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8:30 AM EST Wednesday, February 20, 2008: Today is real serious. Read it carefully. Pass it on to your friends who own auction rate securities and who have money in money market funds.

First, auction rate securities. These things were sold as "cash." As you know billions of dollars of auctions are now failing daily. People like you and I who want our cash can't get it. Some of us need the cash to pay our income taxes on April 15. Some of us need it to pay for the new house that we've signed on. Some of us need it to pay for business expenses. Some of us need it to pay next month's credit card bills.

There are two types of auction rate securities (ARS). Both are failing.

1. Issuer based ARS. Hospitals, highway authorities, states. As auctions fail, the interest rate on these securities are resetting -- some as high as 20%. These issuers can't afford to pay these rates. They will quickly raise new bonds and pay these things off. As long as you have a high-quality issuer, your money is safe. You will get your cash, though it may take months.

2. Leveraged muni bond funds from companies such as Nuveen, Blackrock, Eaton Vance, Evergreen, Allianz Global, John Hancock Advisors, MFS, Van Kampen, Pimco, Gabelli, Calamos, etc. These are perpetual securities which were auctioned weekly. Now the auctions are failing, the interest rates are resetting -- but not to penalty rates. My Nuveen securities are resetting to 3.29% to 3.32%. These firms are sitting idly by, saying, to their investors, "The failed auctions are not our fault. We won't help you sell your holdings. Go stew for eternity." Why they would do this and destroy their own reputations when the solution is so simple beats me. The solution is to simply sell some of the bonds in the funds and buy back their own securities. But they're not doing it. God knows why. Talk about shooting yourself in the foot.

Nuveen has issued the following: (http://biz.yahoo.com/bw/080215/20080215005504.html)

Q: What happens when an auction fails?

* It is important to note that a failed auction for a closed-end fund is not a default. Preferred shareholders continue to receive dividends (at the “maximum rate” as noted below), and their “liquidation preference” ($25,000 per share in the case of the Nuveen closed-end funds) is unaffected.
* Any bids in the auction to newly purchase shares that are filled will be allocated on a pro rata basis among the shareholders who wished to sell.
* Shareholders who wished to sell shares, to the extent they were unable to do so, will continue to hold their shares. They may offer their shares at the next scheduled auction, subject to the same risk that the subsequent auction will not attract sufficient demand for a successful auction to occur.
* Our auction process calls for the fund to pay a “maximum rate” for the entire series, not just the unsold shares. This rate is intended in part to compensate would-be sellers for the gap in liquidity.

Q: Will I be able to sell my shares in the secondary market?

* Broker-dealer auction desks may try to facilitate secondary market trades away from the auction process, though there is no obligation to make a market bid to furnish liquidity. Such a secondary market, if it does materialize, may be thin and challenged and may not provide shareholders the degree of liquidity they are seeking.
* Sellers in the secondary market may receive less than the customary $25,000 share price.

Q: What if I want to sell my MuniPreferred or FundPreferred shares at the next scheduled auction?

* We cannot predict what will happen with upcoming auctions. Current indications are that liquidity pressure and auction market displacements will continue for at least the near term.
* If a particular auction fails to attract sufficient demand, all investors in that auction’s shares will receive the maximum rate dividend. This rate is intended to be attractively above comparable rates for successful auctions of closed-end fund preferred shares, although the maximum rates have been only slightly higher than the reset rates for recent successful auctions.
* It is possible but not guaranteed that a secondary market for such shares may arise.

Q: Will I be able to sell my shares in the secondary market?

* Broker-dealer auction desks may try to facilitate secondary market trades away from the auction process, though there is no obligation to make a market bid to furnish liquidity. Such a secondary market, if it does materialize, may be thin and challenged and may not provide shareholders the degree of liquidity they are seeking.
* Sellers in the secondary market may receive less than the customary $25,000 share

Q: What if I want to sell my MuniPreferred or FundPreferred shares at the next scheduled auction?

* We cannot predict what will happen with upcoming auctions. Current indications are that liquidity pressure and auction market displacements will continue for at least the near term.
* If a particular auction fails to attract sufficient demand, all investors in that auction’s shares will receive the maximum rate dividend. This rate is intended to be attractively above comparable rates for successful auctions of closed-end fund preferred shares, although the maximum rates have been only slightly higher than the reset rates for recent successful auctions.
* It is possible but not guaranteed that a secondary market for such shares may arise.

In short, Nuveen is walking away from its responsibility to its investors, destroying its own firm in the process. Yet the solution is so simple: Sell some of the underlying securities, step in and buy its own funds back at auction.

I personally have $4.5 million of these Nuveen funds. They were sold to me as “cash.” Now they’re valueless. I am starring at 100% loss of my principal. I am not a happy camper.

Investors who are similarly stuck in these ARS funds should contact me at . I'll keep everything confidential.

Yesterday I spoke to a man who manages many millions of tax-exempt municipal securities. Wisely, he kept his clients out of these ARS securities. He never liked them. Yesterday, he gave me this advice: "The only way this is going to be solved is for sufficient investors to scream."

It’s time to scream. It's time for serious action. We cannot stand idly by and wait while our money disappears because firms like Nuveen are acting irresponsibly. Send me an email. We'll jointly figure a solution.

Money market funds: How far should we take our fear? A number of readers emailed and asked "Should I cash in my money market fund?" One readers says he has "one (money market fund) with ING Direct and another with Eloan. They both have 3 star ratings using Bankrate.com's CAEL rating system." The reader asks, "Do you think the rating system has any validity?" The ratings are shown here for all the major Money Markets: www.bankrate.com. Should I be concerned with these even though they are FDIC insured?"

I will freely admit to being ignorant on these money market things. But let's see what I found with 30 minutes of research on the Internet. The first thing is that our friend's two funds are rated 3, which means they are "performing." But a 3 rating is two steps below rating 1 and rating 2. You'll also notice a disclaimer at the bottom of this chart, namely that things might have changed. In fact, there's no way they haven't changed. I trust this chart as much as the few electrons it comprises.

Now let's go the first step, the ING Direct web site. There in simple black and white, it says that ING's mutual funds are not insured by the FDIC. ING classes money market funds as mutual funds. .

I bet our reader who has money in ING Direct and Eloan that he hasn't read either of their prospectuses. I mean, heck, who reads prospectuses of money market funds? Certainly not our reader, nor I bet, the broker or financial adviser who recommended / sold him those funds. Having not read their prospectuses means you missed out on some juicy bits:

page 18: The Fund is subject to the risks associated with investing in debt securities. ... Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.

page 18: The Fund may invest in mortgage-related securities... The risks of concentrating in investments in the financial services sector include, but are not limited to the following: credit risk, interest rate risks. ... In addition, to the extent that the Fund further concentrates in the banking industry, the risks described may be greater."

page 19: There are risks paragraphs headed, "foreign investing, repurchase agreements, mortgage-related securities, etc."

Here are my conclusions:

1. Money market funds are not the simple, clean, safe financial animal they are promoted as.

2. I don't trust Bankrate's ratings. They don't even date when they did the ratings. I bet they did them a long, long time ago.

3. I don't understand all the legal mumbo jumbo in these prospectus. So I have no real ideas what hidden dangers lurk herein.

4. The credit markets are producing new black swans daily. I have no idea if the next "credit contagion" problems will hit money market funds, and your monies will be stuck, locked up tight, as my monies presently are stuck in auction rate muni bond securities.

5. What's a few dollars in lost interest compared to losing your entire principal?

In short, get out of these things. Go to Mattress Cash.

Finally, the blonde gets even.
A trucker came into a truck stop cafe and placed his order. He said, "I want three flat tires, a pair of headlights and a pair of running boards."

The brand new blonde waitress, not wanting to appear stupid, went to the kitchen and said to the cook, "This guy out there just ordered three flat tires, a pair of headlights and a pair of running boards.

"What does he think this place is? An auto parts store?"

"No," the cook said. "Three flat tires mean three pancakes. A pair of headlights is two eggs sunny side up. The running boards are two slices of crisp bacon."

"Oh, OK!" said the blonde. She thought about it for a moment and then spooned up a bowl of beans and gave it to the customer.

The trucker asked, "What are the beans for, Blondie?"

She replied, "I thought while you were waiting for the flat tires, the headlights and the running boards, you might as well gas up!"

This column is about my personal search for the perfect investment. I don't give investment advice. For that you have to be registered with regulatory authorities, which I am not. I am a reporter and an investor. I make my daily column -- Monday through Friday -- freely available for three reasons: Writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I encourage my readers to send me their ideas, concerns and experiences. That way we can all learn together. My email address is . You can't click on my email address. You have to re-type it . This protects me from software scanning the Internet for email addresses to spam. I have no role in choosing the Google ads on this site. Thus I cannot endorse, though some look interesting. If you click on a link, Google may send me money. Please note I'm not suggesting you do. That money, if there is any, may help pay Michael's business school tuition. Read more about Google AdSense, click here and here.
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