Commentary - 11/28/2007

Lie - Steal - Murder [Is Your Pension Safe?]

Why do I keep bringing those three words up in these commentaries? Today's headline will illustrate this point all too well:

"Florida School Fund Rocked by $8 Billion Pullout Amid Defaults"
which appeared on Bloomberg this morning here.
Florida local governments and school districts pulled $8 billion out of a state-run investment pool, or 30 percent of its assets, after learning that the money-market fund contained more than $700 million of defaulted debt.
That was a natural self-defense move to protect what was left of their funds. Whose funds?
The State Board of Administration manages about $42 billion of short-term investments, including the pool, as well as the state's $137 billion pension fund.
The biggest portion of these funds is pensions. Thousands of school teachers, firemen, policemen, and other employees of school districts and local government had wisely set aside a portion of their wages to support themselves after they retire from the work force. This money is THEIR stored labor, the result of years of toil, blood, sweat and tears. It is the most precious of investments, so that they would have food, clothing and shelter in the winter of their lives. They expected those who managed such funds to respect this intent and be prudent in its care. It was not expected to be gambled like casino money. That's reason enough for panic.
About $19 billion remained in the pool this week after the unprecedented wave of withdrawals, which came after the State Board of Administration reported its holdings of downgraded debt to [Govenor] Crist at a Nov. 14 public meeting of his cabinet in Tallahassee. The disclosures followed a month of inquiries by Bloomberg News to Florida officials.
Well, that's barely more than 10% left. So much for that. Those who were not let in on the dirty little secret have been left holding empty paper promises. So what's next?
Should the withdrawals continue, Florida's pool may have to consider filing for bankruptcy protection, says John Coffee, a securities law professor at Columbia Law School in New York. ``A bankruptcy could handle these kinds of problems if they feel they'll become insolvent,'' he said.

[John] Coffee predicts the pool will likely file lawsuits to recover losses. ``I'd expect the pool is going to sue the people who sold them the commercial paper, saying the risks were hidden,'' he said.

So more money, from what little is left, will be spent on legal fees. So others who have not put money into the funds will be receiving money out of the funds. There's no disputing the fact that lawyers and judges and court employees deserve to be paid. It's just that such things could have been avoided if sociopaths didn't lie [by omission] and steal. Of course, those are harsh words. However, when all's said and done, that sums it up. So who's going to be one of the defendants in this particular case?
Lehman Brothers Holdings Inc. sold Florida most of its now-default-rated asset-backed commercial paper. Lehman spokesman . . . declined to comment.
So let's take a look at who are their Major Holders:

Symbol Name Of Corporation

Lehman Brothers Holdings Inc. (As of 30-Jun-2007) (As of 30-Jun-2006)
Top 10 Institutional HoldersShares2007Value2006
Legg Mason Inc.29,572,3905.57%$2,203,734,5025.32%
AXA (Paris, France)28,556,9195.38%$2,128,061,603-.--%
Barclays Global Investors UK Holdings Ltd26,827,5355.05%$1,999,187,9083.30%
State Street Corporation16,497,4783.11%$1,229,392,0603.10%
Marsico Capital Management, LLC14,365,8282.71%$1,070,541,5024.68%
Vanguard Group, Inc. (The)14,236,6102.68%$1,060,912,1772.42%
Mellon Financial Corporation8,517,1461.60%$634,697,7192.65%
Blackrock Investment Management LLC7,000,4601.32%$521,674,279-.--%
Janus Capital Management, LLC6,414,6561.21%$478,020,165-.--%
Private Capital Management, Inc.5,932,8261.12%$442,114,1931.72%
% of Shares Held by All Insider and 5% Owners:5%5%
Top 10 [1.5%] of 682 Institutional Holders Control29.75%26.80%
Percentage of Barclays and "Associates" Control18.98%18.55%
NOTE: Neuberger Berman is a Lehman Brothers Company.

So what was sold to this pension fund that seems to be the root of this problem?
Almost 6 percent, or $2.4 billion, of its short-term investments consist of asset-backed commercial paper that has defaulted. Those holdings include $425 million in Axon Financial, a structured investment vehicle, or SIV, according to state records.
Here's what recently happened to Axon Financial, as documented by Reuters:
NEW YORK, Nov 21 (Reuters) - Fitch Ratings cut debt of Axon Financial, a structured investment vehicle, to default status on Wednesday after the trustee decided to liquidate the portfolio due to major losses.

Bank of New York Mellon is the security trustee, Fitch said.

Well, that would do it. $425 million dollars of promises just became no better than 425 million pieces of toilet paper. And now the Bank of New York Mellon is involved. So who are its Major Holders:

Symbol Name Of Corporation

The Bank of New York Mellon Corporation (As of 30-Jun-2007) (As of 30-Jun-2006)
Top 10 Institutional HoldersShares2007Value2006
Capital Research And Management Company40,803,0003.59%$1,690,876,3207.68%
Massachusetts Financial Services Co - Other30,529,4652.68%$1,265,141,0292.68%
Lord Abbett & Co25,867,4122.27%$1,071,945,5532.83%
Barclays Global Investors Uk Holdings Ltd22,795,3252.00%$944,638,2682.84%
Vanguard Group, Inc. (The)21,015,7271.85%$870,891,7262.59%
Franklin Resources, Inc19,660,7881.73%$814,743,0542.47%
State Street Corporation18,951,7371.67%$785,359,9812.57%
FMR Corporation (Fidelity Management & Research Corp)16,972,8401.49%$703,354,4891.97%
Primecap Management Company16,273,1621.43%$674,359,8332.09%
Bank Of New York Co9,190,775.81%$380,865,716-.--%
% of Shares Held by All Insider and 5% Owners:0%0%
Top 10 [1.4%] of 704 Institutional Holders Control19.52%34.04%
Percentage of Barclays and "Associates" Control8.08%13.03%
NOTE: Statistics are somewhat skewed because of Mellon and Bank of New York merger.

Isn't it interesting how many of the same names keep coming up? My point is that these same groups design these "financial instruments" knowing full well their strengths and limitations, much like casino owners know exactly their risks and potential.

So how does lyin' and stealin' lead to the last word in today's title, "Murder"? Again, that is a harsh word. However, what else can describe what happens to an individual when their means of living is stolen from them? We usually think of murder as someone being shot or knifed and left to die. We also call it murder when someone dies from long-term poisoning, when done with "malice aforethought," so says my dictionary.

Therefore, if someone dreams up a financial instrument, knowing full well that there is nothing to back it up, they have just "knifed" the counterparty in the back, no matter how long it takes them to die. How do they die? Unusual stress and anxiety compromises the immune system. The person has less and less funds to seek adequate health care. They have less and less funds for adequate food, clothing and shelter. Eventually, sooner than normal, they die. Just as if they had received a bullet wound that didn't heal, and they slowly bled to death, drop by drop. To me, that's murder. No difference if it's slow or fast.

It is not a pleasant thought to think ahead and wonder what will happen to the teachers, firemen, policemen and everyone else who depended on this fund. Those who had wisely stored their labor in preparation for the winter of their lives. Those who had trusted others, and rightly so, to watch over their stored labor until they needed it back. This is why lying is so despictable. It leads to stealing. And stealing leads to murder.

2007 by Edward Ulysses Cate
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