Subprime crisis in your insurance company?

Last year this blogger dipped into financial fiasco several times as the subprime crisis began to affect Florida’s public bodies. That is: Your tax dollars had been whacked right out of the savings accounts of school districts, county agencies and city governments and sent to perdition.

New stuff trickles out from time to time, so here’s a little roundup. I pause to say that this is probably far from complete, as other stories may be coming out every day. It’s just that they are hard to recognize, disguised under headlines like this one in the Miami Herald, “Citizens discounts millions.”


What’s that supposed to mean? Well, it’s talking about Citizens Property Insurance, which you may know as the largest insurer of homes in Florida, a state-run company to which you probably pay premiums.

What does “discounts millions” mean? It means that $88 million that used to be in Citizens’ accounts to pay your claims and otherwise do business isn’t there anymore. That is, an investment that used to be so solid that it was like cash now doesn’t sell, so it has to be downgraded to nothing on a balance sheet.

Who’s to blame? Start with Jeb Bush, who managed this for two terms as governor and now is a consultant for Lehman Bros., which sold a ton of subprime stuff to Florida. Talk about a conflict of interest! While in office Jeb was a trustee of the State Board of Administration, which is like a bank or money market fund for government bodies to park their money, and now he’s “advising” the company that sold bad investments to the SBA.

Back in December some bloggers were demanding that Jeb disclose the details of his contract with Lehman. Heard anything? Jeb! Speak up! Can’t hear you!

The reader may be baffled. Haven’t heard of this? Try Googling “jeb bush lehman brothers” and see what’s under the rock.

Next item: The NY Times business section on Tuesday had a front-page story with the headline “High Finance Backfires on Alabama County.”

Again, the headline is a little obfuscatory. The county in question is Jefferson County, home to Birmingham, the largest city in Alabama, so not exactly some remote place out in the sticks. Ought to have some people with financial acumen.

Nonetheless, they are in danger of going belly-up. The whole county. The subprime thing hit them with $5.4 billion worth of funny investments. A ton of swaps. Exotic bond deals. Interest rates ballooning like those funny mortgages for poor folks.

Next item: If we’re lucky to be doing better than Jefferson County in neighboring Alabama, thank goodness we’re not in the private sector, where the numbers can be much higher. Here’s Carlyle Capital Group defaulting on $16.6 billion. Pretty soon this is going to add up to real money.

Florida’s Financial Fiasco: Chapter Two

This could start out like the preceding post: So glad to have dipped into Florida Politics this morning. It’s a good blog that has two thought-provokers in the early going. Must do this every day: click on Florida Politics. Now, I’ll write myself a reminder if I can find the to-do list. Lord, the Christmas Cards!! Too late, anyway …

The very top of Florida Politics’ reading recommendations was this Bloomberg article, or at least its excerpts in the Pensacola blog, wherein “Beach Blogger” concluded of our former governor:

“It’s past time for Mr. Jeb Bush to disclose the details of his contract with Lehman brothers.”

For starters, Do I hear any Democrats demanding it?

Actually, there’s not much about Jeb in the Bloomberg piece, though as a critic says therein:

“Bush is a consultant to the company selling bad investments to the same agency on which he served as a trustee until January.”

Before launching deeper into a Bushian broadside, let’s step back. We’re talking about a fiasco that ripped some $2 billion out of the pockets of Florida taxpayers, and it’s hardly making a ripple. Maybe it’s my fault. I haven’t posted on this since Dec. 3 when my headline announced “Florida’s financial crisis.” The news then was a run on the equivalent of a Florida state money-market fund. Call that Chapter One of my meager attempt to foment rebellion.

Now in Chapter Two we have a lot more detail provided in the Bloomberg piece, also in the Miami Herald and maybe other outlets around the state.

Has anyone heard of this on TV, where most folks get their news? Probably not, no good video – until we get to the boarded-up schools and laid-off firemen. These are possible casualties down the line as local government agencies find they can’t get money they put on deposit with the governor.

Essentially, that’s the deal here: depositing your tax revenues with the governor until you need to write checks to pay your staff and bills. Banks aren’t good enough, you see. They don’t pay high-enough interest. The governor knows this guy, you see, who will give higher rates. And don’t ask about the risk.

Well, thank goodness they didn’t put all their – our – money in the subprime swamp.

Getting back to the kernel of Chapter Two: The problem for the governor is that folks didn't have to be financial insiders to be aware that subprime lenders were in trouble. Many months ago all it took was occasional glances at the headlines to see that they needed ever greater infusions of capital. If I’d had any spare money to invest earlier this year, I would have gone 180 degrees away from subprime lenders. No sir, those guys are in bad shape. But the governor kept on buying. And then bought some more. And more and more.

Of course, it wasn’t the governor alone. He and the attorney general and our top Democratic elected official in Florida, Chief Financial Officer Alex Sink, make up the board that oversees the “state bank.” Until the run on the bank erupted in late November, they were advised by a former crony of Jeb’s, Coleman Stipanovich, with the title of executive director and a salary reported as $180,214 in 2006. Stipanovich was fired soon after the run forced closure of the fund.

In the Bloomberg article, Alex Sink explained why: The CFO thought that Stipanovich was getting independent advice from the big Lehman Brothers investment bank, when in fact Lehman Brothers was selling (unloading) dubious debt to Florida’s unsuspecting taxpayers.

We with suspicious minds may ask: Did Jeb Bush, in his role as consultant to Lehman Brothers, have any role in all this? Helping those paying him an undisclosed amount (Lehman) sell dubious debt to Florida taxpayers through a crony (Stipanovich)?

Bloomberg and the Miami Herald report Jeb’s not commenting.

In this corner, that’s not good enough. Nor is it satisfying to see Jeb’s big brother George W. in the paper today contorting his face when asked about those destroyed CIA videos of (probably) torture. “Let’s wait and see … no opinion from the podium.”

Disgusting stonewalling.

FOOTNOTE: The Bloomberg article reports that the “state bank” managed $184 billion. That’s about two years of the state budget, isn’t it? I know there are pension funds in there and all that, but isn’t it a lot of money to be stashed away with little public oversight? Call that a memo to anyone running for state legislature.

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.