Strange Securities Auctions
October 12, 2008
by William P. Meyers

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I have written in the past, mostly at Dissecting The Bull, about the problem with pretending markets are efficient pricers of goods when prices are set by auctions. The recent financial meltdown has given many real world examples of this, but they are difficult to explain to people who are not familiar with stock and bond pricing, much less derivative pricing. So I have made up an imaginary example that encapsulates, in a dramatic way, a particular type of auction malfunction (if by malfunction we mean pricing that