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Springfield Oregon Goes to Wall Street

Springfield Goes to Wall Street

April 19, 2012

Written by Fred Starkey: A Taxpaying Citizen

“If a tree falls in a forest and no one is around to hear it, does it make a sound?”  According to the Oregon State Treasury, the Springfield School District sold 60 million dollars worth of Pension Obligation Bonds, invested that money in the PERS Pension account, and then lost 22 million with a recent independent audit showing a total loss of 30 million.

Did they send you a notice in the mail about the loss of these tax dollars? You have heard the saying that “Silence is Golden”.  In this case silence is from Superintendent Nancy Golden, the Administration personnel and the Springfield School Board.

Why are these people not in jail? They have all committed a felony.  Not long ago a similar crime was committed by Bernie Madoff and Jon Corzine. One is in prison and the other is on the way to join him. They both lost 22 million and more. What did they do?  They took money from customer funds without authorization or notification andSpeculated with the money. Then they lost that money. Many did this on Wall Street and there was a national outrage. They do it in Springfield, Oregon and no one, not even a local TV station, reports this crime of theft.

Did the tree fall? Absolutely, it fell on the current taxpayers and more importantly it placed future debt on the children that attend these schools. How? Let me tell you……….

In 2002 PERS went unofficially bankrupt. They sent government employers bills to pay the deficit with an 8% rate. The Springfield School District received a bill for 60 million at 8%. So, they sold 20-year Pension Obligation Bonds at 4.65% to pay this PERS obligation. This postponed the PERS debt, but added interest to be paid by the taxpayer. This senario is similar to Germany Buying Greek Bonds.

Pension Obligation Bonds were sold under the guise of Statistical Arbitrage. This was pure hokum. They took money from a fixed account, which they were paying 4.65% interest, and placed the money in the PERS Pension account with the expectation of an 8% return or higher. This situation had no guarantee. This is not an arbitrage, nor is it statistical.

An arbitrage is a buy and sell, at different locations, with the same commodity.  Statistical uses the law of averages measuring price extremes, but in a specific category of similar stocks to match off the buy and sell signals when at opposite extremes in price, generated by a computer algorithm.

So, how did they make this decision to place money in the PERS Variable Account? Did they have a probability study?  NO!  And you thought this was a school.

Next we need to ask the question, “What is the difference between investing and gambling?”  Let me tell you.

1. If the odds are in favor of the risk bearer he is investing.

2. If the odds are against the risk bearer he is gambling.

Corollary, If the risk bearer doesn’t know what the odds are, then he is a gambler and a fool.  Instead of assessing and measuring the risk they used the Oregon Standard which is“the discretionary, seat of the pants, guessing method”.

A recent independent audit now shows a loss of 30 million from the original 60 million, so they now owe 90 millionincluding interest.

What I find even more disturbing is that Long-Term Capital Management, the largest hedge fund in the history of the USA, went bankrupt (losing over 100 Billion and being the 1st Bailout by the Federal Government), using Statistical Arbitrage. This was a harbinger that government foolishly ignored.

What is the lesson to be learned from the loss of 90 million?  People who do not have a track record of managing money successfully in the private sector should not be managing public money.  Do you know where you can lose 20 – 30 million and still keep your job?  This is both absurd and ridiculous.  The people who are responsible for the loss should be terminated immediately.  It is the taxpayer and next generation that will be asked to pick up this loss of capital, which will be promoted as a necessity for the future of our schools.  In all reality the money is needed to pay off current and future PERS debt.


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