Advanced Search
MyIDEAS: Login to save this article or follow this journal

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

Contents:

Author Info

  • Linus Wilson
Registered author(s):

    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.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://econjwatch.org/file_download/478/WilsonJanuary2011.pdf
    Download Restriction: no

    File URL: http://econjwatch.org/703
    Download Restriction: no

    Bibliographic Info

    Article provided by Econ Journal Watch in its journal Econ Journal Watch.

    Volume (Year): 8 (2011)
    Issue (Month): 1 (January)
    Pages: 33-38

    as in new window
    Handle: RePEc:ejw:journl:v:8:y:2011:i:1:p:33-38

    Contact details of provider:
    Postal: MSN 3G4, Fairfax, VA 22030
    Phone: (703) 993-1151
    Fax: 703.993.1133
    Web page: http://econjwatch.org/
    More information through EDIRC

    Related research

    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;

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Che, Yeon-Koo & Gale, Ian, 1998. "Standard Auctions with Financially Constrained Bidders," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 65(1), pages 1-21, January.
    2. Zheng Charles Zhoucheng, 2009. "The Default-Prone U.S. Toxic Asset Auction Plan," The B.E. Journal of Economic Analysis & Policy, De Gruyter, De Gruyter, vol. 9(1), pages 1-11, May.
    3. Zheng, Charles Z., 2001. "High Bids and Broke Winners," Journal of Economic Theory, Elsevier, Elsevier, vol. 100(1), pages 129-171, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Wilson, Linus, 2011. "A binomial model of Geithner's toxic asset plan," Journal of Economics and Business, Elsevier, Elsevier, vol. 63(5), pages 349-371, September.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:ejw:journl:v:8:y:2011:i:1:p:33-38. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jason Briggeman) The email address of this maintainer does not seem to be valid anymore. Please ask Jason Briggeman to update the entry or send us the correct address.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.