The Affluent Passing the Buck
Orange County, Calif., is more than $2 billion in the hole and has declared bankruptcy. Its long-time treasurer, and the man directly responsible for the fiasco, has quit. Alter years of investing the county's funds so that they outperformed the market, Robert Citron's policy came a cropper. He guessed wrong on interest rates which, in turn, greatly increased the countyÛªs borrowing costs and decimated the value of the derivatives the county was holding.</br></br>' So who do the comity's residents blame for the fiasco? The Los Angeles Times asked, and this is what it found out; 21 percent blame Citron, 16 percent named the board of supervisors, 4 percent dted the Wall Street firms that sold the investments and 42 percent, in a snit of indiscriminate blaming, accused all of the above. So fjw people blamed themselves that, according to the pollster, Mark Baklassare, he didn't bother to include them in the results. Most people, in other words, blamed someone or something other than themselves.</br></br>Because back in June, Orange CountyÛªs voters elected Citron for yet another term. His opponent in the iiå£e, John Moorlach, a certified public accountant and financial planner, had in fact made the county's reliance on derivatives the focus of his election campaign. Talking about derivatives became a MEGO thing," Moorlach said at the time. ÛÏMy eyes glam over."</br></br>Only 26.7 percent of the voters cast ballots in that election, and they returned Citron to office by a landslide, 195,7942 to 124,734. In other words, only atxxit 125,000 of the countyÛªs eligible voters actually registered disapproval of CitronÛªs investment policy. The rest, happy with the return they were getting (about 9.1 percent during the past 10 years) either y/ited to keep him in office orÛÓthe same differenceÛÓ did not vote at all.</br></br>Of course, thereÛªs something preposterous about you or meÛÓassuming youÛªre the least bit like meÛÓevaluating an investment policy centered on derivatives and based on heavy borrowing. This is the particle physics of finance, and I no sooner read an explanation of a derivative than its meaning simply evaporates. I think of it as something like a boomerang: Sooner or later, it's going to come back and hit you in the face. Orange County got flattened.