By : Colin Barr | May, 19 2010Treasury said it will hold an auction tomorrow to sell the warrants it got in its October 2008 bailout of Wells Fargo (WFC). The sale could end up being the government's second-biggest haul yet as it liquidates leftover stakes in bailed-out banks. Warrants give the holder the right but not the obligation to buy a stock at a certain price by a set time. Banks receiving funds under the Troubled Asset Relief Program sold the government warrants to help defray the costs taxpayers incurred in propping up the financial system. Treasury will sell 110 million warrants to buy Wells shares by October 2018 at $34.01 each. That's more than $4 above the stock's price in trading Wednesday, which will hold down the amount Treasury can expect to receive for the warrants. Still, observers expect the government to get a price well in excess of its minimum bid of $6.50 a warrant. "We believe a significant haircut for illiquidity is appropriate, as long term these are unlikely to trade in significant volume," said Espen Robak of Pluris, a New York-based firm that values infrequently traded securities. "Overall, a range around $9-11 is our estimate." What's more, the sale will take place in the market, nearly sidestepping the questions over how Treasury has handled some privately negotiated sales. If Treasury manages to get a sale price above Robak's midpoint of $10, Wells would be the second-richest warrant auction, after Bank of America (BAC) and just ahead of Goldman Sachs (GS). A big check for the Wells TARP warrants would no doubt sit well in Washington, given that the San Francisco-based bank has shown no inclination to send a thank you card. Indeed, CEO John Stumpf told Fortune's Adam Lashinsky last month that Wells played its own very important role in stabilizing the economy, the government's trillion-dollar promises to the financial sector notwithstanding. " Clearly the government helped stabilize an unstable time," Stumpf said. "We think we helped that process." With Thursday's sale, that unhappy partnership will come to an end, not a moment too soon.