Fourth of July weekend is a time for celebration and relaxation, but also reflection on the critical juncture our nation faces.

The U.S. has been on an "unsustainable cycle of buying and spending" that cuts across all strata of society, says TJ Marta, chief strategist at MartaontheMarkets.com.

The problem is that with everyone having a hand out -- from illegal immigrants to Wall Street to state and local governments -- the Federal government has now extended itself to the limits of its ability, and perhaps beyond.

Marta sees only two entities with the ability to bail out Uncle Sam - "savings glut countries" like China and the Federal Reserve, a private organization.

Both would-be saviors are getting cold feet, says the former RBC strategist...

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Citigroup this week joined Bank of America and JPMorgan in sharply raising fees on credit cards for late payments, balance transfers and the like.

The banks appear to be trying to raise rates before new consumer-protection rules go into effect. They're also putting the squeeze on the same U.S. consumers whose taxes pay for the industry's ongoing bailouts.

TJ Marta, chief strategist at MartaontheMarkets.com, sympathizes with the outrage but says there's more going on than just a craven effort by big corporations to take advantage of their clients.

"The banks are not healthy - more money has to go in," he says. "That's why rightly or wrongly we've seen these banks increase the credit card rates."

But the story goes beyond the banks, Marta says: "Everyone wants a piece of ‘Joe six pack's' money"...

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When Wall Street imploded last year, the Fed and Treasury took "some of the right moves" in order to revive the financial system, says William Cohan, author of House of Cards. But the government blew at least one crucial act of the saga, Cohan says: The backdoor bailout of AIG’s counterparties, notably Goldman Sachs, which received $13 billion of TARP funds via the AIG conduit last fall.

Adding insult to taxpayer injury, Goldman Sachs is primed to benefit should AIG ultimately file for bankruptcy and default on its debt, Cohan reports, having invested about $200 million in related credit default swaps.

Goldman spokesman Michael DuVally confirms the firm spent “over $100 million” on credit default swaps to hedge a $2.5 billion difference between the amount of collateral AIG had posted on certain trades and the amount Goldman thought it was due.

But DuVally says the trades were “wound down because we received the collateral owed,” a reference to the $13 billion the firm received via the AIG conduit last fall.

“They’re gone,” he says. “There will not be a credit event because the government decided to bail AIG out.”To be sure, there's no evidence an AIG default is imminent - or even likely given the government's seemingly endless support.

Still, Cohan disputes DuVally's characterization and AIG's 1-for-20 reverse stock split Wednesday did little to instill confidence in the firm.

Goldman “paid for credit default swaps from third parties to ensure them against a default in AIG debt,” he says in a phone conversation subsequent to the accompanying video. “ If AIG debt does [go into] default they get paid off.”

Furthermore, “it makes no sense to unwind” the trade, Cohan says...

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Updated from 7:00 a.m. EDT

Update: "Big Pay Packages Return to Wall Street," The Wall Street Journal reports. Among the highlights of the story:

• Goldman is on track to pay out as much as $20 billion this year, or about $700,000 per employee. That would be nearly double the firm's $363,000 average last year, and slightly higher than the $661,000 for the average Goldman employee in fiscal 2007.
• Morgan Stanley set aside $2.08 billion for compensation in the first quarter, an unusually high 68% of its revenue. The firm will likely pay out $11 billion to $14 billion in compensation and benefits this year. Credit Suisse analyst Howard Chen projects the company's average pay will approach the $340,000 paid out in fiscal 2007 and up from last year's average of $262,000.

While a weak second-half could diminish those year-end bonuses, "the comeback in compensation so far this year shows how hard it is for Wall Street to break its old habits," The Journal reports.

Earlier: There's been a lot of talk from the Obama administration about reforming Wall Street, but little or no action where it matters most -- compensation, says author and former investment banker William Cohan.

"There's a lot of nice words in the 85-page re-regulation proposal...[about] making sure compensation is tied to behavior and accountability," says the House of Cards author. "But there's not much action going on."

And where there has been action, Cohan notes, its been by Wall Street firms raising salaries to get around new restrictions on bonuses, and paying off TARP so they're less beholden to government oversight.

Cohan believes there must be significant change to the industry's compensation structure in order for any Wall Street reform to be successful. Specifically, the personal fortunes of senior executives must be tied directly to the fate of their firms, he says, echoing the views expressed here by Nouriel Roubini.

Cohan recommends...

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PPIP, the Public-Private Investment Program, is the government's controversial plan to spur buying of banks' toxic debt. Since Geithner first floated the scheme in late March, bank stocks have rallied sharply and most big financial services firms have raised capital via equity sales - thanks, in part, to optimism about the PPIP.

The irony, of course, is the plan hasn't gotten off the ground and is hamstrung, most notably, by banks' reluctance to sell their "assets" at what they consider rock-bottom prices.

There's a strong case to be made we don't need the PPIP anymore, says Dan Greenhaus, an analyst in Miller Tabak's strategy group. At the same time, banks are going to be even less willing to participate now, since they've raised capital and the economy has shown signs of stabilizing.

If Geithner's goal was simply to inject confidence into the system so banks could raise capital, then PPIP really was "the greatest program that never occurred," as Goldman managing director Scott Romanoff described it, according to The WSJ. Viewed in this light, Geithner might be wise to kill the program altogether.

But if Geithner's goal was really to get toxic assets off the banks' balance sheets...

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Providing an update on the market keys discussed here on April 2, Roque gives his insight on these six bellwethers in the accompanying video:

• Copper and Freeport McMoRan Copper & Gold: Roque is focused on commodities because of their sensitivity to economic activity and inflation; "if the market's going to have some leadership we believe it will come from that sector," he says. Roque prefers copper to oil because it's "not as emotional" and sentiment driven. After the big rally from the lows, copper is likely to move sideways at best and "needs to base if it's going to rally again," he says. The same is true of Freeport McMoRan and Roque recommends reducing positions for those long the mining giant.
• Mosaic and Monsanto: The ag stocks are the "weakest link" among Roque's bellwethers which, he notes, all bottomed before the S&P and have outperformed the index since the March lows. If Mosaic and Monsanto continue to deteriorate, "assume the others will weaken as well," which will have negative implications for the broader market, he says.
• Goldman Sachs and Morgan Stanley: Financials are still 13% of the S&P 500 and Goldman and Morgan are likely leaders if Wall Street is going to return to "some semblance of its former glory," Roque says. Goldman, in particularly, is the bellwether of the bellwethers, the technician says, suggesting Goldman at $150 is the market's "Maginot line"; which side of $150 Goldman is on will signal the S&P 500's general strength or weakness.

As detailed here, Roque says the market deserves the "benefit of the doubt" but he sees limited upside for the foreseeable future...

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The stock market slumped midday Tuesday but the S&P 500 is still on track for its best second-quarter since 1998, up about 15%. The question, of course, is what the rest of the year looks like.

John Roque, managing director of WJB Capital Group, says the "market gets the benefit of the doubt" due to the following factors:

• NYSE cumulative breadth has outperformed the S&P year-to-date
• More NYSE stocks are making new highs vs. making new lows.

But Roque sees limited upside from here due to the lack of overall volume and relative few stocks making big bases on a long-term chart. One area where he does see this positive pattern developing is in healthcare, notably in names like...

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Such volatility in rates has major implications for all facets of the U.S. economy. We sat down with Greg McBride, senior financial analyst at Bankrate.com, last week to address some key rate-related questions, including...

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But Madoff's investors are far from satisfied and many are giving a Bronx cheer to Federal regulators for falling to stop the Ponzi scheme in the SEC's case, and the Securities Investor Protection Corp. (SIPC) and IRS for now delaying restitution payments they feel are due.

After first investing with Madoff in 1991, Cynthia Friedman's family put the rest of their life savings in what turned out to be a Ponzi scheme in 2004. "Had the SEC done its job years ago, we would have at least had that money," Friedman says, expressing outrage at the SEC for failing to follow the "road map" provided by would-be Madoff whistleblower Harry Markopolos. "I just don't understand how they could have possibly ignored that," she says.

Jen Meerow, whose parents lost their retirement savings investing with Madoff, discussed her frustrations with SIPC, which she says treats feeder funds like Tremont as one customer, meaning all of Tremont's clients are going to split one $500,000 check (the maximum covered by SIPC) vs. each individual getting up to that amount.

Meerow also expressed frustration with the IRS for not doing more to help investors who'd paid taxes on the (now phony) Madoff gains over the years.

While each has their own particular focus and frustrations, both Meerow and Friedman stressed that the failure of regulators is bigger than them as individuals, or even just the huge Madoff scam.

"It's not just us. If [regulators] don't live up to their responsibility to us - why should they live up to them for you, or anyone else?," Freidman says. "It's in your best interest to help us make systemic changes in the investment industry - make it real this time."

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In sentencing Bernie Madoff to the maximum 150-year prison term Monday, U.S. District Judge Denny Chin cited the "extraordinarily evil" nature of his crimes.

"Here the message must be sent that...this kind of manipulation of the system is not just a bloodless crime that takes place on paper, but one instead that takes a staggering toll," Judge Chin said.

The ruling provided some solace to Madoff's victims who cheered the sentencing. Several Madoff investors spoke at the hearing and "without exception, attacked Madoff as an unfeeling, horrible, relentless pursuer of their money and souls," says Allan Dodds Frank, a veteran journalist and DailyBeast.com correspondent.

In the accompanying video, Frank recounts the "intensity" of the courtroom, how Madoff "pretty impassively" reacted to the sentence, and how quickly he moved when facing his victims...

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