Thursday, December 20, 2007

Annals of Privatization - Chapter XXVIII


From Florida's Annals of Privatization-No-Matter-What:

The headline:

The lede:
"As an audit committee attempts to unravel how Florida became so heavily invested in subprime-tainted securities, the state's new investment chief is considering leaving such future decisions to professionals."
The story:
"Bob Milligan, interim director for the State Board of Administration, told Cabinet members Tuesday he believes all of Florida's short-term investments -- from hurricane insurance to operating cash for the state's prepaid college program -- might be better handled by private managers."
The context: Privately owned Wall Street investment bank Lehman Brothers on its own buys billions of dollars of high-risk mortgage derivatives, expecting to make a killing. So do JP Morgan Chase and Bear Stearns, among other Wall Street gurus.

When these investment geniuses at the privately owned Wall Street firms finally figure out they've made a whopper of a mistake -- so huge, in fact, they might lose everything -- what do they do? They hire recently-become private investment consultant Jeb Bush to help them palm off all that bad paper on the Florida Local Government Investment pool so it will take the loss, not them.

Even after the crap privately-owned Lehman Brothers palmed off on Florida was headed firmly south, the Wall Street firm had the temerity, or greed, to try sinking their hands deeper into the state's pockets. "
It suggested that Florida could buy more structured finance commercial paper from Lehman Brothers for the state pension fund, " Bloomberg reports.

But not all Florida local governments
were fooled. Salaried money managers who work for local governments like Orange County and Pompano Beach saw what was happening and promptly withdrew their money from the state fund.

The conclusion: Florida's new governor and his minions say, 'To avoid debacles like this in the future, let's turn over all of our money to Wall Street gurus like Lehman Brothers and JP Morgan.'

What's the thinking here? To avoid burglaries, hire a thief?

Nonsense. Hire those bureaucrats in Orange County and Pompano Beach. They know how to protect public money.

12-20 am

A correspondent asks how our own local governments did during the run on the state fund.

The answer is better than those investment geniuses at Bear Stearns, Morgan-Stanley, and Merrill Lynch & Co. And, a lot better than the state of Florida. As Michael Stewart reported late last month --
Escambia and Santa Rosa counties and the Escambia School Board are among scores of local government agencies statewide that have withdrawn more than $16 billion from Florida's Local Government Investment Pool over the past three weeks because of qualms about its stake in mortgage-backed investments.
* * *
The Escambia School District had $165 million invested in the fund and withdrew $30 million last week and another $100 million on Wednesday — the maximum amount allowed.
As for the City of Pensacola and Pensacola Junior College, not so much:
The City of Pensacola and Pensacola Junior College are among the entities whose investments were frozen after Thursday's action. The city has more than $3.9 million invested in the fund, and PJC's stake tops $5 million.
On the other hand, Lehman Bros. did pretty well, too. The old fashioned way: by screwing their customers.
Lehman, the fourth-biggest U.S. securities firm by market value, boosted 2007 revenue by limiting losses from subprime mortgage-related securities and lifting income from fund management, equities and investment banking. The firm said earlier this week that Richard Fuld, Lehman's chairman and chief executive officer, was granted a $35 million stock bonus for 2007, up 4 percent from last year.
If there was any justice, Patty Sheldon and Ernie Magaha also would have gotten a $35 million bonus.

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