Citigroup (C) has been losing tens of billions of dollars over the past two years as the financial crisis has unfolded. If one considers the government capital that Citi has not paid back, the bank is clearly the weakest of the four largest legacy banking behemoths in the U.S. Earnings results this year demonstrate that its raw earnings power is no match for the likes of JPMorgan Chase (JPM) or Wells Fargo (WFC). Moreover, its capital base has been impaired, causing the bank to have to sell assets, reducing its earnings power further still.

Unless something miraculous happens over the next few years, Citigroup is not going back to the glory days of $20 billion yearly net income. That’s why its mountainous $38 billion deferred tax asset is a problem.

When the U.S. financial sector experienced an unprecedented meltdown and set off a global recession, many investor wondered just how far financial stocks would slide. After struggling to find a bottom for nearly two years, many financials ETFs have found their footing since hitting market lows in March, posting solid gains for the year.

But there are a few glaring exceptions.

On Thursday and Friday, the leaders of 19 of the most powerful nations, as well as the leader of the European Union, will meet in the Steel City to discuss a variety of topics ranging from economic integration to energy policy. Pittsburgh was chosen to highlight the dramatic shift in fortunes following the city’s struggles in the 70s and 80s and its transition to a more diversified economy. Pittsburgh has escaped the fate of the rest of the “Rust Belt” and even had an unemployment rate less than the national average during the earlier part of the year. Many people, including members of the White House, feel that Pittsburgh can attribute this recovery in part to its focus on technology and green jobs, focal points of the Obama administration. Many of the events at the conference will be held at environmentally-friendly sites, such as a LEED certified convention center and a conservatory. These backdrops should give the President a forum to address climate change and energy policies, as well as concerns about uneven world growth.

In addition to these issues, look for finance reform to be a point of discussion (and disagreement), as well as overtures from emerging countries that are looking to gain clout on the world stage. For these reasons (and many more), this summit looks to be one of the most important in recent memory; investors around the world will focus in on Pittsburgh to see if the great powers of the world will unite on key issues or emerge from the summit divided.

One year ago yesterday, Lehman Brothers collapsed and sent the entire financial system and its related ETFs on a downward spiral. Today, the picture looks much different. Are financial ETFs ripe for the picking?

Since the market lows on March 9, financials have rebounded handsomely, up as much as 140% since then. Most of them are perched firmly above their 200-day moving averages, as well.

In the summer of 1992, Eugene Fama and Kenneth French published “The Cross-Section of Expected Stock Returns” in the Journal of Finance, a groundbreaking analysis that prompted financial presses to run headlines declaring “beta is dead.” While the death sentence may have been a bit severe, it struck a significant blow to a widely-accepted and longstanding financial concept, causing academics and investors to reconsider tenets they once took for granted.

In recent decades, a collection of academic studies, disillusioned investors, and financial innovations have contributed to a similar prognosis for beta’s Greek neighbor, alpha. The idea that was hatched by Brinson and Hood and supported by the likes of Ibbotson and Kaplan and Barras and Scaillet was fueled by years of investor frustration. Following the introduction and rapid rise in the popularity of indexing and ETFs, it seemed that what started out as a scholarly whisper had grown into a deafening roar. The proclamation didn’t come from a single voice or article, but was the collective result of years of research and investor sentiment that has seemingly led to a fatal promulgation: alpha is dead.

Over the past year, the financial sector has been a favorite target of criticisms, frequently accused of outrageous greed that sparked the mortgage meltdown in the U.S., eventually spreading to nearly all corners of the global economy.

Moreover, the volatility of financial companies has skyrocketed, perhaps best evidenced by the fact that Direxion’s 3x leveraged Daily Bull (FAS) and Bear (FAZ) Financial Funds (which are vulnerable to big losses in oscillating markets) are down more than 60% and 80%, respectively, since the start of year. These big swings and substantial losses have caused many investors to stay away from the financial sector altogether.

Here are the ten ETFs and ETNs with the largest increase in value traded (VT) for the week ending May 15, 2009. The ranking is based on a simple comparison of the five-day average value traded (closing price times volume) versus the 50-day average.

Topping the list this week is SPDR DJ Euro STOXX 50 (FEZ) with a 353% increase in value traded on a -6.3% drop in price. A quick scan of the table reveals that “distribution” was the name of the game this week, as eight of the listed products underwent price declines. Rydex S&P Smallcap 600 Pure Value (RZV), a recent market leader, suffered a -13% haircut.

Here are the ten ETFs with the largest increase in value traded (VT) for the week ending May 01, 2009. The ranking is based on a simple comparison of the five-day average value traded (closing price times volume) versus the 50-day average.

Swine flu related ETFs had a significant increase in trading this week, but not enough to crack the top 10. iShares MSCI Mexico (EWW) is #32 in our rankings with a 58% increase in VT. One newsworthy ETF, iShares MSCI Taiwan (EWT), made the list with a +12.4% gain for the week and a 104% surge in value traded.

Henry Blodget is doing a fantastic job with his interviews on Yahoo! Tech Ticker. What a relief to have a financially literate journo producing video content for wide consumption. You certainly can’t say that for any cable finance news anchors. Excepting, perhaps, Rick Santelli, there isn’t a single on-air personality at CNBC or Fox with a nuanced, in-depth understanding of the financial crisis.

But I digress. Blodget’s latest installment is an interesting conversation with Simon Johnson of Baseline Scenario. Johnson claims that credit investors are engaged in a speculative attack against U.S. banks:

Last September I opposed TARP, preferring to see the FDIC take over banks that couldn’t get funded in the market place: a short, sharp shock followed by a federal takeover of asset books. In December, though, I opposed bank nationalization after the fact. Why? Because the US government already had committed trillions of dollars to market support, including trillions on the Fed’s balance sheet. The Fed was all in. The credit of the US government was at risk, as I wrote Jan. 19:

Once you start nationalizing banks and admitting that your central bank might be swamped by the size of bad asset problems, bad things happen that you want to avoid. For example: 5-year credit protection on the United Kingdom traded today at LIBOR +125 basis points. That is where Brazil was trading in mid-August, just before things got out of hand. Here’s a better one: five-year credit protection on The United States of America traded today at LIBOR +69 basis points. That is wider than Brazil was trading in May 2007, before the crisis began. The credit quality of the US is now where Brazil — Brazil! — traded prior to the crisis. Given that the Fed is all in, with $1.4 trillion of dubious junk on its balance sheet, this should surprise no-one.

In October 1929, the Goldman Sachs Trading Corporation was on its last legs, having suffered from the investment trusts’ holdings in other similar NYSE trusts and from using whatever cash it had left to buy huge blocks of its own shares in a hopeless attempt to support the daily quote. What J.K. Galbraith later called “a form of fiscal self-immolation.” Goldman, Sachs & Co. went on to survive the 1929 crash, but the namesake trading corp. would not.

The lessons of 1929 are multifaceted, and I, without a doubt, haven’t found a unique angle to that moment in history. What I do know is that some amount of transparency and oversight may well have prevented the 1929 stock market crash, and that a small dose of oversight would have certainly prevented the bankruptcy of Lehman Brothers in 2008. Perhaps avoiding some of the economic pain that the world is experiencing today.

It has been nearly a week since the FOMC announced they would buy US treasury long bonds in the open market on Wednesday March 18th, a stunning development that some had predicted, and many others predicted would never happen.

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The writing is on the wall. Last week American Express was offering $300 for people to pay off their credit card balance. Don’t you think other credit card companies will follow suit? When and if credit card companies start contracting credit lines, it is obvious consumer spending will fall even further thereby hurting the U.S. economy. The next domino is ready to fall.

High-profile Republican Senators John McCain and Richard Shelby said on Sunday that the government should allow a number of the biggest American banks to fail rather, than commit more federal funds to prop them up.

Sen. Richard Shelby, R-Ala., ranking member on the Banking Committee, said the U.S. should not mimic Japan, which in the 1990s propped up failing banks and prolonged its economic downturn.

By Dirk van Dijk

Highlights include Fannie Mae (FNM), Freddie Mac (FRE), General Motors Corp. (GM), Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM).