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Fannie, Freddie Join Bonus Ball


Government-owned mortgage companies come under fire for paying out $210 million.

American International Group (AIG) has taught us a basic lesson: Bonuses are baaaad.

Except when bonus money is being shoveled to employees at Fannie Mae (FNM) and Freddie Mac (FRE).

The federally controlled mortgage finance companies plan to pay about $210 million in retention bonuses to about 7600 employees in the next 18 months, the Washington Post reports.

In a letter to US Senator Charles Grassley, the Federal Housing Finance Agency says the payments are needed to retain key workers and recruit top employees. Imagine that.

Freddie Mac looks to hire a chief executive, chief operating officer and chief financial officer while Fannie Mae seeks a general counsel, chief risk officer and executive vice president for technology.

This could be (as they say in elementary school) a "learning moment" for Congress: Top talent costs real money. More amazingly, market forces haven't been completely repealed - at least not yet.

Congress howled when AIG announced plans to make large retention payments to key employees. But it wasn't AIG's typical stupidity, which includes spending $440,000 on a luxury retreat after pocketing an $85 million taxpayer-backed bailout - the company sought to retain key employees who know the business and can skillfully turn the wheels.

At least Congressman Barney Frank is consistent in his wrong-headedness: He called for the bonuses to be withheld from employees at Fannie and Freddie.

This makes no sense, but it underscores the continuing split between New York, where executive pay is based on performance, and Congress, where bonuses are verboten because, well, who knows - maybe because elected officials can't cash in.

The Federal Housing Finance Agency says about 3500 workers at Fannie were scheduled to receive an average payment of $32,000 and 4000 employees at Freddie were slotted to receive an average of $24,000. The maximum bonus will be $1.5 million.

In New York, a bonus is paid to top performers. But that's apparently not how it's done in Washington, where about 80% of Freddie's employees will receive a bonus and about 61% of Fannie's employees will be rewarded with cash. Perhaps in Washington, bonus money is awarded with an egalitarian twist.

It would be churlish to hoot that workers at Fannie and Freddie should subsist on cheese and crackers because they played a major part in creating the current financial mess. If we're going to straighten things out, we'll need talented people - and top talent isn't cheap in sports, entertainment or the executive suite.

At least that's the view from New York. But are more than half the employees at any organization top performers - even in Washington?

As usual, this is a mess created by politicians. It would help if Congress would get out of the way. Don't count on it; this looks like an invitation to further micromanagement from Capitol Hill.
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