If the broker is forced to buy back the ARPS from the shareholders, can they use their  newly acquired ability to borrow from the FED to finance this action?

What we are looking for is the return of liquidity in the auction rate market. Maybe the solution requires a compromise from all parties and some help from Uncle Sam? 

(1) The broker agrees to guarantee  the auctions. (2) The Fed agrees that when an auction fails, the brokers can borrow from the fed, at the penalty rate of the ARPS. This guarantee will bring liquidity back, and the Fed will very likely not be impacted as buyers return. The buyers will return  once the confidence in the success of the auction returns.

Who are the winners in this scenario?

Common shareholders of CEF's - (The leverage uncertainty penalty  currently priced in to the  stock price will fade)

Preferred shareholders of ARS - (Liquidity)

Broker's - (Litigation evaporates)

Issuer's - (They can go back to the business of generating returns)

US Citizen's - (CEF's invest funds in businesses and municipalities  and make loans that benefit the general public)

 Who are the losers?

The Lawyers. 

Sound like a crazy idea? Heck we are in a crazy situation.