Investment News writes "Muni bills might help liquefy ARS market", which discusses the pending-in-Congress Municipal Market Liquidity Enhancement Act. "The draft legislation would provide a government backstop for new issues of variable-rate-demand notes if the proceeds were used for, among other things, the refinancing of auction rate securities. Such notes have been widely used by issuers to cut financing costs.... The liquidity backstop for variable-rate-demand notes historically has been provided by banks. The backstop is essentially a put feature that guarantees liquidity for holders. With the credit crisis, though, some banks have withdrawn from the liquidity-providing business or don't have a high enough credit rating to provide the service, leaving the variable-rate-demand-note market in disarray, observers said." Tax-exempt money funds are the main buyers of VRDNs. IN adds, "The [Regional Bond Dealers] association estimates that about $400 billion in variable-rate-demand notes remains outstanding." See also, State Street's "Sec lending: calls for risk management and transparency".
