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Auction Rate Securities: The Gift That Keeps On Giving

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As a concept, you have to love auction rate securities. The fee structure, however, has a small (but dedicated) fan base.

State and local governments will spend about $211 million this year for the failed sales, based on the 0.25 percent average annual fee charged on the $84.5 billion of outstanding securities, according to data compiled by Bloomberg. The bonds - - long-term debt with interest rates reset through auctions every 7, 28 or 35 days -- typically require issuers pay their bankers even if auctions fail.

We are struck by the realization that if you negotiate terms that include an implicit "yeah, like that's ever going to happen" somewhere in the fine print, you might find yourself on the wrong end of a Bloomberg article when "that actually happens" and end up getting "faired up." Brace yourself, ARS auctioneers.
Taxpayers Billed $211 Million in Auction-Rate Failure [Bloomberg]