Yves Smith takes the press to task for the credulity it displays regarding the profits the Fed is reporting on its bank bailouts.

But the Times, at least, does a fairly good job in my view of explaining the flimsiness of the Fed's claims.

To wit: The profits don't reflect the money the Fed has spent to date on Bank of America, Bear Stearns, Citigroup and AIG, and losses on just the latter investment could easily wipe out the $4 billion in TARP proceeds that the Fed is beating its chest about.

Those proceeds are also pretty miniscule considering the big run-up in bank stock prices that we've seen. As the Times also notes, the Fed would have realized much larger profits had the government not overpaid for its warrants.

From that perspective, the Fed should be comparing its return not to what it would have earned on Treasuries, but to what it would have earned on an arm's length deal. And some analysts say such a deal would have provided the government with warrants priced at 20 times what it received, if not more.

Sure, as some of the academics quoted by the Times points out, the program wasn't designed to maximize profit but to help the banks recover.

Yet banks' stock prices are inflated by the fact that they no longer have to mark many of their assets to market, not to mention the now-explicit guarantee that investors have received that Uncle Sam won't let big banks fail no matter what.

And if taxpayers are going to heavily subsidize big banks, then the issue isn't so much what kind of return they can expect on their money, but rather what kind of financial system they will get in return. And so far, all they've gotten is one that may require even bigger subsidies.

Yes, the Fed may have averted a depression with its bank bailouts. But without meaningful reform, the alternative is a re-inflated credit bubble. And that's a pretty lousy return for taxpayers no matter how you slice it.