Tuesday, December 04, 2007

Marks Everywhere

While the dumping of big shitpile into municipal pension funds probably won't have happy results, it's at least valid for longer term investment funds like those to have some riskier assets in them. Completely shitty assets with indeterminable risk, no, but riskier assets yes.

But the short term pools like the Florida fund shouldn't have been anywhere near this stuff. In addition, they might end up biting Big Shitpile in the ass. Big Shitpile is desperate to keep pretending that this stuff is actually worth something even though no one wants to buy it. They're also desperate to make sure no one is selling this stuff, or to claim that the price realized from any actual transaction is perceived as being the result of the transaction being a forced sale. In other words, no market transactions mean the price is unknown. Actual market transactions are somehow not representative due to peculiar circumstances.

But if these funds start selling in order to meet obligations...

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.


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.