CRA Insights

An Auction Primer In The Context Of The Credit Crisis

October 1, 2008

The troubled asset relief program (TARP) to help resolve the credit crisis will have major ramifications in the US and world economies for years to come.  A key component of the TARP’s plan to inject liquidity into the marketplace involves using reverse auctions to purchase troubled assets from current holders and selling them once the market recovers.
Much is at stake. The US government has broad power and discretion under the TARP.  These auctions will influence asset valuations across the board and will set a precedent for how the rescue plan is carried out. If the auctions are not designed and conducted properly, they could cause more harm than good.
Furthermore, if auction participants are not well-versed in these types of auctions, significant opportunities will be lost. In this paper, CRA discusses reverse auctions in the context of the credit crisis, including what auction participants need to be aware of and how CRA can help them prepare.

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