For those who thought outsized pay for investment bankers and traders was a thing of the past, think again. Ditto with the idea that having been a key actor in a financial failure dims one’s employment prospects. The poster child is John Meriwether, the head of hedge fund Long Term Capital Management, whose collapse in 1998 nearly caused a systemic crisis, leading the Fed to broker a rescue. Meriwether went on to launch another large hedge fund.

From the UK’s Times:

Staff at Lehman’s New York office who helped to cause the world’s biggest corporate bankruptcy are to share in a $2.5 billion bonanza.

The bonus, which has been described by London staff as a “scandal” has been pledged by Barclays Capital, the British-based bank that last week acquired Lehman’s American operation and took on 10,000 staff.

The $2.5 billion (£1.4 billion) pot, which has been ring-fenced as part of the acquisition, has caused huge resentment among the 5,000 staff in the firm’s European and Middle Eastern operations who are not guaranteed to be paid after this month…

A Chapter 11 bankruptcy document filed by Lehman Brothers Holdings Inc says that Barclays has identified eight individuals out of the New York staff of 10,000 who are vital to make the deal succeed and a further 200 who are identified as “key”. It is thought that these eight directors will be locked into two-year contracts worth between $10m and $25m a year.

The $2.5 billion had been accrued as part of the contribution to Lehman’s group profits for the first nine months of the year. Barclays said there is no obligation to pay it out but analysts say the competitive pressure to keep key staff means he will have to….

Price Waterhouse Coopers (PWC), the administrator to Lehman’s European operation has demanded that the firm repay £4.4 billion that was transferred from the UK to Lehman’s US holding company just hours before the firm collapsed. This left London with no money to pay staff.

If PWC is successful, the European operation would be Lehman’s third-biggest creditor after Citigroup and Bank of New York. It is thought that PWC will want to look closely at how $2.5 billion had been ring-fenced as part of the deal with Barclays. It will want to know who negotiated the sale and the precise details surrounding who benefited….

The administrator is looking closely at how this cash was transferred. It was an unusally high transfer that raised eyebrows in the London office.

Yesterday Gordon Brown, the prime minister stepped into support PWC’s claim demanding the American division return the £4.4 billion….

The way that Lehman has set aside cash to reward staff has angered politicans. John McFall, chairman of the Treasury select committee, said: “This is socialism for the fat cats. Everyone in financial services recognised that the remuneration system is the cancer on the financial body politic here. Until that is tackled we can’t move on.”

Vince Cable, Liberal Democrat shadow chancellor, said: “This is outrageous and deeply cynical. Part of the problem with Lehman and the other weak investment banks was that they were driven by the bonus culture, which rewarded big deals rather than good deals. It was what destabilised the institutions in the first place. They are being rewarded for having adopted business behaviour that has wrecked their bank.”