2009 is turning out to be a great year for Wall Street pay. With unemployment at 9.5 percent and 6.5 million people out of work since 2007 wrapped up, you might be wondering how Wall Street could pull that off. The answer is simple: nobody makes the kind of campaign contributions that Wall Street does -- between 1998 and 2008, Wall Street made $1.725 billion in political contributions and spent another $3.4 billion on lobbyists.

So the taxes from American consumers coupled with trillions of new debt are being funneled into enriching the people who brought the financial world to its knees. How so? Government is rewarding Wall Street -- with $12.9 trillion in taxpayer funds, the Public Private Investment Partnership (PPIP), a $1 trillion no-lose deal for big asset managers and hedge funds to buy financial toxic waste, and new rules that will make it possible for private equity firms to own banks -- the very capital sources on which they depend for their highly leveraged deals.

How big will Wall Street bonuses be this year? Goldman Sachs Group (GS), which paid back its $10 billion in TARP money, is setting aside $20 billion for compensation this year -- $700,000 per employee, which is 6 percent more than it paid in its record 2007 compensation year. Morgan Stanley (MS) will give out between $11 billion and $14 billion in compensation -- close to the $340,000 per employee in record compensation that it paid in 2007.

How can these banks justify these huge compensation increases? Perhaps fear of comp cop, Kenneth Feinberg, is giving Wall Street a huge incentive to pay out as much as possible before he institutes pay limits. Morgan Stanley's pay is a much bigger than average 68 percent of revenues.

The record compensation is not related to superior financial performance. After all, financial results at these firms are way down from where they were in the first quarter of 2007. Goldman made $1.8 billion in the first quarter of 2009, 44 percent less than the $3.2 billion it earned in the first quarter of 2007. And Morgan Stanley lost $177 million in the first quarter of 2009 -- while making $2.7 billion in the first quarter of 2007. Morgan Stanley also repaid $10 billion and is expected to post a 32 cents a share loss in the second quarter.

In addition to all this, the FDIC is loosening rules to permit private equity firms to own their lenders. With 45 banks having failed so far this year, the FDIC needs all the help it can get. Private equity firms like Carlyle Group have plenty of capital and the FDIC would like to use it to help bail out banks -- as it did with BankUnited Financial Corporation in Florida.

But the new rules require private equity firms to hold their investment for as long as two years, increase their capital if they buy banks, and limit their ownership to 24.9 percent unless they want to become bank holding companies. Private equity firms can get around this last restriction by teaming up -- in club deals.

Wall Street rules Washington. And even though the comp cop is scaring Wall Street on pay, he can't stop it from paying itself record bonuses despite far weaker financial performance.

As our children and grandchildren assume the burdens of all the debt America has taken on to bail out Wall Street for its errors, it is worth asking whether we have a true Democracy or merely the best government that Wall Street can buy.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book is You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He has no financial interest in the securities mentioned.


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