Monday, April 07, 2008

The Over Flow Has Begun in Earnest

Municipalities and businesses alike are beginning to take it on the chin thanks to the sub-prime melt down. Its seems as if everyone was looking for a short cut. The market for auction-rate securities has plunged like Brittany Spears' underwear. The District of Columbia is now paying an additional $1.2 million a month to cover the interest on these securities they sold to cover the cost of building Nationals Stadium. I wonder what that foreclosure will look like. Its not just poor relation municipalities taking in the back pocket either. Hospitals, universities and even the NY/NJ Port Authority are neck deep in these cut rate debt obligations. Apparently, nobody thought the rates would go up or that the market for them would go to hell.

Granted, I can only say that I thought that housing prices would have to collapse sooner or later, I can't lay claim to seeing anything further than that. Although Nouriel Roubini probably did, but nobody listened to him. He was the biggest bear, caught in the middle of the biggest bull market anybody, anywhere has ever seen. I think its safe to say the cascade will be far reaching and perhaps worse than anyone could imagine. Public works will grind to a halt as politicians look for ways to stretch their shrinking tax base to cover rapidly growing interest payments. Universities will be forced to make tough decisions on staffing, up keep on their physical plant and quality of their programs.

The question on the tip of everyone's tongue is when will the end come, and the undeniable answer is no time soon. Certianly not while nood-nick, know nothing Senators like Christopher Dodd keep trying to meddle in markets which they know nothing about and aren't qualifed to be making adjustments to. At this time, the most prudent course of action has to be one of inaction, for any move made right now, is likely to only prolong the markets finding a proper equilibrium. Our check is coming and its going to be a big one. Putting it off only makes it worse.

1 comment:

Anonymous said...

As yet another unfortunate investor in these Auction Rate Securities, I've been befuddled that I can negotiate a price for my car on EBay any day-of-the-week, but I can't get my stock broker to find a buyer for my Auction Rate Securities.

So, we've created an electronic secondary market at for investors to buy and sell Auction Rate Securities -- independent of the brokerage houses.

It's extremely frustrating that none of the banks that have previously back-stopped the auctions of these securities are willing to step in and redeem the issues from their clients.

We're running (Electronic SEcurities Registry) as a sort of public-service: sellers are free to list their Auction Rate Securities for sale; and buyers are free to browse the listings and negotiate pricing and settlement with the sellers.

Hopefully, a vibrant secondary market will allow investors to cash-out of these illiquid Auction Rate Securities.

-ESER (Electronic SEcurities Registry)