Friday, November 30, 2007

No Redemptions For You

Florida officials have suspended redemptions from that state-run investment fund I told you about yesterday.

Local governments and public school funds were pulling their money out after news broke earlier in the month that the fund is backed by at least $700 million dollars of defaulted debt and other high-risk structured investment vehicles (SIVs.)

After redemptions by local governments and public school funds reduced assets in the fund portfiolio by 44%, Florida officials put a stop to future redemptions.

Before the run of redemptions, the fund had $27 billion in assets. Now it has $15 billion remaining.

Calculated Risk posts that there are serious questions about the investment decisions made by the people running the pool. While only $700 million has gone bad so far, the fund has also invested $650 million dollars in CD's in Countrywide Bank, an institution that could very easily go belly-up at any time due to mortgage problems and credit crunch issues.

But if you haven't already gotten your dough out of that state-run pool before today, you have to sit tight and hope/pray the rest of it doesn't go bad.

The lesson learned?

With Wall Street awash in non-transparent complex structured investment vehicles that you have to be a lawyer, an attorney and a nuclear scientist to figure out and with the government and the Federal Reserve having encouraged the expansion of such speculative products over the past few years, many people, many pension funds, many local governments and even foreign towns are at risk of losing it all.

And unless you're one of the Wall Street shills or crooked fund managers who were hawking this fraudulent garbage (they called it "financial innovation" at the time), you probably have little idea how bad it can get.

I believe it was Bob Dylan who said "If you steal a little, they throw you in jail... if you steal a lot, they make you Fund Manager of the Year."
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