Only 539,000?

The news that businesses laid off "only" 539,000 jobs in April is supposed to be positive, and yet the February and March numbers revised upwards, and most important, the jobless rate increased at basically the same rate as previous months, to 8.9%. Despite less jobs lost, nobody is creating jobs in any meaningful way to re-employ those people.

I know employment is a lagging indicator, but if this is the good news, I don't want to see the bad.

But the Obama Administration has clearly taken the message from the green shoots they're reading through the tea leaves: the banks can "earn their way" out of the crisis (Geithner even said that today. Wow), and then they can capitalize everything else. We know the stress tests lightened up on their adverse assessment to paint as pretty a picture as possible for the banks' economic outlook. "If this picture proves to be wrong, then it means that we will have unnecessarily delayed the clean-up of the financial system," as Dean Baker says.

Paul Krugman has more, noting that while the banks will "make it" through the recession, and lending through the government's other programs may fill in the gap for weak banks, lots could go wrong.

It’s not at all clear that credit from the Fed, Fannie and Freddie can fully substitute for a healthy banking system. If it can’t, the muddle-through strategy will turn out to be a recipe for a prolonged, Japanese-style era of high unemployment and weak growth.

Actually, a multiyear period of economic weakness looks likely in any case. The economy may no longer be plunging, but it’s very hard to see where a real recovery will come from. And if the economy does stay depressed for a long time, banks will be in much bigger trouble than the stress tests — which looked only two years ahead — are able to capture.

Finally, given the possibility of bigger losses in the future, the government’s evident unwillingness either to own banks or let them fail creates a heads-they-win-tails-we-lose situation. If all goes well, the bankers will win big. If the current strategy fails, taxpayers will be forced to pay for another bailout.

But what worries me most about the way policy is going isn’t any of these things. It’s my sense that the prospects for fundamental financial reform are fading.

This is why I'm stressing the importance of the modern-day Pecora Commission. Revealing the true rot at the heart of Wall Street is key to forcing regulatory reform down the throats of the banksters.