Financial thoughts

National statistic agencies should have the same autonomy as central banks to avoid any attempts by government to influence economic data, said Enrico Giovannini, chairman of the Italy’s national statistics institute.

“Both the legal and financial independence of statistics should be guaranteed, as is the case for central banks,” Giovannini, 52, said in an interview. “Otherwise, there may always be ways to choke a statistics institute, such as cutting its funding, something which can’t happen with a central bank.”

For more than a quarter-century, independent central banks have been able to take painful and politically unpopular measures such as raising interest rates to restrain inflation. In the euro region, the European Central Bank and national central banks are banned by law to take or seek instructions from governments of the EU member states.

Officials in the government of Prime Minister Silvio Berlusconi have repeatedly asked data agencies to stop spreading bad economic news and have questioned Istat’s methodology. In a June 24 speech, before Giovannini’s appointment, Finance Minister Giulio Tremonti criticized the Rome-based institute’s methods for measuring unemployment, saying the survey overestimated joblessness.

Giovannini was chief statistician for the Organization for Economic Cooperation and Development for eight years before taking over the Italian agency in July. He said that Italy should consider legislating the independence of the statistics agency as part of a debate on constitutional reforms.

Revisions of Greek economic data in October that showed the economy had been in recession for more than a year, rather than expanding as initially reported, demonstrate the urgency for statistics agencies to be autonomous, he said.

“The current practices are apparently not sufficient and need to be strengthened further,” Giovannini said. The “institutionalization of statistics should be aimed not so much at increasing technical reliability, but in raising the integrity and independence from political pressures.”

The credibility of Greece’s data had been previously questioned after revisions to budget deficit numbers. The European Commission in 2004 launched an investigation into Greece’s deficit after a revision of data revealed that, contrary to previous indications, the shortfall had exceeded the EU’s 3 percent of output ceiling ever since the country switched to the euro.

“The Greek case is unfortunately a repeat of what happened in 2004, when deficit and debt figures were questioned to the point that the European Commission established a code of good practice for official data,” Giovannini said. “This took place again despite the efforts put in place then by the EU’s statistics office Eurostat to monitor the Greek data.”

Greece’s credibility was further damaged by the government revising forecasts. Within weeks of the October elections, Prime Minister George Papandreou’s new government, said the 2009 budget deficit would be an EU-high of 12.7 percent of economic output, about twice the outgoing government’s prediction. The revision contributed to Standard & Poor’s, Moody’s Investors Service and Fitch Ratings cutting the country’s creditworthiness, which sent Greek bonds and stocks tumbling this month.

Giovannini replaced Luigi Biggeri as Istat chairman in July.

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Greek Finance Minister George Papaconstantinou promised to speed up fiscal and budget reforms to overhaul the economy, saying the country has no time to spare after investor concerns sent bonds and stocks tumbling.

“The biggest gamble the government has is how to regain credibility,” Papaconstantinou said in a speech in Athens today. “The initiatives will be faster and more dynamic. We don’t have the luxury to wait. We will speed up everything, we owe it to the citizens of Greece.”

Greek bonds plunged to their lowest in seven months on Dec. 9 and stocks slumped after Fitch Ratings cut Greece one step to BBB+, saying Prime Minister George Papandreou’s two-month-old Pasok government isn’t doing enough to tame a deficit of 12.7 percent of output, the highest in the European Union. A day earlier, Standard & Poor’s put its A- rating on watch for downgrade.

European Central Bank Vice President Lucas Papademos today characterized Greece’s fiscal situation as “extremely serious,” in comments to reporters in Berlin.

“Greece should take decisive action and in a timely manner,” Papademos said.

Papaconstantinou said the government will begin talks next week on crafting a new tax system that will be fairer and more effective. An audit of government spending will begin next year with the assistance of international companies, he said Online payday loans.

Debt

The year will close with 300 billion euros ($438.5 billion) in debt and “we must stop the rising dynamic of it,” Papaconstantinou said. The stability plan the government will submit in January needs to include a plan for the “gradual reduction” of Greece’s debt, he said.

Nobel laureate Robert Mundell said in an interview with Bloomberg Television in Berlin today that a debt default by Greeece “would send shockwaves through the system.” He predicted the country would “handle the problem by itself,” although neighboring economies may eventually provide resources.

“This is a good occasion to set up a fund which is available for bailout, a kind of security fund,” he said. “Even if it won’t be used, there might be other occasions to come up at some point in the future.”

ECB President Jean-Claude Trichet said yesterday that “courageous” action is needed to close the budget gap. Greece’s 2010 budget projects the deficit will be reduced to 9.1 percent of gross domestic product.

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U.S. auto sales edged higher in November, led by an outsized gain for Hyundai Motor Co and mixed results for rivals in a trend automakers said pointed to a grudging recovery in the U.S. economy.

Hyundai posted a 46 percent gain in sales for November and said it was on track to take a 4 percent share of the U.S. auto market this year, up by a third at a time when the rest of the industry has been reeling. The Korean carmaker benefited from a recent marketing push and lineup of fuel-efficient cars.

Toyota Motor Corp, the world’s largest automaker and the best-selling brand in the U.S. market, saw a rise of nearly 3 percent in November sales.

Nissan Motor Co Ltd, the No. 6 automaker in the United States, reported a nearly 21 percent increase in sales. Honda Motor Co Ltd sales were off nearly 3 percent.

As a group, U.S. automakers lost share during the month, with Ford Motor Co distancing itself again from domestic rivals General Motors Co and Chrysler.

Ford posted flat sales while Chrysler, now under management control of Italy’s Fiat SpA, said sales fell 25 percent from the same month a year earlier. GM’s sales fell 2 percent.

Ford, the only U.S. automaker to have avoided a taxpayer-funded restructuring in bankruptcy, set a sharply higher target for North American production in the first quarter. It expects production to rise 58 percent from the previous year when it had cut back output as the auto market slid toward its weakest level since the early 1980s.

“It appears that the economy and the auto sales have stabilized and that the worst is behind us,” Ford U.S. sales chief Ken Czubay told a conference call.

Separately, GM’s CEO, Fritz Henderson, will leave the automaker, a source familiar with the matter said on Tuesday. The planned departure comes after a meeting of GM’s 13-member board of directors in Detroit.

SALES QUAGMIRE

U.S. auto sales results were pushed lower by a quirk in the calendar. November had only 23 selling days for dealerships — two fewer than the same month a year earlier.

On the adjusted and annualized basis tracked by industry planners and analysts, the U.S. auto market came just short of a sales rate of 11 million units in November. That is up from 10.4 million a year ago and in line with analyst estimates.

Results confirmed the industry is on the mend after a deep four-year downturn, analysts said, but they cautioned that sales are coming back from historically low levels. Sluggish consumer confidence and rising unemployment could make any recovery slow and uneven.

“You are comparing terrible numbers to terrible numbers, so it doesn’t look that bad,” said Dennis Virag, an analyst with Automotive Consulting Group.

“There still is a very dismal state within the auto industry and it will probably be another year or so until we start pulling out of the quagmire we are in,” Virag said. 

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In closing arguments in the trial of the first high-profile Wall Streeters on fraud charges stemming from the financial crisis, a U.S. prosecutor said two hedge fund managers told “black and white lies,” but a defense lawyer attacked the government for “misleading” the jury.

U.S. prosecutor Ilene Jaroslaw said on Thursday former Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin lied to investors in the early months of 2007 about the health of their funds even though they were seeing some of the worst market conditions ever.

“This case is not about hedge fund strategy or what happened in the market in 2007,” Jaroslaw told a Brooklyn, New York, federal court jury.

“What it is about, is the two defendants lied to their investors. It’s not about the future … but a case of black and white lies,” she told the jury, which is expected to begin deliberations on Monday, nearly a month after the trial began on October 13.

Cioffi, 53 and Tannin, 48, have denied charges of securities fraud, wire fraud and conspiracy in a June 2008 indictment that made them the first high-profile Wall Streeters to be criminally charged in a case stemming from subprime mortgage-backed securities that fueled the market meltdown.

When Cioffi’s main lawyer, Dane Butswinkas, took his turn summarizing the evidence to the jury, he said prosecutors had given jurors a “misimpression” and “misleading sound bites” from emails and had implied conspiracy where there was none.

“If you look at some of the tactics I just showed you, do they make you pause?” Butswinkas asked the jury. “If they would, then that’s reasonable doubt.”

The 12 jurors were selected after answering written and oral questions about whether they could be fair and impartial in an era of lost jobs, government bailouts of banks, controversial executive bonuses and Wall Street in crisis payday loans online.

Butswinkas also urged the jury to question whether the New York City borough of Brooklyn was the correct place under the law for the government to bring the case because the alleged offenses took place in the borough of Manhattan.

During the trial, prosecutors called about 20 witnesses and presented about 150 documentary exhibits to the jury. Prosecutors said the two funds, the High Grade Fund and the Enhanced Leveraged Fund, had $1.6 billion leveraged to $20 billion of assets, primarily collateralized debt obligations, securities backed by a pool of debt such as mortgages.

The defense called only three witnesses, including Robert Glenn Hubbard, the Dean of the graduate school of business at Columbia University in New York.

On Thursday, Butswinkas cited his testimony that the strategies for the two Bear Stearns funds did not play out because lenders stopped extending credit.

Hubbard told the court on Tuesday that had the funds’ hedging strategy worked, they “would have returned very large amounts of money to investors, about $700 million to the High Grade Fund, $650 million to the leveraged fund.”

PRISON TERMS POSSIBLE

The two men could be imprisoned for up to 20 years if convicted by the jury. One of Tannin’s lawyers is expected to offer a summation on Friday followed by a government rebuttal. 

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There’s no need to fear a Wall Street brain drain — despite the crackdown on pay by Washington.

On Thursday, White House pay czar Kenneth Feinberg outlined compensation restrictions at seven firms that got special bailouts, and the Federal Reserve proposed to review pay practices at 28 unnamed giant banks.

Critics warn that reining in pay makes it hard to keep talented employees. Hemmed in, institutions like AIG (AIG, Fortune 500),Bank of America (BAC, Fortune 500) and Citigroup (C, Fortune 500) could lose their best people.

These firms would then perform even more abysmally, if that’s possible, leaving them hard pressed to repay tens of billions of dollars of taxpayer-backed loans.

Still, we say Godspeed to this "talent." After all, the traders and suits in the corner offices don’t exactly have an unblemished track record. In 2008, Citigroup, BofA and Merrill Lynch (since acquired by BofA) posted a grand total of $51 billion in losses.

Yet even as they were running themselves into the ground, the firms managed to pay out more than $12 billion in bonuses — including 1,606 million-dollar-plus bonuses, according to a report from the New York attorney general’s office.

"Even a cursory examination of the data suggests that in these challenging economic times, compensation for bank employees has become unmoored from the banks’ financial performance," the report said.

Meanwhile, it’s hard to imagine that defection-hit firms would have a lot of trouble finding qualified replacements in the current job market.

Unemployment has doubled nationally since December 2007, when the recession started. Securities industry employment has fallen 10% nationwide and 14% in New York from a mid-2008 peak, according to Bureau of Labor Statistics data, costing some 90,000 jobs in the U.S.

And Goldman Sachs’ (GS, Fortune 500) charm offensive notwithstanding, it looks like the official response to runaway pay is just starting.

The Fed’s plan to weigh big banks’ compensation plans against their potential for undermining the economy could eventually put pressure on pay at all the big banks.

"This could be a game changer," said Simon Johnson, an economist at MIT. "There will be a lot of pressure on them in Congress to stick it to the big firms."

But maybe the best reason not to fret about talent flight is one familiar to cubicle dwellers everywhere: just because someone has a big, high-paying job doesn’t mean they’re good at it.

Take Bank of America, for instance. The bank’s longtime CEO, Ken Lewis, unexpectedly announced his retirement this month, while agreeing to give back his 2009 salary.

Lewis didn’t say why he was leaving, but it seems that criticism over his empire building, mishandling of the Merrill acquisition and outsize pay got to him. The Charlotte Observer reported he had grown tired of the "mud being thrown on him day by day."

Another helping or two of that mud could be just what Wall Street needs. 

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Blue chips led a bigger stock market rally Thursday, as better-than-expected results from four components pushed the Dow industrials above 10,000 again and reassured investors about the ongoing corporate reporting period.

Investors took in stride announcements from the Federal Reserve and the Obama administration’s pay czar regarding curbing executive pay.

The Dow Jones industrial average (INDU) gained 132 points, or 1.3%, closing at 10,081.31. The S&P 500 (SPX) index rose 11 points, or 1%. The Nasdaq composite (COMP) gained 14 points, or 0.7%.

Stocks dipped in the early going, before managing a blue-chip led charge starting in late morning. Gains were broad based, with 26 of 30 Dow stocks rising, including 3M, McDonald’s, AT&T and Travelers, all of which reported better-than-expected results.

Travelers jumped almost 8% and was one of many financial stocks that gained on the day. The KBW Bank (BKX) index rose 3.4%.

Stocks have been seesawing over the last week, with the Dow topping and giving up the 10,000 level and the S&P struggling around 1,100. Both major indexes, as well as the Nasdaq, are at nearly one-year highs.

Stocks tumbled Wednesday after influential analyst Richard Bove of Rochdale Securities cut his rating on Wells Fargo, sparking a steep selloff in the banking sector.

But the selloff proved to be short term, with investors again using any selling as an opportunity to buy on the dips, as has been the trend for months.

Stocks have been on a tear since bottoming in March at the low point of the financial market crisis. Since hitting a more than 12-year low on March 9, the S&P 500 has risen just short of 60% as of Wednesday’s close.

Despite persistent calls for a selloff of anywhere from 10% to 15%, any declines in the period have been moderate, in the 3% to 5% range.

Additionally, the declines have been met with a rash of buyers eager to return. For now, those trends are still in place, said Kenny Landgraf, principal and founder at Kenjol Capital Management.

"There are still a lot of people who missed the move who are now looking to increase their risk exposure," he said. "That impact, combined with improving fundamentals, is going to keep the positive trends intact."

Pay crackdown: Obama administration "pay czar" Kenneth Feinberg called for the seven biggest federal bailout recipients to cut in half total compensation for their top executives.

Additionally, the Federal Reserve proposed a broad overhaul of pay policies at 28 of the largest U.S. banks. The review is part of its effort to temper some of the triggers to the risk taking that exacerbated the credit crisis.

The two announcements had almost no impact on the market, perhaps because an overhaul had been in discussion for months.

Corporate results: Dow component Travelers (TRV, Fortune 500) said its quarterly profit more than tripled, easily topping analysts’ estimates. The insurer also lifted its full-year forecast to a profit of between $5.30 and $5.50 per share. Shares jumped 7.7%.

Fellow Dow component AT&T (T, Fortune 500) reported a better-than-expected third quarter profit thanks to the impact of Apple’s iPhone, for which it has been the exclusive carrier. Wireless revenue jumped 10% in the quarter. Shares gained 0.6%.

Dow component McDonald’s (MCD, Fortune 500) reported higher third-quarter earnings that topped estimates on weaker third-quarter revenue that missed estimates. Shares rose 2%.

3M (MMM, Fortune 500), also a Dow component, said third-quarter earnings and revenue fell from a year ago, but both were above analysts’ estimates. Shares gained 3.2%.

Other big stocks boosting the Dow included Boeing (BA, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Exxon Mobil (XOM, Fortune 500), Procter & Gamble (PG, Fortune 500) and IBM (IBM, Fortune 500).

Merck (MRK, Fortune 500), the fifth Dow component to report Thursday morning, said its earnings and revenue rose from a year ago and topped estimates. Shares of the drugmaker were barely higher.

So far, 167 companies, or 33% of the S&P 500, have reported results. Profits are currently on track to have fallen 19.2% versus a year earlier, according to the latest from Thomson Reuters. Revenue is expected to have dropped over 10% from a year ago.

Other company news: Microsoft (MSFT, Fortune 500) launched the newest version of its operating system, Windows 7. The tech behemoth, a Dow component, is hoping that users who have been running XP for years will switch to the new system — and forgive it for the disappointing performance of Windows Vista in 2007.

Microsoft reports quarterly results Friday.

Economy: Around 531,000 Americans filed new claims for unemployment last week, down from 520,000 the previous week. Economists surveyed by Briefing.com were expecting a bigger drop, to 515,000.

Continuing claims, a measure of those who have been receiving benefits for a week or more, fell to 5.92 million from 6.02 million in the previous week. Economists were expecting claims to fall to 5.97 million.

The index of leading economic indicators (LEI) rose 1% in September after rising a revised 0.4% in the previous month. Economists thought it would rise 0.8%.

The U.S. Federal Housing Finance Agency’s housing price index fell 0.3% in September after rising 0.3% in August. Economists thought it would rise 0.3%.

World markets: Global markets were mixed. In Europe, London’s FTSE 100 fell 1%, France’s CAC 40 lost 1.4% and Germany’s DAX gave up 1.2%. Asian markets ended lower with the Japanese Nikkei down 0.6%.

Bonds: Treasury prices tumbled, raising the yield on the 10-year note to 3.42% from 3.38% late Wednesday. Treasury prices and yields move in opposite directions.

Currency and commodities: The dollar fell against the euro, weakening again after it fell to a 14-month low Wednesday. The dollar gained versus the yen.

The dollar had risen in the morning, pressuring dollar-traded commodity prices. Prices remained lower in the afternoon, even as the dollar turned mixed.

U.S. light crude oil for December delivery fell 18 cents to settle at $81.19 a barrel on the New York Mercantile Exchange, edging off a one-year high.

COMEX gold for December delivery fell $5.90 to settle at $1,058.60 an ounce. Gold has surpassed records repeatedly this month due to the weak dollar and longer-term worries about inflation.  

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Is anybody out there hiring? Seriously. I’m not looking for a job but I’d like to know if any major corporations are actually looking to boost their headcount anytime soon. Do I hear crickets?

Investors are continuing to celebrate healthy third-quarter earnings reports in what’s turning out to be a far less scary October than usual for stocks. But a lot of the better-than-expected profits are coming thanks to job cuts.

And there still doesn’t appear to be much evidence of an improvement in the labor markets coming anytime soon.

Sun Microsystems (JAVA, Fortune 500) announced Tuesday evening that it was planning to cut 3,000 jobs — about 10% of its total workforce — while it waits for regulators to approve its sale to software giant Oracle (ORCL, Fortune 500).

The New York Times (NYT) said Monday it was going to get rid of 100 jobs in its newsroom. That works out to an 8% reduction in the editorial staff at the Gray Lady.

Earlier this month, struggling PC maker Dell (DELL, Fortune 500) said it was closing a plant in North Carolina, resulting in the loss of more than 900 jobs. And medical equipment manufacturer St. Jude Medical (STJ) said a few weeks ago that it was cutting more jobs than it had originally planned back in the second quarter.

These are just a few examples of the continued bloodletting in Corporate America.

I hate to beat a dead horse here. Heck, I think this horse has already made a trip to the glue factory. But how can Wall Street remain in such a celebratory mood this earnings season when all signs point to more job losses and rising unemployment as far as the eye can see?

Yes, there are several things to be encouraged about these days. Banks appear to have taken a step back from the brink. The housing market looks as if it is stabilizing.

And even though rising energy costs could be a bit painful to consumers, the recent surge in the price of oil (not to mention other commodities) also seems to be a confirmation of what investors in stocks are saying: the global recession may really be over.

Finally, I’d be remiss if I didn’t point out that many of the companies still announcing big job cuts are, to put it mildly, troubled firms.

For example, Sun Microsystems has continued to lose money and would be in more serious financial dire straits if not for the lifeline Oracle has thrown it. It’s no secret that the newspaper business is mired in a horrific slump.

So it may be the case that future job cuts are only going to be coming from weak companies and that healthier firms could actually start hiring again as their profits improve.

"If we don’t have job growth, we can’t have a strong, or even sustained economic recovery," said Stuart Hoffman, chief economist with PNC Financial Services. "But it’s not unusual for profits to head up before employment does, particularly when you have strong productivity growth."

That’s all well and good. But as long as people are still losing their jobs, worried about losing their jobs or having difficulty finding a new job, it’s hard to fathom how the recovery can be anything more than tepid.

"At this point, we’re still losing jobs. For those who say the economy has already turned, I’m dubious about that," said Dan Seiver, a finance professor at San Diego State University. "We’re in the process of bottoming but we can’t call it a recovery until we’re creating net new jobs."

Consumers are not going to spend as much if unemployment continues to rise. The jobless rate was 9.8% nationwide in September.

And according to figures released by the Labor Department Wednesday, 15 states had an unemployment rate above 10% last month. What’s more, the unemployment rate was higher in 23 states in September than in August.

The moribund state of the job market is one reason why Allen Sinai, chief global economist and strategist with Decision Economics, wrote in a report earlier this month that we may be on the verge of "the mother of all jobless recoveries."

"Never before has business shed so many workers so fast, so many people failed to find work who are looking for work, and so many dropped out of the labor force as in the current circumstance," Sinai wrote. "The number of job seekers is way, way up and the number of job openings is way, way down."

This all sounds incredibly depressing. But here’s some good news.

Seiver said that because people who are not actively looking for jobs are not counted by the government as technically being unemployed, it’s possible for the jobless rate to keep climbing even though the job market may really be improving.

"As the economy starts to turn, more people may start looking for jobs and for every job that gets filled, there may be more people looking for work again. That’s part of the problem with the unemployment number," he said.

Hoffman added that he thinks the nascent rebound in profits will eventually allow businesses to become confident enough to start hiring again. He said that there should be modest job growth beginning in the first quarter of next year and that the pace should pick up heading into 2011.

Of course, that’s a long way off for people looking for work now. And Hoffman said that people shouldn’t expect too much of a rebound in the job market at first.

"Job growth won’t be rapid. Employment gains won’t be up as fast as the losses were on the way down," he said.

That’s why Hoffman thinks it is best for consumers and investors to temper their expectations and prepare for a gradual climb out of the recession, not an explosive rebound. He’s referring to 2010 and 2011 as a "half-speed recovery."

Talkback: Are you worried about losing your job or finding a new one if you are currently unemployed? Is Wall Street underestimating how serious the problems in the labor market are? Share your comments below. 

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Most Federal Reserve policymakers believe that an economic recovery has started, although they view the turnaround as weak enough that some want the central bank to take additional steps to stimulate the economy, according to minutes of a meeting last month that were released Wednesday.

The minutes of the two-day meeting, concluded Sept. 23, were the most explicit statement yet that the Federal Open Market Committee now believes the recession that started in December 2007 is over. The committee comprises the group of Fed governors and district bank presidents who set interest rates and take other steps to spur or slow economic growth.

"Most thought an economic recovery was under way," the minutes stated. "Many participants noted that since August, they had revised up their projections for the second half of 2009 and for subsequent years."

Up to now, the Fed’s statements have been more circumspect. Its statement , released at the end of the meeting, said simply that economic readings suggest "that economic activity has picked up following its severe downturn."

This is the first time that Fed minutes explicitly said that most members believe the recession is over. However, in response to a question in an appearance at the Brookings Institution last month, Fed Chairman Ben Bernanke did say that the recession is "very likely over."

The decision on when a recession begins and ends is not up to the Federal Reserve, but instead the National Bureau of Economic Research. That group doesn’t make any sort of declaration until months after the fact, in order to take into account final readings of various economic measures such as employment, income and industrial production.

For example, the NBER didn’t declare that the recent recession had begun in December 2007 until a full year after the fact.

There is a growing consensus among outside economists that the recession is over. A survey of top forecasters by the National Association for Business Economics earlier this month found 81% believe the economy is in recovery.

Still, there was debate at the Fed’s September meeting about what to do next. There was broad agreement that the fed funds rate, the key rate used to pump money into the economy, should be kept near 0%, and that the statement should say "economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period."

But some members wanted to increase the amount of mortgages the Fed will buy from the $1.25 trillion level that had been previously announced. The Fed is buying up those mortgages in an effort to keep mortgage rates low.

At least one member wanted to instead cut the amount of mortgages purchased before reaching that level.

The members agreed that the job market is likely to stay weak for the foreseeable future — and that is likely to keep wages from rising.

But there was a "a range of views" among members about how soon inflation would reappear as a result of trillions that the Fed has pumped into the economy in the last year.

Bernard Baumohl, executive director of the Economic Outlook Group, said he thinks there is a "vigorous debate" going on right now within the Fed as to when it should take steps to pull out the money it has pumped into the economy.

"If we’re getting signs that the recession is over and recovery is gathering steam, the Fed is going to have to move very quickly to begin to withdrawal the stimulus, or else it will sow the seeds for inflation," he said.

Even with the debate about purchases of mortgages and the threat of inflation, there appears to be general agreement that the recovery is likely to be modest.

"Despite…positive factors, many participants noted that the economic recovery was likely to be quite restrained," according to the minutes. 

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Citigroup announced Friday it had struck a deal to sell its Phibro energy trading business to Occidental Petroleum, a move that will likely reduce scrutiny about the compensation of the division’s top trader.

While the New York City-based bank declined to disclose the terms of the deal, Occidental (OXY, Fortune 500) said its net investment would be about $250 million.

There had been speculation in recent weeks that Citigroup (C, Fortune 500) was actively shopping the unit in an effort to deflect any potential political anger over a potential $100 million payday for its star trader Andrew Hall.

Citigroup, as well as other banks that were bailed out by the U.S. government on more than one occasion last year, are currently having pay packages of its top executives and most highly compensated employees reviewed by Kenneth Feinberg, the Obama administration’s so-called "pay czar instant payday loan no telecheck."

Occidental, whose business centers on oil and gas exploration and production, is not subject to government scrutiny over compensation. Still, the energy giant said Friday it would defer "significant portions" of any current or future bonuses generated within Phibro.

Hall and other members of Phibro’s management team will remain with Phibro after the acquisition is completed by the end of the year, Occidental said.

Phibro has been a profit machine for Citigroup recently, even as the bank has been hit by big losses tied to mortgages and other toxic assets. Over the past five years, the division averaged approximately $371 million in pre-tax earnings a year, according to Occidental. 

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AIG Chief Executive Robert Benmosche’s $10.5 million annual pay package has been formally approved by Obama administration pay czar Kenneth Feinberg.

According to a letter to Treasury’s compensation committee dated Oct. 2, Feinberg said Benmosche’s package, $4 million of which is in stock options, is comparable to that of other CEOs.

Benmosche, who took over the bailed out insurer’s reins in August, will take home $3 million in cash. His "stock salary" will come in equally divisible, bimonthly payments of common shares. Under the terms of his pay deal, he can’t sell those shares until August 2014.

The new AIG CEO will also be eligible for $3.5 million in annual performance bonuses. The bonus will be prorated for 2009. AIG can recover his bonus if he deceives shareholders.

The approval was widely expected, because Feinberg gave a preliminary thumbs-up to the package when it was announced on Aug. 18. For formal approval, AIG had to submit a review of Benmosche’s compensation package from his last job, when he was the CEO of MetLife (MET, Fortune 500). AIG also was asked to compare Benmosche’s pay plan to those of other CEOs at similar companies quick pay day loan.

In his letter to Treasury, Feinberg said he maintains the right to reduce (but not to increase) Benmosche’s bonus based on the CEO’s or the company’s performance.

Feinberg oversees the executive compensation packages of seven bailed-out companies, including AIG, Chrysler, Chrysler Financial, Citigroup (C, Fortune 500), Bank of America (BAC, Fortune 500), General Motors and GMAC. The companies submitted proposed employment contracts for their 25 highest-paid employees on Aug 14, and compensation proposals for the next 75 most compensated employees are due by Oct. 13.

AIG was the first of the seven companies to receive any kind of formal approval. The pay czar is expected to rule on all of the pay plans by the end of the month. That information is due to be made public by Treasury sometime after, although any announcement may not include details of pay packages for individual employees.

Shares of AIG (AIG, Fortune 500) rose 6% by midday Tuesday. 

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