Lessons for the TARP Warrants from 1983 Chrysler Auction

Abstract:     
This paper discusses the rationales for why auctions are a better way to sell the TARP warrants than negotiations. Despite the fact that 1983 Chrysler warrant auction resulted in an implied volatility of less than zero, it generated higher prices for taxpayers than the current TARP warrant negotiations. The author estimates that the 1983 Chrysler warrant auction generated 91 percent of the theoretical value of the warrants. This is much more than the 66 percent of fair market value that the Congressional Oversight Panel estimates for the first eleven negotiated repurchases of the TARP warrants.

Keywords: auctions, bailout, banks, banking, Capital Purchase Program, Chrysler, EESA, Emergency Economic Stabilization Act, JP Morgan, options, TARP, Troubled Asset Relief Program, valuation, warrants

JEL Classifications: A44, G01, G13, G21, G28, G32, G38

Working Paper Series