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koganbotAgain, I'm hardly a person to have any idea what to do on this matter. I think this is a situation where "getting us out of this mess in a way that provides the greatest good to the greatest number" needs to trump "make the outcome fair," but people are questioning whether the plan will do either, or whether the people creating it know what they're doing, whether it really is a plan.
Markets Soar, but New Rules Upset Traders
Some traders said they were no longer betting on the intrinsic health of companies, but rather on what the government might do next. Others simply withdrew from the market.
Joe Nocera: Hoping a Hail Mary Pass Connects
as the day progressed it became increasingly clear that the Treasury Department didn't yet know how this mechanism was going to work. It is an idea of a plan more than an actual plan. In football, they would call it a Hail Mary pass. Sometimes, of course, a Hail Mary pass is completed for a touchdown. But most of the time they fail.
Paul Krugman: Uneasy feelings and No Deal
It seems all too likely that a "fair price" for mortgage-related assets will still leave much of the financial sector in trouble. And there's nothing at all in the draft that says what happens next; although I do notice that there's nothing in the plan requiring Treasury to pay a fair market price. So is the plan to pay premium prices to the most troubled institutions? Or is the hope that restoring liquidity will magically make the problem go away?
...
There's no quid pro quo here — nothing that gives taxpayers a stake in the upside, nothing that ensures that the money is used to stabilize the system rather than reward the undeserving.
Markets Soar, but New Rules Upset Traders
Some traders said they were no longer betting on the intrinsic health of companies, but rather on what the government might do next. Others simply withdrew from the market.
Joe Nocera: Hoping a Hail Mary Pass Connects
as the day progressed it became increasingly clear that the Treasury Department didn't yet know how this mechanism was going to work. It is an idea of a plan more than an actual plan. In football, they would call it a Hail Mary pass. Sometimes, of course, a Hail Mary pass is completed for a touchdown. But most of the time they fail.
Paul Krugman: Uneasy feelings and No Deal
It seems all too likely that a "fair price" for mortgage-related assets will still leave much of the financial sector in trouble. And there's nothing at all in the draft that says what happens next; although I do notice that there's nothing in the plan requiring Treasury to pay a fair market price. So is the plan to pay premium prices to the most troubled institutions? Or is the hope that restoring liquidity will magically make the problem go away?
...
There's no quid pro quo here — nothing that gives taxpayers a stake in the upside, nothing that ensures that the money is used to stabilize the system rather than reward the undeserving.
no subject
Date: 2008-09-21 12:44 am (UTC)Officials who have briefed Congress on Treasury Secretary Henry Paulson's plan have suggested that one approach would be for the government to buy the toxic debt through a reverse auction process in which companies wanting to unload their mortgage-backed securities would propose a price to the government - say 50 cents on the dollar - and those offering the lowest price would win the bid.
By establishing a price for assets no one currently wants to buy, it could allow a market to develop and allow financial firms to get on with the effort of taking their losses and getting the damaged assets off their books.
Me: I don't understand the statement "those offering the lowest price would win the bid." Are different companies to offer their mortgage-backed securities at the same time? But how is one security equivalent to another? Who is doing the valuing?
no subject
Date: 2008-09-21 10:01 am (UTC)A: i think it highly unlikely that all securities would be pre-considered equivalent
B: possibly "lot 1" is announced and a self-selection of "bidders" (ie those wanting to offload) step forward with a selection of their wares, priced as they would like the price to be
C: the lowest of these "wins" and is bought at that price
D: "lot 2" is then announced, and ditto at B, except now a value marker has been established by "the market", and everyone can adapt round it (so all the bidders in "lot 2", responding to the outcome of "lot 1", would up their desired prices -- lowest would still "win", but would be a great deal higher;
E: after the initial -- tentative and possibly wildly inaccurate -- stabs at evaluation, perhaps helping create markers for different classes of security on offer, the lots will start to come thick and fast, and the market will start to balance itself...
so the answers to your questions (in this case) would be:
i: no -- those wanting to offload are caught between two needs, viz to offload (hence they want to "win" a bid), and to get the best price (they want someone else to lowball them, so they can go higher next time)
ii: hence effectively a torrent of successive reverse-auctions would be being set up, not one single massive "all securities at one price" auction; bidders would be claiming equivalency (possibly very inaccurately) in any given auction, but there'd be a chance of reset between any two auctions -- in particular, there'd be the chance for the 'lowest price winner' to jump a bit higher at each successive auction
iii: initially value is established by "auction technique" among those choosing to bid, viz via guesswork, experience, cunning etc... but gradually as the mini-auctions played out, "the market" would be establishing the value
this is a very wild guess, interpreting the obscure phrase you highlight -- one drawback is that it doesn't seem like it would be a QUICK process but that may not be a problem given the principle of "govt buys all"