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Michael Gracie

Why don’t Fannie Mae and Freddie Mac set off public bonus rage?

Fannie Mae and Freddie Mac, those institutions of ‘higher standards’, are preparing to pay up to $210 million in retention bonuses:

In a compensation program that has drawn angry protests from politicians, Fannie Mae and Freddie Mac expect to pay about $210 million in retention bonuses to 7,600 employees over 18 months, according to a letter from the mortgage companies’ regulator to Sen. Charles Grassley.

The maximum retention bonus for any individual executive under the plan will total $1.5 million during the 18 months ending in early 2010, according to the letter, which provides previously undisclosed details about the bonuses. The regulator, James Lockhart, director of the Federal Housing Finance Agency, said in a letter to the Iowa Republican senator that about $51 million of the payouts were made in late 2008 and that the rest are to be made this year and early next year…

“It is not realistic to expect that experienced and highly skilled employees will indefinitely continue to work as hard as they have if we do not provide reasonable incentives to perform,” Mr. Lockhart wrote. He argued that the companies need “skilled and experienced staff” to manage safely their more than $5 trillion in debt and guarantees of mortgage securities.

A few weeks ago, the public disclosure of AIG bonuses set off a firestorm – some AIG employees even had their houses vandalized. It would be nice to give credit where credit was due and pat Rep. Barney Frank on the back for denouncing the Fannie/Freddie scheme way back when, but all eyes seemed to be on AIG. They stayed there too, and one has to wonder why. Or at least had to wonder, as this news, including but not limited to the fact that a full 25% of the prospective bonuses have already been paid, was popped on a Friday. By Monday the public will have forgotten all about it, as planned.

Again, where are these specialists going to go otherwise? Same old excuses, and the same old tactics.

“For personal privacy and safety reasons,” Mr. Lockhart said, it wouldn’t be appropriate to release the names of all employees receiving bonuses of $100,000 or more.

Well at least Fannie and Freddie employees’ windows won’t be getting smashed.

AIG bonus meme roundup (UPDATED)

aig_logoAIG, that (almost) wholly-owned subsidiary hedge fund of the US Government, announced that they were going to pay millions in retention bonuses to employees of their financial products (and other) divisions. This set off a firestorm of protests, meme form which follows…

  • ON ADDING INSULT TO INJURY: Under pressure to disclose AIG published a counterparty list, and the public found out that Goldman Sachs, as well as a number of foreign concerns, took some $45 billion of the roughly $170 billion AIG was given. Folks were not particularly happy about that.
  • ON IT’S AN INHERITED PROBLEM: The bonus issue reaches as far back as early 2008, and was known about for months. The fact remains AIG continued posting big losses and the government kept shoveling money their way. And as recently as March 2nd of this year.
  • ON VOWING TO DO SOMETHING, JUST AFTER THE FACT: You can moan and/or whine all you want – the bonuses have already been paid. You can send out subpoenas too, but that’s mostly for show – there are few legal options available at this stage of the game. So, slip in that you are going to ensure this doesn’t happen during the next round of AIG cash injections. You heard it right…during the next AIG bailout.
  • ON MAKING SURE YOU ALWAYS HAVE A VILLAIN: Easy. There will always be someone around who is coaxed into thinking this is but a battle their hero is fighting. Unfortunately, the real war being waged is between the checkbooks of the citizenry and their bloodlust for granite countertops. The tacticians are only trying to convince the public they can keep the kitchen and continue dining out. While paying for neither.
  • ON TWITTER CAN SOLVE EVERYTHING: Much as Twitter doesn’t make any money (yet), the administration called on one of their founders to provide advice on the financial crisis. Lawmakers jumped on the bandwagon, using the service to discuss the AIG issue out in the open. Bonus issue (and financial crisis) still outstanding.
  • And…

  • ON THE EMPLOYEES ARE THE ONLY ONES WHO KNOW THIS CDS STUFF: You have to pay those bonuses because the folks that created the credit derivatives are the only ones who can unwind the transactions, and if they leave the whole system will come crashing down. My only question here would be: if you don’t pay bonuses to someone who created financial products that nobody wants anymore, what the hell are they going to do if you don’t pay them? Just up and quit?
  • I was once a master of the universe, conjuring financial products only I could understand. Now I work in the Goldman Sachs PR department, twittering about all the money we are lending to family restaurants and small businesses doing home renovation, and moonlighting as an auditor at the Treasury for the pension. All tax free too (or at least until my boss quits). UPDATE: Unless, that is, I do the ‘honorable thing’ at the bequest of my Congressman instead.

    Adieu.

    MORE MEME: The top recipient of AIG political contributions in the 2008 election cycle wants to tax the bonuses he ensured in the first place. I’d like to think it doesn’t get any better than this, but I’d probably be wrong by day’s end.

    A trio of death knells

    1) Buy and hold as an investment strategy – dead. The bigger question is whether people will still use Warren Buffett as an analogy for success of the concept (for better or worse), or whether people will trade their asses off from here on out and say “works for John Paulson.”

    2) Google – dead. Not sure whether it’s just because Goldman Sachs said it and they’re still standing (unlike most of their peers), or whether the old adage “the bigger they are the harder they fall” is just sticking better than usual nowadays.

    3) Wall Street bonuses – dead. I don’t think they should die (and I’ll have more on that later), but perception is reality and the perception of the taxpaying public is enough is enough.