Market designers redefined competitive prices to justify politically managed bailouts

Evidence

Ausubel and Cramton responded by creatively interpreting “competitive market prices” to mean prices that were “reasonably close to value,” by which they meant basically the same thing as Bernanke’s “hold-to-maturity” prices. The plan purported to allow for the Treasury to manipulate its demand for securities, thereby manipulating the price paid, while preserving the ability to claim that the prices paid were still “market” prices, at least in some sense, an intention that has been subsequently acknowledged: A concern of many at the Treasury was that the reverse auctions would indicate prices for MBSs so low as to appear to make other companies appear to be insolvent if their balance sheets were revalued to the auction results. — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 852

Categorization

• XREF: Connects to the broader ‘thought collective’ theme — economists reframing terms to legitimize policy, echoing the rhetoric-as-masking pattern in Mirowski’s critique of markets. — connects to: Treasury prioritized political efficacy over economic efficiency in TARP design. — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 861