The Default-Prone U.S. Toxic Asset Auction Plan

Charles Zhoucheng Zheng

Staff General Research Papers from Iowa State University, Department of Economics

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.

Keywords: toxic assets; auction; default; rescue plan (search for similar items in EconPapers)
Date: 2009-03-30
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Published in B.E. Journal of Economic Analysis & Policy, April 2009, Vol. 9, No. 1 (Contributions), pp. Article 21.

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Persistent link: http://EconPapers.repec.org/RePEc:isu:genres:13056

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