Wednesday, December 3, 2008

The Bailout: Reverse Auctions to Find Real Values

The big federal bailout of our financial institutions needs to be executed well, but I am losing hope that it will be done well.

Reverse Auctions and True Market Price
is a page with lots of information and quotes from knowledgeable people.

I know just about nothing about finance, but what seems clear to me is that there are lots of mortgages that are headed for foreclosure and have balances that are much higher than the value of the real estate on which they are based. All this toxic debt needs to be dealt with. A reverse auction seems like a reasonable way to right-size the value of all these assets.

It's like a car with four tires and one of them has a big hole, but all we are doing is pumping more air into the tire. If we don't address the gaping hole, adding more air won't help for long. Similarly, I see the auto industry's woes as another bad tire. The industry needs to fix itself and adding more money to it won't repair the structural problems they have. Some cash will help them make payroll for a while longer, but they need to fix their businesses. The auto industry big-wigs just don't get it.

I have heard the very convincing arguments for supporting the auto industry, so I understand that helping them now will ultimately save the federal government lots of money, but I hope they take this opportunity to change the way they do business.

Update: it seems that The Big Three might finally be getting it a bit.

1 comment:

Justin Fogarty said...

thanks for the link. glad the post helped you sort out the bailout mess (not that anyone fully grasps the problem or solution).