Auction Rate Securities

There was an interesting article in the New York Times a few days ago about an investment many businesses had gotten into that was supposed to be as good as cash (in terms of liquidity), but had a little clause many of them hadn't noticed: because the investments were sold in an auction (they're called Auction Rate Securities), if nobody turned up to buy them, you might not get your money back. Now Tech Crunch has a follow up to this, with an article suggesting one fifth of Silicon Valley Startups can't get to their money, because their money is in these securities. Oops. According to the article "Comerica has been mentioned in many of the calls I’ve had [with] venture capitalists, who say that the bank advised their clients to invest in ARSs as safe alternatives to money market funds, with a higher rate of return. 'We just had no idea this was even a risk at all,' said another VC." The economy run on growth, and startups provide a lot of growth. Kill the startup, kill the growth, kill the economy? We'll see.

Nikki commented:
It's all very Shakespearean, isn't it?
on Wed Mar 12 18:46:41 2008

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