The Nobel Prize and the "super-conduit"

There is more than a bit of irony in the announcement of the Nobel Prize in economics within a day or so of the announcement that major U.S. banks plan to set up a "super-conduit" fund to flush all the bad mortgage debt out of the system.

The Associated Press reports:

Americans Leonid Hurwicz, Eric S. Maskin and Roger B. Myerson won the Nobel prize in economics on Monday for developing a theory that helps explain situations in which markets work and others in which they don't.

The three researchers "laid the foundations of mechanism design theory," which plays a central role in contemporary economics and political science, the Royal Swedish Academy of Sciences said.
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Their theory lets economists, governments and businesses "distinguish situations in which markets work well from those in which they do not," the academy said in its citation.

Meanwhile, the Financial Times reports:

Citigroup, Bank of America and JPMorgan are on Monday expected to announce plans for a fund to buy mortgage-linked securities in an attempt to allay fears of a downward price-spiral that would hit the balance sheets of big banks.

A person familiar with the discussions said that US banks collectively were expected to put up credit guarantees worth about $75bn for the fund, named the Single-Master Liquidity Enhancement Conduit (SMLEC).
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The concept of an SMLEC first emerged three weeks ago when the US Treasury summoned leading bankers to discuss ways of reviving the mortgage-linked securities market and dealing with the threat posed by structured investment vehicles (SIVs) and conduits.

The Treasury acted as a neutral “third party” in the discussions, and Hank Paulson,Treasury secretary, was strongly in support of the initiative.

Maybe if the work of Hurwicz, Maskin and Myerson had been available a few years back, if the Federal Reserve gave a hoot about asset bubbles, and if regulators weren't asleep at the wheel, this whole credit, housing, and mortgage market mess could have been avoided.

Clearly, having some tool to help explain "situations in which markets work and others in which they don't" wouldn't have hurt.