The WSJ reports on the market in auction-rate securities today:
Last week, UBS said it was marking down an undisclosed amount of the value of auction-rate securities held by its customers. Other banks, including Merrill, aren’t marking down their values. In both cases, banks are scrambling furiously to fix the frozen market.
Um, scrambling furiously? As far as I can tell, they’re doing Absolutely Nothing. There’s certainly no evidence in the article of any concrete actions the banks are taking to fix this problem.
Indeed, the whole problem with this market is that the banks stopped scrambling furiously to provide a bid in every auction which came along. So long as the banks made a market in these securities, everything worked fine. Then they stopped making a market, and the market, predictably enough, froze up.
Quite clearly the investment banks here were the proximate cause of the problem. The WSJ is being far too polite in suggesting that in fact they’re frantically working towards a solution.