Very special case in bond auction ... Lack of market force => use private negotiation => go against the academic literature
=> So, when there are no market forces, we must rethink our golden rules ... ?
Georgia had planned to sell its recent debt by auction last year, “but the market wouldn’t cooperate,” said Lee McElhannon, director of bond finance at the state Financing and Investment Commission. Mutual funds and hedge funds stopped buying municipal bonds after the onset of the credit crunch, leaving only individual investors, he said.
“We’re back to a much more limited investment base in the municipal market, and we needed a mechanism to reach out to that base,” he said.
“The benefits of transparency and the reassurance of fair pricing are lost when governments use negotiated sales,” said Robbins, one of the authors of the recent study. “In the long run, you have to hope that competitive sales return.”