Can anyone enlighten me as to why the banks have to buy these back?
Merrill Lynch, Goldman Sachs and Deutsche Bank are to buy back up to $14.5bn (£7.7bn) of illiquid auction-rate securities as part of a settlement with New York attorney general Andrew Cuomo over the mis-selling of these products to individuals and charities.
The trio of banks – none of which has admitted any wrongdoing by agreeing to settle – will pay a total of $162.5m (£67m) in fines as part of the deal, the latest in a series of such settlements.
The $330bn auction-rate securities market, which sold short-term municipal and other bonds whose interest rates regularly reset at weekly or monthly "auctions", collapsed in February as a result of the global credit crunch and the crisis in confidence in a number of major bond insurers.
I understand roughly what the securities are, but why the buy back and the fines. Does caveat emptor no longer hold?