Money for Nothing: CEO Pay at Freddie Mac

This article reports the results of the search for intelligent life at Freddie Mac, evidence that people did warn the highly paid CEO Bill Syron that the company was getting into trouble. It notes several warnings that were ignored by Mr. Syron. This is what newspapers are supposed to do. The article does have important error. It notes that both Freddie Mac and Fannie Mae were unprepared for a nationwide decline in housing prices, which was of course an entirely predictable event to people who understood the housing market, which should include the management at these companies. It then comments that: "the only real protection against such a downfall was purchasing only the safest loans." Actually, this would not have provided protection either because even safe loans default at much higher rates in a downturn, substantially reducing their value. The only real protection would have been to stop lending in areas where housing appeared to be substantially over-valued, which would have been most of the country. Fannie and Freddie would have faced enormous political pressure if they had gone this route, but people who are paid 8-figure salaries are supposed to be able to make tough decisions. If Fannie and Freddie had cut the supply of credit, it would have burst the bubble at a much earlier date, limiting the harm to the economy.

--Dean Baker