The recent flap over Phibro's Andrew Hall and his $100 million+ compensation package makes for good headlines, but fails to get at the essence of the real problem: the manner in which Wall Street trader compensation is calculated and disbursed.

But even more importantly, the talk of nullifying or modifying his contract simply because neither Citigroup ( ) nor the US Government like it brings with it dark and threatening implications. If contracts entered into legally and without prejudice are all of a sudden cast into doubt, the entire foundation of free and fair commerce is in jeopardy. Say what you may about a trader getting paid $100 million per year, but if you are a Citigroup shareholder: (a) you've known about this; (b) you've benefited handsomely from it; and (c) there are lots of contracts where Citigroup is paid a lot of money, and if they were nullified would bring grave harm to the firm. I wish muckrakers and whiners would use their brains and hold their tongues when talking about stiffing people pursuant to legally valid contracts. The issue should be "Are these contracts appropriate and do they create value for the firm?" and not "These pigs are getting paid too much money. We should tell them to go to hell." Because once you can simply say "I don't like this deal" and walk away, lawlessness and economic chaos is sure to follow. The Obama Administration should run as far away from this talk as possible, and even publicly stand behind the rule of law as an essential component of a free and fair society. As I tell my children: think before you speak.

Back to Wall Street trader compensation. The issue is inextricably tied to risk-taking, where the Wall Street "heads I win; tails you lose" payout paradigm rewards excessive risks and places little to no premium on risk management. Further, given that current year cash payouts are a significant part of the trader compensation package, subsequent year losses have little impact on monies actually collected by the losing trader. It's also important to note that Wall Street traders effectively start at zero P&L each and every year, institutionalizing a short-term mind-set that doesn't create sustainable equity value for the firm.