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On three, everybody panic! 1 ... 2 ... YAAA!

By HOWARD TROXLER
Published December 6, 2007

As you know, we are in a big flap, because it turns out the state of Florida invested a lot of our money in yak dung.

Hah! Just kidding. Got to keep a sense of humor, right?

(Long silence.)

Oh. Okay. No humor, then.

Here is what has happened. If you are a local government in Florida, you can stash your cash with the state until you need it. The state pools it and invests it.

This is a good set-up.

Until recently, everybody was happy. The state made money for the locals. The state charged a ridiculously low fee, too. Better than Wall Street.

But now, some of the state's investments have been hit by this national mortgage crisis. This has set off a panic among the local governments. They have yanked out their money.

At its peak, this pool had more than $30-billion. Now it only has $14-billion. The state has had to crack down on withdrawals.

Now, the truth is that even if everything were just peachy-keen, we still couldn't have everybody yank out their money at the same time.

The state would have to sell off its investments at once. It couldn't be done efficiently or smartly. It would be a fire sale. We would get killed.

Even if things were just peachy. Which they aren't.

So, just how un-peachy are things? Beats me. The state has hired Smart Guys to take over. The Smart Guys have divided the remaining pool of investments into two piles, called "A" and "B," with the "B" pile - about 14 percent of the total, a couple billion or so - considered troublesome.

This does not mean that 14 percent of the fund is lost. It doesn't mean those assets have gone poof. But some of them are not lookin' as hot.

Was our money invested by idiots? Do we have another Enron on our hands? Is this why that guy in charge suddenly resigned this week?

I dunno. There are some smart folks out there who say that the state should have been steering away from these investments.

On the other hand, you didn't hear anybody squawking about the mix a few months ago. Hindsight is 20/20. I might be wrong, but I don't think many cities and counties were turning down the dough when the getting was good.

As for the guy who quit, Coleman Stipanovich - well, live by Tallahassee, die by Tallahassee. His problem was partly politics. For one thing, it looks like he could have done a better job of being transparent with his "customers" on the front end.

You can't really blame the county clerks and money managers of local government in Florida for setting off this panic. Their duty is to their local taxpayers.

But I think the state is handling this pretty well. The new withdrawal rules are a pain but necessary. There ought to be clear rules to prevent future panics henceforth, and the locals can decide up front whether they want to play by them. Now the Smart Guys will try to repair the existing investments and move to a more conservative mix.

This is not as much fun as panicking, I realize. It is more fun to use words like "disaster" and "debacle." I will be curious to see whether the Legislature rushes forward to "fix" this, just as it "fixed" our insurance and taxes.

In fact, if you have a bent toward conspiracy, I would be wary now of attempts to hijack the whole honey-pot and turn it over to Wall Street. Did I mention that the fees charged by the state are ridiculously low?

[Last modified December 6, 2007, 00:16:21]