FREE MARKET???

Not so much, really. The firms that sold and maintained the market in auction-rate bonds now refuse requests by investors to sell. One possible explanation is that the firms are trying to avoid paying out for the losses since the primary market has frozen. These bonds were advertised "as good as cash" and if investors are forced to sell at a loss, the firms could be liable.

Banks Say Auction-Rate Investors Can't Have Money (Update1)

By Darrell Preston

June 6 (Bloomberg) -- Franklin Biddar wants his money, and says Bank of America Corp. won't let him have it.

The 65-year-old real estate investor from Toms River, New Jersey, said he hasn't had access to cash the bank invested for him in auction-rate preferred shares ever since the market seized up in mid-February. Even when Biddar agreed to sell $100,000 worth of the securities to Fieldstone Capital Group, Charlotte, North Carolina-based Bank of America wouldn't release the bonds, saying the transaction wasn't in his interest, he said.

Bank of America, UBS AG, Wachovia Corp. and at least four dozen other firms that sold $330 billion of securities with rates set through periodic bidding are thwarting attempts to create a secondary market that would allow investors to access their cash, according to investors. Dealers claim they are saving customers from needless losses on securities they marketed as similar to cash-like instruments.

``By allowing customers to sell at a discount, the banks allow customers to establish damages,'' said Bryan Lantagne, the securities division director for Massachusetts Secretary of State William Galvin. Lantagne is head of a task force for nine states looking at whether brokers misrepresented the debt as an alternative to money-market investments.