STATE RUN FUNDS KEEP LOSING ON STRUCTURED INVESTMENT VEHICLES WITH UNDISCLOSED SUBPRIME EXPOSURE
Once again the subprime mortgage crisis is taking its toll on the average working American. Bloomberg Markets has recently described investments in Structured Investment Vehicles (SIVs) and Collateralized Debt Obligations (CDOs) by public funds across the United States. Both SIVs and CDOs invest heavily and opaquely in subprime mortgages, and fund managers are enticed by the potential returns and undisclosed risks.
SIVs are perhaps the most sinister investment vehicles. “SIVs finance themselves by selling asset-backed commercial paper, or short-term loans backed by collateral such as mortgages. When the subprime debt market blew up in August, investors stopped buying SIV commercial paper. As a result, in September and October, SIVs didn’t have the cash to pay debt holders of more than $8 billion of their paper.” These programs do not file with the SEC and do not publicly disclose financial statements. As a result, they can hide any and all risk associated with their investments.
State pension plans bought up SIVs and CDOs riddled with subprime debt and are now facing tremendous losses not only from market declines but from major default rates. As Bloomberg Markets David Evans says: “Until municipal fund managers learn to steer clear of traps like CDOs and SIVs, taxpayers’ money will be at risk—and it’s not likely anyone will tell them.” Taxpayers certainly aren’t the winners in the subprime mess.
http://www.bloomberg.com/news/marketsmag/mm_0108_story3.html
