Democrats Proposing Reduced Exit Packages for Booted Execs
As November nears, the fall winds are blowing in another election. Our economy, the war in Iraq and gay rights are all on a long list of topics to debate during the presidential campaign.
And it looks like with the current state of affairs of the stock market, AIG, Lehman Brothers and Fannie Mae and Freddie Mac, another subject is soon to become a hot topic.
On September 9, Senator Barack Obama recommended that federal housing regulators cut back on the exit packages offered to the ousted executives of Fannie Mae and Freddie Mac, according to The New York Times.
Senator Obama wrote a letter to Treasury Secretary Henry M. Paulson Jr. and the director of the Federal Housing Finance Agency - the new regulator for Fannie Mae and Freddie Mac - asking that any inappropriate payments to senior executives and managers not be made since the government had to use taxpayers' money to bail out the companies.
Charles E. Schumer of New York and Jack Reed of Rhode Island, both Democrats on the Senate Banking Committee, agreed with Obama.
The New York Times reported that the two Democrats wrote letters calling the pay packages "out of line" and suggested that the Federal Housing Finance Agency reduce the package and eliminate the executives' power granted in a housing law in the summer.
The Republican presidential nominee, Senator John McCain, also felt that the government buy out of Fannie Mae and Freddie Mac should not lead to a large payout to chief executives and Wall Street investors.
What's in Store for the Ousted Executives?
The New York Times reported that although the exit packages are still in the works, Daniel H. Mudd of Fannie Mae and Richard F. Syron from Freddie Mac could receive as much as $24 million in severance, retirement benefits and deferred compensation.
According to an analysis of Mudd's Employment contract done by James F. Reda & Associates consulting firm, he could receive up to $9.3 million if his dismissal is considered to be "without cause."
This is additional money on top of the $12.4 million Mudd received in salary, bonuses and profits from cashing in stock options. Mudd had been the chief executive of Fannie Mae since 2004.
Syron's exit package could be at least $14.1 million, which is in addition to the $17.1 million he received in cash, bonuses and stock option profits.
He has been the chief executive of Freddie Mac since 2003. A clause was left in Syron's employment agreement during renegotiation in November that allows Syron to exchange a stock award that has taken a nosedive for $8.8 million in cash.
The exit packages for ousted executives have become a heated issue for candidates and voters alike. Although the packages are usually small in comparison to Wall Street executives, compensation for leaders of government-sponsored agencies is a touchy topic, reported The New York Times.
With the pressure from government officials, it was announced that the new executives of Fannie Mae and Freddie Mac, Herbert M. Allison Jr. and David M. Moffett respectively, would receive much lower compensation than those before them.
A spokeswoman of the Federal Housing Finance Agency told The New York Times that the letters from the Democrats had been received and that the agency would be responding to the issues soon.
Despite Denouncement of Mortgage Finance Companies, the Presidential Candidates have Ties
Even though Senators Barack Obama and John McCain promise to end the caustic relationship between lobbyists and politicians that has led to the Fannie Mae and Freddie Mac mess, both parties have ties to the companies. The New York Times reports that the ties could affect how either man reshapes the companies.
Senator McCain has relationships with and contributions from current and former company lobbyists, while Senator Obama receives donations from the firms' employees and political action committees.
And although they raise issues against Fannie Mae and Freddie Mac, neither of the politicians have a history of challenging the mortgage finance companies.
While Obama criticizes the regulators and companies' lack of regulation to stop Fannie Mae and Freddie Mac from going deep into debt, the Democrats in Congress are known for protecting the firms' responsibilities to uphold affordable housing and maximize shareholder profits.
On the other hand, Senator McCain has a circle of advisers that include lobbyists or past employees for the companies.
McCain's campaign manager, Rick Davis, was an advocate for the companies, and his adviser Charlie Black worked for Freddie Mac until 2005.
Both men receive contributions to their presidential campaign from people with links to Fannie Mae and Freddie Mac.
The Presidential Proposals of What to do with Fannie Mae and Freddie Mac
Now that the Treasury has given the government control of Fannie Mae and Freddie Mac, both presidential candidates are proposing what they feel should be done with the companies.
Both candidates have issued statements that support the governmental seizure of the mortgage finance companies. Senator McCain wants Fannie Mae and Freddie Mac divided up and privatized, while Senator Obama seems to be leaning toward keeping the companies the public-private hybrid they were but with tighter controls.
The questions that stand are whether either candidate will be able to carry out their proposals for the companies; which solution will be the best for the economy; and what influences will their contributors and advisors linked to Fannie Mae and Freddie Mac have?
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