Dutch Auction Rate Preferred Stock (DARPS) was created in the 1980s as a way for fully taxable corporate investors and tax-exempt issuers to share the tax benefits of the dividends received deduction. DARPS dividend yields were reset every few weeks through an auction, minimizing price risk and...

In February of 2008, the $330 billion auction-rate security market began to fall apart. Brokerage houses that managed the periodic auctions refused to support their issues, so that auctions failed and liquidity disappeared. Investors had a wake-up call: an asset they had thought was a...