The infamous beige book report was released by the Fed. Initial reports are that it makes for somewhat grim reading.

The WSJ Real Time Economics site says that the report paints a picture of a financial sector still in a downward spiral.

The New York Fed reported that “a contact monitoring the financial sector maintains that the industry is still far from hitting bottom.” As the failure of Lehman Brothers continues to work its way through the industry, and Citigroup stands on the precipice of being split up, there appears to be more pain to come.

“At the larger institutions, a substantial number of job reductions in the pipeline have yet to show up in the payroll statistics, due to ongoing severance payouts,” the beige book said. “Moreover, year-end bonuses are seen falling 20%-30% from last year at some of the smaller, healthier firms but more substantially at the larger establishments.”

That’s kind of disturbing isn’t it. Just when all of the blogs have been telling us that the credit markets are starting to return to normal and spreads are getting back to normal, the Fed says we haven’t seen the worst yet. Yikes.