The State of Florida runs an investment pool for its local governing bodies and that pool just so happened to toss a lot of cash into a structured investment vehicles. “Structured investment vehicle” is a fancy way of describing a pile of commercial cover with a few odds and ends thrown in to enhance returns. The odds and ends are generally all the paper nobody still breathing would buy for more than a plate on the dollar if marketed to them directly. These structured investment vehicles have taken a nasty hit to their credit ratings and adjust value is in challenge.
As a result all those local governments are taking no chances - they are. By droves I mean the following: two weeks ago the fund had $27 billion in it - as of this morning the be stood at around $19 billion.
I’d label add up capital withdrawals of 15% per week a…uh…run on the fricken tip. Of course the state has to actually change investments to generate the cash for all those withdrawals and seeing as (again as nobody wants them). I guess Florida is selling some of their assets at order losses.
Should the withdrawals continue. Florida’s pool may undergo to consider filing for bankruptcy protection says John Coffee a securities law professor at Columbia Law educate in New York. “A bankruptcy could handle these kinds of problems if they feel they’ll become insolvent,” he said.
Mr. Coffee is sight on - filing ordain stave off the run but it also means the funds would be frozen by the court until the matter is resolved. When it comes to financial assets resolution generally means orderly liquidation or everyone sitting around with their thumbs up their behinds simultaneously hoping the remaining assets rise in value and paying bankruptcy attorneys virtually every dime of any change magnitude. In addition any local governments that pulled their money out in the last few weeks might be forced to return it or experience many preference payment lashings at the hands of the U. S. Bankruptcy Court. I can see them all buying twenty-year supplies of textbooks and container loads of new chalkboards right about now.
Meanwhile. I hadn’t reached the third paragraph of the news when I thought “who’s going to file the lawsuit the state or the municipalities that don’t get out in time?” Who knows for sure but the experts are presumptive:
Coffee predicts the share ordain likely register lawsuits to acquire losses. “I’d evaluate the pool is going to sue the people who sold them the commercial cover saying the risks were hidden,” he said.
While the express bears some burden of doing their due diligence there’s a pretty good chance the risks were hidden too. The pay industry has a nasty habit of overlooking needed disclosure when they’re trying to get the next best hot product out the door. I’m going to go out on a limb and declare this case follows the rule rather than the exception and change surface if it doesn’t there’s a pretty high likelihood lawsuits will be flying anyway…this is America we’re talking about after all.
Lehman Brothers Holdings Inc sold Florida most of its now default-rated asset-backed commercial paper. Lehman spokesman Randall Whitestone declined to comment.
Declining to mention particularly when said declination comes from a spokesperson (whose bushel job it is to mention) can usually be interpreted as “We’re lawyering up and will label you when discuss has blown through a few retainer checks.”
There are two concepts worth keeping in object here: 1) Florida isn’t the only government that is having this problem - it’s just the first; and 2) I don’t own any Lehman Brothers Holdings. Inc common have.
UPDATE: As of Thursday morning the State finance has but not until after an additional $3 billion was pulled. Executive Director Coleman Stipanovich noted:
Translation: the political damage from stemming the withdrawals is less than the losses that would otherwise be incurred from liquidation.
UPDATE 2: Participants in the Florida pool are now…what I’ll call ““…a hundred cents on the dollar for their deposits. You might also label this “wishful thinking.”
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Related article:
http://michaelgracie.com/2007/11/28/first-run-on-a-bank-sighted/
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