Citgroup Bonuses - What is the Problem - it is Just 1% of the Billions in Bailout.

Citigroup's energy-trading group is Phibro. Phibro has been consistently making money for the past 15 years in a row. Andrew Hall is the head of the unit. He is a top performing executive. He worked very hard, and used intelligent strategies and techniques, paving the way for Phibro to be profitable consistently, year after year.

This year Andrew Hall's bonus has been withheld. And the bonuses of all the hard working employees at Phibro, has been withheld too. Andrew Hall and many of his employees are threatening that they will quit Phibro, if the bonuses are not paid out. Vikram Pandit, the CEO of Citigroup, is scared. If Andrew Hall and his hard working employees quit, the only consistently money making group of Citigroup will be hit hard. If they quit, Citigroup will lose quality people who have helped Phibro make good amount of money year after yea consistently. Vikram Pandit's position is understandable. No CEO would want to see the resignation letters of people who help rake in tons of money for the company.

While Phibro, the energy-trading unit of Citigroup has been making lots of money for years, other units of Citigroup have been losing money. Citigroup, as a company has been losing money, though Phibro has been highly profitable.

Vikram Pandit, the CEO of Citigroup, finds himself in a tough situation. Instead of filing for bankruptcy, and following the normal process designed for companies facing such trouble, he accepted the TARP funds from the government. He accepted money from taxpayers, through the government.

We all know that the Congress didn't bother to read the TARP bill, before signing it. We all know that Congress knowingly ignored the bonus practices adopted by these companies, before signing the TARP bill. We all know that Congress, just to cover up its mistake of not reading the TARP bill, passed another bill, just recently, to tax at 97% tax rate, bonuses given to AIG employees.

Vikram Pandit has been begging Treasury Secretary Tim Geithner, to let Citigroup pay out the bonuses to employees at Phibro, without a 97% tax hike.

It is a grave mistake, and against the principles of capitalism and free markets, to have rewarded these failing companies. It is a grave mistake, and against the principles of capitalism and free markets, to have bailed out these failing companies using tax payer money. It is a grave mistake not to have allowed these companies to follow the designed route of bankruptcy. If the government hadn't bailed them out, bankruptcy would have taken care of punishing failure and rewarding success, as per the principles of capitalism and free markets.

But having decided to bail them out with billion of our dollars, why should the Government and tax payers have a problem, if 1% of the bail out funds, are being given out as retention bonuses to employees of these companies, as per pre-existing legal employment contracts (which Congress didn't bother to read before giving out the money)? What is wrong with Citigroup giving out just 1% of the bailout funds it received, as bonuses to Phibro (the money making unit of Citigroup)?

Let us look at the forest, not a single tree. Billions in bailout is the problem, not the couple of millions in bonuses being given out, as per contracts that were in place, before the TARP bill was signed by Congress. Let us get agitated at the billions being given to these failing companies, in the name of bail out.

Chrysler is the typical example. We bailed them out with billions of our money, instead of asking them to follow the time tested and proven process of filing for bankruptcy. Now the billions we gave them have gone to waste. The bailout failed miserably, as was announced this week. Chrysler has to file for bankruptcy now, anyway, after billions of dollars of our money have been wasted on them by the government.

If we have to get agitated at the bonus issue, which is only 1% of the bail out funds, we better get agitated 99 times more, at the government bail out issue, using taxpayer money. Let us look at the forest, not a single tree.

Ref:

http://nymag.com/daily/intel/2009/04/citigroup_andrew_hall_needs_a.html