Florida financial crisis meeting on Tuesday

Do you see this in today’s paper? On TV?

Well, here are a few sound bites to catch your interest.

• “…essentially the breakdown of our modern-day banking system…” (NY Times column).
• “…decision that could disrupt the finances of dozens of cities and counties across the state…” (Miami Herald).

Talk about the Grinch!

Maybe that’s why they’re not telling us. It wouldn’t do to deflate our shopping mood as the Red and Green holiday approaches.

It’s not only that some poor people who swallowed hook line and sinker suffer from blocked throats as they must cough up more money for their homes. And it’s not only that some subprime lenders are seeing their stock prices plummet.

Now they’re having trouble paying the schoolteachers. The police and firefighters are next. Your mayor’s inflated salary, the public hospital staff.

I may be wrong, but it seems that Florida is leading the way into this new chapter of the financial crisis of the early 21^st Century. My sources are the NY Times, Bloomberg and the Miami Herald, and they all seem to say the tipping point occurred last week in the Local Government Investment Pool in Tallahassee.

If you’re the financial officer of your local school board, you may know this Pool well. Otherwise, terra incognita. It’s where local government bodies park their money, with the full trust that they can withdraw it when time comes to pay salaries and bills.

Last Thursday there was a run on the Pool amid disclosures that it held some “downgraded and defaulted debt,” according to Bloomberg’s report .

Management stopped withdrawals. Management, it should be said, is Gov. Charlie Crist, CFO Alex Sink and Attorney General Bill McCollum, in their role as trustees of the State Board of Administration. That’s one more official body that’s little known but with great responsibility.

Well, it will all be OK. They will meet Tuesday and figure it out. Be warned, however, that the Bloomberg story reported that they already tried to get the affected agencies around the state to accept as little as 90 cents on the dollar. (The agencies meanwhile are scrambling to take short-term loans to make necessary payments.)

Hey, there goes your tax money, or 10 percent of it for starters. Wasted on the housing bubble.

That takes me back to the top of this post, where I cited a snip from NY Times columnist Paul Krugman’s Monday column. Here’s the full citation, itself a quote:

“What we are witnessing,” says Bill Gross of the bond manager Pimco, “is essentially the breakdown of our modern-day banking system, a complex of leveraged lending so hard to understand that Federal Reserve Chairman Ben Bernanke required a face-to-face refresher course from hedge fund managers in mid-August.”

That’s a stark factoid: Our lending system is so complex that the Fed Chair doesn’t have a clue!

I think I heard on the radio that Hillary Clinton wants a moratorium on mortgage foreclosures, and Treasury Secretary Henry Paulson also wants ways to avoid foreclosures. Perhaps useful ideas.

But what do we do about the absurd complexity of the lending system? And what about the joyful greed we all felt as real estate prices went crazy?

Holiday bubbles are not only in the Champagne.

Here are links to the sources, and be advised that they include more dire stuff than what I've quoted above. The Miami Herald story. The Bloomberg story. One more Bloomberg story. NY Times column by Krugman.

UPDATE: This post is also up on DailyKos, where it quickly got a number of useful comments. First up was a suggestion to follow the money to Jeb Bush, and the link was to a Forbes story with the delicious headline "Where was Jeb?" Turns out he has become a consultant to Lehman Brothers, which had sold some of the dubious paper to the Florida Pool while Jeb was governor and sitting on the management board. Wonder how much he's been paid (bribed post facto) for having done that deal?

Thanks to ThirstyGator for excellent info.

UPDATE II:He points out that Atrios is covering the subprime situation thoroughly.