The bad economic news continues:

Two months of tentative gains in retail sales slid backward in March, the government reported on Tuesday, signaling more weakness in demand as worried consumers continue to tighten their budgets. The 1.1 percent monthly drop in retail sales displayed the fragility of some recent “glimmers of hope” in the economy cited by President Obama and other policy makers as they press the administration’s economic agenda.

Are some folks are whistling past the graveyard?

Floyd Norris (see also Krugman) on the Goldman Sachs conference call this morning:

7:25 a.m.| A.I.G.: Guy Moszkowski of Merrill Lynch wants to know if they made money from the now-famous government-financed American International Group transactions. The answer is cautious. Most of the impact was in December. For the first quarter, the total A.I.G. effect on earnings was, in round numbers, zero. So what was the A.I.G. effect in December? They did not say. Is it possible the loss then would have been larger without the A.I.G. bailout? We’ll see if any analyst asks.

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Atrios writes:

How many stories will our credulous press write about how big financial institutions are on their knees begging to be allowed to give back all the free money they were given. You know, when they can... maybe... some day! It's absurd.

Six months after accepting a financial lifeline from Washington, a newly profitable Goldman Sachs is pushing to return the billions of taxpayer dollars that it received in an effort to extricate itself from heightened government control.

It is ridiculous. Just give back the money. If you can. If you can't, well, then you are not doing all that well are you? More on the flip.

Fascinating piece from Bloomberg on the little-understood "stress tests." According to Bloomberg:

"Regulators are using two economic scenarios for the tests. The first is a 'baseline' forecast of 8.4 percent unemployment and 2 percent economic contraction in 2009, followed by 2.1 percent economic growth and an 8.8 percent jobless rate in 2010. The other is a 'more adverse' scenario, with 8.9 percent unemployment and 3.3 percent contraction in 2009, followed by a 10.3 percent jobless rate and 0.5 percent growth in 2010."

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Goldman Sachs announced its quarterly earnings after the close of the market, apparently the news was very good for Goldman (1.8B and $3.39/diluted share and will raise $5 billion in a private offering) and will be giving back the TARP money it took (apparently $10B) as soon as possible (How does tomorrow sound to you Goldman?). No word on whether the backdoor bailouts given to Goldman via AIG would be returned . . .

How much of that profit comes from AIG counterparty positions? More . . .

They say there is a "brain drain" going on in Wall Street. Countering the theory that there is much in the way of brains to drain on Wall Street is the head of AIG Financial Products (via TPM):

American International Group Inc.'s financial-products unit is on track to wind down by year end, but the controversy over bonuses that led to the loss of some key people may have made the process more costly for taxpayers, the unit's head said. AIG Financial Products head Gerry Pasciucco, in his first extensive public interview since the bonus dustup last month, said 20 of the unit's 370 employees quit amid the controversy . . . Mr. Pasciucco says the controversy "hurt morale" and "stunned people such that our wind-down has slowed down." He added, "Taxpayers probably have been damaged."

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AP:

Most people say they plan to use this year's tax refund to pay bills, deciding in this sour economy to be more frugal with their annual windfall. Fifty-four percent of those receiving refunds said they intend to pay off credit card, utility, housing and other bills, according to an Associated Press-GfK poll released Monday. That compares with 35 percent who said the same thing a year ago.

This is, ironically, bad for the economy in the short run, as it will lead to lower aggregate demand.

Numerous critical points from Warren.

• 1--No clear goals from Treasury for TARP
• 2--The financial services industry wants to operate in a business as usual environment.

But Warren rightly points out that "their system has collapsed." Worse:[More...]

Hale Bond writes a diary that I believe demonstrates, inadvertently, precisely what is most wrong with the Geithner Plan - the decision to ignore the fact the banks are simply not going to lend very liberally, even when bailed out. Bonddad is critical of "pressure" on JP Morgan (because it took TARP money) to do a deal with Chrysler to help Chrysler avoid bankruptcy. Bonddad says this is a pitfall of "nationalizing" banks.

It seems more of an indictment of TARP and TARP 2 (the Geithner Plan) to me. Suppose for a moment that instead of TARP and TARP 2, the $750B had been spent instead to fund a government bank dedicated to stimulating the economy and job creation/saving. Thus, a borrower like Chrysler would have made the case that loaning money to it would help stimulate the economy and save and create jobs. The government could have taken a convertible debt position and/or negotiated with existing creditors on how senior the debt to the government would be. Chrysler (and GM) are just examples of how this could have worked. TARP and TARP 2 have not spurred significant activity in the credit markets. Lending is not significantly increasing in response to TARP. Direct government loans outside of the financial industry would have been much more effective. More . . .

What is really amusing about this NYTimes article is the easy unstated assumption that the financial crisis had nothing at all to do with the Masters of the Universe and now there are "great opportunities" for the up and coming Masters:

There is an air of exodus on Wall Street — and not just among those being fired. As Washington cracks down on compensation and tightens regulation of banks, a brain drain is occurring at some of the biggest ones. They are some of the same banks blamed for setting off the worst downturn since the Depression. This is certainly a concern for the banks losing top talent. . . To deter the people it thinks caused the crisis, the government is clamping down.

(Emphasis supplied.) More . . .

For those, like Brad DeLong, who argue that the Geithner Plan is merely the first phase of the Obama Administration's plan on the financial crisis, this story should be encouraging:

As the Obama administration completes its examinations of the nation’s largest banks, industry executives are bracing for fights with the government over repayment of bailout money and forced sales of bad mortgages.

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Chris Bowers argues that Billy Joel got it right about politics - it's a matter of trust. I completely disagree - it is a matter of whether you agree or disagree with the announced policies of the Obama Administration and why. Trust has nothing to do with it. Chris writes:

[F]aith in the bailout plan really isn't a question of analytic and scholastic ability . . It is simply a matter of trust in the people executing the plan.

This is really really really the wrong approach to take on any policy issue. This abdicates the process of actually thinking about an issue and making up your own mind as best you can. Let me give you an example - health care reform. I never have written on the subject in detail because I have never taken the time to form my own opinion on the subject. I never advocated for or against mandates or single payer and the like because I was too lazy or too stupid to take the time to form an opinion on the subject. But whether I "trusted" the advocates of particular positions would certainly not be the decisive criteria of my views on any issue. If your position is guided solely by "who you trust," then there is no thinking being done by you. Some people treat issues this way. I can never accept that approach. Bowers advocates it here. And that is wrong. More . . .