And after seeing what happened to executives at AIG and other TARP recipients, no one needs to ask why — except apparently for the Washington Post.  Thanks to rapid infusions of cash, banks can now take their time unloading mortgage-backed securities and their derivatives, known colloquially as “toxic assets”, without a government partnership.  The Obama administration doesn’t sound happy about it:

The rush of capital into the banking industry over the past month is allowing firms to postpone the painful process of selling devalued mortgages and other troubled assets, a step many financial experts still consider necessary to fully revive lending.

The Federal Deposit Insurance Corp. said Wednesday that it would suspend indefinitely the launch of a program to finance investor purchases of banks’ troubled loans because few companies were interested in selling. A related Treasury Department program to finance purchases of mortgage-related securities remains on the drawing board months after both were announced with fanfare.

The FDIC decision marked a victory for the banking industry, which has argued that such a program would transfer profit from banks to investors at public expense. It also showed the limits of the government’s ability to impose its will on the banks. Regulators generally cannot compel firms to sell assets, and the inflow of private capital has undermined the argument that the banks must take urgent steps to get healthy.

But FDIC Chairman Sheila C. Bair said yesterday that the best course for banks, and for the broader economy, remained a combination of raising new capital and shedding old problems. She said that the FDIC would continue to prepare to help banks sell assets.

Banks learned a lesson from the TARP cramdown, which is that letting government “help” you means that government runs you.  Every business transaction, even contractual obligations, becomes political fodder for pandering populists.  AIG’s bonuses, disclosed as normal in their annual report last November, started a wave of faux outrage in the Beltway, which wound up backfiring in the end when it became obvious that the biggest shriekers knew full well about the bonuses, and that Chris Dodd in particular lied about his involvement in protecting them.

Not that the banks had much choice on the TARP funds anyway, as Judicial Watch has already reported.  Hank Paulson threatened them with regulatory action if the banks didn’t willingly take government money and along with it further government control.  However, as the Post explains, the government doesn’t have the regulatory power to compel them into the public/private partnership on toxic assets (at least not directly), and therefore they have chosen not to willingly yoke themselves yet again to Treasury and the Obama administration.  In fact, many of them are trying to find ways to give back the TARP funds to end the forced partnerships they already endure.

As the housing market stabilizes, the values of the MBSs and derivatives should become more clear, and the banks can sell them privately at a more leisurely pace.  They don’t trust the Obama administration to set a market where they get fair value and suspect (as with the GM and Chrysler bankruptcies) that the White House will tilt the transactions for political favors rather than rational value.  They’re probably right; thus far, Obama seems a lot less concerned about contract law than he does in pandering to unions.

This split is the natural result of the Obama administration’s contempt for contract law and private transactions.  Expect the financial industry to take a much more adversarial position with the Obama administration, especially as they shed their TARP leashes.