While headlines trumpet the "resolution" of the auction-rate securities deep- freeze, a closer read of the agreements indicates that investors still have many moons before they can depart the ill-fated sector for good. State attorneys generals and large brokerages got their positive headlines and will move on, while markets and investors will be left to deal with the moral hazard created, the assignment of blame to participants, and the details of dividing up the losses, if any.

Today's Wall Street Journal delivers an excellent summation of events in "UBS to Pay $19 Billion As Auction Mess Hits Wall Street". It says, "Auction-rate securities are a kind of debt that soared in popularity in recent years. They let issuers such as municipalities and student-loan organizations borrow for the long term, but at lower, short-term interest rates. The rates reset at periodic auctions, hence the name. Wall Street sold more than $330 billion of these securities to more than 100,000 individuals and other investors."

It names a number of figures expected to bear the brunt of the fiasco's blame. It cites David Shulman, "who ran UBS's auction-rate desk, saying he "questioned whether the firm should continue to submit bids to support auctions.... In the email, Mr. Shulman acknowledged that investors expected UBS to make sure the auctions ran smoothly, even as he and others behind the scenes contemplated halting their bids entirely." Shulman said, "Retail clients have -- I am confident been told that these are 'demand' notes ... and will be redeemed at par on demand.... While there is no formal obligation to cash out clients at par, he added, the moral obligation runs very deep."

The issue of commissions and conflict-of-interest is also thoroughly addressed. WSJ adds, "The brokers and firms typically shared commissions of 0.25% of the securities sold - compared with 0.05% for Treasury securities and zero for plain-vanilla money-market funds. Merrill sometimes offered extra commissions, at times up to a total of 1%. Merrill says commissions 'didn't change' brokers' approach to auction-rate securities."

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