Against the backdrop of heightened public criticism, The U.S. Federal Reserve is trying to encourage banks to take the first step in controlling excessive pay and bonuses. Regulators have established broad guidelines for pay incentives and bonuses. However, they are quite loose and do not nail down any specifics. Regulators are trying to coax compliance before the end of the year.

Britain has taken the lead and mandated that a percentage of bankers' bonuses should be deferred for a number of years.

Why is there such a public outcry to curb excessive bankers' pay and bonuses?

We have a human disaster of enormous proportions. We have 15 million persons unemployed. Thousands are on the brink of losing their homes. As of this December, 1.7 million unemployed will exhaust their benefits. They may be homeless at this holiday time. Some 400,000 persons exhausted their benefits in the month of October.

Now, as reported in BusinessWeek, one lone economist, Katerina Alexandraki, is asking Wall Streeters to give their bonuses to the homeless and unemployed. She has set up a website, Bonus for Homes, and started a campaign to distribute the monies to low-income earners and the unemployed.

The rally in the stock market and the return to profitability for some of the top banks has been hailed as a sign of a turnaround -- and proof that the interventionist financial policies of the past year worked.

But not so fast. In reality, a huge chunk of the profits banks are earnings can be directly attributed to their ability to borrow money at artificially low interest rates.

According to a report from the Center for Economic and Policy Research found that below market interest rates offered by The Federal Reserve accounted for 41% of JPMorgan's profits. At Bank of America, the number was 47%.

If you've worked as a broker you know the game. The house sets quotas. You must meet the quotas or its good-bye.

As a broker, your first and foremost obligation is to the client. You can make recommendations, but in the last analysis, the decision to buy or sell a security rests with the client. Brokers, however, are often under the gun by management to tout certain securities to their clients that may not be in their best interests.

Reportedly, Goldman Sachs (NYSE: GS) staff will be receiving the largest bonus payouts in the company's 150-year history, thanks to a solid first half of 2009. This news has kicked off a bit of concern that large investment banks that survived the credit crunch would hamper any attempts at financial regulation reforms. The main reason that Goldman Sachs was able to perform well in the quarter was a general lack of competition and a surge in revenue thanks to the company's trading of foreign currency, bonds, and fixed-income products.

A week ago, the London staff of Goldman Sachs was told that they could expect larger bonuses -- as long as the company's predictions for its most profitable year ever come to fruition. Next month's second-quarter earnings report are expected to show a jump in profits. An example of how strong the quarter was, Warren Buffet spent $5 billion to purchase GS shares in January -- and the Oracle of Omaha has made $1 billion on this investment.

When the history of this financial crisis is written, this story story will be a contender as a standout example of its kind. It is one of the slickest, under the table, sleight of hand deals ever.

Picture this. The financial markets are falling apart right and left. Lehman, Bear Stearns and Merrill are going down for the count. In the midst of this confusion Bank of America Corp (NYSE: BAC) is in the process of taking over Merrill Lynch. Merrill executives and employees are in a state of panic but at the last moment they regain their composure and have the audacity (word is too mild) to pay themselves $3.6 billion in bonuses just days before the BofA takeover.

Connecticut Attorney General Richard Blumenthal has been pawing through the data on American International Group's (NYSE: AIG) post-bailout bonus payments, and he's uncovered a bit of a discrepancy. Blumenthal says that the bonus payments totaled $218 million -- more than 30% higher than the widely reported $165 million figure.

Blumenthal said he isn't sure of the reason behind the discrepancy, and AIG denies that the discrepancy exists. Either way, Blumenthal isn't happy about it.

Suddenly, I have found myself playing the role of Don Quixote tilting at the windmills of poor executive decisions. I didn't intend to play this role, but the inhabitants of boardrooms and the corner offices are making the job so easy.

The latest example of poor decisions and announcement comes courtesy of Macy's (NYSE: M). The retailer announced on Monday that it would lay off roughly 7,000 workers and cut its dividend in half in hopes of saving money. So, what is the next announcement that the company makes? If you guessed performance bonus payments to executives, give yourself a pat on the back.

Ohio-based regional bank Huntington Bancshares (NASDAQ: HBAN) reported today a series of drastic measures meant to reduce costs by $100 million in 2009. Huntington will cut 500 jobs, or about 4% of its workforce; freeze salaries at 2008 levels; eliminate executive and incentive awards for 2008; and discontinue the company's 401(k) match contribution.

"It is important that our customers and shareholders know that we are well-positioned to deal with this challenging environment," said Chairman, President and Chief Executive Officer Stephen Steinour in a statement. "Our liquidity position is strong."

Over the past 12 months, shareholders in Ambac (NYSE: ABK) have lost more than 90% of their investments as the bond insurers ill-advised forays into structured finance have resulted in massive losses.

But for some reason the company's compensation committee deemed that performance worthy of $3 million in bonuses for 4 of Ambac's top executives. The company's latest proxy statement shows that CFO Sean Lenorard received a $950,000 cash bonus and Executive Vice President Douglas Renfield-Miller got $550,000. Chairman Michael Callen received $975,000 and Chief Executive Officer David Wallis took home $500,000

With public indignation and Congressional outcries building concerning large Wall Street bonuses while the U.S. taxpayer bails out the same industry that contributed to the financial crisis, efforts to limit or eliminate excessive compensation may hinge on whether the Obama administration wants to use political capital to do it.

The public attention-grabbing incidents are certainly there to keep the U.S. Congress focused on the issue: Wall Street allocating its sixth-highest level of bonuses during the investment banking sector's worst year since the Great Depression. Former Merrill Lynch CEO John Thain's decision, since reversed, to use $1.22 million in company money to redecorate his office, is one example. Another is Robert Rubin receiving more than $100 million in compensation from Citigroup (NYSE: C), a bank that's receiving hundreds of billions of dollars in government guarantees and other, direct financial assistance.

One of the questions that I spent this week discussing is this: What was Wall Street thinking? Whether it's using taxpayer money to pay itself $18.4 billion in bonuses or to buy a $50 million corporate jet after posting $35 billion in losses, people are wondering whether Wall Street gets it. The answer is yes. Wall Street gets that nobody stopped it from paying bonuses when it took our money, so it took what it could. Unless we limit how Wall Street spends taxpayer money, it will keep paying itself big bonuses.

Wall Street is a place where the people at the top are trained to grab as much as they can out of the hands of the other graspers. At least $200 billion worth of TARP money went to Wall Street with no strings attached. If you put that much money into the hands of a culture that believes firmly in taking what it can get -- it usually pays half of its revenues to employees -- you end up with Wall Street taking as much as it can from the taxpayers.

President Barack Obama is expressing outrage over the $18.4 billion in bonuses recently paid out by Wall Street banks, using phrases like "the height of irresponsibility" and words like "shameful."

"There will be time for them to make profits, and there will be time for them to get bonuses," he said. "Now is not that time."

He's completely right: It is indeed shameful that these banks are paying any bonuses at all while they beg for government money and send their shareholders to the poorhouse. But the fact is that the United States government had an opportunity to put stiffer limits on bonuses before it started handing out the TARP money and decided not to do that. So what do people expect? We know that America's banks are managed poorly by arrogant and entitled bureaucrats.

Former Merrill Lynch CEO John Thain's decision to spend $1.22 million to redecorate his office will probably put the issue of executive compensation limits back in play for the U.S. Congress, most likely for only bailout fund recipient companies, but quite possibly for other business arrangements, as well.

The compensation issue was considered politically dead for this year, but Thain's audaciousness could serve as the type of catalyst necessary to get a controversial bill through a review process that's designed to defeat or delay legislation. Thain was put in charge of Merrill's trading, investment banking, and brokerage operations after the Bank of America (NYSE: BAC) acquired Merrill.

Further, Thain's $1.22 million splurge of the company's money is the type of action voters will notice, prompting them to place pressure on U.S. Representatives and U.S. Senators to act. Thain's gratuitous redecorating has surfaced alongside Merrill's distribution of bonuses despite massive losses at the former investment banking and brokerage giant.

Board of directors oversight?

Some will argue that executive and employee compensation is a matter for a corporation's board of directors, not the U.S. Congress. Economist Peter Dawson said that's precisely the reason Congress should intervene.

The typical American's tolerance for federally rescued banks and other institutions that continue to award bonuses? Very little.

Three-quarters of Americans say Goldman Sachs (NYSE: GS), Citigroup (NYSE: C) and other bailed-out and taxpayer-assisted companies should cancel all bonuses this year, a new Bloomberg News / Los Angeles Times poll shows.

Further, a majority of respondents also said the U.S. government should have a voice in how these companies are managed, while two-thirds favor tighter financial sector regulation. The poll was conducted December 6-8.

Economist Richard Felson said it's understandable that Americans would express concern about bonuses in financial institutions that accepted federal assistance.

"Awarding bonuses does send the wrong signal. It's also arrogant in the view of many citizens. In our nation, hundreds of thousands of taxpayers are being laid-off with no federal assistance to cushion their loss of income, and down the street a bank executive of a bank who received federal bailout money could be collecting a $300,000 bonus. It gives the appearance of the federal government paying for these bonuses . . . paying for large compensation despite these business flops," Felson said. "It's an arrogant and incorrect policy."