Journaltalk - Troubling Research on Troubled Assets: Charles Zheng on the U.S. Toxic Asset Auction Plan

Troubling Research on Troubled Assets: Charles Zheng on the U.S. Toxic Asset Auction Plan

About this article

Abstract

Charles Zheng (2009) purports to model the U.S. toxic asset auction plan. In the model, “moderately poor bidders outbid rich bidders in such auctions,” because poor bidders have less to lose by defaulting on taxpayer loans. Thus, says Zheng: “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.” The chief trouble with the paper is that the assumptions do not fit reality. In reality, the government-provided loans used to buy toxic assets are nonrecourse, allowing the borrower to walk away from the loan with no penalties besides ceding the asset that the loan purchased. Thus, there is nothing to make rich bidders less ready to win the auction. Zheng’s conclusions that less well endowed borrowers will win toxic asset auctions are erroneous. Further Zheng’s use of auctions to model these plans is largely inappropriate since only one of the three government toxic asset plans has government backed investors bid for the same toxic asset in an auction format.

Author
  • Linus Wilson
Keywords auctions, bailout, banking, CMBS, CDOs, EESA, Emergency Economic Stabilization Act, lending, Legacy Loans Program, Legacy Securities Program, mortgages, nonrecourse loans, Public-Private Investment Partnership, PPIP, TALF, Term Asset Lending Facility, Troubled Asset
Volume Number 8
Issue Number 1
Pages 33-38
File URL Troubling Research on Troubled Assets: Charles Zheng on the U.S. Toxic Asset Auction Plan
File Format PDF
Access no registration, free access
Publication year 2011

Flag this article

Flag this article for moderation.


Close this.

About Econ Journal Watch

Publisher INST SPONTANEOUS ORDER ECONOMICS
Grouping social sciences
Categories economic, economics

Flag this journal

Flag this journal for moderation.


Close this.

Discuss this

Be the first to review this item.

Log in to Journaltalk to discuss this article!

Don’t have a Journaltools account? Sign up now.

Required

Log in to Your Account

Member login

feed Jt Article Discussions

01 Oct

What 21st-Century Works Will Merit a Close Reading in 2050?: First Tranche of Responses
The Errors of Historicism in German Economics
Liberalism in Brazil
Republicans Need Not Apply: An Investigation of the American Economic Association Using Voter Registration and Political Contributions
Professional Scholarship from 1893 to 2020 on Adam Smith’s Views on School Funding: A Heterodox Examination
Gender, Race and Ethnicity, and Inequality Research in the <em>American Economic Review</em> and the American Economic Association’s Conference Papers
Journaltalk: Opening the journals to civil voices everywhere!

All contents © 2020 by Daniel Klein unless otherwise attributed. All rights reserved.