CEOs' golden parachutes

Fannie Mae fired its previous CEO, Franklin Raines, in December 2004 after accounting errors forced the company to restate profits by $9 billion. When Mudd, a former General Electric Co. executive who had served as Fannie Mae's vice chairman, took over that same month, shares were trading at about $70. On Friday, the day news of the possible takeover started to leak out, Fannie Mae shares were trading at $7.04. On Monday, the shares closed at 73 cents.

Freddie Mac had its own accounting problems when Syron took over in December 2003. The company was forced to admit that it had inflated its earnings by nearly $5 billion. Like Mudd, Syron, who had served as chief executive of Thermo Electron Corp. and the American Stock Exchange, pledged to fix the company and get it back on track. Freddie's shares, which traded for about $55 when Syron took over, dropped to $4.65 on Friday and then to 88 cents Monday.

Far from fixing them, both Mudd and Syron presided over major expansions of the companies' reliance on risky mortgages that ended up going into default over the last two years.

"How can we pay these people these exorbitant amounts of money when they brought us to the brink of financial disaster?" said Michael Greenberger, a University of Maryland law professor and former director at the Commodity Futures Trading Commission.

"The average working stiff is just worried about how he's going to pay his mortgage and put gas in his car. These guys make the situation worse and still make millions."

Shareholders will have little to say on how much the two pick up, and some experts said that was as it should be. Without the conservatorship, Fannie and Freddie could have gone bankrupt, causing further panic in the beleaguered housing and stock markets.

Analysts and investment advisors said Monday that the cost of paying Syron and Mudd to leave their posts was a blip compared with the damage that would have been done by a bankruptcy filing. With Fannie and Freddie, the nation's biggest mortgage buyers, out of business, foreclosures probably would have continued to climb at an even faster rate, analysts said, and home prices would have fallen further.

"This is what we needed to put a floor under the housing market," said Michael Nozzarella, managing director at the Tarbox Group, a Newport Beach investment advisor.

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william.heisel@latimes.com