In May 2007 Merrill Lynch began purchasing on behalf of MetroPCS nearly $134 million in auction-rate securities, which ostensibly fit the bill. Anyone who’s read the financial pages lately knows the turn this story is about to take.
Auction-rate securities (ARS), which have been around since 1984, are generally municipal bonds, although there are other forms such as student loan-backed securities. MetroPCS had cash in 10 ARS, nine of which were subprime mortgage-backed collateralized debt obligations, a rarer category of ARS.
