Should We Solve Reverse Auctions?

First Accrued Interest tried to simplify credit default swaps, now Marco Pagano on Vox tries to simplify reverse auctions to help TARP. Here's what they are:

"In a reverse auction the buyer announces an amount he intends to buy and a maximum price. At this point sellers offer the quantities that they are willing to sell at that price. If the quantity for purchase exceeds the quantity the buyer intends to purchase (if supply exceeds demand), the price will be lowered and a new offer will be generated. This practice continues until supply equals demand."

"This is the simplest design. Another one has the buyer announcing the quantity he wishes to purchase and all potential sellers announcing the prices at which they are willing to tender their bonds. Once the process ends, the buyer purchases from those who announced the lowest prices.

These two designs are not equivalent in terms of final prices that can be obtained, but the choice of design is not particularly relevant in relation to the specific issues discussed in this article."

It's like a price cascade in the first type, while in the second it just looks like a lowest bid system.

Problems:

"Generally when the items on sale are homogenous and have clearly verifiable characteristics, these auctions generate an efficient outcome for the buyer. Unfortunately this is not the case with MBS, which are financial assets whose cash flow is tied to the repayment of the mortgages on which they are based."

"An easy way to eliminate the adverse selection problem is to buy all the securities of a specific category, or almost all of them. Unfortunately, in this case a reverse auction is not a good selling mechanism. As a matter of fact, the higher the demand, the higher the buying price will be. If there is demand for all the securities of a specific category, the selling price will be the opening one and will have to be high enough to induce sellers to get rid of all securities, even the most reliable ones. Therefore, the problem reappears again in a different form"

Okay.
1) Works when the things auctioned are the same, otherwise not.
2) So buy all the items that are alike out of the barrel. You'll overpay, because the sellers of these items want to get paid well for at least their good items among those type of items.

Solutions:

"In the presence of asymmetric information, it is very difficult to avoid inefficiencies. However, there are ways to alleviate the problems. To begin with, several different auctions are needed for different securities, instead of fewer auctions with rough specifications of the securities for sale."

"In an article on the Economists’ Voice, Larry Ausubel and Peter Cramton, two influential auction theorists, suggested specifying before the auction that securities bought from the Treasury will be resold in a certain amount of time and that selling banks will be fined if prices are lowered."

Okay.
1) Take all the same type items out of the barrel and auction them.
2) If buyers overpay, get some money from the sellers later.

Problems:
1) Items auctioned are still not quite the same. Not solved.
2) If the sellers go out of business, no one to collect from. Not solved.

It was worth a try if you're trying to save reverse auctions and TARP, but I'm not. As for credit default swaps, never in a million years would I go near those things.