Monday 02 February 2009
Last week, President Obama called it "shameful" that the bank executives, who took taxpayer money through the bailout
last fall, paid themselves large bonuses. While the vast majority of the public agrees with this view, there is little
that President Obama can directly do about these bonuses at this point.
However, with more bailout money on the way (probably much more), President Obama will be in a position to seriously
constrain executive compensation in the future at the banks that are subsisting on government largess. However, before
we even get to Round II of the bailout, there is some quick business that he should attend to right here in Washington.
Last month, on the day before Christmas, Fannie Mae announced that it had reconstituted its board of directors.
According to The Washington Post, the nine directors will receive annual pay of $160,000 each (more if they chair a
committee), while the chair of the board will take home $290,000 a year.
This pay seems rather high for two reasons. First, being a director is a very part-time job. A director's duties almost
certainly require an average of less than one day a week. This means that the $160,000 annual salary for board members
would translate into a full-time salary of more than $800,000.
The other reason this pay package is so disturbing is that Fannie Mae is currently in conservatorship. It is being run
as a government company, with most of the oversight responsibilities of a corporate board being handled by the Federal
Housing Finance Agency. In other words, Fannie Mae's new directors are effectively getting paid $160,000 a year at a
part-time government job, which is even more part-time than usual, because a government agency is actually doing most of
their work.
So, why are these people getting $160,000 for a part-time job, almost five times the pay of a typical worker? We can
skip the "great skills" story. Three of the ten directors were on the board when Fannie slipped into bankruptcy last
year. Obviously, these folks were sleeping at the point when a board's intervention could have made a difference. If
this failure is not sufficient to keep a director from being reappointed, then there is no reason to believe that the
seven new members have any special skills.
In short, the Fannie directors give us another classic example of people in business getting large paychecks in
instances where they provide no obvious value. The unusual aspect in this situation is that they are actually on the
government payroll at the moment, since Fannie is effectively bankrupt. This gives President Obama the opportunity to
crack down on this abuse.
The money wasted on overpayments to Fannie's directors is relatively small, but it is a harbinger of a much bigger
problem. The bankers are clamoring for a second round of bailouts since their banks are essentially bankrupt due to the
mountain of bad debts. The government can impose serious restrictions on executive compensation this time as a condition
of getting bailout money.
In fact, it would be outrageous if the government did not impose restrictions on executive compensation. Without such
restrictions, we would effectively be using the tax dollars of ordinary workers, schoolteachers and firefighters to
subsidize the salaries of bank executives earning millions, or even tens of millions, of dollars. This sort of upward
redistribution is difficult to justify.
It is especially hard to justify since the banks are bankrupt because of the incredible incompetence of the people who
run them. These highly paid executives were somehow unable to see the largest housing bubble in the history of the
world. If a truck driver or dishwasher performed their jobs as badly as the executives of these banks, they would be
unemployed. And, of course, their mistakes would not be responsible for millions of people losing their jobs and tens of
million losing their life's savings.
However, instead of being unemployed, the Wall Street crew expects the taxpayers to pay their multi-million dollar
salaries. President Obama should not allow them to get away with it.
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Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of "Plunder and Blunder: The Rise and Fall of The Bubble Economy." He also has a blog, "Beat the Press," where he discusses the media's coverage of economic issues. You can find it at
the American Prospect's web site.