A BEJEAP Contributions article.

Abstract

Applying auction theory to the toxic-asset rescue plan currently released by the United States Treasury Department, this paper demonstrates an equilibrium where moderately poor bidders outbid rich bidders in such auctions. After defeating their rich rivals and acquiring the toxic assets, such bidders will default on government-provided loans whenever the toxic assets turn out to be unsalvageable. An alternative mechanism is discussed.

Submitted: April 3, 2009 · Accepted: April 21, 2009 · Published: May 6, 2009

Recommended Citation

Zheng, Charles Zhoucheng (2009) "The Default-Prone U.S. Toxic Asset Auction Plan," The B.E. Journal of Economic Analysis & Policy: Vol. 9 : Iss. 1 (Contributions), Article 21.
DOI: 10.2202/1935-1682.2272
Available at: http://www.bepress.com/bejeap/vol9/iss1/art21