Last time the County of Orange went bankrupt, some Republicans blamed the Democrats because the O.C. Treasurer, Bob Citron, was a Democrat. Who will they blame this time? The O.C. Register is reporting that Chriss Street, the current O.C. Treasurer, has “another investment problem, potentially affecting as much as 14 percent of the county’s $6 billion investment portfolio.”
Here are a few excerpts from the Register’s article:
Moody’s Investors Service has announced that it may downgrade $105 billion in structured investment vehicles, including 11 in which Orange County has invested $460 million. A downgrade would reduce the securities’ sale value. Orange County is the only major government agency in California to put public money into this controversial type of security.
Treasurer-Tax Collector Chriss Street
Let’s see…should we put our OC
Money on Red or Black? Why not
just put it on 00…for those of
you who know their way around a
roulette wheel.
Hey….how can you lose in UP
market? Oh, Oh,….things are
changing? Hmmm….
Fast forward SIV’s….which NO
other County in California had
the temerity to fool with…..
——–*From Wikipedia –
A structured investment vehicle (SIV) is a fixed income maturity transformation fund, similar to a CDO or conduit. SIVs are a type of structured credit product; they are usually from $1bn to $30bn in size and invest in a range of asset-backed securities, as well as some financial corporate bonds. Unlike a CDO, an SIV has an open-ended (or evergreen) structure; it plans to stay in business indefinitely by buying new assets as the old ones mature.
SIVs are formed to make profits from the difference between the short term borrowing rate and long term returns. The risk that arises from the transaction is twofold. First, the solvency of the SIV may be at risk if the value of investments falls below the equity part. Second, there is a liquidity risk, as the SIV borrows short term and invests long term i.e. outpayments become due before the inpayments are due. Unless the borrower can refinance short-term at favorable rates, he may be forced to sell the asset into a depressed market.
====================*By by…
Mr. Street!
In case anyone is still confused:
SIV’s are Hedge Funds, Derivatives
and exactly what caused our
original Orange County Bankruptcy
with good old Bob Citron!
Questions abound.
IS this a product bought from Merrill Lynch ? Is this a new item that Street bought since he became treasurer?
Why hasn
Rob,
You can ask all you like. The real question is would or could they do anything?
Once again a large amount of power held in any one hand is dangerous. Especialy if the person enjoys risk and seeks high rewards.
Borrow short, invest long. That was exactly the Citron strategy taht worked just fine until interest rates climbed on short term borrowing, then the borrowing cost more than the investments were returning and bingo – upside down. Now, our esteemed county leaders (It looks like this round of casino investing started on Moorlach’s watch as Treasurer, did it not?)Moorlach and Street invest in the same strategy and guess what – same outcome starting to happen on such investments. There must be a virus in the County Finance Building that infects any resident Treasurer with a false sense of invincibility. Inexcusable.