Here’s something sure to make me shed a tear for that hedge fund manager who complained to the President about getting “whacked like a pinata.” Turns out his core businesses just aren’t generating the obscene profits of recent years anymore.

Even after taxpayer bailouts restored bankers’ profits and pay, the great Wall Street money machine is decelerating. Big financial institutions, including commercial banks, are still making a lot of money. But given unease in the financial markets and the economy, brokerages and investment banks are not making nearly as much as their executives, employees and investors had hoped.

After an unusually sharp slowdown in trading this summer, analysts are rethinking their profit forecasts for 2010.

The activities at the heart of what Wall Street does — selling and trading stocks and bonds, and advising on mergers — are running at levels well below where they were at this point last year, said Meredith Whitney, a bank analyst who was among the first to warn of the subprime mortgage disaster and its impact on big banks.

Now, I’m not expecting to have to get out the second hanky: analysts estimate Goldman Sachs will yield a mere $7.8 billion in 2010, not the $12.1 billion it made in 2009. But in addition to the lower profits, Wall Street has begun to lower its exposure to the truly dangerous profit-making activities at the heart of the financial crisis, particularly proprietary trading. In conjunction with that, sales of junk bonds, higher-risk, higher-return product, have skyrocketed, which is extremely dangerous, especially if default rates on those bonds start to rise. In some sense, however, this is a devil we know, rather than the murky world of derivatives and prop trades.

Kevin Drum calls this a good news/bad news scenario, because while prop trading and profit margins are reduced, the core products of a stable finance system, like managing IPOs and issuing bonds, are also down, which is “just a sign of a sluggish economy.”

True, and it’s an economy created almost entirely by the finance sector. They’ve created their own monster here, and should take their hits like the rest of us. What they ought to learn is that a ridiculously expanded finance sector which concentrates more and more wealth yields a population unable to afford products, create economic activity or move freely in their careers. That decision, a fully realized decision from greedy executives, has stagnated their own growth, strangling themselves in the long run as surely as it strangles the rest of the economy. Maybe they can get out of the way, then, as someone rebalances the economy they broke.