The U.S. Treasury has apparently found another way to lose more taxpayer money. Perhaps $9 billion down the drain, unless changes are made soon.
Last year, when the Treasury doled out some $200 billion from the $700 billion Troubled Asset Relief Program (TARP), it also acquired warrants to purchase common stock in banks that received TARP assistance.
However, as the law was written, the Treasury must sell those same warrants back to the banks once they have paid back their original TARP loan.
What the law does not state is for how much.
One of the first banks to pay back their loan was Old National Bancorp of Evansville, Ind. After paying back the loan, Old National did what it was supposed to do: buy back its warrant.
Linus Wilson, assistant professor of finance for the University of Louisiana at Lafayette, estimates that the Treasury only recouped 20 cents on the dollar of their original investment in Old National Bancorp, calling it "the worst deal the Treasury has made."
If the Treasury were to only recoup 20 cents on TARP warrant purchases, taxpayers could be out as much as $9 billion, according to Linus.
Instead of being forced to sell them back to the banks, Wilson is advocating a free market solution where the treasury would place the warrants for sale to third party investors who would ultimately drive up the price, increasing the return for taxpayers.
Recently, the Government Accountability Office has criticized the Treasury for its limited transparency regarding the process of valuing and selling warrants.
Also the Congressional Oversight Panel and the Special Inspector General for the TARP have increased their oversight of warrant sales by the Treasury.
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