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Fallout from sub-prime mess hits Florida public fund

(NEW YORK) Local governments and school districts in Florida scrambled on Monday to assess the damage to their investment portfolios from subprime mortgage loans, as the credit crisis reached into pockets of the investment world previously thought to be out of harm’s way.

Florida last Thursday froze withdrawals from its Local Government Investment Pool, a sort of money market fund for the state’s public agencies, after nervous investors pulled out US$10 billion in 15 days.

On Monday evening, public school superintendents, municipal finance directors and county clerks from all over Florida participated in a tense conference call to inquire about the fate of their money – money that was supposed to gain modest interest in a supposedly risk-free, easy-to-access fund.

‘We keep the lights on and we keep the buses running and we make payroll with that money,’ said Stephen Hegarty, a spokesman for the Hillsborough County School District, in Tampa, which has US$573 million invested in the frozen fund. ‘We’re paying very close attention to this thing.’ The run on Florida’s state fund was sparked after local governments discovered it held sub-prime mortgage assets that had soured.

The Florida fund had invested in about US$2 billion in what are known as structured investment vehicles and other debt instruments that have been downgraded by rating agencies and no longer meet the fund’s minimum requirement for investment. Those hard-to-value assets have been roiling financial markets for months as housing values decline and mortgage delinquencies rise.

 

Source: AP (Business Times 5 Dec 07)

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