I’ve been reading a lot of articles on the Web these days with different groups blaming each other for the collapse of the housing market. It’s annoying. The housing collapse and credit crunch are too big and too wide-reaching for it just to be the fault of one group. There was greed at all levels of what I’m terming the Pyramid of Greed.
From home owners maxing out their cash-out refis to real estate agents encouraging buyers to “stretch” to mortgage brokers manipulating W2’s the greed went up and up and up right to the office of the President.
So from now on, for those on this pyramid, please refrain from absolving yourself of any culpability in this mess. If you’re on this pyramid you played a part.
Dick Syron, Freddie Mac chairman and CEO took home nearly $20 million last year and can take home another $20 million this year reports the Associated Press. This for the man that has guided Freddie Mac’s stock to it’s lowest point since 1991 and presided over a $3 billion net loss for the company in 2007.
This is obscene. How do these people who are supposed to be leaders get rewarded for driving these companies straight in to conservatorship? If the government does take over Fannie and Freddie it must come with pay controls for executives of these companies. The American taxpayer doesn’t deserve to pick up the tab of the mortgage mess, but if they are forced to they certainly shouldn’t pick up ridiculous salaries of non-performing executives.
From CNN:
Freddie Mac Chairman and Chief Executive Richard Syron pocketed nearly $19.8 million in compensation last year, according to a Securities and Exchange Commission filing Friday, even though the mortgage company’s stock lost half its value in 2007.
If Syron stays at the helm of Freddie Mac (FRE, Fortune 500) through the end of next year, he will receive nearly $20 million in stock awards if the board says he has met certain goals. This year, he is guaranteed to get $8.8 million in stock grants regardless of performance.
For 2007, Syron received a $1.2 million salary, a $3.45 million bonus, including $1.25 million to remain at the company, and $771,585 in other compensation. He also received stock and options valued by the company at $14.3 million at the time they were awarded.
The company last year picked up the tab for Syron’s financial planning expenses, car and driver for commuting, home security system, business-related dining and travel costs for his wife and $100,000 in legal fees from negotiating his employment contract.
Citigroup chairman Win Bishcoff said that housing prices in the US and Britain could fall for another two years before leveling off. It sounds nice, but it’s wrong. House prices are going to continue falling for long than two years - especially in highly-speculative areas like California, Florida and Nevada. The reason? Option ARM and Alt-A loan resets that start to kick-in in earnest around 2010. See below graph.
So while various pundits and “people in the know” will continue to throw out numbers that sound far enough off to not sound foolish, they will continue to be wrong until they address the second wave of resets that must wash through the system.
From Reuters:
Citigroup chairman Win Bischoff has warned that house prices in Britain and the United States are likely to keep falling for another two years.
The chairman of one of the world’s most powerful banks told the BBC in an interview that he expects it will take two years for the markets to stabilise.
He also said he expected the credit crunch could continue through until 2009.
And the graph that makes me highly skeptical of any talk of a recovery prior to the second wave.
