Even in the midst of the worst financial meltdown since the Great Depression, the biggest Wall Street banks, the same banks that relied on hundreds of billions in government cash to stay afloat, are paying out record bonuses to their employees. This, of course, is old news.

What they don't realize is that this is a Pyrrhic victory for them. The banks are twisting the dagger in their own side and lopping off the ears of their shareholders. If you own bank stocks, get out now.

Record bonuses are in. Goldman Sachs handed out $16.7 billion in bonuses in the first nine months of 2009 according to Bloomberg. That's just shy of the $16.9 billion given out in the pre-crash record year of 2007. Not only did this result in bad press, but there are several shareholder lawsuits pending. Shareholder Ken Brown is claiming that in 2008, Goldman handed out $4.82 billion in bonuses in 2008, despite earnings of only $2.32 billion that year. The lawsuit alleges that the company spent 259 percent of its income in the first quarter of 2009 on compensation. (see the lawsuit).

Bloomberg is reporting that Bank of America is also planning to award record bonuses to some of its investment bankers. “We have to compensate our people competitively,” spokesman Robert Stickler said. “If we don’t do that, we lose our talent.” I'd expect we'll see some more lawsuits aimed at BofA.

But the lawsuits aren't really the problem for these banks. The problem is that the compensation as well as the bad press it's getting is setting the stage for some very nasty regulation. The bank lobby has 0 credibility and the public's antipathy to the banks is at an all-time high. In this setting, legislators will be tripping over each other to pass legislation that will control and reduce bank profit. Don't believe it? It's already happening.

Congress recently passed a credit card reform bill as well as a bill that changes the way banks process overdrafts. Both are expected to cost the banking industry over $50 billion per year. And that's just the beginning. What the bank bonuses are signaling is that the banks are so profitable once again that perhaps it's time for them to start sharing some of that treasure chest. Especially when that treasure chest was maintained via public bailouts and funds.

I predict that 2009 will be the high water mark for the finance industry in the United States. The banks overplayed their hand and now they are going to watch as the government and general public begin to slowly dismantle the profit-making system that succors them. Expect a lot of hand-wringing and talk about how regulation of the banking system is bad for everyone, but most of it will be ignored. The public is mad and has come to realize that what's good for the banks is no longer good for Main Street.

Irwin Kellner, the Chief Economist or Marketwatch came out with an article today parroting what we've been saying for the last year: the Fed is punishing savers to the benefit of borrowers. The mainstream press has sporadically written articles about this but it's good to see it continuing to get attention.

In his article he writes:

"It can't come a moment too soon for the silent majority -- the nation's savers.

In its efforts to shore up the banking system, the Fed has neglected the needs of those who save. And in case you did not know it, savers make up the bulk of the population."

But are savers the silent majority? When you add up everone who has a mortgage, credit card, car payment, home equity loan, business loan, etc. I find it hard to believe that there are more savers. We run on a credit economy, not a saver's economy. That's why the outcry over low interest rates hasn't been louder. There are a lot of people who have debt or use credit and they are all benefitting in the current environment.

I know that I am. I'm a saver but I also benefitted from low rates by refinancing my mortgage.

The other question to ask is, did the Fed have any choice? Shouldn't credit be less expensive in a financial meltdown? After all, it makes no sense to raise interest rates while the economy is crumbling. The Fed is not going to keep rates at 5%. Of course rates were going to come down.

But that doesn't make it an easy pill for those loving on a fixed-income to swallow.

What can a saver do? Get smart. Look for the very best places to put money. Don't let money sit in a savings account earning 0.5% when banks are offering 1.5%. Look for the very best CD rates. Shop around.

If all the talk about inflation is correct, then savers may soon see their fortunes reversed, as rates climb quickly.

The number and total assets of problem institutions on the FDIC 'Problem List' continued to grow at the end of 2009 as banks charged off even more bad loans than in 2008.

At the end of December, there were 702 insured institutions on the "Problem List," up from 552 on September 30. In addition, the total assets of "problem" institutions increased during the quarter from $345.9 billion to $402.8 billion. Forty-five institutions failed during the fourth quarter, bringing the total number of failures for the year to 140, the highest annual total since 1992.

In its quarterly report on bank health,the FDIC noted that indicators of asset quality continued to deteriorate during the fourth quarter, although the pace of deterioration slowed for a third consecutive quarter. So, the first derivative is less now than it was at the beginning of 2009. Still, asset quality if still declining. Insured banks and thrifts charged off $53.0 billion in uncollectible loans during the quarter, up from $38.6 billion a year earlier, and noncurrent loans and leases increased by $24.3 billion during the fourth quarter. At the end of 2009, noncurrent loans and leases totaled $391.3 billion, or 5.37 percent of the industry's total loans and leases.

The one bright spot was bank earnings. Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported an aggregate profit of $914 million in the fourth quarter of 2009, a $38.7 billion improvement from the $37.8 billion net loss the industry sustained in the fourth quarter of 2008, but still well below historical norms for quarterly profits. More than half of all institutions (50.3 percent) reported year-over-year improvements in their quarterly net income. Almost one-third of all institutions (32.7 percent) reported net losses for the quarter, compared to 34.6 percent a year earlier. For the full-year, banks reported net income totaling $12.5 billion – up from $4.5 billion in 2008.

Of course, it would have been impossible for banks not to earn money with the yield curve the way it has been. Banks can borrow cheap and lend out at higher rates. The Fed has intentionally done this to reinflate banks and it seems to be working.

Bad assets remain on the books though. I have a friend who is a banker and he says that commercial real estate is still very ugly. A lot of banks have not sucked it up and recognized their losses so there is still pain ahead.

You can read the full FDIC press release here.