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The Baltimore Business Journal is reporting thatboth Wachovia and Bank of America are now under fire for their handling of auction-rate securities.  Wachovia is being investigated, while Bank of America is facing a sizeable lawsuit alleging that Bank of America misled investors over the nature of the securities.

Auction-rate securities are typically corporate debt instruments with long-term maturity dates, or no maturity dates. They pay interest rates set through periodic auctions.  Basically, bond holders will place their bonds in the market at a "minimum yield" (or interest rate) they are willing to accept.  They are fairly complex, and generally only institutionally-traded.  There have been a number of failed auctions this year.

What is interesting is that very little discussion about who is issuing debt through auction-rate securities. I would have expected better reporting of the BBJ on this issue, since a number of Maryland Hospitals have been using ARS to finance long-term construction and expansion debt -- much to their dismay. 

Given the fact that the BBJ featured an article on May 2nd that highlighted that hospitals were seeking a rate increase from the Healthcare Cost Review Commission, and that the lack of an increase would lead to a slowdown in expansion plans due to higher debt costs, it is surprising that no one is making the connection.

It's pretty clear that someone is missing the boat in Baltimore on this whole Auction-Rate Securities mess.  And with the Calvert Street Communist Party Newsletter bailing on its business section, it's time for the Baltimore Business Journal to step up to the plate.