RebelCapitalist: Financial Information for the Rest of Us

We Should Demand an Open Auction!

Mar 01, 2009 | By: Mr_Blue | Comments | Permalink | Tags: bailout, geithner, open auction

As taxpayers, we should demand that Treasury Department either force or convince Citigroup to hold an open auction of some of its ‘toxic’ stuff on its balance sheet. After all we do own Citigroup. Gillian Tett proposed this solution this past week in the Financial Times (registration required). Senator Christopher Dodd (Chairman of the Senate Committee on Banking, Housing and Urban Affairs) and Congressman Barney Frank (Chairman of the Financial Services Committee) are in a position to make such a demand of Treasury.

Open auction is open to anyone who has the financial resources to purchase this toxic stuff. It doesn’t have to be all of the toxic stuff just a portion of the portfolio. Just enough to get a sense of what this toxic stuff is worth. Treasury Department should not offer any guarantees or other incentives to private investors because it could bias the results. A pure unadulterated open auction that will make any ‘free market fundamentalist’ proud.

We have to stop avoiding the issue of how much these toxic assets are worth. Treasury Department is hoping to attract private investors but until investors have a sense of value they are going to stay away from this mess. Gillian Tett said it best:

But in a world where investors already feel utterly terrified by the inability to determine values – and the recovery rate on triple A assets has tumbled to just 5 per cent – conducting an open fire sale might now be the least bad of some terrible options.

An open auction will start giving taxpayers and policymakers a sense of how much Secretary Geithner’s plan to recapitalize banks may cost us. Investors will get a sense of how much these toxic assets are worth and start restoring confidence and trust in the markets. Yes, it may expose the extent of the damage but everyone needs to know regardless of how painful it may be.

Please contact Senator Dodd and Congressman Frank and let them know you want an open auction of these toxic assets on Citi’s books.