http://money.cnn.com/2007/11/30/news/econo...sion=2007113006

Florida halts run on investment pool
Local governments shaken over mortgage-related securities
are suspended from making withdrawals.

November 30 2007: 6:22 AM EST

TALLAHASSEE, Fla. (AP) -- Florida officials suspended withdrawals from a state-operated investment pool Thursday, abruptly halting a run by local governments spooked over the downgrade of its mortgage-related holdings.

The State Board of Administration, chaired by Gov. Charlie Crist, acted during an emergency meeting after local governments had taken out nearly $10 billion, or 40 percent of the pool's assets, in the past two weeks. That included $3.5 billion Thursday morning.

The investment pool is similar to a private money-market fund. Cities, counties, school districts and other local entities invest money on a short-term basis in the fund and withdraw cash when needed to make payrolls and pay other operating costs.

The suspension will remain in effect at least until Tuesday, when the board will meet again to consider proposals for shoring up and restoring confidence in the pool.

The pool had nearly $25 billion in assets when the run began after about $900 million in asset-backed commercial paper had been downgraded below purchase credit rating guidelines.

"Participants are scared to death," said Coleman Stipanovich, the board's executive director. "If we don't do something quickly, we're not going to have an investment pool."

Risky money market fund bets may be illegal
Stipanovich blamed the run on a news report that characterized the downgrading as a default, which he disputed. At least one local government - Leon County - withdrew its money before the article was published after learning about the downgrade.

"No matter what's motivating it, whether it's factual or not factual, it's almost irrelevant at this point," Crist said. Wayne Blanton, executive director of the Florida School Boards Association, said districts have other assets and lines of credit they can use until Tuesday.

"We can make payroll, but the fact is the purpose of that system is to help us move our money in and out and at any given time - 24 hours a day," Blanton said. "Right now they have frozen that ability."

Crist and the other board members, Chief Financial Officer Alex Sink and Attorney General Bill McCollum, were worried that without suspending withdrawals, the pool would run out of money because the downgraded assets would have to be sold at a loss. That would leave the last local governments in the pool with nothing.

McCollum participated by telephone from Utah, where he is attending a meeting of the National Association of Attorneys General.

Stipanovich proposed using the state's $137 billion pension fund to secure the downgraded paper, but board members were cool to that idea. They voted, instead, to seek advice from outside financial experts before considering the proposal again Tuesday.

"It's something that, speaking for myself, I'm not excited about," Sink said.

Crist agreed. He said he didn't want to do anything to harm the pension plan and state and local government employees who depend upon it.

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Florida Schools Struggle to Pay Teachers Amid Freeze (Update4)

By David Evans

Nov. 30 (Bloomberg) -- School districts, counties and cities across Florida sought to raise cash after being denied access to their deposits in a $14 billion state-run investment fund.

The Jefferson County school district was forced to take out a short-term loan to cover payroll for the 220 teachers and other employees in the system after $2.7 million it held in the pool was frozen yesterday. At least five other districts also obtained last-minute loans, said Wayne Blanton, executive director of the Florida School Boards Association.

``The unthinkable and the unimaginable have just happened here in Florida,'' said Hal Wilson, chief financial officer of the Jefferson County school district, located 30 miles (48 kilometers) east of the state capital Tallahassee. ``What we just experienced here is a classic run-on-the bank meltdown.''

...
Standard & Poor's yesterday said it contacted state officials about whether the fund holds any money for debt service payments by local governments and whether that cash will be made available. The credit-rating company said it hadn't yet received information and was monitoring the situation.

The Florida fund had invested $2 billion in structured investment vehicles, or SIVs, and other debt tainted by the collapse of the subprime mortgage market, state records show. Connecticut, Maine, Montana and King County, Washington, are among other governments holding similar investments, in smaller quantities, in some cases prompting redemptions.

In Montana, school districts, cities and counties withdrew $247 million from the state's $2.4 billion investment pool in the past three days. The fund's executive director in a Nov. 28 memo said the pool held $90 million in an SIV issued by Axon Financial that was downgraded to D, or default, by S&P earlier this week.

...
The investment pool's debt holdings that were downgraded below its minimum standards have a face value amounting to about 10 percent of the pool. Officials disclosed the investments in a report delivered to Crist Nov. 14 following a month of inquiries by Bloomberg News.

``This situation points up the need for monies held in trust by local and state governments to be subject to searching due diligence and constant risk assessment,'' said Harvey Pitt, former chairman of the U.S. Securities and Exchange Commission.

Downgraded Debt

The fund's $900 million of asset-backed commercial paper that was downgraded to default amounts to 6 percent of its assets. Another $650 million, or 4 percent, is invested in certificates of deposit at Countrywide Bank FSB, a unit of Countrywide Financial Corp. The bank's rating was cut to Baa1, three levels above junk status, by Moody's Investors Service on Aug. 16.

The pool owns $168 million of debt from KKR Atlantic Funding Trust cut to D from B by Fitch Ratings on Oct. 8. It also has $356 million issued by KKR Pacific Funding Trust, cut to D from B by Fitch Ratings on Oct. 2. Fitch said the cut to default on the debt reflected non-payment under the original terms. The debt was restructured to extend the maturities to February and March, and interest payments are continuing.

Default Rating

Florida's pool has $180 million of paper from Ottimo Funding, cut to D from C by S&P on Nov. 9. S&P said an auction of Ottimo's collateral ``did not generate cash proceeds'' to repay the asset-backed commercial paper.

The pool also holds $175 million of short-term debt issued by Axon Financial Funding, the SIV also held by Montana. It was cut to D from C by S&P this week. S&P said Axon failed to pay liabilities maturing Nov. 26, causing an ``automatic liquidation event.''

Wilson at Jefferson County said he plans to withdraw the school district's money from the pool as soon as he can, and won't consider investing there again.

``They won't have to worry about little Jefferson County any more,'' Wilson said.

To contact the reporter on this story: David Evans in Los Angeles at davidevans@bloomberg.net .

Last Updated: November 30, 2007 21:01 EST

TICK...TICK...TICK...

http://www.bloomberg.com/apps/news?pid=206...&refer=home

Florida Just First to Face National Run on the Bank: Joe Mysak

By Joe Mysak

Dec. 4 (Bloomberg) -- Florida officials are going to meet today to talk about the crisis in the state's Local Government Investment Pool.
I don't know what they are going to talk about, but I know what they had better decide.

The State Board of Administration runs the pool, and its three trustees, Governor Charlie Crist, Chief Financial Officer Alex Sink and
Attorney General Bill McCollum, had better decide that it's in the best interest of the state to ensure that all of the pool participants get their money back.

The investment pool, which contained $27 billion this summer, now has $14 billion, the result of withdrawals by municipalities with keenly
developed senses of self- preservation. On Nov. 29 the board told the remaining participants they couldn't withdraw any more money from the pool.

The pool, which is where most of the state's municipalities put their money when they are not using it, owns $1.5 billion in securities
that have been downgraded or defaulted as a result of the subprime market collapse.

In freezing the pool, Coleman Stipanovich, executive director of the board, said, ``If we don't do something quickly, we're not going to have an investment pool.''

The state stopped the clock.

The same clock is ticking for every state in the country where school districts and cities and towns put their faith in someone else,
usually at the county or state level, to manage their money.

What's It Worth?

This means, I think, most of them.

Of course, that's the problem with Muniland in general: Nobody ever really knows precisely what's going on when a crisis like this hits.
There might be as many as 100 pools like this across the nation, with assets of something like $200 billion.

They are supposed to offer daily liquidity for the public sector in much the same way that money-market funds do for the private sector.
They are supposed to invest their clients' money in the safest possible securities, good old boring things like U.S. Treasuries, top-rated commercial paper and certificates of deposit.

It seems, however, that some of the commercial paper investments the Florida pool, and others like it across the country, purchased were backed
by subprime mortgages and other things that have declined precipitously in value.

The people who manage the funds find themselves in the position of not being able to figure out exactly what the assets are worth,
because they don't trade, or don't trade much, and no one seems to know what the stuff is.

Cents on the Dollar

Got that? Neither do I. Let me try this again. These state and county-sponsored pools invested in highly rated short-term securities
that were subsequently downgraded really fast or even went into default because of the subprime disaster.

When word somehow gets out that the pools own this stuff, either because the pools themselves 'fess up or because some enterprising
reporter drags the information out of them with open-records requests, pool participants withdraw their money.

If enough participants withdraw, the pools will have to sell some of that stuff that nobody can figure out what it's worth.
You can bet that Wall Street, which packaged and sold the stuff in the first place, isn't going to offer 100 cents on the dollar for it.

This means that not everyone will get all their money back. On Nov. 30, an advisory panel of local governments in the Florida pool
held a conference call with members of the State Board of Administration.

The SBA put out a ``Preferences Survey'' for discussion, and Question No. 1 was ``What percent of your current holding would you withdraw in December 2007, if it meant you would receive 99 cents on the dollar?'' The next three questions were exactly the same, except with 98 cents on the dollar, 95 cents on the dollar and 90 cents on the dollar.

Eyes on Florida

The municipal officials on the call would have none of it. They want 100 cents on the dollar. Anything less, they said, would be unacceptable.

They were a pretty conciliatory and reasonable bunch. They kept saying that what was needed was to restore confidence and trust in the fund.
Most said they did not have immediate needs - -such as covering payroll or making debt-service payments -- and that they thought
some provision should be made for the smaller municipalities among them who did.

The key word here, of course, is trust, and that is in very short supply at the moment. The state might make a real statement today,
and assure municipalities that the great subprime meltdown of 2007 won't swallow them up.

Or it can let them all dangle. I have a feeling other municipalities across the nation will be watching, ready to reach for the telephone and bring their own deposits home.

(Joe Mysak is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: Joe Mysak in New York at jmysakjr@bloomberg.net

Last Updated: December 4, 2007 00:02 EST

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Florida Fund's Debt Has `Indeterminate Value,' BlackRock Says

By Darrell Preston and David Evans

Dec. 5 (Bloomberg) -- Much of the debt held by a $14 billion Florida investment fund for schools and local governments is worth less than face value and the rest is so troubled that its value can't be determined, according to an official at the Wall Street firm hired to turn around the fund.

``I don't think there are very many securities in this market we can liquidate at par,'' or 100 cents on the dollar, Chris Stavrakos, co-managing head of cash management for New York-based BlackRock Inc., said in an interview yesterday.

The more than $2 billion of the worst securities that state officials agreed yesterday to spin off into a second investment pool have an ``indeterminate value,'' he said. Of that, about $867 million is in default, or 6 percent.

Coleman Stipanovich, the executive director of the agency that oversees the fund, resigned yesterday and BlackRock, which invests more than $1.3 trillion in fixed-income and other assets, was named interim manager.

Stipanovich's resignation came after more than $13 billion was pulled from the fund as the extent of the assets in trouble came to light. Investors have been cut off from their funds since Nov. 29, when the State Board of Administration froze withdrawals amid a run on the pool, which was the largest of its kind in the U.S. at $27 billion.

Local governments, school districts and other participants in the pool, a type of money-market fund, will have to wait to find out when and how much they will recover. The investors will temporarily lose access to 14 percent of their cash under BlackRock's plan.

----------------------

Bet your bippy county execs are checking their investments like madmen about now...

From first story:

Lehman Brothers Holdings Inc. sold Florida most of its now- default-rated asset-backed commercial paper. Lehman spokesman Randall Whitestone declined to comment.

CNBC had an analyst say tonight to sell Lehman because they will probably be sued (because of the FLA debacle).

http://www.bloomberg.com/apps/news?pid=206...&refer=news

Florida Towns, Schools Pull ... from Fund
(Update2)

By Darrell Preston

Dec. 7 (Bloomberg) -- Florida schools and towns pulled more than $1.7 billion from a state investment pool in the two days since a freeze on their accounts was lifted, as local governments remained wary of keeping money in a fund with subprime mortgage-tainted holdings.

The withdrawals amounted to 15 percent of the portion of the fund's assets to which local governments were given access under a restructuring by BlackRock Inc. Investors removed $560.7 million today, compared with deposits of just $8.5 million since yesterday, according to the State Board of Administration, overseer of the Local Government Investment Pool.

``People are still in the calming down phase, when we fully expect there will be withdrawals,'' said Simon Mendelson, managing director and chief operating officer of cash management at BlackRock, in a telephone interview from Tallahassee.

The withdrawals suggest state officials have yet to restore confidence in an investment fund that was the largest of its kind in the U.S. at $27 billion before schools and cities pulled almost half their deposits last month. Municipalities used the fund like a bank account and were accustomed to tapping it on short notice for day-to-day expenses.

Paying the Price

BlackRock, hired Nov. 30 to salvage the fund, walled off $2 billion of the weakest investments and imposed restrictions to limit withdrawals, including imposing a 2 percent fee on redemptions that exceed certain levels. Some governments have been willing to pay that price to get their money out.

``The city council met and decided that the pool had done nothing to inspire confidence,'' said Bob Brown, city manager of Perry, Florida, which paid a $110,000 penalty to take out $5.5 million more than it was allowed under the limits. ``They were concerned there would be another run.''

Perry, the Jacksonville Electric Authority and Desoto County together paid $1.4 million in penalties yesterday to remove $66.7 million from their accounts, the State Board of Administration said in a statement.

The withdrawals were ``well within what we expected and well within the capacity of the pool to handle,'' said Mendelson at BlackRock, the largest publicly traded U.S. fund manager.

Participants are able to withdraw the greater of $2 million or 15 percent of their deposits, and have full access to new deposits under BlackRock's plan.

`Building Trust' Phase

None of today's withdrawals triggered the 2 percent penalty and those who paid yesterday did so on ``a very small amount of assets,'' Mendelson said. He expects withdrawals to decline in the next few days and weeks as the fund enters what he called the ``building trust phase.''

Perry officials decided the state didn't do enough to inspire trust at a special city council meeting called the night of Dec. 5, said Brown. The meeting came after state officials approved the restructuring Dec. 4 without considering a request from pool members for a guarantee that investors would get all their money.

``We decided we wanted a bird in the hand after the state ran away from the proposal for a guarantee,'' said Brown. ``They said the fund was either going to sink or swim on its own.''

Jacksonville Electric Authority also pulled its funds after deciding the state hadn't done enough to reduce its risk in the fund, said Paul McElroy, chief financial officer of the authority. The authority ``came to the conclusion that it was in the best interest of the company to incur the penalty and invest the funds elsewhere.''

Testing the System

The South Florida Water District withdrew $3.4 million yesterday, leaving $92 million still in the pool.

``I'm not sure when we'll be making more deposits,'' said Paul Dumars, finance chief for the utility. ``We want to allow to the fund to work itself out.''

Hernando County Schools made a small deposit, adding $759,000 to the pool and withdrawing $9 million.

``We took out our maximum amount -- 15 percent -- to test the system,'' said Deborah Bruggink, chief finance officer for the Hernando schools. ``As long as liquidity is there, we have some confidence.'' Hernando will deposit $10 million more in January and probably do so for each month afterward, Bruggink said.

To contact the reporters on this story: Darrell Preston in Dallas at dpreston@bloomberg.net .

Last Updated: December 7, 2007 16:33 EST

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Florida to Divert Interest Income to Shore Up Fund (Update2)

By Demian McLean and David Evans

Dec. 11 (Bloomberg) -- Florida's state investment pool will keep November's interest income instead of paying it to counties and schools, using the $95 million to shore up a troubled portion of the fund.

The move was announced today by officials from the State Board of Administration and BlackRock Inc. at a Tallahassee meeting of local governments invested in the pool. The fund was the largest of its kind at $27 billion until participants pulled out almost half that amount last month.

The loss of November income adds strain to counties and towns already stretched by withdrawal limits imposed under a restructuring by New York-based BlackRock. Until last month, members used the Local Government Investment Pool as a bank account, tapping it daily for payroll and other expenses.

``We thought we'd earned interest for the month,'' said Jim Moye, chief deputy controller for Orange County. ``Under the rules, we don't see any regulation that allows them to do that.'' He estimates his county, home to Orlando, will forgo $700,000 to $800,000.

Others reiterated calls for outside help.

``Where's the state? What can they do?'' asked Bill Montford, chief executive officer of the Florida Association of District School Superintendents.

Walled-Off Holdings

November's diverted interest will go toward a $2 billion portion of the pool containing subprime mortgage-tainted investments that's closed to investors. Disclosure of those downgraded and defaulted holdings last month spurred local governments to pull their assets, prompting a freeze on accounts and leading to the resignation of the head of the agency overseeing the pool, Coleman Stipanovich.

The State Board of Administration today named Robert Milligan, a former Florida comptroller and retired Marine lieutenant general, as interim executive director until a permanent replacement is chosen.

Alex Sink, Florida's chief financial officer and a state board trustee along with Governor Charlie Crist and Attorney General Bill McCollum, called Milligan ``a proven leader.''

BlackRock, the money management firm hired by the State Board of Administration to salvage the pool and temporarily manage it, set withdrawal restrictions to stem a further run on assets when part of the pool reopened last week.

Sink yesterday asked Florida's inspector general to probe whether the fund broke its own investment rules when it bought securities tied to subprime mortgages.

More Withdrawals

The decision on November income, made last week and discussed today, comes as the $12.2 billion pool announced its fourth day of net withdrawals since the suspension on funds was lifted. Pullouts declined to $84 million today from $1.2 billion the first day the fund reopened on Dec. 6.

``We've restored calm, we've clearly not restored confidence yet,'' said Simon Mendelson, chief operating officer of BlackRock's cash management business. Investors have removed $1.9 billion from the fund in four days and deposited just $51.1 million.

At today's meeting, BlackRock officials said Wachovia Corp., the fourth-largest U.S. bank, will offer loans to Florida schools and counties that want to pull out more than is allowed under the restructuring.

Investors may be able to borrow as much as 100 percent of the $10.2 billion to which they have access under BlackRock's plan. Interest rates for the loans weren't mentioned.

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Interesting, they invested in bad paper so they hold out the money made on good paper to cover the bad.
But, hey they will offer Wachovia loans (a huge bank smacked badly by the same bad paper) to investor's
whose interest is withheld. We keep your interest and offer you a chance to pay more interest...to a bank that
is up to it's neck in bad (sub-prime) paper too. That's gotta hurt!