More Evidence On The SIV Reciprocal Con Game: Florida's LGIP

Just over a month ago, I wrote this post on the topic of what I called the SIV "Double Con." That is, the belief by both experienced institutional investors at various endowments and public entities (municipalities and other government or union entities), and their counterparties at SIVs, that each was getting 'something for nothing' from the other in the sale of SIV commercial paper.

I won't bother pasting my example from the linked post. You can just read it in its entirety via the above link.

However, this morning's Wall Street Journal carries two articles concerning Florida's Local Government Investment Pool's crisis arising from its purchase of SIV commercial paper. One of these articles is by the folks at breakingviews.com. Once again, they confirm my earlier contentions.

To wit, they note,

"A much bigger Florida state-run fund with SIV exposure had nearly half its $27 billion of assets pulled out by local governments, school districts and other depositors before its managers froze withdrawals last week and brought in BlackRock to find a way to limit the damage. Around $2 billion of the most problematic paper is being carved out into a separate fund.

At least one head has already rolled in Florida. In Orange County, checks and balances put in place since 1994 may have kept investments at the relatively safe end of the SIV spectrum. Still, you would expect the county's treasury staff to have been particularly skeptical when Wall Street peddled highly rated paper paying interest at rates usually associated with riskier assets. If it looks too good to be true, it probably is."

Note that last sentence, "If it looks too good to be true, it probably is."

By all rights, a lot of heads ought to be rolling at various similar funds which are also experiencing these SIV-related problems.

But not bailouts. These entities obviously didn't exercise sufficient oversight of their own investment committees to assure that prudent investment policies were followed. They must answer to their members or voters, depending upon what type of entities they are. But their losses are their own. Nobody else's tax money should be rescuing these giant investment pools.