I'm been very curious about how a reverse auction for distressed securities might work. So far, no one has explained it to my satisfaction so here' my scenario:
Son of RTC: Good morning everyone. Today, we (the new Resolution Trust Corporation) are interested in buying 10 million dollars in face value of mortgages where the victim (oops, I meant homeowner) is behind on their payments but not yet in foreclosure. The 5 of you have indicated that you have this sort of security that you would like to sell the RTC. There is a reserve price. Who will make the first bid?
Banker A: Well, I'm willing to sell them to you at 90 cents on the dollar of face value.
Son of RTC: ---Group laughs---Sorry, but that exceeds the reserve price. Next bidder...
Banker B: Well what is the reserve price?
Son of RTC: I'm sorry that information is not available. However, our auditors have calculated that the actual value of these securities is considerably below Banker A's bid. Next bidder please.
Banker C: We would be willing to sell our bundle of securities at 65 cents on the dollar.
Banker D: We would be willing to accepts 60 cents on the dollar.
Banker E: My board of directories had put very high pressure on me to get rid of these sort of securities. I'm willing to sell them to you at say, 55 cents on the dollar.
Banker A: Oh yeah?, well we can sell ours at 50 cents on the dollar.
Son of RTC: Any more bids?
Banker B: I bid 49 cents on the dollar.
Banker C: I'll go to 45 cents but that's as low as I can go.
Son of RTC: Any more bids ladies and gentleman? ---big pause---
Very well we accept Banker C's bad of 4.5 million dollars, going, going, ---slams down a gavel--- GONE!
Would it behave like this, who knows?, but that's my version. Let's hear yours.