If you follow the bank stocks, you noticed the latest earnings were very good. Bank of America (NYSE: BAC) showed earnings that almost tripled. Citigroup (NYSE: C) lost 18 cents a share, but that was much better than the 34 cent loss analysts expected, and way better than the $2.44 it lost in the last quarter of 2008. Wells Fargo & Co. (NYSE: WFC) pre-announced it would have great earnings. Then delivered record results. But all of these stocks are well off their recent highs. Why is that?

It has to do with the quality of earnings. In other words, what was the source of this new-found land of profitability or in the case of Citi, lower loss? Investors like ongoing, predictable earnings. In the case of banks, that means loans such as mortgages or credit cards to worthy borrowers. But that isn't where banks got their profits this quarter. Instead, they came from investment banking and trading.

As the three-day Easter weekend approaches, volume is declining as both traders and investors shy away from a market that is fraught with uncertainty.

Not only are the Q1 earnings in doubt, but longer-term economic analysis by the ChangeWave team indicates that we can expect to see a trading range of 700 to 900 on the S&P 500 for at least several months. And this is supported by my own technical analysis.

After a discussion of many of the risks peculiar to this economic cycle, the ChangeWave team appraises the big economic forces that "simply have to play out over time."

Bank stocks are well off their bottoms. Bank Of America (NYSE: BAC) traded at $2.53 on Feb. 20 of this year. Now it's $7.90 as I check the latest quote. Wells Fargo & Co. (NYSE: WFC) was down to $7.80 on March 5. You'll have to pay $17 as of this writing. JPMorgan Chase (NYSE: JPM) touched $14.96 before bouncing to $28. And Citigroup (NYSE: C) (hopefully) bottomed at $.97 on March 5, then ran to $3 as I write this. Is it finally time to start buying bank stocks?

The market rallied yesterday when the White House said it supported the private banking system. According to Reuters, an official said "This administration continues to strongly believe that a privately held banking system is the correct way to go, ensuring they are regulated sufficiently by this government."

The statement caused a small rally in big bank stocks, which had been off over 20% much of the day. But, they did not rally back to where the traded at the middle of the week.

Why? Smart investors know that the statement did not mean much. If one of the large banks, probably Citigroup (NYSE: C) or Bank of America (NYSE: BAC) gets into real trouble, the government will still have to step in. If confidence in one of the banks erodes fast enough and other banks refuse to do business with it or customers begin to pull enough money out, the government will have to step in. If Citi's stock price drops below $1 and is still falling, the government will have to step in.

Barclays (NYSE: BCS) posted earnings that would be the envy of almost any other global bank. In the process, it gave the troubled banking industry some hope that the future will not be one of ongoing losses stretching well into this year, if not into next.

The bank's second half surprised analysts. According to Bloomberg, "It looks like a pretty good underlying performance and start to 2009," said Michael Trippitt, a London-based analyst at Oriel Securities Ltd., who has an `add' rating on Barclays." A lot of the improvement came because many of Barclays large consumer and business service divisions did well when the effects of toxic asset where taken out.

You've asked people to give you ideas, so here's one: Don't recycle Bush's failed ideas and expect them to work. Each of those failed ideas has deep flaws. Instead, if you have to save the banking system -- and I would like to see how things would work if companies and people lived within their means rather than borrowing to pay for things that they can't afford -- then cull and capitalize or create new banks.

Here's what's wrong with the three recycled Bush ideas being floated:

The banks are a wreck and now the pieces are beginning to fly apart, with Citigroup (NYSE: C) struggling the most and beginning to dismember itself.

Meredith Whitney, the uber-analyst who has been right about everything in banking for more than two years, said there were $2.4 trillion in asset downgrades at the end of last year by the credit agencies. This will really whack the banks' critical Tier 1 capital.

And even if you forget earnings problems, the banks will continue to have no money to lend, which will strangle businesses and the economy.

Be sure to read all 7 reasons the stock market isn't going up any time soon.

Michael Shulman is a contributor to OptionsZone.com.

JPMorgan Chase (NYSE: JPM) posted earnings Thursday. In a surprise to analysts, who had been expecting a break-even quarter, JPM reported earning 7 cents for the fourth quarter.

While the report showed a 76% decline from the previous year, the news pushed the stock to early gains in the face of a drop in the Dow.

Typical of the lack of conviction in the markets, JPM gave up early gains. Subsequent trading restored the stock to the positive column before it succumbed to a late-day sell-off that shaved more than 6% from its market value.

The mid-morning decline in JPM occurred as Bank of America (NYSE: BAC) plummeted to a new low at $7.50. BAC is sagging under the weight of absorbing Countrywide and Merrill Lynch, both of which have proven more difficult to digest than earlier thought.

Bank stocks in general are under heavy selling pressure after Federal Reserve Chairman Ben Bernanke declared Wednesday that billions more will be required to restore stability to the nation's (and the world's) banking system.

Sept. 15: Dow 10,917 (down 504 points); trading range, 566 points

Wall Street greeted a new week with more turmoil in the financial sector leading the S&P 500 to its largest one-day percentage drop since 9/11.

During the weekend before the session, Lehman Brothers (OTC: LEHMQ) filed for Chapter 11 bankruptcy, Merrill Lynch sold itself to Bank of America (NYSE: BAC) for $50 billion and AIG (NYSE: AIG) began looking for massive amounts of cash to save itself from failure.

Lehman gave up the ghost after no buyers were willing to step up to save the 158-year-old firm, and the company listed $613 billion in debt.

Meanwhile, the feds told AIG to look elsewhere for $40 billion to shore up its balance sheet, leading many to suspect it would take much more cash to set things straight.

They were right -- we're currently at $150 billion and counting.

Greg Tucker is the executive editor of OptionsZone.com.

Oct. 14: Dow 9,310 (down 76 points); trading range, 874 points

The markets finished the day marginally lower, but the volatility that had plagued the markets for the past few weeks continued to reign. (Two days later the CBOE Volatility Index (VIX) would set an all-time record of 81.)

However, the big headline of the day came from an announcement that the federal government would take preferred equity stakes worth up to $250 billion in several U.S. banks to keep money flowing through the financial system.

The move linked the banking sector and the government, and made taxpayers de facto shareholders in the American finance system.

Congratulations, you now own several banks.

To participate in the program, financial institutions like Bank of America (NYSE: BAC), Citigroup (NYSE: C), JPMorgan Chase (NYSE: JPM), Morgan Stanley (NYSE: MS) and Wells Fargo (NYSE: WFC) had to agree to executive compensation limits, including the elimination of golden parachutes.

The program was "voluntary," but when Treasury and the Fed came knocking, it was making an offer the banks couldn't refuse.

Greg Tucker is the executive editor of OptionsZone.com.

Buying the financials while the Fed was aggressively cutting interest rates was supposed to be a no-brainer.

Banks, brokerages, insurance companies and other financial-related businesses rally in tandem to lower rates, which translates into cheap money for lending and investing.

A million and one professionals bought into this theme, and made the mistake of thinking the worst-case scenario for the credit markets was baked in back in June.

By mid-July, the bloodletting in the financial sector revealed giant writedowns being charged against earnings for huge exposure to subprime debt at the biggest banks and Wall Street firms. The rest is history, which is still being written to date.

Shares of Citigroup (NYSE: C) crashed from $25 to $3, Goldman Sachs (NYSE: GS) plunged from $180 to $47, and Bank of America (NYSE: BAC) fell from $40 to $10. You get the picture.

Citigroup (NYSE: C) got a bailout from the government, but is the deal big enough to save Citi? This deal sounds like an interim solution rather than a permanent one. That's because after losing $20 billion in the last year, Citi has $2 trillion in on-balance sheet assets; another $1.23 trillion in off-balance sheet assets; and $36.8 trillion in derivatives. It is likely that the losses from these financial WMDs could exceed the amount Citi got from the government.

What does Citi get? Under the terms of the deal, Citi gets $20 billion in cash from the government (on top of the $25 billion it already received); Citi must cover the first $29 billion in losses of a $306 billion pool of assets -- the government picks up 90% of the remaining losses with Citi covering the other 10% from its mortgage-related assets; and Vikram Pandit gets to keep his job. The Treasury Department will use TARP to cover the first $5 billion of losses; the FDIC will take on the next $10 billion; and the Fed will assume any additional losses.

What does the U.S. receive? The U.S. gets $27 billion in preferred stock yielding an 8% interest rate. And that preferred stock comes with warrants to buy 254 million shares at $10.61 each. Citi must also pay no more than a penny a share dividend for three years -- down from 16 cents recently. The U.S. also negotiated executive compensation restrictions.