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March 11, 2008
Subprime? Don't Worry Your Pretty Head
Yeesh, it never ceases to amaze me how little people know about the securities they hold. We have had the auction-rate securities issue building for a couple of weeks -- with some VCs not realizing that some of their portfolio companies had put their money in now-illiquid auction-rate securities -- and today we have another reminder that banks still don't know what they own -- Fed governor Kroszner said in a speech that many banks would "restrict information" about such complex securities.
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VCs, it is often said, provide advice as well as $ to the firms in which they invest. I'd have thought that might include advice about cash and where best to stow it until you need it.
Do VCs tend to trust their firms to stuff their cash under a safe mattress? Do they give explicit advice as to which mattresses are safe?
Same thing happened to some early stage Canadian mining companies last year, they had parked cash raised to fund exploration in commercial paper and suffered write downs last August on what should have been high-grade liquid assets. Swain