Having been to but one auction in its life (and it was for charity at that, so no bid was too low, which is why Toolbox is the proud owner of a full set of N'Sync dolls at .99 each), Toolbox didn't realize that auctions can fail. But they can and do fail; one need only troll around eBay to find scads of deals that don't get done because the "reserve" price isn't met. But those failures are of the no harm/no foul variety. There was a recent auction failure of consequence for international financial markets, and that was the failure this past spring of the auction rate securities (ARS) market. The what? Well, as reported by sister publication (and media hog) Pocket MBA, ARS are "corporate or municipal debt instrument[s] with a long-term maturity... packaged for short-term holders, featuring a variable interest rate that resets periodically via Dutch auction." That is, the auction has to do with what interest rate you think you should receive for holding the debt.

Having been to but one auction in its life (and it was for charity at that, so no bid was too low, which is why Toolbox is the proud owner of a full set of N'Sync dolls at .99 each), Toolbox didn't realize that auctions can fail. But they can and do fail; one need only troll around eBay to find scads of deals that don't get done because the "reserve" price isn't met. But those failures are of the no harm/no foul variety. There was a recent auction failure of consequence for international financial markets, and that was the failure this past spring of the auction rate securities (ARS) market. The what? Well, as reported by sister publication (and media hog) Pocket MBA, ARS are "corporate or municipal debt instrument[s] with a long-term maturity... packaged for short-term holders, featuring a variable interest rate that resets periodically via Dutch auction." That is, the auction has to do with what interest rate you think you should receive for holding the debt. And the answer back in March and April, was there was no interest rate high enough to encourage anyone to hold the debt. For an explanation of how this happened and why it was so important, Toolbox offers Illiquid Liability: Legal Implications of the 2008 Auction-Rate Securities Market Failure, by Roel Campos, Christopher Durbin and Bradley Lebow, all of Cooley Godward Kronish LLP. Just to give you a taste of what's here, the following snippets (sans headings) are from the introductory paragraphs:

• Cause: The proximate cause of the ARS market collapse is deceptively simple: the broker-dealers up which the market had historically and consistently relied to "stabilize" the auction process—by bidding for their own accounts...—ceased doing so, leading to inadequate demand, widespread auction failures, and consequent inability of ARS holders to liquidate their holdings.
• Impact: The larger significance of the ARS collapse lies with the events leading up to the auction failures: the regulatory actions, changes to accounting guidelines, and macroeconomic forces that led large institutional and corporate ARS investors, as well as broke-dealers themselves to reduce their own inventories in 2006 and 2007, which in turn, led to reduced minimum investment levels and more aggressive marketing of these securities to smaller individual investors.
• The Response: Actions by ARS issuers that may follow on the heels of the collapse are also significant...Specifically, there is the potential for either a resurgence and return to liquidity, or (more likely), a substantial or complete elimination of the ARS market through issuer repurchase, redemption, or conversion of ARS to less volatile forms of securities or fixed-rate bonds.

And doesn't that say it all? Well, actually no, because that was just the first couple paragraphs of this gem. And you don't even have to bid to get it.