That’s basically what President Obama has decided to say to the banking industry, although, strictly speaking, the money in question isn’t his. It’s yours and mine.
Item the first: the CEOs of mortgage giants Fannie Mae and Freddie Mac are going to be getting between $4 million and $6 million apiece, with tens of millions going to a few other senior executives at both places. This is happening even though both agencies, ostensibly independent, are now, as the result of a combined $111 billion in federal bailout, essentially owned by taxpayers.
In other words, these guys are getting these millions despite being, for all intents and purposes, federal employees. The highest-paid federal employee, the president, makes $400,000, and the incumbent president arguably had a much better year in 2009 than did the CEOs of Fannie and Freddie … even accounting for the fact that he decided it was OK to give millions to the heads of Fannie and Freddie.
The government, to justify this ridiculous scheme, has trotted out the old notion that they need to pay these guys this much to keep them from leaving. To which I respond: Unemployment is over 10 percent, the banking industry has been hard hit, and you’re telling me you couldn’t find people to run these agencies even at the base salary level of $900,000? [insert Belushi Bluto fake sneeze here, which I would do myself if I had the time to scroll through the movie looking for that bit of audio]
Item the second: Up until Thursday, Fannie and Freddie had been operating under caps of $200 billion in federal assistance each. But the administration has removed the caps for at least the next three years.
That’s right. Between now and the end of 2012, Fannie and Freddie can lose as much money as they like, and you, the taxpayer, will be on the hook for every dime of it.
Why would the government do that?
Well, as you know, 1) private banks still have a lot of “nonperforming” home mortgages on their books, and 2) sooner or later, those mortgages are going to have to be entered at their real market value, i.e., zero. If the mortgage is still on the bank’s books when that happens, the bank’s stockholders and bondholders take the hit. But if the bank has somehow managed to sell that mortgage to Fannie or Freddie at some price greater than zero, then the bank’s owners don’t take the hit. You do.
Why would the government do this now? Two reasons.
First, because after Dec. 31, congressional permission would have been required to raise the funding caps. And even this Congress wouldn’t approve eliminating funding caps for Fannie and Freddie. In fact, it’s questionable whether even this Congress would have approved one more dime for Fannie and Freddie.
Second, because, conveniently, Fannie and Freddie currently have no Inspector General, the guy/gal who’s supposed to keep an eye out for — and, we taxpayers hope, prevent — waste, fraud and abuse.
Well, why don’t they have an inspector general?
Glad you asked. They had an acting inspector general, Ed Kelly. But he got pushed out of that job earlier this year under the terms of a law that was pushed through the Congress by then-Rep. Rahm Emanuel, D-Ill. That’d be the same Rahm Emanuel who left the House to become Barack Obama’s chief of staff. Which he still is.
But why did Kelly get pushed out?
I don’t have the first idea. But both liberal blogger Jane Hamsher and conservative anti-tax activist Grover Norquist believe it’s because Kelly was getting too close to some things that happened while Emanuel, before getting elected to Congress, did while sitting on Freddie’s board in 2000-01. Specifically, they believe Emanuel conspired with other board members to misstate Freddie’s earnings to make sure they got paid their bonuses for hitting Freddie’s earnings target. That’s a crime, and if a grand jury isn’t empaneled to investigate it sometime before the 10th anniversary of the related illegal acts — those anniversaries fall in 2010 and 2011 — Emanuel and the others will never be prosecuted because of the statute of limitations.
On its face, what the Obama administration is doing is bad policy. It also looks, to this nonlawyer, a lot like obstruction of justice, fraud and conspiracy, among other crimes.
But it also is incredibly bad politics for the Democrats, for a couple of reasons.
First, people are already mad at the banksters and mad at Obama and his allies (and rightly so) for enabling the banksters. This is only going to make that sentiment worse.
Second, although it’s a fact that Fannie and Freddie have far less to do with the current economic mess than does deregulation, Republicans have been doing their best to blame the mess on F&F. What the Democrats are doing now just plays right into the Republicans’ hands. Not only that, it distracts attention from the facts that 1) Democrats are trying to undo the problems caused by deregulation and 2) the Republicans have unanimously opposed that effort.
Other than protecting his friends, I don’t know what Obama is trying to do here. But if the Democrats want to hang on to the White House and Congress in 2012, they need to do something about this right now. And if the Republicans aren’t able to make political hay of this without muddying the issue with lying, then they need serious PR help.