How to sell TARP warrants
What is Treasury meant to do with the warrants it acquired as part of the TARP program? Treasury’s proposal is essentially a complicated dance with the banks in question, which involves financial models and a slew of outside consultants and which may or may not end up in front of multiple independent appraisers.
Why the complexity? After all, there’s an incredibly simple way of selling these warrants: just sell them, at the market price, in the market. Says Simon Johnson:
The only sensible way to dispose of these options is for Treasury to set a floor price, and then hold an auction that permits anyone to buy any part – e.g., people could submit sealed bids and the highest price wins.
What’s the problem with the simple solution? Simply that the warrants might — horrors! — end up in the hands of players other than the banks themselves. So maybe the banks should be given the right to match the winning price, if they’re so inclined. If they’re not, then let the warrants start being traded in the open market. There’s no harm in that.