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.

Today’s lead article in The New York Times is titled, “U.S. Expands Plan to Buy Banks’ Troubled Assets.” It describes the new plan unveiled yesterday to buy up mortgage securities and bad loans held by banks.

Upon announcement of the plan, the stock market rallied almost 500 points.  The plan consists of a three-part “Public-Private Investment Program” to encourage investors to purchase the toxic assets currently weighing down bank balance sheets.

The article, in my opinion, gets a little confusing, but there is a chart in the continuation describing the new proposal.

1. Buying risky home loans: The F.D.I.C. auctions the loans to private investors. After the highest possible purchase price is agreed upon (someone wins the auction), the F.D.I.C. provides financing for up to 85 percent. The Treasury covers half of the remainer.

2. Buying risky mortgage-backed securities: Asset managers are chosen by the Treasury to apply for the securities. The manager raises a certain amount of money to buy the securities. The Treasury matches the private fundraising and then offers loans for the full amount. The entire total is used for the purchase price.

Reading between the lines of the story, this seems like a very good program for investors but not so great for the banks. While no bank has refused to participate yet, this will be a key area to watch in the days ahead.

Today’s lead article in The New York Times was titled, “U.S. Rounding Up Investors to Buy Bad Bank Assets.” It describes the attempt by the Obama administration to find private organizations willing to partner with the federal government to purchase many of the toxic assets weighing down bank balance sheets.

The central problem, as I understand it, is the difficulty in placing a value on these so-called “toxic assets” because no one knows how many bad loans they contain. The difference between the value that banks, who are holding the assets, place on them and the value that private investors are willing to pay for them has been significant, and this plan attempts to address that.

The government will pay about 95 percent of the value of the assets and private investors 5 percent, so, the idea goes, private investors would be willing to take a risk for significant returns, even if the face value represents a lot more than they would be willing to spend, if they had to pay the whole thing.

The reason the Obama administration has to round up investors is because the investors are afraid they will be forced to modify their executive compensation arrangements if they enter into a partnership with the federal government.

So, the Obama administration is faced with a conflict between two recent plans, the plan to limit executive compensation as demanded by Main Street, and the plan to avoid it, as demanded by Wall Street. We’ll see which priority wins in the end…

It should be noted that many hedge funds have contributed heavily to Congressional campaigns.