The Times has an interesting story about what Treasury should do with the warrants it has on all the banks that accepted bailout money (warrants are basically an option to buy stock at a certain fixed price). The choices are either sell the warrants back to the banks or auction them off to a third party. (According to a Treasury spokesman, the government is required to sell the warrants once a bank pays it back, though there may be some wiggle room there.) The third-party auction would seem to be the fair solution--netting the government something close to a market price for its warrants rather than settling up with the banks for a steep discount, as has already happened in one case--and the story kind of intimates that that's the right approach. But I'm not entirely convinced.

The assumption in the story seems to be that "a goal of maximizing profits for taxpayers" is probably a good thing. But is that really true? Obviously the government doesn't want to get rooked in its dealing with banks. On the other hand, a lot of banks accepted bailout money and granted the government warrants last fall under less than voluntary circumstances. And the government urged it on them not because it was looking to make a killing, but because it wanted to stabilize the financial system. If it now believes the threat that made the bailout money necessary for many of these banks has passed, I don't see why it should insist on wringing every last penny out of them.

Don't get me wrong--if we're dealing with a Citigroup-type situation, in which we're pouring tens of billions of dollars into an institution that may have real problems paying it back (at least any time soon), I think taxpayers should get a share of the upside by way of an equity stake. That's just reasonable compensation for the risk we're taking. But for an institution that was reasonably healthy and pretty much always likely to pay the money back, and which took the bailout money not so much because it needed it but because the government thought it would help restore confidence in the entire system, I'm not sure profit-maximization should be our default stance.

--Noam Scheiber