We present our assumptions as to why after 6 months, the company’s top post is vacant again.
David McKenzie Moffett has announced his resignation from Freddie Mac last Monday according to the New York Post. . The report states, “Analysts said Moffett apparently was exasperated by having to answer to government bureaucrats and regulators, who put him on a short leash with few freedoms to run the company.”
This is a very different impression that we’re taking from Moffett. Just six months ago, the former eBay director announced, “I would not have taken this job if I was not deeply supportive of the company’s mission and its essential role in helping our nation through the toughest housing market in decades.”
It’s not startling to understand Moffett’s resignation. First, the company’s conservatorship status puts a conflict of interest between maintaining private shareholders’ earnings and the government’s social concern. Having held top posts in private companies such as U.S. Bancorp, BMHC and Scripps, Moffett is obviously not comfortable under government direction – and he will never be. The conservatorship has reduced his control over financial decisions.
Second, Ben Bernanke’s words may have threatened his post. In Bernanke’s official letter last year, he states, “Looking beyond the immediate concerns, I agree with Secretary Paulson that the conservatorships of Fannie Mae and Freddie Mac can usefully be viewed as a “time out”—one that will give everyone involved, especially the Congress, the opportunity to reconsider the appropriate roles of Fannie and Freddie in the U.S. mortgage market. Key objectives of that reconsideration include both minimizing systemic risk and putting in place the most efficient mechanism possible for providing the mortgage credit necessary to sustain homeownership and a healthy housing sector.” After suffering from immense losses in 2008, the government would want to lower the risks of the company but as its head, Moffett would also have to maintain a high leverage in order for the company to grow but this move would raise risks unfortunately.
Lastly, Moffett may have been pressured to raise mortgage origination purchases in a short span of time so that the Treasury can improve its report card and take away doubts from the public. Anybody sensible enough to comprehend the stimulus package and its pre-programs would understand that rising volatility wouldn’t be easily brought down.
We recommend the next man or woman who will take over Moffett’s post to stay longer and be ready to act like a puppet.