DougM

Making Sense of the Brokerage Bust

The hedge funds are doing exactly the same things these failing firms have been doing; gambling in the markets against each other with huge sums of borrowed money. The only difference is, the big WS firms forced the rest of us to invest in their schemes by virtue of being publicly traded. And, in an odd way, the hedge funds are a cheaper way to lose your money, since their take of the profits is "only" 20%.

Auction Rate Securities: Who's To Blame?

I echo MichaelNYC's comments - this was my experience as well. As to how the product differed from short CDs, I understood that I was buying muni bonds and that the interest income was tax-free. The interest was actually lower than what I might have gotten on CDs, but it was higher after-tax given my tax bracket. I accepted that there might be a somewhat higher credit risk in the bonds in exchange for the tax-free return. I did not realize that there might be interest-rate risk associated with being stuck in the bonds - I was never given a prospectus and the products were never described to me as "auction-rate securities", they were described as "7-day paper". The instruments showed up on my statements as bonds, in the muni section - I did see the long maturity dates, and this troubled me somewhat. I was only given more details when I began to ask questions last October. I did this only because the insurance wrappers on the bonds appeared to be falling apart as MBIA and Ambac were teetering on the edge of AAA downgrades. This was the first time I was sent a brochure explaining how an auction-rate security worked. Unable to find out what the penalty rate was on my bonds, I sold them, and dodged a bullet.