Stephen Bové - Art, Technology, Right Action

Friday, November 30, 2007

1st Bona-fide US Bank-Run since 1929


War of wealth bank run poster
Originally uploaded by sbove
From Bloomberg News:

If you define a "bank" as an institution that holds money for other people and allows them access to it on some pre-determined contractual basis (demand deposits etc.), then...this ought to be front page news everywhere...but of course, its buried in the depths of a high-brow financial news site...

``The unthinkable and the unimaginable have just happened here in Florida,'' said Hal Wilson, chief financial officer of the Jefferson County school district, which kept its entire $2.7 million of cash in the fund. ``What we just experienced here is a classic run-on-the bank meltdown.''

" Florida's State Board of Administration, manager of the Local Government Investment Pool, halted withdrawals yesterday at an emergency meeting after $12 billion was pulled out this month from participants. Governments from Orange County, home of Disney World, to Pompano Beach asked for their money back following disclosures that the fund held $1.5 billion of downgraded and defaulted debt.

Thousands of school districts, towns and fire departments across the U.S. keep their cash in state- and county-run pools. These public accounts, modeled after private money-market funds, are supposed to invest in safe, liquid, short-term debt such as Treasuries and certificates of deposit from highly rated banks.

By freezing the Florida fund, officials left governments without ready access to cash they are accustomed to drawing upon for routine expenditures. The pool was the largest of its kind in the U.S. at $27 billion before the unprecedented withdrawals.

...in Tallahassee, there was no money to pay the 220 teachers and other employees in Wilson's Jefferson County school district today.

...the board is considering ways to shore up the fund, including obtaining credit protection for $1.5 billion of downgraded and defaulted holdings hurt by the subprime market collapse.