Aspen hosts a large contingent of bankers, hedge fund managers, and other financial services players every winter, and this year will be no different. The planes will begin landing this weekend, and the lights will start turning on in the West End and Red Mountain.

There will be a strange vibe to parties this Christmas season. Outwardly sober, Aspen’s banker class will feel warm on the inside, knowing that they don’t have all that much to worry about heading into the New Year.

This week has seen the president go on “60 Minutes” to chastise Wall Street “fat cats” (his words) for opposing a reform package. The Democratic Congressional Campaign Committee just began running ads against vulnerable House Republicans for opposing the financial services reform bill that just passed the House. Wall Street execs were summoned to the White House and told to put their lobbyists on a leash.

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Despite all that, it has been a great year to be a banker. Goldman Sachs is on track to have the most profitable year in the history of the firm, and has already set aside $20 billion in compensation – $800,000 per employee. Goldman’s the leader, but other banks are also set to dole out big bonuses. Some have changed the mix of restricted stock versus cash in those bonuses, but no major bank has made a long-term change to its compensation practices.

When the administration and Congress spent hundreds of billions of taxpayer dollars bailing out the banks, they did so on the back of two explicit promises. The first was that bankers wouldn’t profit from bailout funds. The second was that the system would be reformed so that future bailouts could be avoided.

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As to that first promise, the horse is way out of the barn. Those bankers who kept their jobs are, in many cases, richer on account of the bailout than they would have been had the financial crisis never happened. That’s because they were granted new stock and options priced near the bottom, and retained the equity they already had. They’re also the beneficiaries of massive trading profits allowed by the ocean of cheap capital that the Federal Reserve has pumped into the banks.

Compensation caps imposed by Ken Feinberg were briefly successful, but have been side-stepped by all the major banks, the last of which (Wells Fargo) is about to pay off its TARP funds. Those banks are now free to pay executives whatever they like, despite having been kept afloat by the Federal Reserve for the past year. Shareholders were forced to swallow massive dilution in their stakes so that executives could get richer.

Goldman, JPMorgan and other so-called healthy banks are busy scribbling a revisionist history of the past year, in which they magnanimously accepted bailout funds to maintain a level playing field in the industry. Couldn’t be further from the truth, as the TARP special inspector laid out in a report this fall. Had the Fed not paid out AIG’s counter-parties at one hundred cents on the dollar, not a single major Wall Street bank would have survived the crisis.

That pay outrage might be tolerable if real reform were in the offing, but it’s not. A year ago, there was an opportunity to channel popular outrage into a tough, game-changing reform bill. That opportunity has now been squandered.

What Barney Frank and the House Financial Services Committee came up with, and what passed the House last week, is thoroughly mediocre. That mediocre bill is now destined to get sliced and diced by the Senate, which will weaken it further. What eventually makes it to the president’s desk will be labeled reform, but will leave most industry practices in place.

Among the many things that will be left out of the final legislation will be any workable solution to the “too big to fail” problem. Mark my words: Whatever passes will never result in regulators dismantling a major American bank because it poses a systemic risk to the economy.

Also likely to be missing? Mandatory changes to compensation practices, such that executives cannot juice their paychecks from a single quarter’s profits. Sharp limits on leverage and other capital adequacy measures that shore up firms’ balance sheets. Loophole-free regulation of the derivatives markets. Transparency as to what is being traded in those markets. Rules that force lenders to offer standardized mortgage products. And the list goes on.

Republicans, ever the friends of the banks, have obstructed reform. But while the administration and Democrats in Congress have a great argument that they inherited a horrible economy from the Bush team, the failure of meaningful financial reform will rightly be pinned on them.

Quietly, the Democrats have signaled they have no stomach for the trench warfare that would be required to get tough on Wall Street. The canary in the coal mine was the failure, earlier this year, to get a carried interest tax bill through the Senate.

That bill, which would have raised the tax rate on carried interest earned by private equity firms to the same rate as ordinary income, is about as perfect a vehicle for populist anger against Wall Street as you are likely to find. The president has said he supports it, and it has passed the House multiple times, and yet the bill languishes. Calling Chuck Schumer?  

This failure to channel popular anger into a tough bill will have consequences for Democrats at the polls in 2010. No one could reasonably claim that the White House or Congress has failed to wrestle with weighty legislation this year, but tough financial reform had an expiration date attached to it. That expiration date has passed.