A BRITISH oil trader in line for a $US100 million ($121 million) bonus is expected to pitch his employer, Citigroup, into direct conflict with the US Treasury after a clampdown on excessive pay by the Obama Administration.

Andrew Hall, an art-loving eccentric who owns a Connecticut mansion and a 1000-year-old castle in Germany, is at the centre of a dispute between the New York-based bank and the US Government pay tsar Kenneth Feinberg, who wants to limit rewards that increase the risk-taking activities of big banks.

Citigroup wants to protect the pay of its top-performing staff to prevent them defecting to rivals that have fared better in the banking crisis and can pay bigger rewards to traders.

Mr Hall is considered a top trader after his energy trading unit Phibro bet that oil prices would rise from a low of $US20 to $US30 a barrel in the early part of the decade.

In April, following its $US45 billion bailout, Citigroup asked the Treasury to exempt Phibro from an investigation into excessive bonuses.

Phibro is a secretive outfit that in recent years has accounted for a substantial chunk of Citigroup’s profits. Little is known about Mr Hall other than that he is an Oxford chemistry graduate who started work at BP before moving into oil trading for Salomon Brothers. After early gains he lost $US100 million in the first Gulf war when oil prices plunged, but bounced back and became a multimillionaire and the boss of Phibro in the 1990s.

Bank of America has agreed to pay a $33m (£19m) fine to settle charges that it misled investors about bonuses when it acquired Merrill Lynch in January.

Bank of America saved Merrill from collapse after telling its shareholders no bonuses would be paid to its executives without their approval.

However, Bank of America later authorised Merrill to pay up to $5.8bn in bonuses.

The bank has neither admitted nor denied the SEC allegations.

However, the SEC said its investigation was continuing.

'Constructive conclusion'

Bank of America was bailed out by the US taxpayer in 2008.

It needed $25bn in capital injections from the bail-out fund during the height of the financial crisis.

On Monday, Bank of America agreed to pay the fine to settle the charges made by the US Securities and Exchange Commission.

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see toon at top...

from Paul Krugman, NYT

... crashing the economy and fleecing the taxpayer aren’t Wall Street’s only sins. Even before the crisis and the bailouts, many financial-industry high-fliers made fortunes through activities that were worthless if not destructive from a social point of view.

And they’re still at it. Consider two recent news stories.

One involves the rise of high-speed trading: some institutions, including Goldman Sachs, have been using superfast computers to get the jump on other investors, buying or selling stocks a tiny fraction of a second before anyone else can react. Profits from high-frequency trading are one reason Goldman is earning record profits and likely to pay record bonuses.
.....

And there’s a good case that such activities are actually harmful. For example, high-frequency trading probably degrades the stock market’s function, because it’s a kind of tax on investors who lack access to those superfast computers — which means that the money Goldman spends on those computers has a negative effect on national wealth. As the great Stanford economist Kenneth Arrow put it in 1973, speculation based on private information imposes a “double social loss”: it uses up resources and undermines markets.

...

I always claim that the more money moves around, the more money those at the gates can collect. Thus the major end game of the stock market — is not to help sustain a system that makes useful or useless things but to make the money move as fast as possible from one place to another — as, win or loose, the gate-keeper gets a cut. No money movement in a yet prosperous system that makes useful or useless things, the gate-keeper does not get his cuts... Gate-keepers are stock brokers, banks and any other institutions whose main line of work is not to make useless or useful things, but to push money around — as fast as possible through the gates — in which they are the gate keepers as well as being the owners of the gate and the money merchants passing through. Then the tax payers are made to toil like those horses that go round and round an horizontal threadmill pumping water... The taxpayers get flogged to buy useful or useless things and to work hard to make useless or useful things that...

A breakdown in communications at the highest level between the US and the UK led to the shock collapse of the investment bank Lehman Brothers in September last year, a Guardian/Observer investigation has revealed.

The downfall of Lehman, which triggered the biggest banking crisis since the Great Depression, came after a rescue bid by the high street bank Barclays failed to materialise.

In London, the Treasury, the Bank of England and the Financial Services Authority all believed that the US government would step in with a financial guarantee for the troubled Wall Street bank. The tripartite authorities insist that they always made it clear to the Americans that a possible bid from Barclays could go ahead only if sweetened by US money.

But in Washington, the former Treasury secretary Hank Paulson has blamed Lehman's demise on Alistair Darling's failure to let Washington know of his misgivings until it was too late. Paulson has told journalists that during a transatlantic phone call the chancellor said he was not prepared to import the American "cancer" into Britain – something Darling strongly denies.

With finance ministers and central bank governors from the G20 countries meeting in London on Saturday, the first-hand accounts of those handling last year's events underline a rift between London and Washington over who was to blame for the demise of Lehman, which triggered a month of mayhem on the financial markets.

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Phew! the "rescue of Lehman by Barclays" would have actually compounded far more damage to the world financial system! My opinion for what it's worth... See, Barclays is the only British bank that's still cooking independently... We'd be in real hot water... see toon at top... I believe the communication breakdown happened "accidentally" with purpose... People in Pommyland and in Yankeeland crunched the sums...

Cracking down on bankers' bonuses has popular appeal with the public, it is expected that an agreement will be reached on how that might be achieved.

US Treasury Secretary Timothy Geithner said G20 countries had reached a consensus on the "basic outline" of a proposal to limit pay and bonuses by the end of 2009.

Each country would set their own standards, he said, but that these would be overseen by the G20's Financial Stability Board - made up of central bankers and regulators.

Earlier, Chancellor of the Exchequer Alistair Darling warned bankers that the "party was over" and they must realise that the world has changed.

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"Knowing how the system works", I know many bankers and executives will have a little wry smile... "The party is over"? Sure..., let's pop some more champagne to celebrate the end of this romp and the beginning of a new era...

They love the smell of a challenge, don't they? The world has changed? Popular appeal with the public????...

So now it's war between the moneyers and the politicians... After the war on terror, the war on bonuses. Ha!...

see toon at top.