What's my bid for this billion?

The WSJ has a sad story about the Maher family. Father Maher worked hard and long for 50 years to build up a shipping and port business. But the author, Robert Frank, tells it better:

Their billion-dollar windfall was the fruit of a classic American success story -- more than 50 years spent on the gritty docks of New Jersey, battling unions, the mob and fierce competition to build a shipping-port empire. Maher Terminals, the company founded by their father, operates one of the biggest container ports on the East Coast.

The Maher fortune started in the early 1950s with Michael Maher, the son of an Irish immigrant in New York City's Queens borough, who worked as a longshoreman on the docks of Brooklyn and Manhattan to pay his way through law school.

In 2006, they began thinking about selling. Another era was dawning in the shipping business: Cash-rich global investors -- private-equity funds as well as some foreign-government-associated investment funds -- were on a shopping spree for ports, bidding up prices in the once-stodgy business as global trade boomed.

So when one of Deutsche Bank's investment units offered to buy the company for more than $1 billion, the Mahers agreed to sell. The deal closed in mid-July.

The two brothers handed much of it to Lehman Brothers Holdings Inc. with marching orders to make only the most conservative, cashlike investments. Within weeks, however, they had lost access to more than a quarter-billion dollars.

The Mahers rank among the earliest victims of "auction rate" securities, a once-obscure type of bond now sending shock waves through broad swaths of the U.S. economy. Auction-rate securities -- an unusual type of long-term bond that behaves like a short-term bond -- have become a keystone of modern finance. They are routinely used to fund everything from college student-loan programs to municipal road-and-bridge projects.

The market for auction-rate securities has dried up amid fears about fallout from the subprime-mortgage crisis. This week, New York's Port Authority saw the interest rate on some of its debt jump to 20% from 4.2% amid disruptions in this market.

The Mahers are demanding that Lehman buy back the securities at their original value, plus interest.

In a statement, Lehman said: "We cannot control the credit markets which have seen unprecedented dislocation, which unfortunately has affected most participants." The company says it believes it has "meritorious defenses" against the Mahers' claim.

Merrill Lynch & Co. recently bought back $13.9 million in debt securities that it sold to the city of Springfield, Mass.

There is much, much more to the story than outlined here and worth the read.