Auction Rate Securities: Still Frozen After All This Time

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More than a month after the trouble started, much of the auction rate securities market remains frozen, leaving hundreds of millions of investor dollars locked-up in illiquid securities. No-one has come forward with a solution, and there is little hope that the market will unfreeze anytime soon. Brokers have offered to loan money to clients with frozen money but this has provoked outrage from customers who are being asked to pay a premium by the same brokerages that led them to invest in the frozen securities in the first place. And most brokerages are refusing to do what many customers demand: buy-out the customer positions.
Joe Mysak at Bloomberg reports that the problem stretches much deeper into the investor world than many suspected.

I'm still getting e-mail on this situation. Closed-end- fund, preferred-share holders, at least the ones I've heard from, are livid at the fund companies and feel betrayed by their brokers. I find it very odd that the fund companies and the brokerage houses feel that they can alienate this crowd.
Who buys auction-rate securities? It's not just ``the rich.'' I've heard from self-employed people who thought it was a good, temporary place for their life savings, at least until they decided what else to invest in. I've heard from people who sold businesses and put the money there, and from people who inherited some money and did the same.
The amount of money ranges from $50,000 to several million dollars. In each case, the investors say they were advised by their brokers that their money was in a cash equivalent. The investors rarely looked at prospectuses.

He also notes that if the market for these securities ever does come back, we can expect a lot more regulation.

Auction-Market Investors Look to Regulator for Hope
[Bloomberg]

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