Los Angeles, California

HomeCaliforniaLos Angeles

Email Paul Kiesel Paul Kiesel on LinkedIn Paul Kiesel on Twitter Paul Kiesel on Facebook
Paul Kiesel
Paul Kiesel
Contributor •

Democrats and Republicans Finally Agree… At Least on One Issue

Comments Off

What’s the difference between a Republican hockey mom and a Democrat that owns a pitbull? Obviously, a lot! However, Democrats and Republicans can agree there’s one emerging issue on which they’re in complete accord: The recently deposed CEOs who led Fannie Mae (Daniel Mudd) and Freddie Mac (Richard Syron) into financial quicksand don’t deserve to collect multimillion-dollar bonuses on their way out the door.

Members of Congress and both Senators Barack Obama and John McCain have been incensed all week that the two former executives were entitled to — and likely to receive most of — a $24 million bonus after being fired.

Although Bush and White House officials have remained silent and noncommittal, administration officials are clandestinely trying to find a way to winnow the severance payments to Mudd and Syron.

As the Los Angeles Times points out, “The furor reflects an overarching political reality: As the government has committed more and more tax dollars to bailing out huge financial institutions to protect the overall economy, it has become more important to avoid even the appearance of rewarding those seen as having contributed to the problem,” (Los Angeles Times, 9/11/08).

And the two disgraced executives should not receive millions in compensation. Look at the ignorance and indifference Mudd and Syron displayed since 2003, as I blogged on the subject last month:

David Andrukonis, the former chief risk officer to the embattled mortgage giant, told Syron in mid-2004 that the company was buying too many bad loans that “would likely pose an enormous financial and reputational risk to the company and the country.” Syron refused to consider the possibilities that Andrukonis portended, contending that his options were limited. He claims several times over that he was almost bullied into buying more loans by Congress and shareholders, however, at the end of the day, he runs the company and knew that complying with both groups would result in the compensation he’s received since 2003: $38 million. Therefore, he chose not to rock a boat that would eventually sink his reputation, the company’s shares and require government/taxpayer involvement, but we now know that, to Syron, all of those negatives were worth $38 million.

Syron and Fannie Mae’s chief executive, Daniel H. Mudd, whose company is also facing the same problems as Freddie, defended their choices of buying high risk loans, saying that they did not anticipate that the housing market would decline so quickly (yet they received a bevy of warnings telling them to curb their high risk mortgage purchases). But the more sinister aspect to their defense is that Syron and Mudd, yielding to the pressures of Congress and shareholders, wagered that if things got too bad (housing prices crashed), the government would bail them out.

Andrukonis reiterated Syron’s and Mudd’s foresight of a government bail out (which they foresaw in this instance, but not in predicting that buying bad loans would equal financial turmoil?). “The thinking was that if something really bad happened to the housing market, then the government would need Freddie and Fannie more than ever, and would have to rescue them [. . .] Everybody understood that at some level the company was putting taxpayers at risk.” (LosAngeles.InjuryBoard.com, 8/5/08)

McCain and Obama were practically in unison on the compensation issue. John McCain, who has a dubious record when it comes to the lending industry, was straightforward and practical in his response to the situation at a rally Wednesday in Fairfax, Virginia, “CEOs that led us into this mess are walking away with over $20 million, and we’re not going to let that happen as president [. . .] They deserve nothing. They should be paying it back.”

In Riverside, Ohio, on Tuesday, Obama said, “It would be unacceptable for executives of these institutions to earn a windfall at a time when the U.S. Treasury has taken unprecedented steps to rescue these companies with taxpayer resources.”

It’s nice to see the presidential candidates unequivocally agree at least on one issue, especially McCain, considering his former, closest economic adviser, Phil Gramm, still thinks we’re a “nation of whiners.” I’m sure McCain’s growing vociferous dissatisfaction with the failed Republican-led deregulation of Wall Street, is much to Gramm’s chagrin.