Friday, November 30, 2007

Florida Freezes $15 Billion Fund as Subprime Crisis Hits

Well while the folks in New York City high five the bailout of multi millionaires by our tax dollars, here is what is happening on Main Street. Folks, think of the credit system as a huge spider web. The strings are only just beginning to snap in the middle - these nasty SIVs and CDOs are widespread and in places you'd never think of. We won't know about them, until they become clear one by one. For those of you who remember Orange County going bankrupt in the 90s - let's see what 2008 brings us at the county/state/city level.

Here is another string in the web per CBSMarketwatch:
  • Florida halted withdrawals from a $15 billion local-government fund Thursday after concerns over losses related to subprime mortgages prompted investors to pull roughly $10 billion out of the fund in recent weeks.
  • The State Board of Administration met earlier Thursday and voted to immediately freeze withdrawals, spokesman Michael McCauley said.
  • The decision shows how far this year's subprime-fueled credit crisis has spread. Florida's Local Government Investment Pool, which had more than $27 billion in assets at the end of September, is like a money-market fund that's supposed to invest in ultrasafe assets to provide participants with a secure place to stash spare cash. But even these types of funds have been hit by the widening crunch.
  • "It's spreading into areas that people didn't expect and this is a good example," Richard Larkin, a municipal bond expert at JB Hanauer & Co., said. There will likely be more state funds in similar predicaments because they use similar investment guidelines, Larkin and others said.
  • "Investors will now be looking at other investment pools around the country, and we can be sure that Florida wasn't the only state to be lulled into taking on riskier debt in order to boost money market returns," Win Thin, senior currency strategist at Brown Brothers Harriman & Co., said. "This is bad news, no matter how you look at it."
  • Still, the interest payments on some of these securities are now being delayed. Rating agencies and other experts have traditionally consider a default occurring when investors don't get paid in full and on time, Larkin said.
  • Florida's Local Government Investment Pool, has $400 million in Axon Financial, a SIV run by Dinakar Singh's TPG-Axon hedge fund firm, according to the state board's Nov. 9 update. It also has almost $850 million invested in similar two vehicles sponsored by KKR Financial Holdings. Another $577 million is in OTTIMO Funding Ltd., sponsored by Aladdin Capital Management, another hedge fund firm.
  • These four vehicles have been downgraded and forced to restructure because they had trouble refinancing themselves in the asset-backed commercial paper market, the state board said on Nov. 9
Now remember, hedge funds argue they should be unregulated and for people to mind their own business and leave them alone because they provide liquidity to the system and absorb risks, and keep risk levels down in our economy. Right? Right! Just so we're straight on that. Remember, regulation is evil. Let everyone self regulate because humans never succumb to greed or anything like that, left to their own devices... no, of course not. ;)

Meanwhile your tax dollars are hard at work bailing out this liquid and safe system, full of "regulated" banks, exotic overleverged hedge funds, private equity which pays taxes at a 15% tax rate (while you are paying 28, 30, 35%) etc. And when things go awry, your tax dollars will help bail them out. This is why we are having a great day on Wall Street. The systems works! (for them) Keep smiling, and enjoy your +$3200 in your Ameritrade account today, because somewhere people are making multi millions/billions and patting Ben on the back in thanks. Remember, free markets rule. Until we need bailouts. Oh yeh, all this money we are feeding into the financial system? That is supposed to be going back out to the financial system for loans? Banks are hording it to shore up their balance sheets because they are so undercapitalized. Instead of delivering it to people who need it... after all bonus season is right around the corner and we need to keep up appearances until Dec 31st - these bonuses are near and dear to our economy so that Tiffany's, Ferrari, yacht companies, et al can have another great year.

Ahhh, capitalism.

I am buying more Ultrashorts into this facade and sham of a system.

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