When I read Sen. Chuck Grassley's (R-Iowa) admonition to AIG (NYSE:AIG) executives, suggesting that they should either own up to their mistakes or commit suicide, I couldn't help picturing the senator as a pirate. "Fess up or die!" cries Cap'n Chuck, brandishing his cutlass at plank-walking captives, as he waits for the truth to come spilling out.

Sure, Grassley has a flair for the dramatic, and I completely disagree with his recent call for protectionist tactics. However, beneath his most recent application of tar and feathers, I do believe I can find a very important kernel of truth.

Taking responsibility
AIG may be the most egregious example of stupidity and failure recently, but there are plenty of banks and financial institutions that could line up for a keelhauling from Cap'n Chuck: Citigroup (NYSE:C), Bank of America (NYSE:BAC), Fannie Mae (NYSE:FNM), Freddie Mac (NYSE:FRE), and Lehman Brothers, to name just a few.

We've been embroiled in this financial meltdown for some time now, and with the conversion of Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) to bank holding companies, we've witnessed the demise of stand-alone investment banking. But we're still waiting on high-profile admissions of mistakes by financial institution executives. Instead, they're all trying to brush it all under the rug and move on as quickly as possible. "Don't worry about what happened -- we're profitable now!"

Don't fall for this sleight of hand. Admitting to mistakes and taking responsibility for what happened is still important.

Why can't we just move on?
If I thought we could just power our way through this with gritted teeth and clenched fists, I'd be all for that approach. Unfortunately, that strategy will likely only prolong our problems. To explain why, I'll take off my eyepatch and peg leg, and modify a metaphor that Fed chief Ben Bernanke seems to favor.

Let's say your neighbor has a habit of smoking in bed -- and worse, of occasionally falling asleep while still smoking. One night, while lying in bed with your window open, you get a strong whiff of smoke. Knowing about your neighbor's irresponsible habit, you call over to his house to ask whether he's accidentally started a fire.

"Set my house on fire? No way!" your embarrassed neighbor replies, as he flees his flaming bedroom. Soon, thick smoke starts wafting in your window, so you call again. Again the neighbor denies it, not wanting to give away his mistake, and hoping that the fire might go away on its own. In relatively short order, your neighbor's house is a bonfire, and the flames have spread to your house, too.

Right now, we have a bunch of financial executives behaving like that crazy neighbor. Instead of owning up to mistakes and taking necessary measures to contain the blaze, they’re more concerned with saving face and covering their tracks. As a result, their institutions are continuing to smolder.

Unlike Congress, I'm not interested in a mea culpa for the sake of appeasing an angry constituency. I simply expect that an admission of responsibility from these executives would make it easier for them to take an honest look at the assets still on their books, and thus take appropriate actions to squelch the fire. No need for suicide, no need for walking the plank -- just a bit of honesty, so that we can fix this problem properly.

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Fool contributor Matt Koppenheffer owns shares of Bank of America, but does not own shares of any of the other companies mentioned. The Fool’s disclosure policy has never once been caught with its pants down. Of course, it doesn't actually wear pants…