One problem, two countries: Executive greed and political inaction
Fannie and Freddie received $169 billion dollars in taxpayer funded bailouts after the mortgage crash. Many say that Fannie and Freddie actually contributed to the crash. However November 2011 it we learned that they planned to issue their 12 executives seven figure bonuses, totaling $12.79 million. Which genius timed that press release? "These bonuses have come just as Freddie and Fannie have asked for an additional $13 billion in handout from the taxpayers," says Darrell Issa, R-CA.
The bonuses were approved by the Federal Housing Finance Agency. Congress acted. It formed a committee.
Even though the President continues to eviscerate banks and private investment houses for doling out bonuses, he was and is silent on the quasi government Fannie and Freddie bonuses.
The house committee, chaired by Issa has voted 52-4 to stop those bonuses and any future ones, as well as reduce executive pay to standard federal levels. Even outgoing Barney Frank voted for it because “I had hoped that they would use restraint on their own because I think it’s better that we not intervene,” Frank, of Massachusetts, said today. “But they did not.” Easy to vote that way when you are not running for re-election Mr Frank. Not much felt moral responsibility there.
In reply Charles Haldeman, the head of Freddie Mac said today he understands the outrage over executive compensation. I am sure the unemployed and foreclosed upon will draw comfort from that understanding.
"We have 9 percent unemployment in our country, and there are millions of families at risk of losing their homes. I understand the outrage," he said. DeMarco said we need to pay multimillion dollar bonuses to lure “qualified” executives to the positions. He contends it is best for “the people” to have qualified executives overseeing their money and minimizing losses. DeMarco describes the enormity and complexity of the work. However the results these qualified and highly bonused executives have achieved are mediocre at best. Some accuse them of worse.
The Obama administration has been sharply critical of bonuses for private sector executives. It has been silent on Freddie and Fannie’s bonuses which are, according to the Daily Caller three times larger than those received by the oft Obama maligned Wall Street executives.
Chairman Issa reminded his committee of President Obama's remarks about AIG, which also gave out bonuses while it was being bailed out.
"I see reports of massive profits and obscene bonuses in some of the very firms who owe their continued existence to the American people," Obama said. President Obama commented, "I did not run for office to be helping out a bunch of, you know, fat cat bankers on Wall Street." We might add, “unless they are employed by Freddie and Fannie.” Patrick McHenry, R-NC, said. "… it is somewhat strange to me that in an area where he could exert influence, he has chosen not to." Strange Mr McHenry? Some would identify it as something else.
DeMarco reported that while Fannie and Freddie are making progress, they are unlikely to ever pay back all the taxpayer support. No surprise there.
The US has no monopoly on opportunistic bonus awards. In Britain the Labor (Democratic) Prime Minister Gordon Brown has been criticized for failing to act over what could be seen to be “unconscionable” bonuses paid to banking professionals. The Financial Services Authority has said that the multimillion dollar payouts may have worsened the economic crisis for the entire country.
The Scotsman.com reports Mr Brown was also ridiculed (and having seen "Iron Lady" we are all now experts on how the British MP's ridicule each other) for a "totally inadequate" response to news that Royal Bank of Scotland, which was kept afloat with 20 billion of public cash, was preparing to pay staff about 1 billion in bonuses.” Despite huge tax payer funded bailouts the Royal Bank of Scotland prepared to pay a 1 billion pound slab of that taxpayer money to bank executives. When Gordon Brown chose not to act the conservative leader David Cameron begged him to “protect the tax payers investment and ensure there would be no more indefensible bonus packages.” Mr Brown did not. The only course left for the conservatives was to plead for the bankers to show “moral responsibility” and refuse the bonuses. One could predict where that plea would go. Instead of the called for moral responsibility Mr Fox, Lawyer for the bankers said that some bankers are "quite angry" at not receiving their contracted bonuses.
Lord John Prescott former deputy prime minister of the Labor Party, most closely aligned to US Democrats called for the Scottish Bank to refuse bonuses for its bankers and traders. He attempted to marshal an “on line” army to record its anger and opposition to the bonuses. The petition calls the bonuses “morally and economically outrageous”.
However, like DeMarco, the British Chief Secretary to the Treasury Danny Alexander insisted that ministers were “protecting the taxpayer” by allowing the bonus to go ahead. Do these guys share script writers?
Mr Cameron, conservative minority leader, said: "It does appear that the government has been completely asleep on the job."
In his own defence Mr Brown, who is reportedly “angry - very angry” said "We are in discussion, on a case-by-case basis, with the banks that want to take up the scheme about the level of executive remuneration, especially the bonus system that has caused so much difficulty." While Brown discusses the broader issue the bonuses continue. And while Brown continues to side step the issue the Royal Bank of Scotland chief executive Stephen Hester was shamed into waiving his controversial £1 million bonus a day ahead of a House of Commons vote calling for him to be stripped of the payout.
This side of the pond, or that, there is an abundance of discussion of the wider issues, anger and a lack of felt moral responsibility amongst bonus receiving executives. The situations are similar, institutions are bailed out and executives contractually rip off the tax payer, key politicians are silent, others rally in a bipartisan effort to stop the bonuses, only the accents are different. On both sides of the pond the shafted tax payer waits to see what will happen.