Bumpy Ride for Wall Street Might Impact States
While we all know that a bear market is not a good thing, you get the feeling today that it was the bull that just came up from behind you and horned you in the rear-end. With Wall Street giant Lehman Brothers filing for bankruptcy, the “Lynch”-pin Merrill Lynch sale to Bank of America, and giant insurer AIG gasping “ARG” (like a caveman, not a pirate), then you know the piper is now being paid from the overly enthusiastic investing of the companies these last few years.
The Wall Street Journal has a solid summary of what’s happening this Black Monday. And let me just say I hope we don’t see stock market investors and other money managers begin to leap out of windows like they did during the Great Depression.
Who’s to blame? Fingers are being pointed directly at real estate…. well on real estate investing, anyway.
Lehman Brothers, a 158-year-old bank burdened by $60 billion in soured real-estate holdings, filed for federal bankruptcy protection in U.S. Bankruptcy Court after attempts to rescue firm failed. … The demise of the independent Wall Street institutions comes six months after the collapse of Bear Stearns and 14 months after the beginning of the credit crisis, sparked by bad mortgage finance and real estate investments.
Ouch that.
I won’t argue that these investment firms took too many risky loans. But my question comes from a different angle and I’m talking bigger picture here. As firms like Lehman Brothers fall, what happens to the states that have money invested in them? I worked for an organization once upon a time that served state finance officials and I can tell you that states invested BILLIONS of dollars in different companies throughout the world. States take their extra funds and investment both in long- and short-term products. Because if two million dollars can make just $2000 overnight, for example, why not? It definitely serves the best interest of taxpayers.
So I’m wondering how much state money is tied up in these financial giants. In Florida, the State Insurance Pool has $400 million invested in Lehman Brothers. Last week, they lost about $84 million. If other states lose this kind of money, what kind of trickle down effect will that have on everyday people? Will school funding be slashed more than it already is? How about roads and bridges? Programs to help the uninsured? These giants could cause major quakes in state finances as they fall hard, but I’m hoping that most state treasurers and chief financial officers have invested with the wisdom of the word “DIVERSIFY” in mind.
