12.05.2007

Will the credit crisis impact state governments?

Fund Crisis in Florida Worrisome to States

Business
Fund Crisis in Florida Worrisome to States
By MICHAEL M. GRYNBAUM
Published: December 5, 2007
The sudden flight from a Florida investment pool points to a broader uncertainty among officials in other states over how far the credit and mortgage crisis might spread.

Excerpt:

Many state governments pool money from towns, schools, and other state agencies into funds in an attempt to earn higher returns. Several of these pools have invested in highly rated vehicles that have since been downgraded by ratings agencies.

“These have been legitimate investments for some time, and some pension funds have made very good money investing in these kinds of vehicles,” said Keith Brainard, research director for the National Association of State Retirement Administrators. “It would not be fair to focus solely on the losses.”

Still, the troubles in Florida have raised concerns about similar funds elsewhere in the country. Montana’s short-term investment pool, which invests money for state agencies and municipalities, has about 23 percent of its $2.25 billion in total assets invested in commercial paper issued by structured investment vehicles, which have been at the center of the recent problems in the credit market.

Comment: Note the term "structured investment vehicles" in the last sentence. See searly CFG post with definitions.

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