Bank bonuses - a diversion maybe?

Why would the banks be giving out such huge bonuses to their executives?  Here are some possible reasons:

1.  They really think that these geniuses that got the banks into such trouble are needed to make money for the banks in these troubled times.
2.  They think that the banks will not be around in a few years so they are getting the money out now while they still can.
3.  The real story is far more odious than the fact that the banks are giving out billions in bonuses. 

If I had to guess, I would guess them in this order:  3,2,1.  For the first reason, if an executive drove my business into the ground the way these Wall Street executives did, I would get them out as quickly as I could.  The real puzzle is why the board of directors allows these geniuses to stay around. 

For the second reason, I would not be surprized.  That much in bonuses is not given out to businesses that think that they are hanging on by a thread.  And these banks are indeed hanging on by a thread.  There is a huge bow wave of foreclosures, both commercial and residential that is coming up through this year, 2010 and going on throughout 2011.  This bow wave dwarfs the foreclosures that almost sunk the banks and pushed congress to pass the bailout. I do not know if the top four banks will survive. 

The third reason is far more believable.  All you have to do is ask the question:  In this time of economic downturn, where did the banks get the money?  Where did they get the money to pay back the TARP?  Where did they get the money to pay the bonuses?  Where did they get the money to show such a huge profit.  Where did they get the money to accumulate such huge cash reserves?   This leads to the next question:  Are the executives being paid to keep quiet?

I do not have any proof for any of this except that the money involved is magical.  There is no visible source for it and yet there it is.  Based on the numbers, I would guess that the money is being lent to the big banks by the fed at 0.5-0.75%.  (The fed is printing this money on a hard drive.)  This money is being lent to the treasury at 3-4%.  This gives the top banks >10 billion each year in profit over and above what they made before.  More money is being lent to the banks so that they have cash on the balance sheet to handle this bow wave that is coming.  I just do not know if it will be enough.  Then again, the fed can always print more for them.