When Fannie Mae (FNM) and Freddie Mac (FRE) had the wind at their backs they were considered part of the ‘free enterprise’ sector. Their CEOs received pay hikes as the companies laid the groundwork for their own undoing.

Now the mortgage firms’ fortunes have changed the American taxpayer discovers that these were ‘government sponsored enterprises’ all along. They were part of America’s welfare system. And now they’re getting the dig out they always knew would be forthcoming…

It was all very well for the nation’s two biggest mortgage finance companies to be part of the ‘free enterprise’ sector – when the wind was at their backs. Fannie and Freddie were just important parts of the financial sector. They helped “allocate credit” to people who needed it. Mongering credit was good work since the ’80s. Since 2002, it was especially good work – up until about a year ago.

So who could begrudge Daniel Mudd’s $13.4 million 2007 pay package as CEO of Fannie Mae? Or, who would be sour enough to complain about Dick Syron’s $18.3 million wage from Freddie Mac? These guys were just getting rewarded for good performance, right?

Well, not exactly. Syron’s pay went up 25% last year – even as the company went from a $2.3 billion profit in 2006 to a $3 billion loss in ‘07. And Mr. Mudd got a 7% increase, while the company posted a $2.1 billion loss and shareholders took a 33% haircut.

Okay…so maybe shareholders overpaid them a little. But that’s how compensation works in the free market; you get what you can get away with. So, bravo to them! Besides, they were helping the whole great machinery of capitalism make Americans rich. That’s why they gave out all those rich consulting contracts to former members of Congress. And that’s why they spent millions on lobbyists…angling the politicians to protect the mortgage market at all costs.

But what’s this? The wind has whipped around, and now blows a gale into the twin lenders’ faces. Now, we discover that these were “government sponsored enterprises” all along. They were part of America’s social welfare system, it turns out, not part of the free market. They were just performing a public service – helping make sure the poor plebes had roofs over their heads. And now that the two GSEs are having trouble, naturally, the full faith and credit of the United States of America has to be lined up to support them.

Source: God, Guns and Gold