How much should one person gain from another person's suffering?

This is the question I always ask in class when discussing pricing, especially of pharmaceutical drugs.
Today, I read in the NYT that "Citigroup gave Vikram S. Pandit, its chief executive, a compensation package valued at more than $38.2 million for 2008, even as the bank posted five consecutive quarters of multibillion-dollar losses and turned to the government three times for help.

Mr. Pandit’s compensation, disclosed Monday in Citigroup’s proxy statement, stems largely from stock and option awards that were part of his starting package last year and comes on top of the nearly $80 million he earned from selling his hedge fund to Citigroup in 2007.

The value of his stock and option awards has since fallen sharply with the price of Citigroup’s shares and, adjusted for Friday’s closing price of $1.78, it would be worth about $2.9 million, according to Equilar, an executive compensation firm.

Mr. Pandit, who declined a 2008 bonus, has said he would accept a base salary of $1 until the company returns to profitability.

Also, according to the proxy, James A. Forese, a co-head of Citigroup’s markets division, received $20.9 million in stock and cash bonus awards. Stephen R. Volk, a Citigroup vice chairman, was paid more than $13 million. Ajay Banga, who oversees Citigroup’s Asian operations, was awarded $10.9 million. Gary L. Crittenden, the chief financial officer who also declined a 2008 bonus, was paid about $10.6 million, largely from guaranteed stock awards to make up the difference of what he left behind at American Express."

The fact that the stock price declined since the bonus was awarded makes no difference- when the bonuses were granted they were valued as reported. Citi is one of the blighters on the landscape that made away with a lot of taxpayer money.

A FEDeral case of a C(ri)ITIcal situation

NYT reported today that "Plan to Rescue Citigroup Begins to Emerge." Apparently, "Under the proposal, the government would shoulder losses at Citigroup if those losses exceeded certain levels, according to people briefed on the talks, who spoke on the condition that they not be identified because the plan was still under discussion."

The WSJ has an article titled "Fed Has More Ammunition After Firing Rate-Cut Bullets" in which the writer presents some additional steps the Fed could take, in addition to reducing the short term rates to 0%. One of these would be for the Fed to buy long-term debt, including Treasuries and debt of Fannie and Freddie. This would be incestuous, if it happens.

The actions of the Fed and the Treasury are emblematic of the tail wagging the dog phenomenon. Equity and debt are not risk-free. It was the assumption, on the part of quite a few, that there was no risk associated with these "investments" that has caused the current mess. Rather than focusing on the fundamentals, i.e. education and job creation, the government is focusing on the financials. Risk-takers have to accept the downside. To the extent that regulatory failures contributed to the current mess, both the bureaucrats and the members of Congress on the appropriate committees should be held accountable.

Obama has announced a job creation program over the weekend. I have not had the time to take a look at the details. The key is the cash flow to support the investments. Apparently, Obama would not raise the tax rates for the 'wealthy' back to pre-Bush levels, but would just let them expire in 2011. This would signal that Obama is not concerned with debt levels and will add more deficits. Perhaps he will follow his guru, Ronald Reagan, in creating record deficits.