How the Bailout Auction Should Work
How much should the Treasury pay for distressed assets that nobody else wants?
You might reasonably say that the fair price for an asset nobody wants is zero. But bailout proponents tell us that these assets are plenty valuable; it's just that nobody's stepping up to buy them because it's hard to borrow right now. So how do you set a fair price for an asset that nobody else is bidding on?
Rochester economist Steven E. Landsburg explains how a fair price could be established for distressed assets that nobody wants, using a unique auction strategy.