Lessons for the TARP Warrants from 1983 Chrysler Auction

The U.S. Treasury began auctioning its warrant holdings in December 2009. Nevertheless, this was not the first large auction of warrants. The U.S. Treasury auctioned its holdings of warrants from the bailout of Chrysler Motors in 1983. That warrant auction resulted in an implied volatility of less than zero, but it generated higher price than the management of Chrysler was willing to pay in negotiations. The similarities and differences between this auction and the more recent auction of the JP Morgan Chase warrants, which were issued as part of the Troubled Asset Relief Program (TARP), are discussed