Obama Using Fannie/Freddie Debacle to Strengthen His Class Warrior Credentials
Once again we see the distraction of “CEO severance packages” as a faux political issue:
Under the terms of his employment contract, Daniel H. Mudd, the departing head of Fannie Mae, stands to collect $9.3 million in severance pay, retirement benefits and deferred compensation, provided his dismissal is deemed to be “without cause,” according to an analysis by the consulting firm James F. Reda & Associates. Mr. Mudd has already taken home $12.4 million in cash compensation and stock option gains since becoming chief executive in 2004, according to an analysis by Equilar, an executive pay research firm.
Richard F. Syron, the departing chief executive of Freddie Mac, could receive an exit package of at least $14.1 million, largely because of a clause added to his employment contract in November of last year as his company’s troubles deepened. He has taken home $17.1 million in pay and stock option gains since becoming chief executive in 2003.
The malcontents of the Angry Left are, of course, spitting venom:
“This is completely outrageous,” said Richard C. Ferlauto, the director of corporate governance and investment for the American Federation of State, County and Municipal Employees, a large pension fund. “It is really a slap in the face to shareholders and homeowners whose loans are at risk and taxpayers footing the bill for a bailout.”
Obama, meanwhile, provides the “liberaltarian” response:
Presidential candidate Sen. Barack Obama (D-Ill.), in a letter to Treasury Secretary Henry M. Paulson Jr. and James Lockhart, the housing agency director, urged them to void the “inappropriate” payments.
“Under no circumstances should the executives of these institutions earn a windfall at a time when the U.S. Treasury has taken unprecedented steps to rescue these companies with taxpayer resources,” Obama wrote.
Obama is, of course, pandering to idiots here. “Windfall” is to dumb liberals what “strict constructionist” is to dumb conservatives: code for “We hate the people you hate, and once we’re in power we’ll be sure to screw them over for you. So be sure to vote for us. God bless America.”
The problem with the CEO severance canard is that most ignoranti have no idea what severance actually is. Severance is not a multi-million gold watch as a reward for running the company — or for running it into the ground, as the case may be. Typically the package represents compensation earned over the entire course of the executive’s employment. Retirement funds, health and other benefits, and especially deferred compensation, are all components of severance that were earned, in full, long before the executive leaves the firm.
We saw this despicable distortion once before in 2006, when it was “exposed” that retiring Exxon chairman and CEO Lee Raymond’s severance package supposedly totaled $398 million. What few bothered to realize was that Raymond’s severance was mostly accrued pension and other benefits, stock and options, and deferred compensation — all duly earned and accumulated over a career spanning 43 years with the company. If you maxed out your 401(k) every year for 43 years, you’d have a respectable “severance package” too. Should you therefore be accused of walking away with an “unacceptable windfall” subject to “voiding” by some malcontent politician trying to win an election?
Contrary to the screechings of all those “dedicated public servants” who are tripping over themselves to tell us how obscene this situation is, severance is not simply a “going away present” for a job poorly done — and is most certainly not, contra Obama’s pathetic blather, a “windfall.”
One last thought: Keep in mind that all these “unacceptable windfalls” are pre-tax. So it’s rather ridiculous to suggest that Mudd and Syron are “exploiting the taxpayers,” when clearly it’s going to be the other way around.
Filed under: Economics & Finance, Freedom of Contract, Politics
I look at it this way: The Fannie and Freddie CEOs are simply creditors of an enterprise that was driven to insolvency in large part by the decisions of these same CEOs. It seems to me that the procedures that govern how the firms must satisfy their obligations to creditors should place these guys at the end of any line of people holding their hands out. Moral hazard applies to CEOs just as much as it applies to us mere mortals. And insofar as the law allows it, when the risky behavior of CEOs leads to ruin, they shouldn't be rewarded for it before other creditors are made as whole as they can be.
You look at it, um, wrong. The CEOs are contractual employees with vested benefits packages that were duly earned. All else is sophistry.
Performance-based pay is all well and good. But we're not talking about that here. We're talking about stripping employees of their vested benefits in direct contravention of their (perfectly legal) employment contracts. That is both absurd and obscene.
It's not clear to me why the promises made by an insolvent company in an employment contract should always be honored before other promises made by that company in things like bond issues. Call it sophistry if you wish, but we're still left with a line of people trying to draw water from a nearly dry well. You state that the CEOs deserve to be at the head of that line without explaining why.