Valleywag
We've reported that Monster, Palm, Intuit, EarthLink and MetroPCS bought $856 million in auction-rate securities. The credit market being what it is these days, these companies are having a hard time getting cash for their paper. Add Google to the bunch. According to a filing with the SEC, Google owns $259.6 million worth — or worthless — of auction-rate securities.
The figure doesn't look very large relative to Google's $12 billion in cash and marketable securities. But thrown in with the $200 million the company chooses not to earn from ads placed on image searches, or the $110 million it could make by tossing the "I'm Feeling Lucky" button from the homepage, or the money Google could save by slowing its hiring to just a few thousand engineers a year, and you've got a company that's very fortunate to be in a business where it can throw away substantial amounts of cash without anybody noticing.
Comments
What is an auction-rate security?
To boil it down, because dutch auctions are a bit funky, an auction rate security is a long term debt instrument that is (in theory) traded in and out in a short term market (say every 7 days, or once a month).
Companies, such as Google, bought into these securities under the assumption that they could resell them at the time of the next auction. Trouble is, people aren't buying them now that the credit market is tighter.
Don't be such a damned sensationalist. Google didn't piss the money away. They're stuck holding long term debt, when they were sold on the idea it was a short term instrument. They haven't lost money on it.
The real story is with startups that had the majority of their cash reserves locked up because a money manager didn't think the thing through.
I've gathered that it was a method of investing your excess liquidity in a manner that would have a high payoff, and it was "guaranteed money!!!" as long as credit confidence and lending remained high. There was virtually no risk! Unless the economy slumped... and then it did.
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