It was a surreal moment two weeks ago when analysts on Goldman Sachs’ earnings conference call pressed CFO David Viniar to jack up leverage. They seem to think that the worst of the credit crisis is behind us, so Goldman should goose its risk profile to increase returns. This is remarkably short-sighted.

Yes, leverage is down, but only relative to the obscene levels reached a year ago. Measured by tangible common equity, the biggest banks are still levered over 20 to 1. If banks learn nothing else from the financial crisis, it’s that they should err on the side of prudence, carrying substantially more capital than appears necessary.

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Tangible common equity remains the crucial measure of bank capital because it’s the primary cushion to absorb losses. When that cushion gets low, creditors panic. Bank runs ensue and the financial system ceases to function.

A nickel of equity for every dollar of assets is a pathetically small capital cushion. And today, banks substitute federal guarantees for liquid capital. Policymakers are afraid to remove the guarantees because they don’t want to precipitate another collapse. The financial system can’t stand on its own until its capital cushion is rebuilt.

Now consider the analyst comments on Goldman’s call: Bank of America Merrill Lynch analyst Guy Moszkowski asked how the firm plans to deploy “what looks like pretty significant excess…capital;” Oppenheimer analyst Chris Kotowski pronounced himself “stunned” by the increase in Goldman’s TCE.

To be sure, Goldman’s 5.7 percent ratio of TCE to tangible assets at the end of the second quarter surpassed rivals’. And it was up significantly from 4.6 percent in the the previous quarter. But how far have banking standards fallen that 6 cents against a dollar of assets is considered an excessively prudent cushion?

And other banks are in worse shape. Citigroup exited last quarter with a puny TCE ratio of 2.3 percent, which implies leverage of 43 to 1. That’s an improvement over 1.7 percent in the previous quarter, but it’s still awful.

The majority of the big banks are hovering between 4 percent and 5 percent, which implies leverage between 20x-25x. For the complete list of the top nine banks, see the chart above.

Thanks for the recent improvement go to Treasury Secretary Tim Geithner, whose stress tests forced the big banks to raise capital. But they haven’t raised enough. As unemployment rises, charge-offs on credit card and other consumer loan portfolios will accelerate. As property values stay depressed, impairments on mortgages and home equity loans will increase substantially.These losses will eat through banks’ small capital cushions quickly.

And Calyon analyst Mike Mayo expects the worst is yet to come. In a recent note to clients he said peak loan losses during the current cycle will “approach if not exceed peak loan losses during the Great Depression.” To deal with that, banks need to de-leverage. They need to take risk off their balance sheets. Mayo estimates they’re “just one-third complete” with this process.

In the meantime, banks are using various accounting gimmicks to hide leverage. For instance, Citigroup and JP Morgan Chase have $165 billion and $145 billion of off-balance sheet assets, respectively, that will have to come back on their balance sheets next year. Taking account of them now would reduce their TCE ratios by 8 percent and 7 percent, respectively. Bank of America has $470 billion of off-balance sheet assets, though they haven’t disclosed what will end up on the balance sheet.

A counterargument is that using TCE as the test for capital is excessively prudent, that regulatory measures like “Tier 1” are sufficient. But Tier 1 includes capital like preferred stock as equivalent to TCE. But it’s not because it isn’t in the first loss position of the capital structure. Banks that blew through this buffer last year saw their balance sheets disintegrate in a matter of hours.

FBR Capital Markets analyst Paul Miller argues that Tier 1 capital has been “polluted” by preferred stock offerings. At the end of the first quarter this year, TCE made up “just 53 percent of Tier 1 capital for the top 11 banks, down from an average of 91 percent” between 1991 and 2006. Afraid of diluting common shareholders, they sold preferred stock instead. In the end they gamed regulatory capital standards, substituting inferior capital for TCE.

The comments on Goldman’s call show that the pre-crisis mindsets have not changed. Less than a year from one of the greatest financial meltdowns in history, many analysts seem to think 17x leverage is “excessively” prudent. That is mind-boggling.