The move relieves Citi from having to deal with government-mandated compensation restrictions, as was reportedly the main impetus for Bank of America to exit from TARP earlier this month.

But very little consideration is seemingly being given to whether the banks are healthy enough and the system stable enough that exiting TARP makes practical sense, as I wrote last week.

Importantly, Citi repaying TARP will end the government's $300 billion loss-sharing agreement with the bank, meaning Citi executives and their regulators must be confident there aren't big loan losses ahead.

But as Joshua Rosner, managing director at Graham Fisher, wonders in an email Monday morning: "If Treasury is so sure that Citi, perhaps the sickest of the sick, is healthy enough to get out of TARP without a risk that they end up right back at our doorsteps again, why did Secretary Geithner ask, last week, to extend TARP until October?"

As with Rosner, other notable bank analysts like Meredith Whitney and Chris Whalen see more loan losses ahead, not less...

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Updated from 10:16 a.m. EST

Ahead of Monday's meeting with top Wall Street CEOs, President Obama talked tough about the industry Sunday on "60 Minutes", declaring:
"I did not run for office to be helping out a bunch of fat cat bankers on Wall Street."

Obama also talked about how the bankers "don't get it. They're still puzzled, why is it that people are mad at the banks," and reiterated the need for comprehensive financial regulatory reform, featuring:

• A Consumer Finance Protection Agency
• Regulation of derivatives and the "shadow" banking industry.
• A systemic-risk regulator with the power to monitor "too big to fail" firms and break them up, if necessary.

Those initiatives were part of the financial reform legislation the House passed Friday. Moreover, it's possible the administration's tough rhetoric contributed to Goldman Sachs' decision last week to stop paying cash bonuses to its top executives, and Bank of America's hesitation to lavish its next CEO with a big compensation package, according to published reports.

Still, Obama was light on specifics in terms of what actions the administration will require of the banks, although perhaps he was saving that for today's meeting with a dozen industry CEOs, including Lloyd Blankfein, Jamie Dimon, and Ken Lewis. (Update: Blankfein was one of three CEOs unable to attend the meeting in person and will instead participate via phone; Blankfein, Morgan Stanley's John Mack and CIT's Dick Parson were on the same plane and the flight was delayed due to fog, Reuters reports.) 

The bottom line is talk is cheap and, to date, the administration has talked tough but has taken few concrete steps to reign in the risk-taking and bonus culture on Wall Street...

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China's economic recovery accelerated in the third quarter, and November's export numbers were the best in a year.  Driving the recovery is major government stimulus and, importantly, massive lending by China's banks.

Meanwhile, in the U.S., our less-vibrant recovery is also being driven by government spending, but our banks aren't lending.  Still overloaded with bad loans from the boom, and still finding relatively few companies and consumers with the capacity to borrow more, banks are hunkering down and buying risk-free Treasuries.

Part of the problem is that buying Treasuries is a safe way to make pots of money right now: You can borrow at 0.25% and lend at 3%+ and make a huge spread with little risk.  So banks have little incentive to take more risk by lending to private borrowers who are still in a tenuous position, especially with the banks' balance sheets still in disarray.

In the last month, the U.S. economic data has been..

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Vampire squid/investment bank/robber baron firm without equal, Goldman Sachs, has hoisted the white flag. The humiliating surrender is complete.

Yes, the New York firm, known best for draining us regular folks of our hard-earned wages and our life force while simultaneously enriching a cackling cabal of Savile Row-suit-wearing, cigar-smoking bankers, has seen the light and decided to take a stand against doling out excessive pay. Cash bonuses for executives will not come to pass in 2009.

The company said Thursday that its board of directors has decided to take a number of steps to get compensation in line with the new reality. Here are a few highlights from the press release announcing the terms of the historic defeat:...

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In the past 48 hours, Bank of America has finished repaying its TARP debts and, according to CNBC, Citigroup is making plans to do the same.

Bank of America raised over $19 billion last week and Citigroup is seeking to raise a similar amount, according to published reports.

Citi shares were up Thursday in part on anticipation the bank will be able to raise the funds and reach an agreement with Treasury to escape the "harsh" restrictions of its government overlords.

As with Bank of America, the widespread view is that Citigroup wants to exit TARP so it can avoid any onerous restrictions on compensation.

"Obviously they're doing this to be able to retain their talent," says Todd Harrison, CEO of Minyanville.com.

Set aside, for a moment, the questions of what constitutes "excessive" pay and whether it makes sense to pay anything to the same group of people who put the industry, and the global economy, on the precipice of disaster a little more than a year ago.

Instead, consider the state of mind on Wall Street (and in Washington) that very little consideration is seemingly being given to whether the banks are healthy enough and the system stable enough that exiting TARP makes practical sense...

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From The Business Insider, Dec. 10, 2009:

A few media outlets cheered the announcement that Bank of America was repaying its $45 billion of bailout money ahead of time.  Bank of America is now obviously healthy again, so it's time to celebrate, right?

Well, no.

The main reason Bank of America paid back the money was to get out from under the onerous pay caps that makes it harder to keep its people and attract a new CEO.  To make the payment, Bank of America had to take huge dilution at what a year ago would have been considered an appalling price.  Bank of America may be healthier than it was 9 months ago (maybe), but shareholders certainly didn't consider selling $19 billion of equity at $15 a share cause for celebration.

But aren't taxpayers better off now that Bank of America has paid us back? 

Not if you thought the control and pay restrictions TARP provided were a good thing.

What Bank of America has done is simply replace one form of taxpayer sponsored capital (TARP) with equity and another form of taxpayer sponsored capital--loans from the Fed.  Those loans carry super-low interest rates, so they'll help Bank of America make more money at taxpayer expense.  Those loans also, importantly, come with NONE of the restrictions that TARP does.

And taxpayers are on the hook...

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More coverage from The Business Insider:

• These TARP paybacks are all about pay, pay pay
• On bailouts for too big to fail: You won't believe what Bernanke said at his 05 confirmation hearings

But that doesn't mean the danger is over.

The system is "a long way from healthy," Rogoff says, noting the banks have only profited this year thanks to various and sundry government programs and the Fed's easy money policies. "If I told you, you could borrow almost 30 times what your house is worth at almost zero percent and lend around to anyone you wanted, I'd bet you'd make money too," he says.

The big reason banks aren't lending aggressively is they're bracing for a lot more write-downs in the years ahead...

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Global markets tumbled overnight amid fresh concerns about the global economy, and more specifically, the prospect of sovereign debt defaults. 

Standard & Poor’s lowered its outlook for Spain's debt grade as the country's finances worsened. A day earlier, Fitch cut Greece's long-term debt to BBB+ from A minus, marking the first time in a decade the country has seen its rating pushed below an A grade. (Click here for the full story.)

The news doesn't come as a surprise to our guest Ken Rogoff, professor of economics and public policy at Harvard University. As Dubai's recent debt crisis shows, more sovereign debt defaults will be likely over the next several years, he says.

The International Monetary Fund will try to prevent any global economic crisis in the near term says Rogoff, a former IMF chief economist. But, longer-term, difficult decisions remain about how to tackle mounting debt among G8 nations...

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From The Business Insider, Dec. 8, 2009:

Perception is reality.

So it doesn't matter what really happened when pay czar Kenneth Feinberg agreed to exempt a bunch of AIG executives from pay caps because they whined and threatened to quit over them. 

This decision just looks like yet another wimpy, lame move from a government whose policies with respect to Wall Street have defined wimpy and lame.

Ever since the waning years of the Bush administration, when Washington "service" became just another rung on the Wall Street career ladder, our government has gone out of its way to protect the interests of its once and future employer.

• Idiot bondholders--the folks who provided the money necessary to fund our debt binge--have been rescued to the tune of 100 cents on the dollar

• Massive, incompetent financial firms have been bailed out and nursed along

• Counterparties ready to take a major haircut on CDS contracts have been made completely whole

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More coverage from The Business Insider:

• Meredith Whitney is still bearish, says the govt. has run out of bullets
• Ken Feinberg caves on pay caps for AIG

What’s a retail investor to do? This year’s whip saw action has many confused.  Still feeling lousy about the economy and our future prospects, the retail investor, judging by fund flows, remains skeptical about putting money to work in this bull market, says Tom Eggers, COO of Minyanville and former Dreyfus CEO.

Most of the money that's flowing into mutual funds is destined for emerging market funds. There’s a “belief that things are better outside the United States (and that) has caused people to go into the international types of products,” he explained to Aaron at Minyanville’s recent annual Festivus party.

Investors are starting to take (relatively) more risk in the fixed income market.  But at this point, it’s baby steps in many cases. Less cash and Treasuries and more taxable fixed income like municipal bonds and corporate bonds seems to be a common trade among conservative investors.

Tony Dwyer, chief market strategist at FTN Midwest Research, says it’s a bullish sign.  “Anytime in the history of money flows where you had such a move into taxable and corporate bonds, it’s been a good time to be a buyer of stocks,” he says.

Dwyer is confident...

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