Transcripts

"Money File"-The Auction Rate Security Mess

SUSIE GHARIB: In tonight's "Money File," what investors can learn from the auction-rate securities fallout. Here's Harriet Johnson Brackey, personal finance columnist at "The South Florida Sun Sentinel."

HARRIET JOHNSON BRACKEY, PERSONAL FINANCE REPORTER, SO. FLORIDA SUN SENTINEL: Are there any lessons for individual investors from the auction- rate securities mess? Sure. But depressingly, some of them are not new. Such as, don't always select a security by its yield. If it's higher than anything comparable, be wary. Some of these auction-rate securities paid many times more than an ordinary money market fund. Expect risk, especially if the person selling you the security says there is none. These securities were supposed to be liquid, so that you could cash out, but buyers stopped coming to the auctions last February. Investors were stuck. Demand that your regulators get involved if things go wrong. State and Federal securities administrators have been pushing for a solution, wielding the threat of investigations. Now, the big firms say they are willing to buy back more than $37 billion in auction-rate securities. The big stick worked. Don't expect the safe investments of the past to stay safe. Markets do change. And one new lesson comes from brokers who say they were surprised at the failure of this market. For years, they didn't know or their employers didn't reveal, how these auctions really worked. I don't know who is going to be at the bottom of all this, but the way for individuals to come out on top is to ask a million questions until you completely understand the investment. If you don't do your homework, don't expect to get a second chance to get it right. I'm Harriet Johnson Brackey.