Banks remain in intensive care. Even after around $900 billion in new capital, the global banking system remains short of capital by around $1-2 trillion. This translates into an effective reduction in available credit of around 20-30% from previous levels.

Recent excitement about the "stress tests" of US banks misses an essential point: At best, if you accept the premises of the test, the risk of bank failure is greatly reduced. But banks’ ability -- from Wells Fargo (WFC) to Bank of New York (BK) to Citigroup (C) -- to support the lending levels that prevailed in, say, 2007, hasn't been restored. In short, the "credit crunch" will continue for an indefinite time.

The financial system will need continued government support for some time to come, though the performance of governments trying to rehabilitate it has been problematic at best. Increasingly, government officials have become focused on reassuring the public and shoring up confidence at any cost. Spin has outstripped substance. Many government proposals are stillborn; for example, progress on the famed Public Private Investment Partnership (PPIP) has been painfully slow.

In April 2009, Elizabeth Warren, chairperson of the TARP Oversight Panel Report, questioned the very approach to resolving the problems of the financial system:

"Six months into the existence of TARP, evidence of success or failure is mixed. One key assumption that underlies Treasury’s [PPIP] approach is its belief that the system-wide deleveraging resulting from the decline in asset values, leading to an accompanying drop in net wealth across the country, is in large part the product of temporary liquidity constraints resulting from non-functioning markets for troubled assets. On the other hand, it is possible that Treasury’s approach fails to acknowledge the depth of the current downturn and the degree to which the low valuation of troubled assets accurately reflects their worth."

Two other panel members -- Richard Neiman (New York State Superintendent of Banks) and John Sununu (former New Hampshire Senator) -- issued dissenting findings, noting:

"We are concerned that the prominence of alternate approaches presented in the report, particularly reorganization through nationalization, could incorrectly imply both that the banking system is insolvent and that the new administration does not have a workable plan."

Many would question the choice of the words "incorrectly imply."

Constant changes don't suggest a consistent and well-thought-out strategy in dealing with the problems. Less-than-rigorous stress tests, using taxpayer monies in opaque ways, providing lopsided subsidies for private investors to buy distressed assets with minimal risk, or converting preferred stock into shares to avoid having to seek additional Congressional mandates suggest a highly politicized and ideological approach.

One online commentator noted the intersection between Wall Street, Constitution Avenue and Main Street was best named "Confusion Corner."