Valleywag
Instead of holding onto cash, tech firms such as Monster, Palm, Intuit, EarthLink and MetroPCS in recent years bought something called auction-rate securities. Basically — very basically — that means these companies loaned out around $856 million because banks told them they'd earn more than they would just holding on to the cash. Only thing is now, with the credit markets being what they are — crappy — no one else wants to buy the rights to collect on those loans. So all that cash is sewn up in paper. That could soon hurt because the companies are going to need that cash eventually, an exec at one Wall Street trading firm told the WSJ. And when they do, he said, they should expect "a steep loss."
Monster, Palm and three other tech companies own $856 million in paper no one wants to buy
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7:00 AM on Fri Mar 28 2008
By Nicholas Carlson
1,469 views
11 comments
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Arrington reported that startups also have a lot of money in auction rate securities. Gawker pay critic and Seeking Alpha writer Felix Salmon stepped up and said not to worry, Arrington reported the worst case, and things "going to be fine."
Not sure if that holds for Monster, Palm, and others.
Monstrous FAIL!
@scalawag: Face PALM!
Save for intuit, do you see a pattern with those other companies?
The guys at [dealbreaker.com] seem to think ARS will be the next implosion.
Why the hell would startups put their seed money into ARSes? Wouldn't they need it for operations? What a stupid, risky move.
Clever management of your current assets is something any CFO worth their title does, but you have to make sure you are moving the cash into the right properties, and you have to make sure it doesn't affect your liquidity. I expect to see some CFO heads rolling if this really becomes the next credit gate.
@OaklandTechie: I think there are some pending lawsuits over ARSes being represented as much more liquid than they actually were. So at this point, its stupid startups vs. sleazy investment bankers.
If an ASR becomes temporarily illiquid, the penalty rate goes up to a very high return. It can work to the holder's advantage if the real meltdown is averted. Some of the penalty rates are as high as 15%. Of course, if enough of the assets are tied up, those higher penalty rates can accelerate Armageddon.
@OaklandTechie: Good sales job on CFOs with heads up their ARSes.
@matto: Heh heh. You said "arse".
(just trying to bring this intelligent discourse back down to the Melissa Gira Grant level)
@OaklandTechie: Don't be a hater! Would you like more Naked Jesus jpegs?
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