Unfortunately, this is the first of many ...
(snip)" Nov. 29 (Bloomberg) -- Florida officials voted at a special meeting to suspend withdrawals from an investment pool for schools and local governments after redemptions reduced assets by 44 percent in the past month.
The pool had $3 billion of withdrawals today alone, putting assets at $15 billion, said Coleman Stipanovich, executive director of the State Board of Administration. The board manages the pool along with other short-term investments and the state's $137 billion pension fund.
``If we don't do something quickly, we're not going to have an investment pool,'' said Stipanovich at the meeting in the state capitol in Tallahassee. The fund was the largest of its kind, managing $27 billion before this month's withdrawals.
Local governments including Orange County and Pompano Beach that use the pool like a money-market fund asked for their money back after the State Board of Administration disclosed in a report earlier this month that holdings in the fund were lowered to below investment grade.
The board met today to consider ways to shore up the pool, including obtaining credit protection for $1.5 billion of downgraded and defaulted holdings hurt by the subprime market collapse. In voting for the suspensions, officials sought to stem the increasing flood of money leaving the pool and avoid losses on forced sales of assets.
``We need to protect what is there in the interim,'' said Governor Charlie Crist, a Republican and one of three trustees of the State Board of Administration along with Florida Chief Financial Officer Alex Sink and Attorney General Bill McCollum.
`No Liquidity'
The pool has invested $2 billion in structured investment vehicles and other subprime-tainted debt, state records show. About 20 percent of the pool is in asset-backed commercial paper, Stipanovich said at the meeting today.
``There is no liquidity out there, there are no bids'' for those securities, he said.
Stipanovich raised the possibility of having the state pension fund shoulder the risk of some of the troubled securities with a credit-default swap, through which the retirement fund would guarantee the debt in exchange for an insurance premium. Sink immediately rejected the idea. "(snip)
This really blows because it is a double whammy. First, by allowing their tax revenues to be invested in high risk high return SIV's by this state investment pool, Florida municipalities are now going to take serious losses - or will not be allowed to withdraw their money in order to cover current spending commitments.
Second, with a mandate to meet public payrolls / social welfare benefit payouts etc. Florida municipalities are going to have to increase taxes to not only cover their outgoing short term cash commitments but also to cover the investment losses on previously collected tax revenues.



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