Wall Street has a short memory when it comes to pay. That's what came to mind when I saw a report saying that many big leveraged buyouts (LBOs) are in trouble -- four of the 10 biggest companies bought in leveraged buyouts have stopped paying back the money they borrowed. Nevertheless, Wall Street will pay itself record bonuses in 2009.

Unless my memory is failing me, it was only 14 months ago that Wall Street nearly went bankrupt. Without trillions of dollars in taxpayer money, it's highly unlikely that it would be in a position to pay itself $140 billion in bonuses this year.

Today, The New York Times offers new insights on where those record-breaking bonuses will go. The biggest bonus recipients are the ones bringing in the cash this year. So traders, who are now making the big short-term profits, will get the biggest bonuses -- fixed income traders will make on average $930,000 in cash and stock, 34 percent more than last year.

By contrast, those folks in private equity will suffer, getting paid 20 percent to 25 percent less this year. But that's not because they closed these lousy LBO deals. It's because their business is still in the doldrums. It goes without saying that nobody will force those LBO-deal-doers to repay the bonuses they earned from making those big lousy LBO deals.

And the nature of those LBO deals is creating big problems for the banks that lent to them. How so? The Times reports that Moody's (MCO) concluded that 19.4 percent of companies bought by the 14 largest private equity firms from January 2008 to September 2009 have defaulted -- a slightly higher default rate than the 18.6 percent default rate for similarly rated companies.

Moody's highlighted two private equity firms -- Cerberus and Apollo -- as the worse performers. Four of Cerberus's six buyouts are in distress or in default, and about two-thirds of Apollo's companies are in equally dire straits.

But since those private equity firms put so little equity in their deals, their investors won't lose much. Instead, the risk is with the people who lent money to the deals when times appeared to be good. Now those lenders will either get stiffed completely or exchange their old, useless paper for shiny new paper.

Meanwhile Wall Street moves on. The fixed-income traders making the big bucks this year will get their record bonuses. And the money makers of yore, the buyout guys, will have to take a little hit -- while shifting the cost of their bad bad decisions onto someone else. And if 2009's fixed-income trades go bad next year, expect no clawback of this year's big bucks bonuses.

Heads I win, tails you lose.

Peter Cohan is a management consultant, Babson professor and author of nine books, including Capital Rising (due in June 2010). Follow him on Twitter. He has no financial interest in the securities mentioned.


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