Auction Rate Securities

"In this way, auction rate securities combine the higher interest r...

Suggestion by 63.115.34.34 on 2009-03-25 17:03:43

"In this way, auction rate securities combine the higher interest rates earned by long term loans" Not quite: Auction rates pay short term rates. "The market for these securities was made by four major investment banks - Citigroup, UBS, Morgan Stanley, and Merrill Lynch..." Though these firms were among the larger ARS dealers, there are about eight other firms, also. "Although these investments still earn interest (often at a higher rate because of the auction failures)..." Not always the case - most ARS rates are very low now. "In January, Deloitte & Touche began warning clients that Auction Rate Securities were being affected by the turmoil in the credit markets, and therefore they were not worth as much as their face value..." To my knowledge, this did not happen and gives D&T credit for a prescience it did not have. "Those left holding auction rate securities were unable to unload them." Including brokerage firms who had up to that point purchased about one-third of all ARS outstanding through their efforts to support the auctions. Mark Conner

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Hi Mark,

We'd love to work with you to fix some of these issues; however, since you weren't logged in when you made your edits, it's hard for us to contact you. Please message me on my user page -- Patrick -- or log in next time so we can work with you to fix the article.

Thanks.

Do we have any idea how much money is tied up in the auction rate securi...

Suggestion by 71.11.130.119 on 2008-07-22 05:35:00

Do we have any idea how much money is tied up in the auction rate securities? how much of that money is foreign-based? My other comment/question is this: since these are long term bonds, how do the issuers suffer with "substantially higher interest rates"? It seems that if there is no market for them, then the holders, in order to gain liquidity, would have to liquidate at a discount. I understand that they would have to pay higher rates for new instruments/bonds to attract buyers. How much, what percentage of the securities issues by municipalities, schools, hospitals, etc. are impacted by the closure of this auction? Have we seen an increase of bonds floated through the other more historic channels? Another comment/question: since Citigroup, et.al. underwrote the market, are they in any legal jeopardy for refusing to be the bidder last resort?

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so how do we know who else owns ARSs?

Suggestion by 72.149.186.94 on 2008-04-16 18:03:36

so how do we know who else owns ARSs?

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It might be interesting to look at the topic of auction rate securities ...

Suggestion by 64.175.46.18 on 2008-03-29 21:41:21

It might be interesting to look at the topic of auction rate securities from the issuer's standpoint as well. From my understanding, many of those who issue auction rate securities are municipalities, hospitals, and scholarships all of which offer the benefit of being tax-free. Another thing to add, perhaps, is an easy catch-phrase that captures the essence of auction rate securities "long-term debt, at short-term rates." Great article!!

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