The credit crunch is crunching another corner of the market: securities tied to student loans, according to the Wall Street Journal.
Auctions of these securities which are bundled long-term student loans have failed to generate interest by money-market investors.
The failure of these auctions is a further sign of extreme market stress, the Journal said.
Their lending programs are financed in part by pooling together loans and using them as collateral for these securities, but the securities have interest rates that reset in auctions ever few weeks, similar to adjustable-rate mortgages.
A failed auction means that dealers cant find anyone interested when the debt comes up for investors to bid on. The banks arent required to buy the debt themselves, and instead opt to stay on the sidelines when the auction fails.
