough-feeders like Gorelick and Gingrich, but this is the best questioning of the “government forcing to lend on ghetto real estate caused the crash” BS I’ve read:

      http://www.washingtonpost.com/business/examining-the-big-lie-how-the-facts-of-the-economic-crisis-stack-up/2011/11/16/gIQA7G23cN_story.html?sub=AR

      Consider the causes cited by those who’ve taken up the big lie.
      Consider New York Mayor Michael Bloomberg’s statement that it was
      Congress that forced banks to make ill-advised loans to people who could
      not afford them and defaulted in large numbers. He and others claim
      that caused the crisis. Others have suggested these were to blame: the
      home mortgage interest deduction, the Community Reinvestment Act of
      1977, the 1994 Housing and Urban Development memo, Fannie Mae and
      Freddie Mac, Rep. Barney Frank (D-Mass.) and homeownership targets set
      by both the Clinton and Bush administrations.
      When an economy booms or busts, money gets misspent, assets rise in prices, fortunes are
      made. Out of all that comes a set of easy to discern facts.

      Here are key things we know based on data. Together, they present a series of tough hurdles for the big lie proponents.

      The boom and bust was global. Proponents of the false narrative ignore the worldwide nature of the housing boom and bust.

      A McKinsey Global Institute report noted “from 2000 through 2007, a remarkable run-up in global home prices occurred.” It is rather unlikely that a simultaneous boom and bust everywhere else in the world was caused by one set of factors (ultra-low rates, securitized subprime, derivatives) but had a different set of causes in the United States. Indeed, this may be the biggest obstacle to pushing the false narrative.
      How did U.S. regulations against redlining in inner cities also cause a boom in Spain, Ireland and Australia? How can we explain the boom occurring in countries that do not have a tax deduction for mortgage interest or GSEs? And why, after nearly a century of mortgage interest deduction in the United States, did it suddenly cause a crisis?
      These questions show why proximity and statistical validity are so important.

      Let’s get more specific.The Community Reinvestment Act of 1977 is a favorite boogeyman for some, despite the data that so easily disprove it as a cause. It is a statistical invalid argument, as the data show.

      For example, if the CRA was to blame, the housing boom would have been in CRA regions; it would have made places such as Harlem and South Philly and Compton and inner Washington the primary locales of the run up and collapse. Further, the default rates in these areas should have been worse than other regions.

      What occurred was the exact opposite: The suburbs boomed and busted and went into foreclosure in much greater numbers than inner cities. The tiny suburbs and exurbs of South Florida and California and Las Vegas and Arizona were the biggest boomtowns, not the low-income regions. The redlined areas the CRA address missed much of the boom; the
      places that busted had nothing to do with the CRA.

  • Anonymous

    Anyone thought to ask Maxie Waters how ‘solvent’ Fannie and Freddie are today?

  • Another aspect of the piling on of AIG, is that most of the top people (including the CEO and founder, Henry Greenburg) donated to mostly Republican candidates and other conservative causes. That is why New York’s Attorney General (Elliot Spitzer aka Client #9) went after them. If they had donated to the top Dems instead, there would have been crickets chirping in the silence.