Online Appendix for A Procurement Auction for Toxic Assets with Asymmetric Information

In early September of 2008, the adverse consequences of the subprime crisis spread and deepened at an alarming pace. On September 7, Fannie Mae and Freddie Mac, two cornerstones in the securitization of mortgages, were placed under conservatorship by their regulator (the Federal Housing Financial Agency). Half of the remaining U.S. investment banks ceased to exist on September 15, as Merrill Lynch was sold to Bank of America, while Lehman Brothers filed for bankruptcy protection. The Lehman Brothers bankruptcy, the largest in U.S. history, set off what had been described as a devastating tidal wave that immediately sliced through the entire financial system. Two days later, the Federal Reserve loaned $85 billion to AIG. In spite of a record injection of $180 billion in liquidity by central banks around the world, the situation became critical on September 18: interbank credit markets nearly collapsed, money market funds experienced an unprecedented run which was reported to exceed half a trillion dollars, while the commercial paper market was on verge of dislocation