Mark-to-market. It’s the idea of valuing something at what you could sell it for today, rather than creating a model of its expected cash flow and possible value in the future. In general, lately, you’ve heard banks trying to get away from it, and dismissing it as something that only the one ‘special’ intern kid in the accounting department with the big-button calculator would think was a good idea. Except for right now, when they want the warrants they wrote to the TARP – mostly currently underwater and thus worth $0 at present – to be expunged:

Yesterday the Wall Street Journal reported that the banking industry is aggressively lobbying the Treasury Department to “expunge” the warrants granted to the government when banks took TARP funds.  Just counting the warrants issued by Goldman Sachs and JP Morgan Chase, the two biggest banks that have said they would like to pay back the TARP immediately, the cost of this giveaway could be as high as $2.7 billion.

The warrants were issued when the government bought preferred stock in banks. They give the government the right to purchase common stock in the banks for the next ten years, and were an essential part of the promise to taxpayers that the TARP would be an investment rather than a straight out giveaway.

Most of those warrants are currently underwater because the actual stock prices of the banks are less than the exercise price. This means they would be worth nothing if they had to be exercised today. But because the warrants have a 10-year lifespan, with 9 and half years left to run, they have the potential to be worth far more.

Agreeing to something like this would be kind of like throwing away a lottery ticket before the drawing, or buying a Corvette to restore and then changing your mind and selling it for scrap, or something like that. Or like bending over and grabbing your ankles. I don’t know, your choice of analogy is probably as good as mine on this one.