The Pay Czar

Citigroup solved a political problem by selling its Phibro commodities-trading business for book value. The problem? Andrew Hall, the star trader at Phibro, is likely to make nearly $100 million this year pursuant to his employment contract with Citigroup that pays him a percentage of Phibro's revenues.

Kenneth Feinberg is the "pay czar", appointed by Barack Obama to evaluate employee compensation at companies the U.S. government has invested in through TARP and the auto bailout. He was planning to produce an embarrassing report to Citigroup on Hall's pay, so the firm decided to avoid a political backlash by selling Phibro.

However, Citigroup gets no value for the business beyond compensation for the net assets of the business, which is the equivalent of liquidating its assets - despite Phibro earning hundreds of millions of dollars a year for Citigroup.

So the U.S. government, through its pay czar, has pressured Citigroup to sell a business for such a low price that Citigroup's value has declined as a result - and the U.S. government is Citigroup's largest shareholder. In effect, the government took money out of its own (and taxpayers) pockets to satisfy political correctness.

And Andrew Hall will continue to earn vast sums, at his new employer.

I hope you "feel" better as a result, because that's all the good that will come from this bizarre outcome.