We hear alot in the news about the problems that have been created by the subprime mess.  But frankly, we haven’t even scratched the surface.  There has been talk of the financial problems of home owners going into forclosure, the tightening credit standards making it impossible for folks to refinance, declining property values, etc.  We have even managed to make light of the social effects the crisis is having on neighborhoods and families.  However, we are starting to see the ripple effect take its toll in ways no one had thought of.  Thanks to an open records request made by Bloomberg it has come to light that a Florida School Fund is being “rocked by an $8 BILLION pull out”.

Here’s the watered down version…..  Basically, the Florida State Board of Administration manages aprroximately $42 billion in short term investments which includes the state pension program and the investment pool for both local governments and the state school districts.  Word gets out that the investment managers bought assest backed commercial paper that has defaulted.  Local governments and school districts get nervous and start pulling their money from the pool.  If the run on the pool continues, the pool then may face bankruptcy.  You know how the story ends.  The last one there is the one that doesn’t get their money.  And Florida isn’t the only state that invests in these pools.

 So, local governments and school districts are lossing their money due to someone investing “$2 billion in structured investment vehicles and other subprime-tainted debt”. This is estimated to be 20% of the pool.  Further, the pool has been reduced by 44% percent from the recent redemptions of Orange County and other local governments and school districts that were fast on their feet.  The only thing that has stopped the mass bleeding is an emergency meeting and decision to halt all withdrawals from the fund.  Orange County got 100% of their money.  However, for those that are now stuck and are forced to sit and watch…… well those districts won’t be so lucky.

How widespread is the problem?  The unfortunate part of the story is that other states such as Conneticut, Montana, Maine, Washington, etc. all hold similiar investments.  There are literally thousands of school, fire, water and other local districts that entrusted their fund managers to invest their money.  These managers invested in high risk paper that they didn’t understand.  All they saw was the high profits and ignored the risks.  After all, who knew subprime would be THAT risky!  Thought you would have a pension as a state worker?  You may think about a back up plan.