April 26, 2009

Suicide By Exec At Freddie Mac

The suicide last week by David B. Kellermann, chief financial officer of Freddie Mac -- the quasi public-private home mortgage firm – focuses public attention to the problem of government meddling in commercial enterprises.

Mr. Kellermann, 41, a Freddie Mac financial analyst for 17 years, hung himself in the basement of his suburban Washington home.  At this writing, no information has been released about a possible suicide note.

He was appointed chief financial officer of Freddie Mac last September when the government seized it and fired its top executives.

The tragedy focuses once again the perils of government second-guessing private enterprise.

According to Washington, D.C., news accounts; Freddie Mac and Fannie Mae executives were slated to receive bonuses totaling $210 million.  Mr. Kellermann was to receive $850,000 over a six-month period.

Apparently, job-stress drove him to suicide.

EASY HOME LOANS

Congress set out in 1938 to micro-manage the mortgage market as an escape hatch of the Great Depression -- and a source of easy loans for family homes.

These intentions were well meaning, but the “law of unintended consequences” set in.

Our lawmakers took charge of the “secondary mortgage market” (big banks serving little banks.)

This service was established as a monopoly by the Federal National Mortgage Association (familiarly known as a colloquialism of the initials FNMA – “Fannie Mae.”

As a government department, Fannie Mae cost big bucks.

BUDGET BALANCE

To help balance the national budget -- and provide some competition -- Congress in 1970 chartered part of Fannie Mae to Lehman Brothers, a private corporation dealing largely in U.S. Treasury securities.

This mixture of public and private management is familiarly known as “Freddie Mac.”

Unfortunately, the housing market soured, and Lehman Brothers collapsed last year.

OBAMA HOUSING

Nevertheless, President Barack Obama is relying heavily on Freddie Mac to help finance a housing recovery.

To this end, Freddie Mac was seized last September when it and Fannie Mae were incurring losses on home mortgages.  They were given $60 billion to strengthen their bank accounts.

It is apparent that Freddie Mac executives want to make clear that the company is run for benefit of the government rather than shareholders.

Freddie Mac and Fannie Mae, together, own or underwrite more than half the home mortgages in the nation.  Federal loan agencies have been hit hard by the soaring mortgage defaults.

These agencies have received $60 billion in federal aid since being taken over completely last Fall.  Nevertheless, foreclosures are continuing at a record pace.

WHAT TO DO

Congress is discombobulated by the confusion of government and private enterprises over who is to blame – and what to do -- about a shrinking economy.

Democrats pump hard to blame all economic discomforts – past and present -- on President George W. Bush.  Yet, both Houses of Congress --then and now -- controlled by Democrats.

There is much denigration of recent past developments during the closing months of the Bush presidency.

However, that dog won’t hunt.  Then, and now, Democrats steered the ship of state via committee control.

We are reminded of Benjamin Franklin’s advice when the United States Of America was aborning:

“We must work together – or, assuredly we will hang together.

IMORTAL WORDS

We are reminded also of President Ronald Reagan’s “nine most terrifying words in the English language:

“I am here from the government to help you!”

By Lindsey Wilger Williams, retired newspaper publisher and syndicated columnist