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OK so UBS, Citi, etc. buy back all the ARS at par. Par pays interest at greater than the cost of the treasury loans they have so no big loss to them. They probably even earn a decent spread on it conscidering the risk.

My question is what it means for muni-bond investors. Does it insure the continuance of cheap money used to buy muni bonds or does it result in that cheap money disappearing? If the cheap money dissapears that would cause significant selling pressure on muni's which would in turn cause more forced selling, etc. If it insures continued availability it reduces uncertainty, taking away the risk I outlined above, and therefore should cause muni prices to strengthen.

Anyone got any real idea which it is?
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