Some Municipal Governments Bailing Out Of Subprime Investments

(revised 11-30-07)
In Florida, the South Florida Sun-Sentinel reports:

• The nation's subprime mortgage crisis is prompting Florida cities, counties and agencies ... to pull billions of dollars out of a state-run investment fund. The local governments are worried because a state agency has invested their money, plus billions of additional dollars, in funds that are backed by subprime mortgages, the risky loans that have triggered an international credit crunch.

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• [An Orange County, Florida official] said his office took its money out because the state was evasive when questioned about how much was invested in subprime funds and how stable those funds were: "One of the problems is transparency. We haven't been satisfied with the answers we've been given."

For more, see Sub-prime mortgage meltdown causes run on state-managed investment fund (Agencies pull out of state-run fund) (if link expires, try here).

See also, Orlando, Orange County yank millions from state fund (Orlando Sentinel): Reportedly, the Seminole County, Florida school system is so spooked about the subprime junk holdings held by Florida's state-run investment fund that it yanked almost its entire amount on deposit (about $100 million) with the fund. It left $1,000 in the account just to keep it open (if link expires, try here).

Observation: It sounds like those Florida municipalities slow to pull their cash out from this fund may be left "holding the bag."

For story update, see State freezes 'run on the bank' at investment fund (added 11-30-07) (if link expires, try here).

For a related story from Bloomberg, see Public School Funds Hit by SIV Debts Hidden in Investment Pools (11-15-07).

Municipal Governments May Be Stuck Holding Investments Tied To Subprime Junk

A story appearing last month on Bloomberg News reported on the belief of many municipal government finance managers throughout the country that their investment of taxpayer money in state-run government agency investment pools is risk-free and easy. An excerpt from the story:

• It may be easy, but it's not risk free. What [one local official] didn't know in October -- and what thousands of municipal finance managers like him across the country still haven't been told -- is that state-run pools have parked taxpayers' money in some of the most confusing, opaque and illiquid debt investments ever devised. These include so-called structured investment vehicles, or SIVs, which are among the subprime mortgage debt-filled contrivances that have blown up at the biggest banks in the world.

For more, see Public School Funds Hit by SIV Debts Hidden in Investment Pools.

See also a Miami Herald story (12-6-07): State's investment loss of $2.5B falls below standards (The State Board of Administration reported that it has more than $2.5 billion in downgraded investments in several accounts, including the state retirement fund):

• The damage caused to Florida by the turmoil in the mortgage industry is growing. Florida's troubled agency in charge of handling investments, under fire for not disclosing the extent of questionable investments it made on behalf of cities and counties across the state, acknowledged Wednesday it holds more than $2.5 billion in investments that have fallen below the state's quality guidelines.

Go here for related posts on how investors are being affected by investments tied to subprime mortgages, including how a Florida state-run fund recently experienced the equivalent of "a run on the bank" when municipal finance managers throughout the state started frantically pulling their cash from the fund before the state stepped in and froze the fund's assets.

Florida Halts Withdrawls From Municipal Investment Fund; Cities Spooked By Level Of Subprime Junk Investments

In Florida, the South Florida Sun Sentinel reports:

• In an effort to halt what one official called "an investment world version of a run on the bank," state officials froze withdrawals Thursday from a $27 billion investment fund that local governments drained by almost half during the past two weeks.

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• The state-run program allows local governments and agencies to combine revenues in short-term investments at low financing costs, while earning interest with easy access to the money to pay bills. Earlier this month, the state notified local finance directors that some investments were exposed to sub-prime mortgage risk.

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• The freeze, in effect until Tuesday, was ordered by the State Board of Administration, composed of Gov. Charlie Crist, Chief Financial Officer Alex Sink and Attorney General Bill McCollum. The SBA, which manages the fund that on Nov. 15 held about $27 billion, was left with a little more than $14 billion Thursday night.

For more, see State freezes 'run on the bank' at investment fund (when link expires, try here).

For yesterday's post on this story, see Some Municipal Governments Bailing Out Of Subprime Investments.

For a related story from Bloomberg, see Public School Funds Hit by SIV Debts Hidden in Investment Pools (11-15-07).

Florida Lifts Freeze On Fund Holding Investments Tied To Subprime Mortgages; Concerned Municipalities Promptly Pull Out Another $1.2 Billion

Bloomberg News reports today:

• Schools and towns in a Florida fund that lost almost half its assets to withdrawals last month pulled out another $1.2 billion today when the state lifted a freeze on their accounts, officials said in a statement. Cities and counties that use the Local Government Investment Pool like a bank account are able to tap their funds on a limited basis ... . [...] Participants will have full access to new deposits and 86 percent of existing balances, from which removals are limited to the greater of $2 million or 15 percent.

For more, see Florida Fund Reopens, Has $1.2 Billion of Withdrawals.

See also, Florida Fund Caps Withdrawals as Towns Face Hardships.

For story updates, see:

• Florida Fund Assets Reduced By $1.9 Billion After SIV Losses (Bloomberg News - 12-12-07),
• Crist: State won't bail out investment fund (The Miami Herald - 12-12-07),
• Florida says $9B can't be pulled from fund (Local governments can't pull out more than $3B for now) (Orlando Sentinel - 12-12-07),
• Florida-run investment fund wobbles to recovery (Sarasota Herald Tribune - 12-12-07),
• State to investigate Local Government Investment Pool (The Miami Herald - 12-11-07)

Go here for related posts on this story. state run subprime

Investments Tied To Subprime Junk May Leave Florida Pension Fund "Holding The Bag"

In Florida, Bloomberg News reported this week:

• Florida's pension fund owns more than $1 billion of the same downgraded and defaulted debt that sparked a run on a state investment pool for local governments and led officials to freeze withdrawals, according to documents obtained by Bloomberg News through an open records request.

Some of the notable quotes in the story:

• "These were highly inappropriate investments for taxpayers' money,'' said Joseph Mason, a finance professor at Drexel University in Philadelphia. "This is the tip of the iceberg for pension funds. We know the paper is sitting there. There are substantial subprime-related losses that haven't shown up yet.''

• "Garbage is garbage,'' said Harvey Pitt, former chairman of the Securities and Exchange Commission. "Once they recognize it's not fit for human consumption, they have to exercise their fiduciary obligation and get rid of it.''

For more, see Florida Pension Fund Has `Suspect' Debt Held by Pool.

Go here for related posts on how investors are being affected by investments tied to subprime mortgages, including how a Florida state-run fund recently experienced the equivalent of "a run on the bank" when municipal finance managers throughout the state started frantically pulling their cash from the fund before the state stepped in and froze the fund's assets.

Senior Citizens, Retirement Funds Victimized By Subprime Lending Mess

(modified 12-6-07)
The South Florida Sun-Sentinel recently reported:

• "Dozens of South Florida senior citizens have lost millions of dollars of their savings because their brokers bet wrong on risky mortgage-backed securities after promising them a stable investment. Coral Springs lawyer Darren Blum said ... that his firm, Blum & Silver, is representing about 25 investors who had invested $20 million with Brookstreet Securities, a California firm that has brokers in at least a half-dozen South Florida offices. Many investors are planning legal action to recover their losses, and for damages and attorney's fees."

According to Blum, "We've had people in their 80s in here in tears. These people are devastated." For more, see Brokers' wrong bets cost South Florida seniors millions.

Go here for related posts on how investors are being affected by investments tied to subprime mortgages, including how a Florida state-run fund experienced the equivalent of "a run on the bank" when municipal finance managers throughout the state started pulling their cash from the fund.

Go here , go here , and go here for other posts on elder financial abuse. yak state-run elder financial abuse