Paul Krugman gives a sobering report on the state of banks in today's New York Times. We already know that while giant financial institutions are paying out record bonuses and salaries, they aren't lending to small businesses or helping families that are struggling with their mortgages. But, now, it seems the risky deals Wall Street has been making with our tax dollars are catching up to them - and they're starting to generate losses instead of profits. All of this combined, says Krugman, is having serious negative effects on the economy:

...[L]ast week both Citi and BofA announced losses in the third quarter. What happened?

Part of the answer is that those earlier profits were in part a figment of the accountants' imaginations. More broadly, however, we're looking at payback from the real economy. In the first phase of the crisis, Main Street was punished for Wall Street's misdeeds; now broad economic distress, especially persistent high unemployment, is leading to big losses on mortgage loans and credit cards.

And here's the thing: The continuing weakness of many banks is helping to perpetuate that economic distress. Banks remain reluctant to lend, and tight credit, especially for small businesses, stands in the way of the strong recovery we need.

It's become apparent that nobody knows exactly what banks are doing with the tax dollars we gave them, but the picture is becoming clearer: Wall Street CEOs are collecting huge bonuses for making risky trades, banks are funneling millions of dollars through the ABA to lobby against financial reform, but small businesses and working families are still being denied loans.

This is the opposite of how banks were supposed to use our tax dollars and they know it. It's become clear that they can't control themselves; Krugman suggests we do it for them:

...[W]e desperately need to pass effective financial reform. For if we don't, bankers will soon be taking even bigger risks than they did in the run-up to this crisis. After all, the lesson from the last few months has been very clear: When bankers gamble with other people's money, it's heads they win, tails the rest of us lose.

This weekend, the banks will be in Chicago, partying it up at the annual ABA convention. Thousands of taxpayers are going to meet them there, demanding that they stop using our money to lobby against reform and start cleaning up the economic mess they've created.

Will you demand that the banks meet with us? We're going to deliver your demands to the banks before we arrive and ask them to sit down and listen to Americans tell about how banks have damaged their communities.

With your help, we can put an end to business as usual on Wall Street.