The banks that received money under the Treasury’s Troubled Asset Relief Program also granted stock warrants so that taxpayers could capitalize on the risk of investing their money.

Bloomberg reports that the Treasury is well on its way to screwing taxpayers on the deal:

Banks negotiating to reclaim stock warrants they granted in return for Troubled Asset Relief Program money may shortchange taxpayers by almost $10 billion if Treasury Secretary Timothy Geithner’s first sale sets the pace, data compiled by Bloomberg show.

While 17 financial institutions have repaid TARP funds, only one has come to terms with the U.S. on the value of the rights to buy stock that taxpayers received for the risk of recapitalizing the industry. That was Old National Bancorp in Evansville, Indiana, which gave the Treasury Department $1.2 million for warrants that may have been worth $5.81 million, according to the data.

If Geithner makes the same deal for all companies in the rescue program, lenders may walk away with 80 percent of profits taxpayers might have claimed.

The key question: If Bloomberg’s data show that taxpayers should have collected $4.6 million more than they received for their Old National Bancorp warrants, then how exactly is the Treasury determining their value?

It’s no accident that the answer is contained in the article’s most obscure paragraph:

The department has a “robust process” evaluation process, using two modeling systems, consulting with an outside asset manager and collecting bids from market participants, [Treasury spokesperson Andrew] Williams said.

Wha’? I don’t think anyone understands what a “robust process evaluation process” is, other than that it’s supposed to be “robust.” (And isn’t “fair” or “market-based” preferable in this context?) We don’t know who the “outside asset manager” is. We also don’t know who the “market participants” are or how their “bids” are evaluated.

If Bloomberg valued Old National Bancorp’s warrants at $5.81 million (and others at $3 million or between $1.5 million and $6.9 million), then why didn’t the bids surpass ONB’s offer of $1.2 million? Do the “market participants” represent banking interests who wish to low-ball the price, so they get their own cheap deals? If, on the other hand, the bids from “market participants” did top ONB’s offer, then why wasn’t ONB forced to pay more? What is the point of collecting bids if they don’t move the price closer to market value?

The fact of the matter is we don’t have a clue about how the stock warrants are being appraised. Unless journalists ask more questions, rather than settling for the spin of Treasury spokesmen, we will never know.

POSTSCRIPT: To see Bob Jones, CEO of Old National Bancorp, discuss the “robust process evaluation process” and get caught fibbing about the bank’s original bid, click here.

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