Monday, March 2, 2009

Perils of big government and restricting executive compensation

Fannie and Freddie were partially privatized because government intervention in their activities was inefficient and harming the mortgage and housing market in the US in the 70s.

They collapsed largely because of federal legislation requiring them to issue more subprime mortgages at bad prices. Bipartisan Congressional intervention in ~05 was at the root of much of this crisis.

Now the government is saying that they'll never be private again, and will remain tools of the Federal Government. I understand why this makes political sense for the individuals who want to stay in power, but can someone explain to me why this makes economic sense?

Another part that stood out:

"On Monday, Freddie Mac’s chief executive, David M. Moffett, unexpectedly resigned less than six months after he was recruited by regulators, having chafed at low pay and the burdens of second-guessing by government officials, according to people with knowledge of the situation.

Fannie Mae has also experienced a wave of defections as people leave for better-paying and less scrutinized jobs."

I've said on this blog before that government restrictions on executive pay increase turnover and decrease competent management. This is a picture perfect example.

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