Some nice suggestions from Donald Marron to end the tyranny of the TARP, but we despair that they shall ever come to pass.
Treasury should give up on negotiated sales and simply auction the warrants it received through its TARP investments. Auctioning the warrants will:
* Enhance the transparency of the process (since no one can accuse Treasury of playing favorites in the auction);
* Ensure that taxpayers get a fair return on their investment (since the warrants will be sold at their real market value);
* Allow banks, if they choose, to preserve needed capital (if investors purchase the warrants, banks won't have to use up any of their scarce capital); and
* Free banks from the nuisance of government involvement (since banks get free of TARP even if private investors end up purchasing the warrants).
The reality is that the TARP has been far more useful to the Treasury and the Administration in general as a cudgel than as a stimulus and bank support program. Donald's first and last points are, in fact, bugs, not features to a Treasury that, for example, negotiates the results of stress tests with its regulatees. Of course, it would be interesting if The Big Guy financed minimum pricing limits on the warrants.
[Donald Marron via Alea]