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  • Report Alleges White House Hypocrisy on Executive Compensation

    House investigators are alleging a White House double standard in its rhetoric toward executive compensation for large financial institutions. The allegations appear in a report released in advance of a hearing on government-back housing giants Fannie Mae and Freddie Mac.

    President Obama ramped up the populist rhetoric in 2009 with respect to bonuses for executives at private financial companies, but has been silent on comparably large bonuses for officials at Fannie and Freddie, according to the report, released Wednesday by House Oversight and Government Reform Chairman Darrell Issa (R-CA).

    The double standard, Issa writes, “leaves the impression that the White House is disengaged from addressing the deficiencies of Fannie and Freddie.” Those deficiencies are numerous, and consequential, as Heritage’s David John has pointed out.

    Issa’s report focuses on the toll Fannie and Freddie have taken on taxpayers:

    Government ownership of Fannie and Freddie has easily turned into “the most expensive bailout of the 2008 financial crisis.” Since entering conservatorship, the Enterprises have taken$169 billion from the Treasury and still owe taxpayers $141 billion. Every quarter, the total continues to mount as the Enterprises keep posting net losses. Freddie recently asked Treasury for an additional $6 billion after reporting $4.6 billion in net losses in its third quarter earnings, and Fannie requested an additional $7.8 billion in aid after reported a third quarter loss of $5.1 billion. With FHFA’s projection that it will cost at least $51 billion more to support the Enterprises through 2014, the overall bill to the American taxpayers will not be cheap.”

    Despite their lackluster performance, Issa writes, top executives at both firms continue to receive large payouts “for managing losses.”

    That criticism is similar to White House rhetoric concerning compensation for large financial institutions that also received taxpayer support. Issa’s report recalls that rhetoric, and contrasts it with the administration’s response to executive compensation at Fannie and Freddie:

    In 2009, President Obama called Wall Street bankers “fat cats,” saying that bankers “are drawing down $10, $20 million bonuses after America went through the worst economic year that it’s gone through in – in decades, and you guys caused the problem.” That same year, however, the White House declined to comment when Fannie and Freddie employees received a total of $210 million in bonuses. In January 2010, President Obama again criticized executive compensation at Wall Street firms as “massive profits and obscene bonuses at some of the very firms who owe their continued existence to the American people.” Yet, the White House has remained “largely silent” on the bonuses given to executives at Fannie and Freddie. White House Press Secretary Jay Carney dismissed any Administration concern over the compensation, saying “These entities are independent and therefore they are independent decisions. The White House is not involved, and nor should it be.

    In fact, as the Daily Caller’s Mary Katherine Ham noted, average per-employee bonuses for executives at Fannie and Freddie were actually about three times the size of those given to top managers at American International Group (AIG), one of the firms singled out by the president for supposedly excessive benefit packages.

    But the fact that, like AIG, the two GSEs have sustained losses does not mean that their executive pay was excessive or without merit. Compensation is a function of competitive market forces, as John noted when asked about Issa’s report.

    Market-rate compensation for Fannie and Freddie execs is, in fact, justifiable, on the grounds that the two GSEs need to compete with private companies for skilled managers. Fannie and Freddie stand to lose even more taxpayer dollars if they do not have competent and experienced people at the helm.

    John added, however, that private companies must do the same, and echoed Issa’s allegations of a double standard.

    But of course private financial services companies need to compete with each other for those same managers. They don’t pay high salaries out of the kindness of their hearts. They recognize both that skilled managers are necessary to run a successful business, and that those managers do not come cheap.

    The White House has criticized private companies for trying to secure those executives, but it’s been near-silent on GSE attempts to do the same. This suggests a profound double standard in the administration’s attitude towards the financial sector.

    As frustrating as it may seem to watch top executives at government-backed firms take in millions in bonuses, in other words, the alternative is to limit those firms’ abilities to attract the best talent. The inevitable result is a crop of less-skilled managers, which put those companies at even greater risk of financial loss.

    The Obama administration seems to understand that fact when it comes to Fannie and Freddie. But private firms that also try to attract the most skilled executives earn the White House’s ire. Expect Issa and others to focus on that double standard during Wednesday’s hearing.

    Posted in Scribe [slideshow_deploy]

    2 Responses to Report Alleges White House Hypocrisy on Executive Compensation

    1. JeffC says:

      Your assumption that Fannie and Freddie would lose money faster if the janitor was in charge is pure nonsense. The current managers have almost nothing to do with profits or losses, those are already cooked into the books based on the assets accumulated over the last 2 decades. Let us not forget that these same companies thought that Rahm E. (mayor of Chicago) was a financial wizard given his $16 million paycheck. This is nothing more than political paybacks. Wait a couple of years and you'll find these "managers" in senior staff positions under Democratic politicians.

    2. Bobbie says:

      when is it called criminal? people produce products and provide services that isn't a loss to the economy! people haven't had any increase to provide anymore to our families in many years! NO INCREASE to the standard of living in the private sector! except of course the government bailout slobs! ALL OF IT because of the unconstitutional expansion and costs of government and their special benefits to their special interests and individual professional wages they have no adequate profession or competence in and are a direct disservice to the majority, including us! Helping themselves to any standard of living they want off the backs they continue to ride!

      there was no American reason to change the housing rules to distort the housing rules to enable the irresponsible to purchase a house they didn't have a living wage or credit to afford, that they do have the ability to acquire like everyone else, regardless of media and government's (belittling) "minority class" manipulation! Equal rules have to apply to all and all have to be held accountable to those rules! corruption needs accountability!

      Because of government ruling with favoritism covering the consequences at the forced expense of those that took the time to reach a goal, to find a job to afford a home within their means regardless of government's (belittling) "minority class" status or otherwise, makes the current American governing unjust, unfair, unacceptable by government controlled inequity! People are being taxed out of the ability to live independently! That's extremely unconstitutional!

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