When will Obama take action on bonuses?
The WSJ reported yesterday that Fannie Mae and Freddie Mac, both nationalised mortgage securitisation agencies is preparing to pay out US$210M in “retention bonuses” to 7,600 of its employees:
In a compensation program that has drawn angry protests from lawmakers, 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.
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 to Iowa Republican Sen. Charles Grassley, which provides previously undisclosed details about the bonuses.
The regulator, James Lockhart, director of the Federal Housing Finance Agency, said in the letter that about $51 million of the payouts were made in late 2008 and the rest are to be made this year and early in 2010.
It has often been said that the electorate has a short memory. It appears that financial companies have either even shorter memories or they’re essentially betting that bailout and bonus fatigue has taken over the populace. This comes nearly a week after the Obama administration issued an ultimatum to both GM and Chrysler. Back then it appeared that Obama had finally toughened up and was preparing to take a tougher stance on companies which had received bailout money. Sadly the latest development above showed that that clearly isn’t the case. As in the entry linked above, one should wonder if Obama was being himself or the recipient of some very bad advice. His choice to surround himself with moderate Clintonites who were too close to Wall Street and big business may account for his administration’s reluctance to deal with the financial industry too harshly.
Indeed on the very same day the above news on reported, the WSJ also reported that one of Obama’s economic advisors, Lawrence Summers (author of a sexist remark made while he was Harvard’s president) was paid US$5.2M by hedge fund DE Shaw over the past year:
WASHINGTON — Top White House economic adviser Lawrence Summers received about $5.2 million over the past year in compensation from hedge fund D.E. Shaw, and also received hundreds of thousands of dollars in speaking fees from major financial institutions.
A financial disclosure form released by the White House Friday afternoon shows that Mr. Summers made frequent appearances before Wall Street firms including J.P. Morgan, Citigroup, Goldman Sachs and Lehman Brothers. He also received significant income from Harvard University and from investments, the form shows.
Yes, this was the same Lawrence Summers, whom while Deputy Secretary of the Treasury under Clinton, teamed up with his immediate superior Robert Rubin and “maestro” Fed Chairman Alan Greenspan to impede attempts by Brooksley Born, then-Chairwoman of the CFTC to regulate the credit derivatives market. Summers persisted in his conviction even after he succeeded Rubin at the Treasury. It isn’t too much of a stretch to say that a lot of what happened today could have been avoided if Born’s views had been given more weight. Indeed even at the recent G20 summit, the Obama administration was hesitant to negotiate tougher rules for hedge funds:
Among the many decisions the economic team has wrestled with has been whether to step up regulation of hedge funds, one of the most contentious subjects during a summit of world leaders this week. European nations pushed for tougher rules, while the Obama administration preferred a less stringent approach.
Hope that Congress might pick up where the Obama team has been reluctant to tread is fast fading. Already they are reluctant to press on their punitive punishments with AIG. Anyone willing to bet they’ll do so with Fannie Mae and Freddie Mac?