If President Obama gets his way, a lot of folks at Fannie Mae and Freddie Mac will be paying higher taxes in 2013 -- and not just the senior executives.
More than 2,000 non-executive senior managers at the two firms were paid over $200,000 in 2011, The Wall Street Journal reports, citing a new report from the Federal Housing Finance Agency. Among those senior managers, the median pay of vice presidents was $388,000 while 1,650 "directors" had a median income of $205,300.
Other findings in the report:
- The top 90 executives at the two firms took home a combined $92 million last year.
- The median pay for 23 executive vice presidents was $1.7 million.
- The median pay for 62 senior vice presidents was $723,500.
Always controversial, Fannie and Freddie have become lighting rods since being taken into conservatorship in 2008 and this report is (almost) guaranteed to generate a strong response.
On the one hand, taxpayers are still nearly $140 billion in the hole for the multiphase rescue of the two firms so reports of big salaries is sure to outrage many. On the other hand, the government has become increasingly reliant on the GSEs since the housing bubble burst: Fannie and Freddie guarantee $5 trillion in outstanding mortgages and fund about two-thirds of new mortgage loans, The WSJ reports.
Given their checkered past, working at Fannie and Freddie doesn't have the same cache as it did during their "glory years" in the 1990s and early 2000s. But the firms have a critical, ongoing role in the housing market which means that the government (and taxpayers) have an incentive to ensure the firms are staffed with qualified employees.
"It is absolutely critical that our compensation is competitive in the market," a Fannie spokeswoman tells The WSJ.
Setting aside whether industry compensation itself is out of whack, "the reality is Fannie and Freddie are non-competitive," says John Tamny, editor of Real Clear Markets. "To say they need to keep these executives around is the problem with bailouts more broadly."
Among others, Tamny thinks we'd all be better if the government had allowed Fannie and Freddie to fail.
"Someone with a clue about profits would have purchased them and they arguably would have fired all these employees who are clearly overpaid," he says. "This is why we have free markets so we can get rid of abuses like this — but then again, Fannie Mae and Freddie Mac don't exist in what anyone would remotely call a free market."
But getting rid of Fannie and Freddie is even harder to contemplate today versus before the housing bubble burst. Just as the banks became "too big to fail" after 2008, the GSEs are more deeply entrenched in the housing market than ever before, as noted above. In addition, Fannie and Freddie have become profitable again, providing a disincentive to lawmakers to rein them in any serious way.
In addition, Tamny notes that dissolving or unwinding Fannie and Freddie today would hit the Federal Reserve, which has become the "size-buyer" of mortgage-backed securities — and is likely to announce an expansion of its bond-buying program this week.
"In my perfect world we'd sell them off and there would be buyers," he says. "But you can't do that because you would probably take the Fed down with it."