Fannie Mae & Freddie Mac Take a Pay Cut

At last, there is something to cheer about in Congress.  According to The Washington Post, the House passed a bill to cut the pay raises to the CEOs of the Fannie Mae and Freddie Mac lending companies.

From The Washington Post’s story:

The U.S. House of Representatives voted to approve a bill that would suspend new annual target compensation of $4 million each for Freddie Mac CEO Donald Layton and Fannie Mae CEO Timothy Mayopoulos. If signed into law by President Obama, the bill would return the cap on their pay to $600,000. That level was set in 2012 in the wake of anger over high bonuses that were paid to executives of the housing entities, which were in government conservatorship and had been bailed out by taxpayers.

All I can say is, it is a start!  After all the government money that has been used to bailout the banking industry and to subsidize the Fannie Mae & Freddie Mac lenders, it is about time that the people managing the companies be held accountable.  Their pockets should not be lined with money earned on the backs of taxpayers.

Rationale for the high-cost pay raises was to compete with the rest of the loan industry so that the executives would be retained to add stability to the day-to-day operations of the lenders.  However, the fact is that in the case of Fannie and Freddie, the lenders don’t have to compete in the private marketplace.  If a private-sector company is successful, then CEOs are compensated well.  If a private-sector company fails for a period, then the CEOs are not rewarded financially (at least in theory).  But for Fannie and Freddie, they always have that taxpayer-supported safety net.  Some might argue that with all the bailouts that were given to private sector banks, this is a distinction without a difference, but at least on the face of it, the government subsidies for Fannie and Freddie are established.  So, these individuals are not really competing with with other private companies.

Here’s how the Post ended its story:

Obama is expected to sign the bill. White House press secretary Josh Earnest has said in the past that “it is entirely legitimate for the executives at those institutions to be subject to compensation limits,” especially given the advantage they have as entities backed by taxpayers.

While cutting the salaries of the CEOs is a start, the best thing that could happen is to abolish the federally subsidized home-lending companies all together.