In today's column I explain how Fannie Mae and Freddie Mac have been asked to do two completely incompatible things: help subsidize the housing market and make profits for shareholders. Top management is compensated on the latter goal: higher profits meant higher share prices, more compensation for top management. Unfortunately, they got those higher profits by guaranteeing questionable loans! Now what???
Fannie & Freddie: Profit-making companies or "Do Good" Govt Agencies?
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Terry Savage
Terry Savage writes a syndicated personal finance column for the Chicago Sun-Times and for TheStreet.com. Her latest book is "The Savage Number: How Much Money Do You Need to Retire?" Read more at TerrySavage.com.
Thank you, Terry, for explaining how this whole debacle happened. No one has dared to clarify this whole mess and now we can see why. I cannot believe that all these highly schooled and highly paid executives had no idea what was about to happen. They fell asleep at the wheel or were hiding in someone's pocket. To think that Daniel H. Mudd, President & CEO of Fannie Mae made almost $20 million between pay, benefits and perks while Fannie Mae lost $2.3 billion and he will continue in the same position making the same mistakes. Meanwhile, Richard Syron, Chief of Freddie Mac made well over $20 million in 2007. His pay alone was $18.3 million up 24% from last year! Meanwhile, Freddie lost $5 billion! It must be nice to get paid to screw up a company. The both of them should be tarred, feathered and FIRED. How is it that politicians and corporate executives get to live in a Wall Street socialism--their losses are socialized, meaning, we get to pay for the losses, while they pocket the profits? You are right, Terry, we should not continue with the same systems. We must demand strong regulations for the banking industry, especially since they cannot control or regulate themselves. Obviously having free markets don't work...at least not for the working-poor.
SAVAGE SAYS: Amen!
Dear Ms Savage, bin reading your stories for many years and find them always informative, today you had my attention with where did the money go but you did not offer the answer. So where did the money go and was was done with it. Did it leave the country? Was it invested in the USA in new factories? In new infrastructure? What about the banks from around the world that bought the papers of all those mortgages that are now in foreclosure. What happened to the money??
SAVAGE SAYS: It all went to "money heaven"! You never question where the money "came from" when your stock goes up! Or when the value of your house goes up! You just assume you deserve it; that it's the "natural" way of things. But that money came out of the blue. And unless you "capture" it by selling your stock, or your home, and putting the money in the bank, it's just a number.
Same thing with losses. When all those homes lose value, the money goes back into the blue of 'money heaven'. Only this time when you add up all that value lost, it totals billions!