“He said we couldn’t afford to say no to anyone…”
-David A. Andrukonis, Freddie Mac’s former chief risk officer, about Freddie’s CEO, Richard F. Syron
A quick excerpt from today’s must read article:
"The chief executive of the mortgage giant Freddie Mac rejected internal warnings that could have protected the company from some of the financial crises now engulfing it, according to more than two dozen current and former high-ranking executives and others.
That chief executive, Richard F. Syron, in 2004 received a memo from Freddie Mac’s chief risk officer warning him that the firm was financing questionable loans that threatened its financial health.
Today, Freddie Mac and the nation’s other major mortgage finance company, Fannie Mae, are in such perilous condition that the federal government has readied a taxpayer-financed bailout that could cost billions. Though the current housing crisis would have undoubtedly caused problems at both companies, Freddie Mac insiders say Mr. Syron heightened those perils by ignoring repeated recommendations.
In an interview, Freddie Mac’s former chief risk officer, David A. Andrukonis, recalled telling Mr. Syron in mid-2004 that the company was buying bad loans that “would likely pose an enormous financial and reputational risk to the company and the country.”
Mr. Syron received a memo stating that the firm’s underwriting
standards were becoming shoddier and that the company was becoming
exposed to losses, according to Mr. Andrukonis and two others familiar
with the document."
Astonishing . . . but here is the money quote:
"Mr. Andrukonis was not the only cautionary voice at Freddie Mac at
the time. According to many executives, Mr. Syron was also warned that
the firm needed to expand its capital cushion, but instead that safety
net shrank. Mr. Syron was told to slow the firm’s mortgage purchases.
Instead, they accelerated.
Those and other choices initially paid off for Mr. Syron, who has collected more than $38 million in compensation since 2003. But when housing prices began declining in 2006, choices at Freddie
Mac and Fannie Mae proved disastrous. Stock prices at both companies
have fallen by more than 60 percent since February, destroying more
than $80 billion of shareholder value.
More than two dozen current and former high-ranking executives at
Freddie Mac, analysts, shareholders and regulators said in interviews
that Mr. Syron had ignored recommendations that could have helped avoid
the current crisis."
This was simply greed on the part of an executive, a transference of wealth from Shareholders to himself . . .
Ruminations on Moral Hazard
naked capitalism, August 5, 2008
Poole: Fannie, Freddie `Insolvent’ After Losses (July 2008)
FREDDIE MAC: Spending as if they had a good year (December 2007)
Fannie Mae Looks Like Hell (November 2007)
At Freddie Mac, Chief Discarded Warning Signs
NYT, August 5, 2008