The sewers of Jefferson County

Auction-rate Securities

Municipal authorities across the US felt aggrieved in February when the supposedly ultra-liquid $331 billion auction rate securities (ARS) market virtually imploded after liquidity dried up and Wall Street auction agents withdrew from the sector (Risk April 2008, pages 50-52).

With balance sheets creaking under the strain of leveraged loan and subprime mortgage writedowns, dealers had little capacity to act as buyers of the last resort for ARS paper that had failed to find bidders in the open mar