Get sick, get well
Hang around a ink well
Ring bell, hard to tell
If anything is goin' to sell
-- Bob Dylan

Sunday, August 21, 2011

Wisconsin school districts lose millions in shaky investments

With public school districts facing massive state budget cuts, school boards and financial managers are under pressure to get greater and more rapid returns when they invest dwindling reserves, health care funds, and borrowed operating dollars. School districts in Wisconsin, facing an assault from Republican anti-taxers, recently lost millions when they bought into fraudulent packages put together by Wall Street firms like Goldman Sachs and short-selling hedge-fund operators.

The S.E.C. has sued the investment firm that advised the school districts to buy the three ill-fated securities, which the regulator said were unsuitably risky for unsophisticated investors. The five Wisconsin school districts lost tens of millions of dollars on a $200 million investment, most of which was borrowed.

According to NYT's Gretchen Morgenson:
"Once again, we see the same toxic ingredients that have appeared repeatedly in the aftermath of the crisis: collateralized debt obligations, credit default swaps, ruinous leverage, an overreliance on credit ratings, greed and extreme naïveté."

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