Today’s headlines look pretty horrible. House prices have suffered their biggest annual fall since the early 1990s, says the Nationwide.

UK consumer confidence has now plunged to its lowest point since Margaret Thatcher was ousted from office, according to GfK this morning. And the CBI Distributive trades survey reports that retailing is suffering a severe squeeze.

Bank shares are plumbing new depths, with the Royal Bank of Scotland yesterday falling to its lowest level in eight years and Bradford & Bingley hitting an all-time nadir.

But at least some people in Britain still have big smiles on their faces. Tucked away in the Bank Holiday news last weekend was yet another City bonus bombshell… with the startling story that a staggering £13.2bn has already been forked out in 2008 in Square Mile bonuses.

Despite the real world pain, this year’s total is a mere 1% down on the same stage twelve months ago, when bonuses of some £13.3bn were paid out.

Indeed, bankers and financial traders were handed £12.6bn bonuses in the first three months of this year alone, according to figures from the Office for National Statistics, smashing last year’s record for the same period by more than £500m. To put this into context, for 2006’s first quarter, £9.7bn was shelled out.

Among those celebrating most will be hedge fund managers at Goldman Sachs, where dozens of traders trousered £5m each, with one lucky chap collecting over £10m, said the Telegraph.

But obviously, the big difference between this time and previous years is that stacks of flak have been flying around the financial markets recently, with many of the major players being badly burned by their dodgy debt deals.

Several of our biggest banks have had to scurry round, cap in hand, to the Bank of England to swap some of their so-called securities for top-notch Government bonds simply to keep their balance sheets in order.

And, though you won’t need much reminding, there was the hardly-minor matter of Northern Wreck, which overextended itself so far that the only people who could be forced to bail it out were poor old British taxpayers. Not that they had any say in their cash being used.

But still the bankers have had their bunce, though several commentators reckon that the City’s bonus culture is a key credit-crunch culprit. CBI director general Richard Lambert believes the system “encourages some employees to take spectacular short-term risks, confident that if things work out well they will reap huge rewards, and that if they don’t they won’t be around to pay the price”, while George Soros says “there’s a real problem with incentives for the banking and the hedge fund community.”

To be fair, Bank of England governor Mervyn King has been on the case. He recently told a Treasury select committee that “banks have come to realise they’re paying the price for having designed compensation packages which provide incentives that are not, in the long run, in the interests of the banks.”

But what about their customers? It seems they don’t have a lot of clout right now, either. It’s pretty galling watching your bank paying its hotshots multi-million pound bonuses while at the same time telling you that the cost of your fixed-rate home loan has gone up again, or that your house is being repossessed as you can’t afford the repayments, because the money markets have now got the jitters due to all those sub-prime losses.

Like when Barclays hands Bob Diamond a £35m payout, despite his bank writing off £2.2bn in bad debts. Maybe the bankers will attempt to justify the huge payouts by reminding us that they enjoyed a fairly good start to 2007 before the credit crunch began to bite. Though ironically, the overall bonus totals are so high that they almost completely cover the £15bn deficits recently suffered by British banks.

Trade unionists are already up in arms. GMB general secretary Paul Kenny has called for the government to stand up against the financial services industry: “There can no longer be any doubt that the multimillionaire elite who run the City and the financial sector are out of control and divorced from economic realities.” The GMB wants an urgent enquiry to see if that taxpayer-funded bank bailout is being used to fund bonuses.

That’s a fairly predicable reaction, and unlikely to carry too much weight. But as consumers and home-loan borrowers come ever more under the cosh from the credit crunch, those bonuses are likely to spark increasing anger.

Yet while much of the fury is fully understandable, the whole bonus issue may well prove to be self-correcting, in the way that markets normally resolve excesses if they’re allowed to. If central banks can manage to stay away from the money-printing press, whose overuse pumped up the credit bubble in the first place, there’ll be much less money made by the traders in 2008.

So the chances are that bankers’ belt-tightening will begin in earnest later this year. The next bonus round will start in December and run into 2009. One leading think-tank, the Centre for Economics and Business Research, recently forecast that the next set of City bonuses would be down by as much as 40%. And by that stage, the way the economy is going now, we’ll probably find we all have plenty of other things to get stirred up about.

Source: Credit Crunch? Not when it comes to City Bonuses