Auction Rate Securities Mess to End for Clients of Merrill, Citi and UBS

Merrill, UBS and Citibank have all now agreed to repurchase outstanding auction rate securities at par over the next several months.

For those investors who believed that they were investing in cash-like instruments yet wound up in illiquid, albeit higher earning, instruments in mid-February, the nightmare is finally over.

Of particular interest is the Merrill settlement where the brokers apparently finally convinced senior management that tremendous damage was being done to the bank's reputation and that the bank was losing clients as a result of trying to defend an untenable position.

These banks settled just in time to avoid real investigations into their practices of putting investors in these instruments.  What will probably now never be fully investigated was the manner in which these instruments were marketed (many in complete violation of the '33 Act) and the manner in which banks directed their sales efforts at brokerage customers only after institutional demand for these instruments dried up in mid-2007.

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to bank transparency and the climate crisis. Since co-founding this website in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.

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