Fannie Mae and Freddie Mac spent more than $640,000 to send 100 employees to a mortgage-industry conference in Chicago in the fall of 2011. According to a letter from the Federal Housing Finance Agency, which oversees Fannie and Freddie, the spending included nearly $342,000 for travel, food, hotel and meeting-room space. Incredibly, $74,000 was spent on four invitation-only dinners for mortgage-lending companies that are regular customers of Fannie and Freddie. Because Fannie and Freddie at the time dominated the U.S. mortgage market, "purchasing and guaranteeing about 70% of new loans from mortgage lenders,” who in turn thus had few alternative potential buyers, managers at Fannie and Freddie still felt the need to wine and dine their customers under the subterfuge of valuing “face-to-face meetings with customers as a way to understand their needs,” according to the Wall Street Journal. Apparently the folks at Fannie and Freddie were not familiar with customer surveys or even the telephone. Instead, Freddie spokesman Doug Duvall bragged, “[We were able to meet] with our lender customers in a cost-efficient way. In just two days we held approximately 200 meetings.” Undoubtedly some of those “meetings” were held at the dinners, each of which cost the taxpayers $18, 500.
The $640,000 spent on the conference can be racked up to the lack of competitive pressure facing a government-owned organization that is close enough to the private sector to want to enjoy perks that are no doubt common on Wall Street. In other words, while it might be less bothersome to us to see stockholders’ money spend on corporate luxuries, it is not clear that Adam Smith would feel very comfortable amid modern corporate capitalism (and he did include a role for government in his economic theory).
The particularly sad thing about the lavish spending by managers at Fannie and Freddie is that those agencies had been firmly opposed to refinancing the mortgages of borrowers “under water” since the collapse of the housing bubble. Over 3 million foreclosures had taken place in the three years since September 2008. The luxury amid harm bespeaks such inequity that even underlying societal values may be at issue—namely, I should be able to eat, drink and be merry while people I don’t know lose their homes. Beyond the ethical problems with this attitude, it evinces a pathology—that of malignant narcissism and perhaps even sociopathy. It is interesting (i.e., convenient) that no terms could be given up on even the questionable (i.e., the producers’ role) mortgages, while plenty of money was available to be spent on lavish dinners ostensibly for guaranteed customers. The managers at Fannie and Freddie could not very well say that they could not afford to relax some of the overly-stringent terms of the ARMs in the sub-primes (and Alts). In fact, given the roles of policy makers and mortgage producers in enabling the housing bubble with questionable mortgages, a moral obligation exists for the government (and the related agencies) to act so as to obviate the foreclosures (which would have obviated the need for TARP for the banks, as the toxic assets were based on the bad mortgages in default). Had the managers at Fannie and Freddie recognized this point rather than stood on sanctity of contract, the Obama administration might have found a way to compensate the two agencies for doing so—perhaps even throwing their managers a lavish dinner at the White House.
Source:
Alan Zebel, “Fannie, Freddie Spend $640,000 on Conference,” The Wall Street Journal, December 1, 2011.
