Student Loans Gone Awry in Auction-Rate Market Trap Retirees With 35% Loss

[marmar]

from Bloomberg:



Student Loans Gone Awry Trap Retirees in Auction Debt (Update2)

By Michael McDonald

July 10 (Bloomberg) -- Five months after the collapse of the $330 billion auction-rate securities market, bonds backed by student loans show no signs of recovering, and that means no new house for Martin Doolan.

The former corporate turnaround executive delayed buying a new home in Dallas because he can't access the $4.85 million he has in student loan auction-rate bonds without selling them at a loss of at least 20 percent. Doolan said he bought the securities over the last two years through UBS AG because they were billed as easy to turn into cash, like money-market funds.

``I was advised these were the safest'' of all the auction- rate securities, said Doolan, 68, who declined to identify his financial adviser at Zurich-based UBS. ``These are the worst.''

The $85 billion of auction-rate securities sold by state agencies and private lenders to finance student loans are emerging as the most toxic since Wall Street dealers abandoned the market in February amid slumping demand and worries that the bond insurers who guaranteed the debt would be downgraded.

The auctions held every seven, 28 or 35 days to set interest rates on the student loan securities fail about 99 percent of the time, leaving investors such as individuals and corporate cash managers with no choice but to take discounts in secondary markets to get out of the bonds. ......(more)

The complete piece is at: http://www.bloomberg.com/apps/news?pid=20601213&sid=amwQHhq6z_tw&refer=home

[notesdev]

1. Gee whiz

I guess selling future generations into debt slavery from the moment they turn of legal age to sign a contract isn't a profitable activity after all.

[Fresh_Start]

2. most of us would be happy

if we owned 4.85 million in bonds which we could sell for 4 million dollars to buy a home we wanted

[YOY]

3. From someone who only recently managed to get away from his I'd like to tell Doolan

Keep the change you filthy animal...at damn near 9% interest you can choke on it.