Hammer time
The approval by the US Congress of a $700 billion rescue package in October has paved the way for the US Treasury to purchase illiquid assets from banks' balance sheets. The question is: how will these assets be valued? In this month's Class Notes article, Charles Smithson examines existing auction processes, and weighs up the advantages and disadvantages of each
The US Senate and House of Representatives approved legislation in early October giving the US Treasury secretary the authority to purchase troubled assets from banks' balance sheets. However, the only mention in the bill about the manner in which this would be accomplished was as follows1:
In making purchases under this Act, the secretary shall:
(1) make such purchases at the lowest price that
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