We spoke about TARP in class and mentioned the issue of Fannie and Freddie (the quasi private mortgage giants). This is an excellent piece (I think it is the first piece actually). It is worth listening to (click on the "Listen to the Podcast" link)
Update I: Here is an interesting article about how the executives for Fannie and Freddie were paid millions. Tough to justify the heads of these failed organizations millions in salaries from taxpayers.
Update II: Part 2 here and Part 3 here
Please be sure to at least listen to the first one.
Subscribe to:
Post Comments (Atom)
TYLER ROW
ReplyDeleteAMERICAN ECONOMY
MWF 9:00-9:50A
I agree that the executives ought to not be paid bonuses when their company fails to do well in the marketplace. It rewards failure. However, looking at this issue pragmatically, they did have to be given a loan so that the entire banking industry in the United States would not go belly-up. This would have had even greater consequences for Americans as a whole, including taxpayers who are now on the hook in case they are unable to pay back their loans.
I agree with the President's movements last year to reform the financial system so as to help make sure that something like this does not occur again. Unfortunately, as some have argued, that legislation that they passed last year to help do this may not have been enough. One of these reasons could be that policymakers are doing their best to strike the right balance between the overregulation of the 60s and 70s and the lax lassie-faire doctrine that we saw drive our national financial reality into a ditch just a few years ago.
Or is it because corporations are in the pockets of every member of Congress? I think we all hope that is not the reason...
Zhao Liu
ReplyDeleteMWF 9:00-9:50A
First thing first, the executive pay is ridiculous. Aside from Fannie and Freddie, executive pay, in general, is about 200 times more than an average worker in the organization. So I believe it is not only Fannie and Freddie's problem. Most of the large corporations compose humongous compensation packages for CEOs and other executive members. Fannie and Freddie's executive pay is too much, but it also represents the corporate culture. Since these two are private companies, it is expectable that they do it.
Second of all, the government explicitly reassure that Fannie and Freddie are not government backed entities but turns around and bail them out. Two aspects to this issue: 1) if the Fed did not back them up, it will be the people who cannot afford housing suffer, 2) the government bailed AIG out, so why can't they bail Fannie and Freddie out? People on one hand gets mad about the spending, but they don't realize that if these companies, that are too big to fail, will have an enormous affect on the economy. Even with bail outs, the people who loss their investments and houses still suffer a lot, so what if this has never been done?
Samantha Anderson
ReplyDeleteMWF 9-9:50
I found this podcast extremely informative and detailed. It gave a great breakdown of how exactly this problem began in the first place. It was very easy to understand for the average, economically ignorant, individual.
Bailing out Fannie and Freddie was a particularly confusing situation for me. Afterall, how does the government go and bail out a private company? What about the hundreds of thousands of small businesses that go under each year? However as mentioned above, the results of NOT bailing out Fannie and Freddie could have been much worse. Without the bail out American people could have suffered more. Also the executive pay is absolutely ridiculous considering the issues both companies are faced with. At the end of the day I feel like there is much more to this story that I do not know about. I am eager to learn more and try to understand the situation better.
Nicholas Camaioni
ReplyDeleteMWF 9 - 10 AM
The whole situation that revolved around the institution of Fannie Mae and Freddie Mac is one that still leaves a bad taste in my mouth until his very day. Obviously there are many reasons for the collapse of the economy and placing all the blame on a single institution would be foolish. Despite this, Fannie and Freddie were certainly one of the catalysts that lead to the fracture and eventual collapse of our economy.
For example, if a Private Business owner is dealing with losses in their revenue, it is expected for them to make the difficult choices to help absorb these losses. Whether they cut production or fire workers, the Owner must make difficult choices that they ultimately don't want to make. If their business collapses, they close up shop and walk away from their dream.
This wasn't the case with Fannie and Freddie. Executives for these institutions made choices and engaged in practices that they knew were wrong but would benefit them in the short run. When the crap finally hit the wall because of these choices, they turned to the government for help. Small businesses die on a daily basis, but a corrupt institution like this ran to Big Brother for a bail-out.
I understand that not bailing out Fannie and Freddie could have resulted in a situation that could have been far worse than what ultimately happened. This doesn't make it any easier for me to accept the fact that executives that had a hand in the bankrupting of our country were ultimately paid off by the government for the choices they made. It's just another sad example of what our economy and the businesses that run it have turned into.