Sense on Cents

Does the American public appreciate the essence of Wall Street? Is it as cutthroat and greedy as many would attest?

As with anything, I do not think it is fair or productive to generalize. There are plenty of world class people on Wall Street and the world is a better place for them. There are also plenty of people for whom I have no personal or professional regard. That’s life. Who couldn’t say the same about every industry.

While individual firms and certain executives would want the American public to focus on single situations, for our purposes currently let’s focus on the financial industry as a whole.

In so doing, it becomes very apparent that Wall Street is now showing it runs “one way.” How so?

The Wall Street Journal highlights how the financial industry is haggling over the valuation of warrants purchased by the U.S. Treasury as part of the TARP (Troubled Asset Recovery Program). The WSJ reports, J.P. Morgan to Send Warrants to Market.

I believe the WSJ ‘s choice of title for this article is amazingly weak. The simple fact is that Wall Street firms are complaining loud and clear about the price they may have to pay to repurchase warrants currently owned by the U.S. Treasury (that’s you and me, folks).

The WSJ writes:

Several Wall Street firms seeking to buy back warrants held by the government as part of the $700 billion financial bailout are complaining that the Treasury Department is demanding too high a price, according to people familiar with the matter.

The Treasury has rejected the vast majority of valuation proposals from banks, saying the firms are undervaluing what the warrants are worth, these people said. That has prompted complaints from some top executives. J.P. Morgan Chase and Co.  Chief Executive James Dimon raised the issue directly with Treasury Secretary Timothy Geithner, disagreeing with some of the valuation methods that the government was using to value the warrants.

The inability to agree on a price has already prompted J.P. Morgan to take the next step in a complex process to remove the warrants from the hands of the government. The bank has waived its right to buy the warrants and will allow the Treasury to auction them in the public market, which bank executives say will result in an actual market price.

How gracious of Mr. Dimon! Who would be bidding on these warrants? Other Wall Street banks. Do you think there is a chance for more than a little bit of collusion in the bidding process to keep the warrant valuations excessively low? Of course. Who loses? The American taxpayer . . . again. (more…)