So where are the trillions of dollars of bad loans that the banks had on their books? They are still there. The Federal Reserve took possession temporarily of some of them as collateral for lending to the banks in an attempt to clean up the banks for their supposed" stress tests". But as of now, the trillions of dollars of underwater mortgages, CDO's and worthless credit default swaps are still on the banks books. Geithner is going to the familiar "bank in crisis" playbook and hoping that the banks can earn their way out of their solvency problems over time so the banks are continuing to slowly write off their problem loans but at a rate that will take years, if not decades, to clean up the problem.

And this is where defeat of the nomination of Elizabeth Warren becomes critical for Geithner. For Geithner's strategy to work, the banks have to find increasing sources of profitability in their business segments to balance out their annual loan loss recognition from their existing bad loans in an environment in which they continue to recognize new losses in prime residential mortgages, commercial real estate lending, sovereign debt investments, bridge loans to private equity groups, leverage buyout lending and credit card defaults.

The banks have made no secret as to where they will find this increase in cash flow. They intend to soak their small retail customers, their consumer and small business borrowers, their credit card holders and their small depositors with increased costs and fees and are continuing many of the bad mortgage practices that led to the crisis (ARM's, option pay deals, zero down payments, second mortgages, teaser rates, etc). American and Banking Market News reports this week that the rule changes in the financial reform bill may lead banks to start implementing fees that had essentially disappeared from the industry early in the new millennium, such as fees for not meeting minimum balance requirements on a checking account, or reinstituting fees for certain online banking transactions that are currently free or charging to receive a paper statement or to talk to a live teller as Bank of America's CEO has recently proposed.