Auction-Rate Costing Local Taxpayers $9.6 Billion: Muni Credit

Goldman Sachs Group Inc. touted the auction-rate securities that Reno, Nevada, sold starting in 2005 as a tool to generate “considerable interest savings,” according to an arbitration complaint the city filed last year.

Then, in 2008, during the global financial crisis, the market blew up for Reno and hundreds of other issuers, including Detroit and California. The municipalities had sold about $200 billion of such debt, which matures in decades yet has yields that reset monthly or weekly based on bids from investors. The collapse cost issuers $9.6 billion, according to Saber Partners LLC, an advisory firm in New York.