Notorious insurance titan American International Group (AIG) is on the upswing today, after Moody's Investors Service reported late Monday that it expects AIG will be able to repay its government debt. The ratings agency observed that AIG has made progress with its restructuring plan, and the firm's latest quarterly earnings "show continued stabilization of the core insurance operations despite challenging market conditions."

The insurance issue has put many of its non-core assets up for sale during the past year to generate capital and pare its unwieldy size, but some of those plans have been iced by new CEO Robert Benmosche. Moody's likes the new chief's approach, with the firm observing, "We believe that the slower approach to restructuring could help AIG to generate more favorable values from its business portfolio than would be the case under rushed asset sales."

The federal pay czar is doing his job. He's cutting enormous paydays for executives of banks and other institutions that took TARP money. That's as it should be. Those banks performed terribly. Several would have simply vanished if the government hadn't bailed them out. Since capitalism is all about rewarding risk and merit, these executives don't deserve extraordinary payments.

But there is a concern that investors need to think about. It has to do with the human side of this equation. Consider this: if you're an executive who has a contract that states exactly how you get paid and you meet those standards, you would expect payment. That's why there are contracts. You and your department may have been one of the few groups that contributed to earnings, helping mitigate some of the losses other departments generated. While you may feel a twinge of "team" spirit and be glad that you've helped, you don't feel it deeply enough to believe your contract should be violated.

34 banks opted not to pay their quarterly dividends to the Treasury Department in August -- that's up from the 19 deadbeats for the month of May.

The biggest offenders were American International Group (NYSE: AIG), CIT Group Inc. (NYSE: CIT), First Bancorp (NASDAQ: FBNC) , Sterling Financial Corporation (NASDAQ: STSA), and UCBH Holdings, Inc. (NASDAQ: UCBH).

The Treasury Department provided the USA Today with a pretty condescending explanation: "For some banks, it may be prudent to exercise their right not to pay dividends in a particular month, and we respect their right to do so. To draw any broader conclusions about the state of the banking sector from one month is highly premature and speculative."

According to a Wall Street Journal report (subscription required) on Monday, Bank of America (NYSE: BAC) is set to choose an emergency chief executive officer (CEO) -- just in case Ken Lewis (the current CEO) is forced to step down thanks to legal issues. The decision was in the works before Lewis announced he would retire effective New Year's Eve, but the situation ramped up after New York Attorney General Andrew Cuomo hinted that he may file civil charges against Lewis.

Five people comprise the committee that was formed earlier this year, with Bank of America Chairman Walter Massey leading the way. The committee was originally created to respond to concerns raised by U.S. banking regulators, but it has now shifted its focus a bit. The committee will give the choice to the full board for approval, but then the U.S. banking regulators will have to approve the choice, basically allowing the government to hand pick their choice. Once this process runs its course, the plan will then be shuttered until it is needed.

Freddie Mac has a new CEO CFO and his name is Ross Kari. Can you guess his compensation? Is it reasonable in light of the fact that Freddie Mac is controlled by the government?

In these days when we have 5.4 million people who have been on unemployment for at least six months, Kari's compensation is $5.5 million, which includes $2 million as a signing on bonus and a generous salary of $2.3 million.

When the financial world was coming apart last year, it seemed that Morgan Stanley's (NYSE: MS) CEO, John Mack, was making prudent strategic decisions. That is, he tried to lower the overall risk-taking at the firm. Mack had to contend with a deteriorating balance sheet, angry shareholders, a steep drop in business and intrusive regulators.

This was in stark contrast to Mack's prior strategy. If anything, he was a risk junkie. And yes, he made some huge bets on real estate investments that turned sour. In fact, they almost destroyed Morgan Stanley. But somehow Mack was able to wrangle a $9 billion investment from Mitsubishi UFJ Financial Group. There was also a TARP loan for $10 billion (which was actually paid back).

Bailout coverage has taken on a celebratory tone in recent days as a slew of banks including Goldman Sachs (NYSE: GS) have repaid TARP money, leaving taxpayers with what looks like a handy profit. In addition, equity stakes in Citigroup (NYSE: C) and Bank of America (NYSE: BAC) are sitting on a handsome paper profit.

The only problem is that hundreds of banks have received TARP money. Of course, the most healthy ones are paying it back quickly. The rest are still in limbo, and the result is that the Treasury Department is realizing plenty of gains while all the losses -- investments in companies like American International Group (NYSE: AIG), General Motors, and Chrysler -- remain unrealized and largely ignored.

When the financial crisis really got into full swing, a lot of banks ended up taking TARP money. Some banks needed it, and some banks were forced by Treasury Secretary Henry Paulson to take it.

Wells Fargo & Co. (NYSE: WFC) was one of those banks that was forced to take TARP money, and now it is making plans to pay the TARP money back.

Here's the interesting thing though. While many of the larger banks have paid the TARP money back, Wells Fargo says it is going to pay the money back without having to go out and raise additional funds for the bank -- something other large banks, like Goldman Sachs Group (NYSE: GS), didn't do.

According to the Wall Street Journal, Bank of America (NYSE: BAC) is offering to repay part of the government bailout money it received last year, and the U.S. isn't ignoring the offer.

Supposedly, the U.S. wants the bank to pay at least $500 million in order to stave off a pact that would result in the government losing on certain assets. People familiar with the matter classify the moves as an "extra measure" of federal aid for Bank of America in order to complete its acquisition of Merrill Lynch. Supposedly, both sets of the discussions would allow Bank of America to "reduce a layer of federal involvement in its affairs."

Over the past few months, one of the hottest sectors has been the financials. And to capitalize on things, Wall Street is looking to the IPO market. So, this week Plains Capital Corp. filed to go public, planning to raise $140 million.

Founded in Lubbock, Tex., in 1987, Plains Capital has had a nice growth path. The company has bulked up its assets through acquisitions, as well as by adding new offerings (such as mortgage origination and even wealth management). In fact, the bank has been profitable for the past 21 years. Currently, Plains Capital has $4.4 billion in assets and $2.9 billion in deposits.

As Connie Madon reported earlier today on BloggingStocks, federal district court judge Judge Jed Ratkoff declined to sign off on Bank of America's (NYSE: BAC) settlement with the SEC.

Madon wrote that "The judge ruled that the $33 million fine did not give any specifics and did not specify whether or not any of the TARP monies were used in the $33 million figure."

Here are some highlights from last week's earnings coverage from BloggingStocks:

• Advanced Micro Devices Inc. (NYSE: AMD) narrowed its net loss in Q2 but not as much as expected.
• Apple Inc. (NASDAQ: AAPL) posted better-than-expected Q3 results on demand for iPhones and Macs.
• Intuitive Surgical Inc. (NASDAQ: ISRG) reported earnings and revenue that topped expectations.
• JDA Software Group Inc. (NASDAQ: JDAS) shares surged after it reported record results for Q2.
• Microsoft Corp. (NASDAQ: MSFT) lower Q4 results still topped earnings estimates, but shares fell.
• VMware Inc. (NYSE: VMW) unimpressive Q2 results still managed to beat analysts' low expectations.
• Yahoo! Inc. (NASDAQ: YHOO) Q2 profit was flat year over year and revenue and cash flow declined.

After yesterday's closing bell, Capital One Financial (NYSE: COF) reported a second-quarter loss of 65 cents per share. The quarterly loss included $461.7 million COF repaid to TARP and a $38 million dividend payment. Excluding these payments, COF saw a quarterly profit of 53 cents per share. The Street expected COF to lose 73 cents per share, so the company managed to top expectations. Nevertheless, the company noted that its results were pulled lower by credit card losses along with the repayment of the government funds.

COF managed to make money excluding items, but a loss is still a loss. While the company noted that people have been a bit more defensive in their spending, I'm guessing that this may change. Remember that unemployment is at record highs, which may lead to more people to depend on credit cards (if they have them) to pay for necessities.

Goldman Sachs (NYSE: GS) has taken a beating in the court of public opinion lately -- and not without good reason. Fortune's Alan Sloane recently wrote this of the company's "squabbling" with the Treasury Department over the value of the warrants issued as part of the TARP infusion, calling it "tacky": "Had Goldman retained something it was once reputed to have -- a sense of short-term sacrifice in return for long-term profit -- it would have agreed to pay the government generously for the warrants. It could have announced that on Tuesday, along with its profits, and looked like a decent, concerned corporate citizen instead of Greedhead Central."

Well now Goldman has seen the light. In a press release, the company announced that it had paid $1.1 billion to redeem the warrants, "the full value the U.S. Treasury Department has determined."

KeyCorp (NYSE: KEY) stepped into the earnings spotlight this morning, announcing that its second-quarter loss checked in at 69 cents per share (68 cents per share excluding charges). A year ago, the bank lost $2.71 per share in the second quarter. Although the results were better than those from a year ago, they were not better than the consensus estimate, which called for a loss of 41 cents per share.

The company also announced that it was cutting the amount of preferred shares that it plans to exchange by 71%. KeyCorp's CEO (Henry Meyer III) stated that the company's results "reflect the weak economic environment and the steps that it has taken to address issues in credit quality, strengthen capital and control costs." Like many regional banks, KeyCorp suffered thanks to the credit crunch; even though the bank was not a major player in the subprime-mortgage fiasco. The company added that loan-loss provisions were $850 million, which was 31% greater than a year ago.