L.A. Liberty

Freddie Mac's Losses Grow as Taxpayer Bailout Funds Millions in CEO Pay →

There is nothing wrong with compensation packages including bonuses. But it is very hard to justify a compensation system that grants merit pay to executives of companies that would otherwise be insolvent without taxpayer bailouts.

Freddie Mac announced Thursday that it saw losses of $4.4 billion in the third quarter of 2011 and was short $6 billion total at the end of September. If Freddie was any other company, they would be brought before the FDIC, a bankruptcy judge, or taken through the new resolution authority process and shut down. But instead, taxpayers are forking over $6 billion to cover those losses.

In total, Freddie Mac has received $71.2 billion in bailout money from the U.S. Treasury since FHFA took the GSE into conservatorship in late August 2008. Here is the most recent breakdown:

3Q 2011 — $6 billion

2Q 2011 — $1.5 billion

1Q 2011 — $0

4Q 2010 — $0.5 billion

3Q 2010 — $0.1 billion

2Q 2010 — $1.8 billion

1Q 2010 — $10.6 billion

4Q 2009 — $0

3Q 2009 — $0

2Q 2009 — $0

1Q 2009 — $6.1 billion

4Q 2008 — $30.8 billion

3Q 2008 — $13.8 billion

Total Freddie Mac losses so far: $71.2 billion. The total Fannie Mae bailout so far is $103.8 billion, but their third-quarter earnings come out next week and that number is estimated to jump by $10 billion more. So pending next week’s Fannie Mae numbers, the total taxpayer bailout for Fannie and Freddie’s failures to set responsible underwriting standards, make wise investment decisions, and hedge risk properly is $180 billion. …

And with all the talk of refinancing programs and attempts to force principal reductions, the losses could be higher since the investors in the mortgages that would be changed in those circumstances wind up losing revenue on every refi and reduction—just remember the taxpayers are now the investors in the millions of mortgages owned or guaranteed payment by the GSEs.

Things do not look much prettier when headlines show up about $12.9 million in bonuses for the executives of the GSEs. …

The problem is not necessarily that the bonuses were over a million—that is just a headline grabber appealing to the subjective tendencies of the population at large. Who is to say what a large mortgage company executives should make in normal times. Certainly not mass public opinion. The shareholders should make that call.

The thing is, though, that we are the shareholders of Fannie Mae and Freddie Mac. Without the public money to support the GSEs, they’d be goners.