Letter: MWSD not affected by county financial fiasco

I’m curious whether the county’s fund seemed like a poor investment compared to the state fund before Lehman collapsed. 

Were there any red flags?

There were indications six months ago that Lehman management was going to stay the course with their sub-prime and low quality mortgage portfolio and Credit Default Swaps hedges.  As short sellers increased the spread on those CDS’s, Lehman’s position became weaker and weaker.  Lehman stock declined.  Many investors dumped Lehman stock and money market funds dumped Lehman’s commercial paper.  But, many felt Lehman was too big to fail. Bear Sterns had been bailed out earlier in the year.  Lehman was allowed to fail.  Probably because Lehman was too big to save with AIG also in trouble at the same time.  Also, Treasury Secretary Paulson probably wanted to soften up the other troubled investment firms and banks by making an example of Lehman.  News reports have Treasurer Buffington now trying to recover what he can of his Lehman investments.  We can all remember him next time he is up for reelection.

I’m not sure what to make of Paul Perkovic’s post.  I don’t see a lot of transparency in the State Controller’s LAIF statements.  What commercial paper?  While our Federal government starts pondering its new sovereign funds like GNMA, who knows how the terms of GNMA assets(mortgages) will be effected by defaults and by Federal government policy around renegotiating mortgages?  Maybe everybody gets a haircut.  It’s time to be humble and recognize we are all in this together.

Vince,

My post is perfectly clear. MWSD has no involvement in the losses posted by San Mateo County’s investment fund and reported widely by the San Francisco Chronicle, which might have raised concerns among our constituents.

The link to the LAIF site allows anyone access to the same information our Board of Directors and management has available. At this point we have not heard of any problems with LAIF investments, but with the financial collapse on Wall Street having many unanticipated side effects, no one can accurately predict what will happen to any district’s invested funds in the future.

If you see a Chronicle headline about LAIF losses, that’s the appropriate time to ask how much MWSD was affected. Until then, you can relax—as much as that is possible with the current uncertainty in the financial markets.

Like all government agencies receiving property tax revenue, MWSD has some exposure to adjustments in assessed valuation resulting from the collapse of the housing bubble. MWSD’s exposure is minor compared to Cabrillo Unified School District, Coastside Fire Protection District, the City of Half Moon Bay, San Mateo County, and the San Mateo County Community College District, which all receive larger shares of the property tax dollar.

All of Paul’s comments regarding MWSD are equally applicable to GSD, since GSD’s reserves also are in LAIF.  GSD’s near-term operational money is in a local branch of a big bank.

Regarding the County Fund, Barry asked “Were there any red flags?”  Um, maybe the word “County”?

Perhaps the districts using the County Treasurer should investigate whether they, like the sanitary districts, are allowed to appoint their own Treasurer and manage their own money.

Paul,

OK, let’s cheer MWSD for dodging the Lehman failure.  But, what’s the point, when we all took a hit in our other local districts.  Like I said in my previous post,  I don’t see enough transparency in the State Controller’s LAIF investments.  If the State LAIF funds were all in three month T-Bills, I’d give MWSD a gold star for fiduciary responsibility, this week.  But, they aren’t.

This past week the nine largest banks in this country were summoned to the Treasury Department and told they have to accept an investment by the Federal government.  The reports are one or two executives postured they didn’t need the government investment.  All nine were convinced to take it.  Take the hint.  This is not a time for posturing.

Leonard,

You don’t mention what entity is holding GSD’s LAIF.  Does GSD have their own Treasurer?

I believe CFPD was soliciting for a Treasurer and investigating getting out of the SMC Treasurer’s LAIF, when the Lehman failure occurred.

Vince, your first question is a non-sequitur.  LAIF is the Local Agency Investment Fund, a pooled investment account managed by the State of California.  There is only one LAIF for all California entities which choose to use it.  I think there are billions in LAIF.

GSD has our own treasurer, but staff does the work.  The Treasurer basically reviews the work and signs some authorizations.

Leonard,

Thanks.

Isn’t the State Controller’s LAIF fund pool that MWSD and GSD utilize separate from the SMC LAIF fund pool Treasurer Buffington manages?  California Government Code section 53684 appears to allow Counties to maintain their funds separate from the State and Local Districts to utilize the County fund.

My understanding is that county pooled funds are totally separate from the State LAIF.  However, because GSD does not use it, I know essentially nothing about the SMC pool.  But I don’t think it’s referred to as LAIF—I’ve never heard that.