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Congress Shocked To Find That Being CEO Of A Bankrupt Company Is The New Killing It
Posted By admin On November 16, 2011 @ 4:39 am In Money Watch | Comments Disabled
Zero Hedge 
November 16, 2011
Two weeks ago we reported with sheer disgust that the outgoing CEO of bankrupt Freddie Mac, Ed Haldeman, was to pocket over $4 million for his brief two year stay at the nationalized GSE, which money was to reward him for lots of hard work collecting bail out cash from the Treasury. $21 billion to be precise.
Apparently it is not easy to beg from Tim Geithner which explains the compensation for a task which is essentially supervising a financial black hole with an attached run off portfolio. Nonetheless the optics of this farce are rather unpleasant which is why we said that this is the (one of many) reason “why people in America are very, very pissed.”
Today Congress, which has yet to ban itself from trading on inside information, has decided to at least rectify this one sticking point, and moved forward with a “bill to block multimillion-dollar executive pay packages at Fannie Mae and Freddie Mac even as their regulator defended them as necessary to retain top talent and limit taxpayer losses at the bailed-out companies.” And where are they going to go: MF Global? Morgan Stanley? RBS? Jefferies? As for what new pay wil be: “The committee adopted an amendment that would use the pay scale that applies to independent financial regulators, such as the Federal Deposit Insurance Corp, which allows for higher pay than at most federal agencies.
Representative Al Green, who offered the amendment, said this would have the effect of limiting the highest salaries to about $260,000 per year.” While still about 3 times more than what they deserve, this is a good start. And an even better one would be to if not unwind the GSEs, then to at least recognize that their $7 trillion in debt should be counted toward the US Federal debt, as Peter Orzsag suggested once .
Naturally were that to happen US total debt/GDP would be over 150%, and the bond vigilantes would suddenly be confused whether their time is not better spent on this side of the Atlantic. Yet the biggest twist in this story, is that not only are the GSEs bankrupt, but as the NYT reported earlier, the FHA itself has a “close to 50% chance of requiring a bailout .” Add to that that the corporate retirement guys (PBGC) and the post office (USPS) are now effectively broke as well, and very soon being the CEO of a bankrupt company will be the new killing it.
From Reuters :
Lawmakers from both parties have expressed shock at revelations the two government-owned mortgage finance firms, which have been propped up with about $169 billion in federal aid, were paying out $12.79 million in bonuses for 10 executives. “The taxpayer-funded bailout of Fannie Mae and Freddie Mac is the biggest bailout in history,” said Representative Spencer Bachus of Alabama, chairman of the House panel. “Adding insult to injury, the top executives of these failed companies receive multi-million-dollar pay packages.”
One wonders, inversely, just how shocked the public would be to find out how many congressmen and women traded in advance of congress itself legislating new rules as relate specifically to the GSEs.
The response, of course, is that nobody would ever surf porn all day for the paltry sum of $260,000:
DeMarco said the firms, the top two providers of funding for U.S. mortgages, need to be able to compete with other financial service companies for highly skilled executives.
“We have an entire competitive marketplace in the industry that suggests compensation is an important factor in attracting and retaining top talent,” he said.
As the regulator, DeMarco has broad authority to direct the companies’ activities, and he approved the pay in consultation with the Treasury Department. The pay packages have followed the same pattern over the last few years; the structure was set in 2009.
He said one of the “biggest concerns that has driven” the the executive compensation packages is an apprehension that the two companies will lose key staff if they are not fully compensated for their marketable skills. As employees leave, DeMarco has tried to reduce pay levels for their replacements.
Senate Banking Committee Chairman Tim Johnson, a South Dakota Democrat, expressed concern that tying pay to a government scale could do more harm than good.
“I fear that the federal pay scale will chase away the knowledgeable people we have and rely on to do a great job in a highly complex situation,” he told Reuters.
Acording to DeMarco it is best to phase in reforms ala Italy: 2 years over 15 years or something.
DeMarco told the Senate committee any changes in pay should not be a “sudden shock” and said the best way to reduce compensation would be for lawmakers and the Obama administration to agree on a future course.
“Then we could have a final resolution of Fannie Mae and Freddie Mac in conservatorship, which would resolve the compensation issue once and for all,” he said.
Because who knows what chaos would ensue if the overseer of a bunch of insolvent loans with massive negative equity decided to go wild and act all irresponsible. Let’s see: none?
And in other news, while the expert insider traders squabble over other people’s pay, even as they “hit the bid” all day long, yet another housing entity is about to get the chop… and thus billions more in taxpayer funds.
The Federal Housing Administration has a “close to 50” percent chance of requiring a bailout if the housing market deteriorates next year, the agency’s independent auditor said in a report released Tuesday.
The F.H.A., which offers private lenders guarantees against homeowner default, has just $2.6 billion in cash reserves, the report found, down from $4.7 billion last year.
The agency’s woes stem from the national foreclosure crisis. In the last three years, the F.H.A. has paid $37 billion in insurance claims against defaulting homeowners, shrinking its cash cushion.
The auditors determined the agency’s level of supplemental cash reserves by projecting losses on its mortgage portfolio and counting them against expected premium revenue. This year, the audit found that the F.H.A. supplemental reserve was less than one-quarter of a percentage point of its current portfolio: $2.6 billion against a $1.1 trillion mortgage portfolio, as of Sept. 30. Legally, the housing agency is required to keep a 2 percent cash buffer, a target it has not met since 2008.
F.H.A. officials argue that the likelihood the 77-year-old agency will need its first taxpayer bailout is slim. “It would take very significant home price declines to create a situation in which the portfolio would require any additional support,” said Carol Galante, acting commissioner. “There is no evidence or widespread prediction that home prices are going to decline to the kind of levels” requiring a bailout, she said.
Where does one even start…
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URL to article: http://www.prisonplanet.com/congress-shocked-to-find-that-being-ceo-of-a-bankrupt-company-is-the-new-killing-it.html
URLs in this post:
 Zero Hedge: http://www.zerohedge.com/news/congress-shocked-find-being-ceo-bankrupt-company-new-killing-it
 with sheer disgust : http://www.zerohedge.com/news/final-tally-outgoing-freddie-ceo-gets-4-million-bonus-receive-21-billion-bailouts-after-massive
 Peter Orzsag suggested once: http://www.zerohedge.com/article/obamas-budget-has-one-small-missing-piece-63-trillion-dollars
 close to 50% chance of requiring a bailout: http://www.nytimes.com/2011/11/16/business/economy/auditor-says-fha-could-need-bailout.html
 PBGC) : http://www.reuters.com/article/2011/11/15/pension-deficit-idUSW1E7LB05820111115
 USPS) : http://news.blogs.cnn.com/2011/11/15/postal-service-loses-5-1-billion/
 Reuters: http://www.reuters.com/article/2011/11/15/usa-housing-idUSN1E7AE0L620111115
 yet another housing entity : http://www.nytimes.com/2011/11/16/business/economy/auditor-says-fha-could-need-bailout.html#h[WTFWTF,TFbly]
 Regulator approves millions for Fannie, Freddie execs: http://www.prisonplanet.com/regulator-approves-millions-for-fannie-freddie-execs-2.html
 Fannie Mae, Freddie Mac bailouts could hit $363 billion, report says: http://www.prisonplanet.com/fannie-mae-freddie-mac-bailouts-could-hit-363-billion-report-says.html
 Fannie & Freddie Would Need Another $100 Billion From Taxpayers For Obama’s Proposed Mortgage Writedown: http://www.prisonplanet.com/fannie-freddie-would-need-another-100-billion-from-taxpayers-for-obamas-proposed-mortgage-writedown.html
 Fannie, Freddie bailout: $153 billion … and counting: http://www.prisonplanet.com/fannie-freddie-bailout-153-billion-and-counting.html
 “Obama to Bypass Congress on Mortgages”: http://www.prisonplanet.com/%e2%80%9cobama-to-bypass-congress-on-mortgages%e2%80%9d.html
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