Banks Renege on Bailout Agreement

Today’s lead story in The New York Times is titled, “Showdown Seen Between Banks and Regulators.” It describes the increasing tension between banks and regulators regarding the terms bank had agreed upon when they accepted bailout money from the government.

The story looks at three areas of tension. One, banks who want to pay back the loaned money are refusing to include the premium required when they accepted it.

Two, banks are refusing to clear “toxic assets,” e.g., mortgage derivatives, off their books because it will solidify their loss. They want to value these toxic assets at 91 cents on the dollar when no investor is willing to pay anywhere near that amount, even with support from the U.S. government.

And three, banks are resisting “stress tests” because they fear that failure will cause the government to insist on management changes or merger with stronger institutions.

This is just the kind of publicity that banks don’t need. Already vilified by the American people, they are now compounding (no pun intended) their difficulties by refusing to comply with agreements they made when they accepted taxpayer funds. And a refusal to admit real losses on mortgage-backed securities shows their selfishness at a time when sacrifice has been demanded by everyone else due to the poor economy.

Banks may know a lot about money, but they need to learn a lot more about honesty and public relations.