The economic disaster is waiting to come back redoubled.

Why should politicians in Congress support tough measures on the banks?

The problem was that all their previous losses had eliminated their reserves. The reserves were demanded by those they borrowed money to lend because the reserves were the only guarantee that the investment bank could pay the organizations they borrowed from. If the investment banks couldn't borrow money they had nothing to lend. They operate on the spread between the rate at which they borrow and the markup they charge those they invest in or lend to.

So the banking system locked up and the economy was really headed towards a 1930's style Depression.

To prevent that the feds guaranteed the money the investment banks borrowed. Their lenders would get their money back based on the full faith and credit of the U.S. taxpayers. The investment banks could borrow and now they are lending/investing. The economy has stopped most of its crash.

But now the banks don't need reserves in order to borrow. The lenders that Wall Street depends on have a direct pipeline the Federal Government tax money. No known money source is more reliable.

In addition, the Fed has been pumping really cheap money out to prime the pumps. The result is that now the investment banks can lend/invest and the spread between what they borrow at and what they invest at has gotten a lot bigger.

The bonuses have to come big and fast. This current state of affairs won't last, and the investment banks know it. So they are socking away as much as they can and rapidly as possible beyond recovery by the feds. As Goober Peas (above 3:58 pm) points out, the second wave of economic down turn is just waiting to hit.

As long as there are positive moves in the stock market the Congressman are being fooled into thinking the recovery h as arrived. It hasn't. We are in the eye of the storm, and the big waves haven't hit yet.

I see no way around it, either. Congress is collectively and individually too stupid to see it coming, as well as bought and paid for by the Wall Street banks. Their lobbyists are working the hill overtime to make sure the False God of the Free Market is not disrupted until the disaster hits.Then Obama is going to get the blame for letting it happen.

Obama is not a finance expert, and the Treasury is full of Wall Street trained experts who believe in the Wall Street bank philosophies. Obama is also hamstrung by the Democrats in Congress (see the above paragraph.)

Wait for it. After the Alt-A loans start going South and the ARMs reset, the economy is going to turn back down. It's the Wall Street banks' and Congressional Democrats who are at fault. The Republicans are just crazy roadblocks in the way of progress.

Anyone think the government can recover those bonuses when the recovery is aborted?