Not worth THAT much

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.

Driving a hard bargain is not nice when they're on the short side, apparently.

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 & 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.

Let the market determine value. Seems reasonable.

The disagreement between banks and the Treasury indicates that the banking sector, despite being pilloried for its role in the financial crisis, is becoming increasingly confident in its dealings with Washington. Some banks have begun pushing back against some government initiatives, a move fraught with political risk.

AIG bonuses furor? One can imagine how it'll look when a source close to the Secretary speaks on background to reporters about the hardball tactics banks are playing, refusing to cooperate fully with the Treasury.

It also is an indication of how tricky it is going to be for the government to extricate itself from its unprecedented investment in the financial sector. The U.S. has flooded the financial sector with hundreds of billions of dollars, most of which is expected to eventually be repaid and, possibly, create a profit for taxpayers.

Possibly? It had better.

Some banks argue they shouldn't have to pay much, saying the government's investment was essentially a short-term loan they accepted under duress to help stabilize the financial sector.

Under duress? Quite a stretch to interpret it that way. It isn't as if the banks could have gotten through without being bailed out.

Others argue that the government shouldn't be draining bank capital at such a fragile time. At least one bank has argued it shouldn't have to pay the government anything at all.

Nice. Nothing at all? One wonders who that genius is.

But the Treasury is under pressure to extract as much money as possible for the warrants and avoid seeming to favor Wall Street over taxpayers. Lawmakers and the bailout's independent overseers have warned the Treasury against settling for too low a price and robbing taxpayers of a richer return.

The banks are tone-deaf, politically deaf, if they can't see the word robbery.

Treasury officials are cognizant that their actions will be highly scrutinized, with likely congressional hearings and reports, and are taking a firm line.

Geithner could not possibly allow a high-profile embarrassment to happen, by approving a low price.

While banks could bid on their own warrants through a public auction, some are reluctant to go that route since it could drive up the price for the warrants and let them out of their control.

And that's the point: they want to get their warrants on the cheap, not a market price: they do not want to buy their warrants in a market, but at an arranged, low price.