STEVE INSKEEP, host:

However you're paying for the high cost of traveling, we hope it's not involving getting money out of the bank quickly, because there's a problem for hundreds of people who thought they had invested in super-safe securities.

As a result of the credit problems on Wall Street, many people who bought so-called auction-rate securities are finding they cannot get their money back when they want it.

NPR's Scott Horsley reports.

SCOTT HORSLEY: When Flo Purnell sold her house in Washington, D.C. a couple of years ago, she needed to someplace to put the proceeds, about $350,000. Purnell, who worked for a time at NPR, was planning to move across the country, but not right away.

Ms. FLO PURNELL: I wanted to put the money someplace that would be accessible, but I wanted a little bit more interest. I wanted something, you know, that made sense.

HORSLEY: After talking with her financial adviser at Smith Barney, Purnell bought some auction-rate securities that were issued by a mutual fund. She got a slightly higher interest rate than she might have earned in a money market and she thought she could sell at any time. Ordinarily the securities are traded at weekly or monthly auctions.

As planned, Purnell moved to Los Angeles, got a job with an aerospace company, and earlier this month she entered a contract to buy a house. When she went to cash in her securities for the down payment though, her adviser told her she couldn't get her money out.

Ms. PURNELL: I was dazed. I was really blindsided by this. I wasn't hearing anything beyond I can't do it, I can't execute the transaction.

HORSLEY: And Purnell is not the only one who suddenly found a big chunk of her savings can't be touched.

Ms. KAREN TYLER (North American Securities Administrators Association): Unfortunately, her situation is one that we're seeing playing out across the country.

HORSLEY: Karen Tyler heads a national association of state securities regulators. She and her colleagues have fielded hundreds of complaints from people in the same situation. She notes that investors were able to buy auction-rate securities with as little as $25,000.

Ms. TYLER: So this is definitely a Main Street America problem. We have, you know, the young couple whose home purchase down payment is tied up. We have the farmer whose spring planting is tied up, the small business owner whose operating capital is tied up.

HORSLEY: State regulators are looking into whether those investors got adequate warning that they might have difficulty cashing out.

A spokesman for Smith Barney couldn't comment on Purnell's individual case, but he says the company is actively supporting industry efforts to resolve the problem.

The meltdown of the auction market in February caught many people by surprise. Bond specialist Eric Jacobson of Morningstar says for years auction-rate securities worked pretty much as advertised. There were plenty of buyers at the regular auctions, and if there weren't, the Wall Street banks themselves would buy the securities.

Mr. ERIC JACOBSON (Morningstar): The dealers on Wall Street made it their business to maintain orderly auction markets. The mechanism worked pretty darn well for a long, long time.

HORSLEY: By February, though, Wall Street's battered investment banks could no longer afford to buy unwanted auction-rate securities. And with the value of many other securities suddenly in doubt, Jacobson says ordinary investors got cold feet.

Mr. JACOBSON: They just wanted to get away from anything that seemed to have the least bit of risk. Those things kind of feed on themselves, you know. Once there's a little blood in the water, everything starts to swirl.

HORSLEY: The securities are still backed up by real assets, and they're still paying interest. But that's cold comfort to someone like Purnell, who can't sell when she wants to. Morningstar's Jacobson says it's a reminder liquidity can be an ephemeral thing.

Mr. JACOBSON: It's kind of like the air we breathe. When it's there you almost don't even notice it. When it's not, you're desperate.

HORSLEY: Jacobson suspects the companies and government agencies that issued the securities will eventually buy them back from investors. In the meantime, Smith Barney's parent company, Citigroup, has offered to lend Purnell half the value of her securities so she can complete her house purchase.

Scott Horsley, NPR News.

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