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Can he auction rate security market collapsed in February federal and state authorities have been invested in banks and brokerage houses which until wrote the 330.
Billion dollar long term debt market.
Authorities were suspicious that banks had knowingly misled investors about these volatile securities and their hunch was correct.
As of last 98 financial firms have agreed to buy back.
Around fifty million dollars and failed auction rate securities and pay fines totaling -- 160 million dollars.
And starting next week federal regulators will do on site inspections of another.
Tier brokerage houses Chad bray is a reporter at Dow Jones and has been following this story ticket.
-- -- The man he of financing associates is securities lawyer in and in Chicago we have Anthony Carter saying he is a partner at the consulting firm treasury.
Strategies good morning gentlemen thanks for coming here talk about -- morning.
Chad let me start with you first ball in the most simplified terms let's explain to people what auction rate securities are and what went wrong.
You're basically -- -- a a long term debt instrument.
That has an auction at recess.
You know on a daily weekly or monthly basis so it's the kind of thing were a college or museum.
Could go on borrow money in the in the interest rate would go up and down and people could get in and out of them as long as he auctions were going all out.
But -- the auction stopped people were stuck into a long term.
No instrument that just continues and continues for twenty years and some.
Some fashion and so they can't get their money out now -- expected to be able to turn around and get it out now and they can't.
There have been these settlements now that we're hearing we -- hearing more settlements almost daily right now in terms of putting the money back or you know giving back it won't we -- safety and people -- back.
To the cash that they rightly feel they deserve.
When you you know explain this one to us in terms of the you wouldn't litigious aspects of it here and the settlements that are.
-- -- sure we have major Wall Street firms that lied to ordinary investors all across the country I've spoken to dozens of them.
And they were told that these instruments the auction rate securities were the same as money markets cash equivalents even on their monthly statement it said cash equivalent.
Well guess what that wasn't true.
They can't get their money out and what was happening the last year as with all these banks having their balance sheets tied up with CDOs and sub prime mortgages.
They have been propping up these auctions.
And that was not disclosed to investors so investors can't get their money out.
They've been lied to by brokerage firms now the regulators have stepped in and have gotten settlements.
I -- let me turn to you your consultant in essence in the treasury market and many your clients have been purchasing this debt.
What do -- advising.
Them to do right now all they are in terms of either -- getting their cash back.
Or trying to find the appropriate exit strategy.
-- up until about two weeks ago we've been revising our clients to look for market oriented solutions.
To work directly with the that the brokers who -- -- these instruments and attempt to -- to get their cash back.
Since these settlements have come out though we actually think that particularly corporate and institutional investors are actually worse off as a result of these settlements.
In fact electricity if you look back it took thirty years for this market to grow into a 330 billion dollar market.
Yet in the last six months issuers have redeemed 100 billion dollars of that so the market was beginning to write yourself a market oriented solutions were looking.
Pretty good now since these settlements have started -- That has come to a screeching halt.
The issuers -- -- waiting for the with the regulators to act and as you can say they've only come up with fifty billion dollars -- -- settlements.
And we actually thinking that this -- leave investors were -- so we're but where -- your clients to become much more aggressive and much more litigious in their pursuit of getting their cash return.
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