Troubled Asset Auctions

During these times of economic crisis, one of the solutions that is often put forward is for   governments to purchase mortgage-related assets, thereby removing the "toxic assets" from banks' balance sheets and restoring health to the financial sector. The main difficulty is in the details of determining whose assets would be purchased and how much would be paid. This forum will focus on one of the leading proposals: using open, transparent auctions to buy the assets. The principal speaker, Professor Lawrence Ausubel of the University of Maryland in the US, has written extensively on auction theory and game theory. He has also helped to bring state-of-the-art auction designs to practice -- including designing the virtual power plant auctions that are currently operated in Spain and France. He has recently written a proposal for a "troubled asset reverse auction," which he will describe; he has recently conducted some economic experiments relating to the design; and he has written a paper covering the adjustments required to the Geithner Plan in order to make it workable. Professor Xavier Vives of IESE will introduce the forum and will describe the problem of troubled assets facing the financial sector in Spain. The issues covered in the forum will include:

• The motivation for and policy objectives in purchasing mortgage-related assets from banks.

• The power of using auctions to generate market prices for troubled assets and for performing a transparent financial rescue. 

•  Description of the design features of auctions for troubled assets.

• Insights gained from economic experiments conducted at the University of Maryland.

• Recent applications of similar auction designs, including virtual power plant and gas release auctions operated across Europe by IBM from 2001.Other potential applications of similar auction designs, including carbon emission allowances, telecom spectrum, and airport slots.

18:00-20:00  Troubled Asset Auctions

Speaker:
Prof. Lawrence Ausubel, Professor of Economics, Department of Economics, University of Maryland
See presentation  (PDF, 682 Kb)  

Prof. Xavier Vives, Professor of Economics and Financial Management and Academic Director, Public-Private Sector Research Center, IESE Business School
See presentation  (PDF, 461 Kb)

The Public-Private Sector Research Center was created in October of 2001. Its mission is to foster cooperation between the private sector and public administrations, as well as the exchange of ideas and initiatives, through dialogue, research and education.