The New York Times reports that a distressed securities investor, Arthur D. Lipson, has a plan to unfreeze the accounts of those people who were suckered into thinking that Auction Rate Securities (ARSs) were as good as cash. But ARSs, whose rates were supposed to reset every week at about 3%, are illiquid because accounting rule changes made them quite unpopular with corporate treasurers. The resulting failed auctions have frozen the accounts.

I posted on this $330 billion ARS market last week and have been stunned to learn about all the people who thought that significant portions of their life savings were safe, only to learn that the funds are frozen. For these people, it’s as if they went to the bank to withdraw their deposits and now they can’t get their money out. I don’t know how these people can sleep at night. I’d have trouble coping.

But Lipson argues that the closed-end funds that hold these ARSs are trading at a discount and that these discounts present an opportunity for closed-end funds to do the right thing, for both common and preferred shareholders. Lipson suggests that these closed-end funds’ managers should sell the underlying securities - utility stocks and shares of real estate investment trusts - and use the proceeds to buy back common shares.

Continue reading Will Arthur D. Lipson’s plan unfreeze Auction Rate Securities?

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This entry was posted on Saturday, March 8th, 2008 at 10:39 pm and is filed under Stocks Money News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.