Thursday, February 12, 2009

More On The Stupidity Of Congress

Yesterday, we once again witnessed political theatre
of the absurd. Bank managements
should have turned the table around and asked the
members of Congress whether they would be willing to
work for $1 until the government returns to a budget

I am a citizen, and these are my list of grievances:

1. how poorly Congress was prepared; and

2. how disingenuous Citigroup's (C) Vikram Pandit was
in his response.

Let me be specific.

During the course of the testimony, Congress had
specific questions with regard to bankers' compensation
in 2007, 2008 and 2009.

In questioning Citigroup's Vikram Pandit, not a single
member of Congress knew to query him about the absurd
level of compensation ($165 million) he received in 2007
in connection with Citigroup's purchase of his Old Lane
hedge fund. In essence, Citigroup dramatically overpaid
for his "smallish" hedge fund in order to incent Pandit
-- the large premium over fair market value of Old Lane
was clearly 2007's compensation to him -- but, again,
nobody asked him to lump the $165 million into his 2007
compensation answer. Clearly, none had done the
research. (The Old Lane deal was a disaster. It turned
out to be another value-destructive Citigroup deal. In
June 2008, Citigroup closed down Old Lane because of
terrible performance.)

Just as poor as Congress's research was regarding
Pandit's 2007 compensation, Pandit's responses to
their compensation questions was disingenuous. When
asked about his projected 2009 compensation, Pandit,
with a smile of approval on his face, repeatedly
underscored that he had asked the Board of Directors of
Citigroup for "only $1 in salary." Not volunteering that
he received excessive compensation back in 2007 (when
he sold Old Lane) was insincere. He should have
volunteered the fact that he had previously received
such a large sum less than two years ago.

Simply stated, the Congressional inquisition was one
big waste of time, sounded like a "Saturday Night Live"
skit and likely served to further disaffect investors
who have repeatedly seen their politicians in a most
unpleasant light over the past nine months.

Yesterday's Congressional hearings were a farce, and
the transparency of our political process over the
past year has likely served as a P/E-multiple-
contracting event.

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