...unless you go back to the Great Depression, that is. There were plenty of bank runs back then.

Some people delude themselves into thinking that we're just in a "phase" -- that it's happened before, and life continues as normal today, despite what some doom-sayers said back in the 1970's.

Well, sorry, but not this time. This time it really IS the end of the world.


Florida Says Unfreezing Local Fund Would Spark a `Fire Sale'

By David Evans

Dec. 3 (Bloomberg) -- Florida schools and towns with money frozen in a state-run investment account are unlikely to get their cash back tomorrow, when officials meet to discuss a crisis prompted by withdrawals that drained almost half of the fund's $27 billion in assets, a policy officer said.

``If we reopen the window without limitations on Tuesday, and we see behavior like we've seen up to now, there's simply no way to meet that demand without having a fire sale on assets,'' said James Francis, senior policy officer for the State Board of Administration, manager of the Local Government Investment Pool.

Officials raised the possibility of paying less than 100 cents on the dollar to governments seeking cash in a conference call with participants Nov. 30, a day after freezing withdrawals. The board also hired BlackRock Inc., the largest U.S. publicly traded money manager, as an adviser.

Florida counties and schools pulled out $13 billion in assets last month after learning the pool, described by state officials as a money-market fund, held $1.5 billion of downgraded and defaulted debt tainted by the subprime mortgage market collapse. The crisis shows the far-ranging effects of the housing slump, as complex investments once sold as high-yielding havens are now backed by collateral investors don't want.

The Florida fund's daily yield plunged to 2.77 on the day withdrawals were banned from 6.25 percent on Nov. 16.

Money Back

A newly formed advisory panel of school and local governments still stuck in the Florida pool told officials on the Nov. 30 call they expected to get all of their money back. The panel rejected the board's plan to survey participants to see if they would accept as little as 90 cents on the dollar as the price for getting access to their money this month.

The two-and-a-half hour call ended with a decision to poll pool investors on how much cash they absolutely need to withdraw over the next 90 days, as well as how much they plan to deposit. Governments are accustomed to drawing on the fund for routine expenditures.

``The very fact that you're out here talking to us about taking less than 100 percent is in my mind unacceptable,'' said MaryEllen Elia, superintendent of Hillsborough County Public Schools, which has $573 million tied up in the pool, more than any other school district. ``You need to figure out how to make the taxpayers in Florida whole.''

Meeting Tomorrow

The State Board of Administration's three trustees, Republican Governor Charlie Crist, state Chief Financial Officer Alex Sink and Attorney General Bill McCollum, will meet tomorrow to discuss possible solutions to the crisis. The board also manages $37 billion of additional short-term investments and Florida's $138 billion pension fund.

``We do need our political leaders to muster up some intestinal fortitude,'' said Dave gαylor, superintendent of Charlotte County Public Schools and a member of the new 16- member advisory panel of participants, on the Nov. 30 call. ``You have leadership from the soldiers, that's who we are. It's not going to help if the generals aren't providing us with some leadership.''

About 94 percent of the fund's remaining $14 billion is invested in corporate floating-rate notes, maturing in an average of nine months, board employees told the panel.

Kevin SigRist, deputy executive director of the State Board of Administration, said the board can't promise to make pool participants whole, because of the pool's ``problematic'' securities. ``We have securities in the pool that clearly have credit risk associated with them,'' he said.

``We don't ever want to be in a situation here at the SBA where we are somehow issuing guarantees or suggestions that everyone will get dollar for dollar,'' said SigRist, who said executive director Coleman Stipanovich was tied up at the capitol and would join the call later.

Pension-Fund Proposal

The same day they voted to freeze withdrawals, the trustees rejected a plan by Stipanovich to solve the problem internally, using pension-fund money.

``We're fiduciaries, we're investment professionals, we know what we're doing,'' Stipanovich said Nov. 29. ``The commercial paper defaulted, but the collateral is different,'' he said, describing it as AAA.

Instead, the trustees decided seek advice from an independent financial adviser, hiring New York-based BlackRock on Nov. 30. Brian Beades, a spokesman for Blackrock, declined to comment.

Short-Term Funds

The fund had invested $2 billion in structured investment vehicles, or SIVs, and other debt tainted by the subprime mortgage collapse, state records show. Connecticut, Maine, Montana and King County, Washington, are among other governments holding such investments as part of $200 billion assets in more than 100 similar pools across the U.S.

The Florida pool was the largest of its kind in the U.S. at $27 billion before the withdrawals.

Its mission statement, as described in the state board's 2005-2006 annual report, was ``to help local governments maximize earnings on invested surplus funds, thereby reducing the need to impose additional taxes'' by investing in ``short- term, high-quality money-market instruments.''

It promoted itself as a place for governments to park cash, ``where liquidity and preservation of capital are the primary importance.''