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Strategies & Market Trends : Contrarian Investing

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From: pcyhuang	9/27/2008 11:14:42 PM
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Bernanke's Proposed "Reverse Auction" Plan For days I have been wondering how the "reverse auction" plan would work to help alleviate the pressure on the MBS market. I have found the following explanation: "Suppose that several banks own a particular type of mortgage-backed security. As I understand it, the Treasury would run a reverse auction to find which bank would sell the MBS at the lowest price. Competition among sellers should drive the price close to the actual value of the asset as judged by the banks." The discovered price should be higher than the current price indicated by many of the indices, manipulated by short selling. If the price discovered by the reverse auction process is higher than the current price, it would force the shorts to cover and thus stabilize the MBS market. Source: gregmankiw.blogspot.com Cheers,

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