Auction Rate Security - ARS
Most securities - we're talking debt investments like bonds - have a set interest rate. A 10-year bond might have a rate of, say, 3%. That rate is typically locked in at the time the security is issued, meaning the investor will continue to get 3% each year for the duration of the bond, no matter what happens to the interest rate markets.
Auction rate securities act differently. Instead of having interest rates permanently set, the rates are re-set through periodic auctions. When the auctions actually happened (yes, they stopped happening at one point, but more on that in a second), they took place at relatively short intervals - 7, 14, 28 or 35 days in most cases.
Auction rate securities were invented in the 1980s and things went well until the financial crisis of 2007 to 2008. By 2007, trouble in the financial markets led some auctions to fail due to lack of bidders. Eventually, the market collapsed altogether. By February 2008, ARS couldn't even find underwriters to conduct the auctions in the first place.
Eventually, federal and certain state authorities reached a deal to buy back some ARS in an effort to unfreeze the market. However, according to a report in Barron's, there were still $5 billion of the securities held by investors in 2015.
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Finance allah shmoop What is liquid market Well it's one
that trades Ah lot High volume Lots of buyers Lots
of sellers Liquid lots of cash sloshing this way In
that way Go this way and that Did you ever
see a liquid market go this way and that That
little song Did you ever see a lassie Never mind
All right Weir Liquid markets Good Well because they implied
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put to work And that's usually a sign of a
healthy risk seeking active market versus risk averse one which
is you know hiding Ah liquid market means that investors
want to put their cash toe work that they have
actually saved cash along the way and or that they
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about it from the perspective of your kindly loving realtor
who wants a world where lots of people are buying
homes But in orderto have that happen you have to
have lots of people who are also selling homes at
the same time Otherwise prices just go higher and higher
with no supply to meet demand And at the end
of the day in real estate and it's in the
stock market while the most important thing yes that the
brokers get pays So that's a liquid market one that
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