It is well known in the news business that if you want to bury a story, you release it late on a Friday afternoon. UBS did exactly that with its announcement on Friday March 28 that it was forcing its clients to take a haircut on auction-rate securities that investors had been told were as safe as cash. UBS will also re-classify auction-rate securities from “cash equivalents” to “fixed-income securities” on customer statements starting in April. This reclassification alone supports the contention of many investors that they were misled when they purchased these investments.
Needless to say, the investors in auction-rate securities are not happy. They were sold these auction-rate securities as a safe place to park cash that paid higher yields than savings accounts or money-market funds. Thus they invested cash that was being stashed for immediate needs such as tuition, home down payments or medical needs. As the auctions failed when not enough buyers showed up and the investment banks stopped stepping in to support the financings, the investors got stuck in an investment they could not sell at any price.