The State Investment Pool in Florida started out two weeks ago with 27 billion and shut the doors December 4th. Eight billion left the fund with no penalty. After the doors opened December 7, another two billion hit the exit turnstile. From Bloomberg
Florida schools and towns pulled more than $1.7 billion from a state investment pool in the two days since a freeze on their accounts was lifted, as local governments remained wary of keeping money in a fund with subprime mortgage-tainted holdings . . . . . . . . . . .
BlackRock, hired Nov. 30 to salvage the fund, walled off $2 billion of the weakest investments and imposed restrictions to limit withdrawals, including imposing a 2 percent fee on redemptions that exceed certain levels. Some governments have been willing to pay that price to get their money out . . . . . . . . . . .
Perry, the Jacksonville Electric Authority and Desoto County together paid $1.4 million in penalties yesterday to remove $66.7 million from their accounts . . . . . . . . .
This is what killed the banks in the 1930’s. The banking system collapsed not because of bad bank investments (no denying that there were plenty), they collapsed when depositors lost faith in the bank. Those first in line got their money, those last in line, got an education. The FDIC insurance stops the prospect of a bank run and keeps the depositors’ savings intact. These Fund Pools are not banks and are not insured by the FDIC.
An electric utility company and a county government agree to a 2% redemption fee of 1.4 million dollars. Maybe to act responsibly means you have to do things that are painful from time to time. If the investment pool can change the rules after the fact, whose money is it really? Could it be, these two entities examined their future accounts receivable, and figured out that the local economy has a few issues? They seem to know what they are doing. One turns off the lights; the other auctions off foreclosures.