Beware The Dark Side of Socialism

Beware the dark side of socialism.

Citigroup, which has suckled from the teat of federal rescue, is losing its better people to hedge funds and foreign banks. Managers are putting their best remaining minds to noodle up new ways to compensate the employees who have yet to flee.

NEW YORK, May 4 (Reuters) - Citigroup may put more employees on commission or offer them larger base salaries as it tries to retain key staffers without running afoul of laws limiting executive pay at banks that receive government funds.

Three people familiar with the matter said the bank has examined a series of possible moves, including special stock-based bonuses, or offering employees a percentage of their group's revenue.

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Citigroup, which has received $45 billion of TARP capital and is not believed to have much hope of paying the government back anytime soon, is having discussions with the government about measures that might be appropriate for retaining revenue producing employees.

A number of possibilities are under discussion, and generally are geared toward ensuring that employees are motivated to perform well. The No. 3 U.S. bank will have a better sense of how to proceed once the Treasury Department crafts more specific guidelines on pay, one person said.

Who knows how long it will take the undermanned Treasury to get around to writing guidelines, and then who knows whether the Obama Administration will live up to the terms of those guidelines even when they are drafted?

I truly do feel for the folks at Citigroup. I know that what has happened is a far cry from where Sandy Weill planned the company to be, back when he was putting all the pieces together of the world's first "one shop for everything" financial supermarket. But the seeds of its destruction were being sown even as Citigroup was celebrating its explosive growth starting, I believe, with the hiring of John Snow and Robert Rubin. These Clinton administration refugees accelerated the change of the culture at the top of Citigroup. They pushed the company into getting into the riskier game of investing in mortgage backed securities, among other things.

In retrospect, the repeal of the Glass-Steagall Act, a Depression-era law which prevented banks, insurance companies and investment firms from common ownership, was a colossal mistake. Citigroup was one of the big lobbyists for this. (For the record, I was all gung-ho for its repeal as well.)

We were wrong. Perhaps the financial world had changed but human nature had not. There are always dirtbags, in government and out, who will take full advantage of every opportunity to cheat people of their wealth. The repeal of Glass-Steagall created financial synergies of great magnitude, and these were manipulated by an ethics-challenged few to shift huge sums from investors to offshore accounts unknown. They had inside help from people like Chris Dodd and Barney Frank.

Well, as Jeremiah Wright once said, America's chickens have come home to roost. The socialist opportunists who run Washington have their fingers clamped around the private parts of our nation's biggest banks, and when they squeeze, people in Citigroup have no choice but to pay attention. It is but one part of the price this company and others will continue to pay in the years ahead. One cost is that government control forces out the people who are innovative, ambitious and self-motivated, to be replaced with those who are happy to comply with directives, wait for someone else to take responsibility, and pass the buck when things go wrong.

Poor Citigroup. Once America's financial supermarket, now America's financial basket case.