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You've got a point there.. but I had heard that many didn't know and as such were fraudulently misled. We'll see how it shakes down in arbitration and what have you.

It's hard to believe that CFOs and treasurers didn't understand what they were getting into here, or to understand how they didn't given the way these things were structured.

I mean, the banks specifically said they wouldn't step in to make sure the auctions worked if there were no takers. If that isn't a red flag, I don't know what is.

Point is, you don't have to be a rocket scientist to understand that, only someone paid very well to manage shareholders' cash.

Or overpaid in this case.

I agree that CFOs and treasurers should have known better when investing in ARS but remember back 3 years ago, everybody was searching for yield, and any funky acronym looked attractive. So I definitely don't feel bad for CFOs of corporations. But I think the biggest problem with "people who didn't know" is when they are investment officers at small pension funds or school districts. These guys definitely didn't know what they were doing. So either it's fraud or they should have just refrained from investing in ARS. I mean they're dealing with pensions money not shareholders investments. But yes Ron I agree with you and I am stunned that this ARS problem is still around. It just tells me that there must be more to the story you're right.

I have no doubt that many people were misled--both out of naivety and fraud. But the whole thing should have smacked as "too good to be true" to a treasury pro. We're talking about something that on its face value had a 40 year maturity. And people wanted to treat it like a cash equivalent because the auctions were so liquid or so they were told? As the saying goes, there's liquidity until there isn't.

The really scary scenarios were when people were using core cash to invest in these things. Look, if Microsoft investmed some excess cash in ARS to squeeze a few bps out, big deal. They could even hold the stupid things to maturity if they had to. I'm worried about the startup that got caught up in the hoopla and then couldn't pay its vendors because that cash was tied up in an investment that had nothing to do with its business.

Did everyone see the "Chuck is talking" op-ed in the WSJ? He argues that Schwab can't accept any responsibility, even for individual investors.
"Unfortunately, we are now seeing a conscious effort to limit—if not eliminate—all risks for the individual investor, whether through consumer "protection," fiduciary liability for brokers, or the threat of litigation that attempts to make our firm, and others like us, more like an insurance company than a broker," Charles Schwab complains.
Poor Schwab. On its way to being Mutual of Omaha. But as one commentator on Seeking Alpha points out, if Cuomo has a few e-mails touting ARS as risk-free, they're toast.
Should set some interesting precedents.

That's the thing. Cash equivalents should not be called that if the banks reserve the right to let the auctions designed to liquify illiquid securities fail.

That's not how the overnight repo market works, which is where a lot of companies used to park overnight cash, I don't think. So it seems to me these things should never have been marketed as cash.

And if CFOs and treasurers didn't understand the difference between cash and auction-rate securities, brokers could hardly expect Joe Retail Investor to get it.

There's something that's been around for ages on Wall Street called the "know your customer" rule. Don't tell me Chuck doesn't grasp it.