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."

The Congressional Oversight Panel reported on Wednesday that most of the $23 billion in taxpayer funds provided to General Motors and Chrysler is unlikely to be repaid. The Congressional Budget Office estimated in June that taxpayers would lose $40 billion of the first $55 billion provided to the auto industry.

The Treasury Department acknowledges that most of the $23 billion provided by the Bush Administration is likely gone forever, but added that there is a "reasonably high probability of the return of most or all of the government funding" provided by the Obama administration.

Three quarters of the fiscal year is comfortably behind us, and the U.S. budget deficit has already passed the $1 trillion mark. In June alone, the federal government spent faster than it earned to the tune of $94.3 billion. The result is below the median predicted by 30 estimates according to a Bloomberg News survey of economists -- projections ranged from $70 billion to $109.3 billion for the month. This is the first time we've had a June deficit since 1991.

In June 2008, the deficit for the month was a much more modest (but still sizeable) $33.5 billion. But last month spending spiked 37% to $309.7 billion, while revenue plunged 17% to $215.4 billion.

So how does the rest of the year look? Pretty grim.

JPMorgan Chase & Co. (NYSE: JPM) and the U.S. government can't seem to agree what the bank's stock warrants are worth. As a result, JPM has asked the Treasury Department to auction off the warrants publicly in order to determine a fair market price.

The JPM warrants were issued to the government under the terms of its TARP loan. Bailed-out banks have the option to repurchase their own warrants, but only if they can strike a deal with the feds regarding a reasonable price. However, many firms have complained that the Treasury is seeking too high a price for the assets -- putting executives in the awkward position of claiming that their stock just isn't worth that much.

In choosing the auction alternative, JPMorgan is waiving its right to repurchase its own warrants (it could potentially bid through the public auction process, but company executives have decided not to do so). If the stock warrants are successfully auctioned off to a third party, their exercise would be dilutive to existing shareholders.

My, how a day of reaction can change things. Late last night, Treasury Secretary Tim Geithner announced that American International Group (NYSE: AIG) will repay the taxpayers up to $165 million that it doled out as bonuses.

According to Geithner's letter to congressional leaders, the government can't block the payments -- which were contractually agreed to before the government's bailout.

However, the public's "considerable outrage" over the payments was an epiphany for AIG, causing the bank to agree to pay the Treasury an amount equal to the payments. The Treasury will then deduct that amount from the $30 billion in government assistance that the company is slated to receive.

From the taxpayer dollars at work department: Fresh off of receiving billions of dollars in taxpayer cash, American International Group, Inc. (NYSE: AIG) has decided that it will pay $450 million in retention bonuses to 400 employees in the financial products unit. That just so happens to be the part of the company that was involved with the credit default swaps that destroyed the company.

In a statement, AIG said that "We adopted and disclosed this contractual retention program months before the government provided support to AIG. We did so because it was clear, given the market environment, that we would need to retain employees to manage the complex issues arising in our Financial Products business, which we are now unwinding."

Senator Carl Levin is planning to use the power of the subpoena to gain access to a $25 billion contract governing the doling out of bailout funds to Citigroup (NYSE: C).

So far, the Treasury Department has only provided the public with a form that recipients of bailout funds are required to fill out. "I'm going to subpoena a document which should not have to be subpoenaed," Levin told reporters. "I want to see whether the actual contract with Citibank is the same as the form."

It's hard to imagine what possible right banks like Citigroup have to privacy when they are showing up looking for taxpayer cash. Is there any reason why details on the terms shouldn't be made available? I can't think of one.

Levin said that he wants to see whether Citigroup was required to agree to helping homeowners avoid foreclosure.

It is a bad idea because it will slow the process of getting money from the Treasury to needy firms. That negates one of the key aspects of the bailout program. It is supposed to move fast to stay ahead of the national liquidity crisis.

Paulson may be asking to change that. According to The Wall Street Journal, "The Treasury Department, signaling a new phase in its $700 billion financial-rescue plan, is considering requiring that firms seeking future government money raise private capital in order to qualify for public assistance."

While it may seem sensible to get smaller banks and insurance companies, the next group of firms likely to get Treasury help, to ask private investors to come in side-by-side with the government, the program would be flawed for two reasons.

The first is that, in a failing economy, nothing may bring private equity out of its shell even if buying into a financial firm getting a huge slug of government money might seem attractive in normal times. But, these are not normal times and panic keeps capital from making investments which should appear attractive.

The second reason that the plan is flawed is the private equity deals can take many weeks or even months to close, and private investors may want different terms than the federal government is getting. That turns what could be a quickly fashioned lifeline from Treasury into a prolonged process which could damage the companies it seeks to save.

It is probably a good thing that Paulson's tenure is over in two months. His new plan could could wreck what it is trying to fix.

Douglas A. McIntyre is an editor at 24/7 Wall St.

Our introduction to the Treasury Department official in charge of the $700 billion bailout fund -- Who will spend our $700 billion? Meet 35-year-old Neel Kashkari -- generated a lot of interest and commentary. Many of the comments have been negative and cover a wide range of fear and loathing, from cracks about Goldman Sachs (NYSE: GS) running the country and stealing all the money, to insults directed at Kashkari's lack of hair and ethnic background. (For the record, his family is from India, not Iran, and Neel is apparently a Hindu name, not a Muslim one, although I haven't found any definitive proof of his religious background.)

Looking around the web, I found lots of talk about Kashkari, including one curious comment at Huffington Post that Kashkari has a special arrangement with respect to his salary. Somehow, according to this commentator, Goldman Sachs is paying him billions of dollars to do his job. He will supposedly collect these riches when he steps down, presumably after having rendered super-secret services to the financial oligarchs who apparently own our country.

The writer of the comment offered no proof, and I have to admit that I'm a little skeptical (about the salary, not the oligarchy). But it did get me thinking about how much government officials are being paid to handle all this bailout money.

According to this Bloomberg report, Kashkari earned $738,000 in salary and bonus at Goldman before joining his former boss Hank Paulson at Treasury in July 2006. His title is now Assistant Secretary (Assistant Secretary of the Treasury for Financial Stability and Assistant Secretary of the Treasury for International Economics and Development, to be precise) and he is, obviously, a federal employee now. So he must earn the standard salary for an Assistant Secretary.

The weekend is fast approaching. And with global markets in a tailspin --- the Nikkei fell 11%, the Hang Seng tumbled 7.1%, and the FTSE 100 declined 3% -- that can only mean one thing: Hank Paulson and Ben Bernanke will spend the weekend putting together another massive cash dump to announce by Sunday night. But I have a different idea -- for one weekend, how about a massive information campaign instead.

What if, instead of trying to fight fear and restore confidence with money, they decided to educate the world instead? If Bernanke is such a good teacher, perhaps he can put together an explanation for what is going on, why it happened, and how he plans to fix it. I think that a patient and honest explanation of what is really going on -- similar to FDR's fireside chats -- would go a long way to pushing away the fear.

By uttering meaningless platitudes about how "we have the tools" and "the economy will come back better than ever", the Administration is sending an unhelpful message. It is telling us a combination of things: it does not understand what is going on, it does not trust the American people to handle reality, and/or it believes that discussing the truth would make matters worse. Throwing more money at the problem without providing leadership does not seem to be working. Here are a few questions I think Paulson and Bernanke should answer for starters:

With reports that the UK will invest $60.5 billion to take control of its four top banks, leading Western finance ministers left Washington with an important unanswered question: "What can we do that will restore confidence to the global financial markets?" I am heartened to learn the U.S. leaders are discarding their reverse auction strategy in favor of a plan to inject capital into our banks. But if that plan is not done the right way, it could be a missed opportunity of colossal proportions.

Here's what worries me about the current vague discussions. If the U.S. invests $700 billion in banks that apply for the investment, then the applications are likely to come from banks that are losing money and have the least amount of capital. If the Treasury invests in these money losing applicants, odds are good that they will keep losing money and the investment will be wasted.

In order to get a return on our investment, Treasury must follow a plan I called cull and capitalize. In this plan, Treasury would analyze our 8,400 banks and pick the winners. To do this, the FDIC could rank banks based on their profitability, their capital levels, and the quality of their assets. The banks that did not make it into the winner's circle would either be encouraged to merge with those winners or close down.

Treasury Secretary Henry Paulson is not normally the first person I'd look to for cogent, well-reasoned analysis, but I have to say his comments on mortgage bailouts are right on.

Talking to the Wall Street Journal (subscription required), Paulson referred to many of the aid proposals making the rounds in Washington as "bailouts" for reckless lenders and borrowers: "I don't think I've seen any scenario where the American taxpayer needs to be stepping in with more taxpayer dollars."

He added that "I'm seeing a series of ideas suggested involving major government intervention in the housing market, and these things are usually presented or sold as a way of helping homeowners stay in their homes. Then when you look at them more carefully what they really amount to is a bailout for financial institutions or Wall Street."

Mr. Paulson believes that urging the lenders to cut borrowers some slack is the role the government should play, and I agree. Knock yourself out: if you can talk to the bankers and convince them to play nice, I'm all in favor of it. But don't spend our money bailing out lenders and borrowers, while artificially propping up the housing market.

And I'm still dying for an answer to my lingering question: Why is it bad if someone with no equity in their home loses the home? Is someone who "owns" a home but doesn't have any equity really a home owner?

It's a bit more than 20 years since the Dow fell 508 points, or 22.6%, in a single day. With Asian and European markets down a mere 1% to 4% today, it does not look like we'll have a repeat of that 23% decline today. What's happening in world markets? According to the New York Times, Hong Kong fell 3.3%, Japan tumbled 2.2%. South Korea was down 3.25%. In Europe the early news was not as bad -- London's FTSE 100 was down 1.4%, the German DAX dropped 1.3%, and Paris slid 1.8%.

Twenty years ago, the CEO of the company I worked for sent one of my colleagues to figure out good stocks to buy -- considering the market plunge an opportunity to buy good stocks at a discount. It turned out that he was right. The cause of the crash was found to be related to simultaneous computer driven-selling that somehow took the rationality out of stock valuations.

But will today's potential plunge also turn out to be a buying opportunity? The answer depends on your time frame and which stocks you buy. It's never clear to me why markets go up and down although "explanations" get printed every day. But it could be that the big reason for the selling in global markets is fear. In particular, investors fear that the U.S. has unleashed a subprime mortgage-backed securities (MBS) financial virus that is sucking an unknown -- but enormous -- quantity of credit out of the global financial system.

Hank Paulson's floundering effort to rescue the world from this MBS viral epidemic is not inspiring confidence. So I would not be eager to rush out and buy stocks in this market. Unlike the computer-driven selling of 1987, the economic costs of MBS's financial "innovation" are still too difficult to count.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

The New York Times [registration required] reports that Citigroup (NYSE: C) and JPMorgan Chase (NYSE: JPM) are working with the Treasury Department to create a $75 billion fund to bail out Structured Investment Vehicles (SIV) -- of which there are thought to be $400 billion worldwide. What are SIVs? Why do they need to be bailed out? Why is the Treasury Department getting involved? Will the bailout plan work? Why should you care?

Before addressing these questions, it's worth pointing out that Hank Paulson, the current Treasury Secretary and former Goldman Sachs Group (NYSE: GS) CEO, has not had much success as a government servant. His efforts to talk China into loosening its currency have fallen flat. And a high-level government source told me that Paulson's brusque personal style has not endeared him to other economic policy makers.

When Paulson took the job in May 2006, I speculated that the reason he took it was so he would have the chance to outshine Robert Rubin, another former Goldman executive, whose tenure at Treasury was widely perceived to have been brilliant. I thought then that Paulson thought a financial crisis would occur under his tenure that would enable him to demonstrate his financial crisis management skills. The SIV crisis is a big problem but I doubt he'll rise to the occasion like Rubin did.

With Asian markets expressing little confidence in yesterday's "amazing" Dow comeback -- the Nikkei fell 5% its worst day since September 11th -- the New York Times [registration required] reports that U.S. Treasury Secretary Hank Paulson is keeping above the fray.

When he took over the job in May 2006, I posted that I could not figure out why Paulson took the job. I knew that it's quite popular at The Goldman Sachs Group Inc. (NYSE: GS) to go into government after making piles of money there. And I thought that perhaps Paulson took the job so he could outdo one of his predecessors, Robert Rubin, who was widely believed to have excelled in the job. And I anticipated a financial crisis due to a mispricing of risk which might have provided Paulson with a chance to prove his mettle in relation to Rubin's handling of the 1998 Russian financial meltdown.

Well, that crisis is now upon us and Paulson is proving that he does not have what it takes. A former high level Washington hand told me that Paulson is widely regarded as self-important and pushy. This has made him rather unpopular with economic policymakers who are happy to see him fail in getting China to let its currency float.