Insurance Claims and Bad Faith Law Blog

Federal Taxpayer Takeover Looms of Fiduciary Fatalities Fannie and Freddie.

    Unknown, unnamed "officials" are critical of executives in charge of Freddie Mac and Fannie Mae.  It is reported on the weekend this post is written, that Federal Taxpayers will soon be paying for a Federal takeover of the two "mortgage giants".  Stephen Labaton and Andrew Ross Sorkin, "U.S. Rescue Seen at Hand for Two Mortgage Giants" p. A1, col. 5 (New York Times Nat'l Ed., Saturday, September 2, 2008).

    Reportedly, as part of the Federal Taxpayer Takeover the executives and the boards of both Freddie Mac and Fannie Mae will leave.  It appears that they will be leaving with no noticeable effect on their own financial portfolios.

    Investors, however, will not be so lucky.  Shareholders of the quasi-governmental corporations "would be virtually wiped out".  Id.

    Although the linked newspaper report does not link the anonymous officials' "criticism" with the executives' compensation, it does repeat previous reports of "huge compensation packages" for certain executives of Fannie Mae and Freddie Mac who were reportedly in charge of the companies' operations which have led to the Federal Taxpayer Takeover.  In particular, the CEO of Freddie Mac allegedly was paid over $38,000,000.00 since 2003, id., which is some $7.6 Million per year on average for each of the past 5 years.

    Rather than words of criticism in private, perhaps some examination could be made of the question of recovering some of the executive compensation for the shareholders -- or not say anything at all if nothing public is to be done.

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Socialized Risk, Private Gain?

    Do Directors and Officers of lending institutions have a Fiduciary Duty to the Shareholders of their Corporation which involves giving money back to the Corporation if they do not do their jobs well?  What about Directors and Officers of Corporations in general, including Corporations that are not lending institutions?

     In an editorial about "financial-industry executives," "bankers," and "financiers" on Good Friday, 2008, the New York Times  observes:

But as a rule, they won't have to return the money they made in the good days when they were making all the crazy bets that eventually took their banks down.

Editorial, "Socialized Compensation" p. A22, col. 1 (New York Times Nat'l Ed., Friday, March 21, 2008).

     Why not?

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