On April 3rd, President Obama came out of a meeting with senior economic advisers and said, "what you're starting to see is glimmers of hope across the economy." Banks that are now in a better financial position are looking to pay back the bailout loans they received in order to avoid the restrictions that are attached to that money - increases in executive pay, for one, and hefty premiums banks agreed to pay when they first received the bailout funds.
The Obama administration's next step for fighting the recession is to complete stress tests of banking institutions - similar to the testing that took place with General Motors before the forced resignation of the chief executive. The balance sheets of the weaker banks will be examined over the next three weeks for "toxic assets", like mortgages that no one is willing to purchase at this time. Banks are resisting this process because they will have to show big losses when they relieve their financial statements of deteriorating mortgages and mortgage-backed securities. Analysts have estimated that US banks have more than $1 trillion in mortgages on the books - but only a small percentage have been labeled as likely losses. Goldman Sachs economists estimate that banks are valuing their mortgages at an average price of 91 cents on the dollar - but this is much higher than investors would be willing to pay for them at this time.
Despite the resistance, senior officials are pushing forward with the plans as they are expected to prove pivotal for the next phase of the bailout effort. The new $500 bill to $1 trillion plan will make use of public subsidies to encourage private investors to purchase mortgage assets and help provide some economic relief.
The Treasury has plans to subsidize purchase of these "toxic assets" of mortgages and mortgage-backed securities with low-cost loans to buyers to help cover the upfront expense - but there is a large percentage of analysts that warn that most banks will remain reluctant to sell the assets and this becomes one of the Obama administration's biggest challenges for pushing forward with this bailout plan.