Policy issues and finance issues collide once again with the government in the mix:
To extinguish the warrants, the banks can let the Treasury auction
them off to private investors or can choose to buy them back
themselves. As with other bank rescue efforts, like moves to buy banks’
problem assets, the central issue with the repurchases is determining a
“That is the problem in TARP asset purchases, and
it is the problem here,” said Vincent R. Reinhart, a former Federal
Reserve official who is now a resident scholar at the American Enterprise Institute.
“Do you value it at roughly comparable asset prices or do you
acknowledge that the current market prices reflect an unusual
uncertainty in markets and aversion to risk?”
For the government,
the decision is about more than dollars and cents. It may be willing to
sell the warrants simply to send a positive message about the stability
of the banks.