Auction Rate Securities Problem Ends As It Began - quietly

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Without great fanfare, this problem has begun to wind down.

For me, the auction rate security problem was the cause of many sleepless nights.  In the middle of February, my broker suddenly let me know that all of my cash which he had advised me to move into auction rate securities over the last several years, was illiquid until further notice.  He told me that the auctions had failed and that I would be getting higher rates to compensate me for my loss of liquidity.  He could not assure me when I would get out of these bonds which led to many sleepless nights as I needed the liquidity.

As the months rolled by, the excuses mounted, as did the obvious and clear indicators of impropriety on the parts of all of invvestment banks (see some of the earlier acticles posted by me and others on   Little by little, one by one, many of these things got called away.  It started with the municipal and state issues that did not want to, or could not, pay the heavy default rates, and earlier this month, some of the major financial institutions that use auction rate preferreds to leverage their portfolios, including Nuveen, finally gave into the court of public opinion and got rid of theirs.

I understand that Pimco and Blackrock still have not agreed to refinance or refund the holders of their crooked issues.  Folks at these organizations should be ashamed that they are continuing to force investors to be illiquid so that they can get higher returns.  I believe that they soon will come under pressure to get rid of their auction rate preferreds, leaving these instruments to be a remnant from 2008.


Jason Rodgers
Jason Rodgers: Jason Rodgers was an experienced research analyst for a major bank prior to retiring to run his own investment consultancy in beautiful Lihue, Hawaii. Jason contributed articles to BestCashCow from 2008 to 2014.

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  • Sam Cass

    July 12, 2008

    I hope so. I'm not going to put money into Pimco or Blackrock funds until they do so.

  • bob smith

    August 24, 2008

    pimco stinks

  • camille

    September 19, 2008

    Bill Gross should be put in jail. Other funds are returning the money that was taken from the investors under false pretenses. Give us back our money!

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