At hearings Wednesday, four of Wall Street’s “leading lights”—Goldman Sachs Group’s (NYSE: GS) chief executive officer Lloyd Blankfein, JPMorgan Chase’s (NYSE: JPM) CEO Jamie Dimon, Morgan Stanley’s (NYSE: MS) chairman John Mack, and Bank of America’s (NYSE: BAC) new boss, Brian Moynihan—answered tough questions from the new Financial Crisis Inquiry Commission, which will issue a report on the financial crisis and recommendations to prevent the next one.

And on Thursday, President Obama proposed a new tax (which the White House dubbed the “financial crisis responsibility fee”) on about 50 of the biggest US banks to repay taxpayers for government assistance during the crisis’s darkest days.

“My commitment is to recover every single dime the American people are owed,” the president said.

Meanwhile, big banks are preparing to announce their earnings for 2009—and reveal the size of the bonuses they’re paying the legions of “top talent” crowded under their roofs.

It looks like a firestorm of populist rage is building over these fat payouts, which of course are completely undeserved.

But until Wall Street comes totally clean about its role in the crisis and sincerely apologizes to the American people, we’ll be stuck with bad, punitive solutions and constant battles between the bankers and their powerful lobbyists on the one hand and the government and furious Americans on the other.

That battle was on display Wednesday when the four “titans” of finance appeared before the commission. In contrast to the farcical circus of Congressional hearings earlier this year, the Commission members were well prepared and asked some thoughtful questions.

In the hot seat: Goldman’s Blankfein, who despite reportedly being prepped for hours, couldn’t satisfactorily explain to chairman Phil Angelides how Goldman could sell lousy mortgages on the one hand and short similar instruments on the other. The CEO’s response: Because that’s what the customers wanted.

Good question, lame answer.

The four present or former CEOs also were quick to showcase their new compensation plans, which they said included a greater percentage of stock (versus cash) than in the past, payouts over several years, and some risk-based awards or “clawback” provisions, in which bonus recipients would repay money if investments for which they earned bonuses later blew up in their faces.

It sounded like a step in the right direction, but it’s still unclear how many people this new regime covers. Everyone? Just the bank’s top executives? And although Goldman now will pay out a lower percentage of its revenue in compensation (43% vs. 50% last year), that still strikes me as high, given the damage many of these people have inflicted on their institutions and the rest of us.

Meanwhile, some Wall Streeters who escaped the crisis by only a cat’s whisker are now whining that they won’t be able to make ends meet. After all, illiquid stock they’ll receive two years from now won’t pay their mortgages or private school tuition or cover the other amenities to which they’ve become so richly entitled.

The firms seem to believe that these people are unique talents, the equivalent in their field of, say, Michael Jordan in sports, the Beatles and Michael Jackson in music, JK Rowling in literature, and Oprah Winfrey in television. So, naturally they need to pay them kings’ ransoms to keep them from walking out the door.

Now I’m sure some of them are excellent traders and investment bankers, but irreplaceable? Please.

And here’s the key point: Even setting aside the money these banks got from the Troubled Asset Relief Program—which most of them have repaid—the US and other governments went to extraordinary lengths to save them from themselves.

From the Federal Reserve’s zero interest rates and massive money printing; to the extension of deposit guarantees to money market funds; to the Fed’s liberal use of its emergency borrowing facilities, to the 100-cents-on-the-dollar bailout of counterparties to American International Group—I could go on and on—taxpayers completely underwrote the economic and financial recovery that allowed these firms to survive and become profitable enough to pay out big, fat bonuses to their unworthy employees again.

Without those taxpayer-backed government efforts, there would have been no recovery, no stock or bond rally, and probable oblivion for these firms. I don’t care how many times Lloyd Blankfein says Goldman would have made it through the crisis on its own; without those measures, the remaining firms—including his—may well have joined Lehman Brothers and Bear Stearns in Wall Street Hell, and his Masters of the Universe might be selling apples on street corners.

Now, I’m not crazy about the Obama Administration’s idea of slapping new levies on banks, especially when other regulators are pushing them to boost capital. And the UK’s recent passage of a 50% tax on bank bonuses has had many unintended consequences: Some banks have even decided to pay out bigger pretax bonuses, in effect robbing shareholders to reward their employees.

Still, I understand and support the public’s desire to punish these banks for the damage they’ve done. And I can’t help but agree with the president’s statement Thursday that “If these companies are in good enough shape to afford massive bonuses, they surely are in good enough shape to afford paying back every penny to taxpayers”—although some of them claim they’ve done that already, of course.

But here’s the bigger point: Until Wall Street bankers completely own up to what they did, fully apologize, thank American taxpayers for saving their butts, call off their lobbying dogs in Washington, DC, promise to work constructively with Congress to create sensible regulations for everyone, and stop overpaying these unworthy employees at the expense of shareholders and everyone else, this battle will continue.

Howard R. Gold is executive editor of MoneyShow.com. The views expressed here are his own.

It’s a thankless exercise, of course: People tend to remember your bad calls and forget your good ones.

But what the heck? Most people don’t keep New Year’s resolutions, either. So, here’s my take on what could happen in the year ahead, mostly in the economy and the markets, though I’ll also wade into politics and international relations. These days, everything is so intertwined they have to be part of the equation, too.

Here are my six predictions for 2010 and beyond.

1. The economic recovery will be surprisingly strong. Economists are predicting gross domestic product growth of 2.7% in 2010, but I think it will be much stronger. Tight inventories, growing confidence, a weak dollar, and strong demand in emerging markets should push GDP growth up by 4% or more this year.

If it weren’t for lingering unemployment, strapped consumers and a weak housing market, growth would be a lot higher—near 7%, as some “V”-shaped recovery advocates are projecting. Also, unemployment will slowly begin to recede, though I expect it to remain above 9% by the end of the year.

2. The Federal Reserve will start raising short-term rates again in the second half. Once Ben Bernanke has been safely reconfirmed as Fed chairman by the US Senate, the Fed will begin to slowly withdraw some of the extraordinary measures it took to combat the financial crisis. That will happen in the second quarter.

Then, when there are clear signs employment has begun to improve, the Fed will actually start raising the federal funds rate, most likely in the third quarter. Its moves will be slow at first, but will pick up steam after the midterm elections in November.

3. There will be a financial mini-crisis or two that re-ignite investors’ fears. The acute phase of the financial crisis is over, and so is the Great Recession—technically, at least. But the system is still so vulnerable that it’s hard to predict where more flare-ups might occur. Who anticipated Dubai World’s default?

For me, one of the most likely weak links is the sovereign debt of the PIGS nations (Portugal, Ireland, Greece, and Spain)—perhaps Italy, too. Several central and eastern European nations also are in fragile financial shape—Hungary, Romania, Bulgaria, Ukraine. An actual default, or the threat of one, from any of them could start a chain reaction that would threaten (mostly) European banks.

The other potential flash point I see is the US mortgage market, which is being propped up by money from the Fed. The Fed has pledged to wind down its mortgage purchases by March, but it could let the deadline slip.

Trouble is, there’s no one to take its place. Banks and other private buyers certainly aren’t ready to step in, and Fannie Mae and Freddie Mac remain completely dependent on the government for life support. That’s why early withdrawal by the Fed from this market could cause a double-dip housing recession and stoke the fear fires again.

Another possibility: A crash in China’s overheated real estate market that would have ripple effects on stocks in Shanghai and Hong Kong.

These mini-crises may turn out to be worse than Dubai, but nowhere near as bad as the fall of Lehman Brothers. The sell-offs they trigger would be more like corrections than a second bear market, so for bullish investors they could be buying opportunities.

4. More prominent government-supported companies will get off the dole. General Motors will complete a public offering this year, helping taxpayers recoup some of the $50 billion the government pumped in to save the struggling auto maker.

Meanwhile, AIG (NYSE: AIG) will begin to repay the government some time this year, and all the banks should be out from under the Troubled Asset Relief Program by the end of 2010. I expect Chrysler to have an initial public offering in 2011, and AIG may be ready to go out on its own by the end of next year, too.

That will leave one huge basket case, or should I say, two? Fannie Mae and Freddie Mac clearly did not cause the housing bubble and crash (both entities were late to the subprime game and bought only around 20% of the troubled mortgages), but they may be the crisis’s biggest, most lingering casualties. And Congress, which is largely responsible for their failure, shows little appetite for finding a permanent fix that might step on some toes or go against their cherished ideas.

5. Democrats will lose seats in the midterm elections, but not their majority. If the economic scenario I laid out above comes true—and all my other predictions hinge on it—we should see unemployment decline somewhat. That and the passage of even the worst health care reform bill (a real likelihood) will help stabilize President Obama’s poll numbers.

Republicans are energized but locked in divisive primary battles. President Obama’s liberal supporters are disillusioned and likely to stay home. To me, that adds up to a loss of about half the 14 Senate seats and 52 seats in the House of Representatives the Democrats have won since 2006, leaving the Dems with a very narrow majority in both houses.

That would be good for the markets. As Knight Kiplinger wrote here, you can forget about big initiatives like “cap and trade” legislation. A narrowly divided Congress—even with a slight Democratic majority—might even focus on deficit reduction as the White House and Congress did in the mid-1990s.

6. The dispute with Iran will come to a head. President Obama’s end-of-the-year deadline passed with no concessions from Iran’s beleaguered regime, which seems determined to forge ahead on its nuclear program. The president now looks ready to push for strong sanctions.

But who knows if he can get Russia and China on board? Meanwhile, Israel stands ready to attack Iran before it can deploy nuclear-armed missiles, which Iran, of course, denies it’s seeking.

This is likely to cause a major international crisis this year. Sanctions or an Israeli military action could lead to Iranian attempts to block shipping lanes in the Strait of Hormuz; missile barrages against Israel by Iranian allies Hezbollah in southern Lebanon and Hamas in Gaza, and attacks against US interests by Iranian-sponsored terrorist cells here and abroad. In that case, oil and gold prices would soar temporarily and markets could sell off big.

But here’s my biggest, boldest prediction of the year. The growing popular uprising against the Iranian government will overthrow the mullahs, replacing them with a more democratic Islamic state. Unfortunately, it will not be like the fall of communism, which was largely bloodless; too many brave Iranians will lose their lives, but they will get their country back. 

The goal of spreading democracy has suffered some body blows over the last few years, but people’s desire to be free remains strong. That message, I think and hope, will ring clear this year, bringing at least some light to a world that has been very, very dark for very, very long.

Have a happy, healthy, and prosperous New Year!

Howard R. Gold is executive editor of MoneyShow.com. The views expressed here are his own.

We entered 2009 staring into the abyss. Now, after a remarkable rally and with growing signs of economic recovery, cautious optimism has taken hold.

Not that we don’t have big problems—high unemployment, a gargantuan budget deficit, you name it—but at least now it doesn’t look as if the world is going to end tomorrow. Maybe next year. That’s progress.

In 2009, this column made fewer market predictions than in the past. Maybe I felt burned by some of the mistakes I’d made in 2008, or maybe the market was just too scary to outguess.

But in reviewing this year’s columns, I found that I focused more on big themes, particularly on the plight of individual investors, who need all the help they can get. I did make some market calls—some good, one very bad—which I’ll review later.

The beginning of the year was marked by the deepest gloom as the world still reeled from the collapse of Lehman Brothers and governments’ rescue of the financial system. Talk of a second Great Depression was rampant. You needed a machete to cut through all the fear.

This column, while avoiding alarmism, laid out some of the reasons for caution—themes, I might add, that became the conventional wisdom just months later. In early January, I wrote that the “new austerity” was for real.

“Count me among those who view this as…a fundamental shift in mood and psyche, not only here but around the globe,” I wrote. “Consumers have no choice.”

That still looks true—except maybe in China, Indonesia, or Brazil.

I also warned early on about a ticking tax time bomb—especially from state and local governments.

“The real danger to your wallets,” I wrote, “comes…from cash-strapped states and municipalities, which are in their worst shape fiscally in decades.”

The states’ fiscal condition has gotten only more dire, and the cascade of tax and fee increases and service cuts has only just begun.

This column also was among the earliest to write about a “jobless recovery.”

The sources of potential job growth in the US, I said, were very limited.

“US-based multinational corporations are shrinking their US workforces…while expanding dramatically overseas,” I wrote. “And the companies of the future are far away from their prime job-generating years…”

Regrettably, that looks even more true today, with unemployment now in double digits and the Obama administration desperately looking for policies that could quickly spur job growth.

When markets plummeted, many individual investors watched with horror as their dreams of financial security and a comfortable retirement went up in smoke.

This column chronicled their plight with empathy and tough love. I reviewed some of the huge mistakes many investors had made over the last few years and asked the hard question: “Do individual investors really know what they're doing?

“After speaking with thousands of investors for more than a decade, I've reluctantly decided that many do not.”

And yet, despite having gone through a “lost decade” for stocks, I found some strategies had worked a lot better than others. In several columns, I pointed out some simple approaches that would have left investors with manageable losses, maybe even some gains.

In a May column, “It Wasn’t a Lost Decade for Everyone,” I asked the Vanguard Group to test 14 different portfolios over the preceding ten-year period. The key to success, I found, was how much you had invested in bonds. “During the ‘lost decade’ for stocks, bonds did their job,” I wrote.

No wonder investors have been piling into bonds all year, despite the big stock market rally, as they seek to lower their exposure to equities. “Like American consumers, US investors have hunkered down and “reliquified” their assets to reduce risk,” I wrote.

But most of them aren’t embracing more active trading, despite the siren song of some gurus that “buy and hold” investing was dead. In a June column, I cited voluminous research that showed abandoning “buy and hold” for active trading was usually a terrible idea.

“Maybe the underlying problem was just that people bought and held the wrong things—they put too much in stocks and not enough in everything else,” I wrote. 

I also challenged the conventional wisdom that holding too much cash could cause investors to run out of money. Again, doing some original research, I found that “investors can hold as much as 40% of their assets in cash during retirement and still not outlive their money.”

As the markets began rallying in March, some investors’ thoughts turned away from cash and to stocks again, while disbelief in the rally was—and remains—rampant.

Although I’m still skeptical, this column has cited some advisors who have good track records and turned bullish as the rally unfolded, including Dan Sullivan and Ralph Acampora.

But starting in August, I warned that the market looked a little frothy.

“This market has come a long, long way in a short, short time. It’s much pricier than it was back in March,” I wrote. “Selling some financial stocks now is a no-brainer.”

A few weeks later, I suggested unloading some retail stocks, too.

Since then, financial and retail stocks have trailed the Standard & Poor’s 500 index.

But unfortunately those good calls were counterbalanced by a truly bad one: In March, just before the stock rally started, I waved the American flag for the US dollar, predicting “a stronger dollar for longer than people expect—at least for the next year.”

That turned out to be the high-water mark for the greenback, as investors once again embraced risk and the sinking dollar became fodder for a new “carry trade” that has pushed markets higher. The US Dollar index, which stood at 89 then, now trades below 78—after a nice rally. Oh, the agony!

The moral of the story—and the whole year—is that we all make mistakes, so we shouldn’t bet the farm on any one scenario.

The last two years have taught us that we need to be truly diversified and make active bets only with small amounts we can afford to lose. That’s a lesson that will stand us in good stead in 2010—or any year in the future.

Have a happy holiday season and a healthy and prosperous new year. This column will return in January.

Howard R. Gold is executive editor of MoneyShow.com. The views expressed here are his own.