Senators Elizabeth Warren (D-MA) and David Vitter (R-LA) attempted to introduce Senate legislation late last week in concert with Representative Ed Royce’s (R-CA) House bill (HR:2243) to overturn the proposed compensation increases for the CEOs of Fannie Mae and Freddie Mac.
Beyond the questionable move of trying to overturn a decision clearly vested in the GSEs’ regulator, FHFA, Senators Warren and Vitter appear to be more focused on populist politics than the best interest of the American taxpayer.
Let’s first look at the track records of the GSEs’ current CEOs.
Neither Don Layton at Freddie Mac, nor Timothy Mayopoulos at Fannie Mae, had anything to do with the events that led to the GSEs entering conservatorship. Second, since becoming CEOs, both Layton and Mayopoulos have done stellar jobs at managing the two largest financial services firms in the United States.
Both have retained the talented human capital that makes the US mortgage market work while returning billions of dollars to the US taxpayer.
People are quick to forget that Fannie Mae and Freddie Mac have both returned every penny the US government invested in them, and will write checks to the US Treasury in September for a combined $8.3 billion for their second quarter profits alone.
To put that number in context, $8 billion would fund the Environmental Protection Agency for an entire year ($8.1 billion annual budget), or the Centers for Disease Control for over a year ($6.9 billion annual budget).
Both Layton and Mayopoulos made $600,000 last year.
If you benchmark their pay to the other major financial services institution, they both made in a year what most CEOs made every-other-week. But even more dramatic is the difference in what Layton and Mayopoulos made in comparison to the CEOs of other companies the US Government bailed out.
In 2012, when the US Government still owned significant stakes in AIG, GM, and Ally Financial, those companies’ CEOs made $10.5, $9.5, and $9 million, respectively.
Why did the US Government allow these CEOs to make so much? Because we wanted our money back!
And at that time, only AIG had fully returned the US government’s money – GM still owed the government $20.8 billion at the end of 2012, and Ally still owed $11.3 billion.
Fannie Mae has returned $24.7 billion more than it received, and Freddie Mac has returned $25 billion more than it received. So Layton and Mayopoulos get $600,000 each for creating a $50 billion surplus, while the CEOs of GM and Ally made $9.5 million and $9 million when their companies still owed the government $32.1 billion.
The GSEs are exceedingly important to the stability of our nation’s housing markets – today, and for the foreseeable future.
These enterprises must be run by the very best executives money can hire to manage risk, motivate and retain employees, innovate, and ensure the GSEs continue returning capital to the US taxpayer for as long as they remain in conservatorship.
Layton and Mayopoulos deserve their pay increases, and Senators Warren and Vitter should realize a bargain when they see one.