In a comparison of bond funds, Regions Morgan Keegan’s Select High Income Fund was cited as one of the worst disasters of 2007, due to its losses from exposure to investments backed by subprime loans.
Read the story by the San Francisco Chronicle:
http://www.sfisonline.com/cgi-bin/article.cgi?f=/c/a/2008/01/03/BU42U86EG.DTL&hw=ultra&sn=010&sc=273
Two New Jersey residents have filed an arbitration claim against Lehman Brothers holdings for $1.14 billion. The claim alleges that the firm placed the investors savings into “investments that have become hard to sell.” The securities held were auction-rate securities, yet another form of security that has been racked by the subprime mortgage market and ensuing credit crunch.
The Lehman Brother’s contingent “disputed the [claimant’s] accusation. ‘These clients had a professional investment consultant with whom we dealt… we believe we have meritorious defenses to this claim.’” In other words, the claimants sought securities over exposed in the subprime market.
As the true extent of the subprime debt crisis plays out, it is safe to expect many more situations where damages have been incurred.
Read the full story:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aMvCcBjj9w9M&refer=home#
Fed Chairman Ben S. Bernake appeared before Congress this week to discuss his thoughts on the dwindling US economy, which is still sliding from the subprime debt crisis. The chairman indicated support for a stimulus package, indicating that further Fed action (another rate cut seems inevitable) is not enough to put the economy back on its feet.
The New York Times quotes Bernake in saying that “In the financial markets, the subprime shock ‘has contributed to a considerable increase in investor uncertainty,’ he reported, adding that the Fed is seeing ‘considerable evidence that the banks have become more restrictive in their lending to firms and households.” The extent of the subprime mortgage damage goes beyond investor uncertainty as many investors unknowingly purchased risky securities and suffered as a result.
http://www.nytimes.com/2008/01/11/business/11fed.html
The recent purchasing patterns in Florida’s pension funds serve to identify a sleazy side of the subprime debacle. In the February 2008 Bloomberg Markets David Evans has discussed some horrid behavior in a pension fund that was once an example for the rest of the nation. “On Sept. 30, 2005, 25 percent of the pool was invested in U.S. Treasuries and debt issued by U.S. agencies, the safest and most liquid debt sold… Florida was more aggressive than most states. In October, the Florida pool had the highest return of any public fund in the U.S., earning 5.63 percent.” However, in 2007, something changed and Florida’s fund managers began buying risky, subprime holdings.
Coleman Stipanovich supervised an investment fund for Florida’s school district until he resigned on December 4, 2007 and after school districts in Florida began panicking and pulling money out of his fund. Apparently, in July and August 2007, Stipanovich bought $842 million of mortgage-backed debt with taxpayer money. The securities defaulted within four months.
David Evans uncovered a consistent scheme of purchasing subprime laden debts. “As the subprime crisis unfolded around the world, Stipanovich and [pool manager] Lombardi increased their holdings of high-risk debt. They steadily reduced holdings of government securities in favor of higher-yielding—and riskier—commercial paper. In February 2007, London-based HSBC Holdings Plc, Europe’s largest bank by market value, reported it had losses of $1.8 billion more than expected on its U.S. subprime lending. In the same month, Lombardi bought the $400 million in Countrywide CDs.”
Florida’s funds suffered not only due to a consistent plan of purchasing high risk subprime securities but also from the predatory self-dealing of its managers.
http://www.bloomberg.com/news/marketsmag/mm_0208_story2.html
