A new twist in the story of Obama, Geithner and the U.S. banking system appears before us as Obama tours Europe. Bloomberg reports that Geithner may start kicking out executives at banks that need “exceptional” aid. Full story from Bloomberg here.

Treasury Secretary Timothy Geithner said he’s prepared to oust executives and directors at banks that require “exceptional” assistance from the U.S. government.

“If in the future, banks need exceptional assistance in order to get through this, then we will make sure that assistance comes,” while ensuring taxpayers are protected, Geithner said yesterday in an interview on the CBS “Face the Nation” program. “Where that requires a change in management and the board, then we will do that.”

Geithner noted that American International Group Inc., Fannie Mae and Freddie Mac had their chief executives removed after it became clear the companies couldn’t survive without government rescues. The Treasury is reviewing how much capital the biggest U.S. financial companies need in order to endure a severe economic downturn.

“Where we’ve had to do exceptional things,” the government has replaced management and boards, Geithner said.

So on one hand we have Obama’s crew threatening to firing bank executives that need more help and yet at the same time they are refusing banks that want to pay back TARP Funds? Can someone explain the math here? If I’m a bank CEO then is the message from Treasury “act wounded – but asking for help means your job”? 

How can a CEO and the board of directors of a bank explain to their shareholders why their stock positions are safe even though the bank hasn’t paid back the feds? And why establish a new moral hazard for  those bank CEOs in charge of banks that really need aid?

Something stinks in Denmark. And I have to wonder – who played the part of King Hamlet? Was it the U.S. banking system, free markets, capitalism or all of the above?

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