SPRINGFIELD SCHOOL DISTRICT LOST TAXPAYERS MONEY GAMBLING
April 23, 2012
“If a tree falls in a forest and no one is around to hear it, does it make a sound?”
According to the Oregon State Treasury, the Springfield School District sold 60 million of Pension Obligation Bonds, invested that money in the variable PERS account, and lost 22 million with a recent independent audit showing a loss of 30 million. Did they send you a notice in the mail about the loss of these tax dollars? You might say that “Silence is Golden,” or in this case silence is from Superintendent Nancy Golden, the Administration personnel, and the Springfield School Board.
Why are these people not in jail? They have all committed a felony. A similar crime was committed by Bernie Madoff and Jon Corzine: one is in prison and the other is on the way. They both lost 22 million and more. What did they do? Let me tell you.
They took money from customer funds without authorization or notification and speculated with the money. Then they lost that money. Many did this on Wall Street and there was a national outrage. They do it in Springfield, Oregon and no one, not even a local TV station, reports this crime. [Theft]
Did the tree fall? Absolutely: it fell on the current taxpayers and more importantly it placed future debt on the children that attend these schools. How? Let me tell you.
In 2002 PERS went unofficially bankrupt. They sent government employers bills to pay the deficit with an 8% rate. The Springfield School District received a bill for 60 million at 8%. So, they sold 20-year Pension Obligation Bonds at 4.65% to pay this PERS obligation. This postponed the PERS debt, but added interest to be paid by the taxpayer. [This is similar to Germany Buying Greek Bonds]
Pension Obligation Bonds were sold under the guise of Statistical Arbitrage. This was pure hokum. They took money from a fixed account, which they were paying 4.65% and placed the money in the PERS variable account with expectation of an 8% return or higher, which had no guarantee. This is not an arbitrage, nor is it statistical.
An arbitrage is a buy and sell, at different locations, with the same commodity. Statistical uses the law of averages measuring price extremes, but in a specific category of similar stocks to match off the buy and sell signals when at opposite extremes in price, generated by a computer algorithm.
So, how did they make this decision to place money in the PERS Variable Account? Did they have a probability study? NO! And you thought this was a school. So we have to ask the question: What is the difference between investing and gambling. Let me tell you.
If the odds are in favor of the risk bearer he is investing.
2. If the odds are against the risk bearer he is gambling.
Corollary: If the risk bearer doesn’t know what the odds are, then he is a gambler and a fool.
Instead of assessing and measuring the risk they used the Oregon Standard: the “discretionary, seat of the pants, guessing method”. A recent independent audit now shows a loss of 30 million from the original 60 million, so they now owe 90 million plus interest.
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What is even more hilarious about these ignorant, clueless people is that Long-Term Capital Management, the largest hedge fund in the history of the USA, that went bankrupt, losing over 100 Billion and being the 1st Bailout by the Federal Government, used Statistical Arbitrage. It was a harbinger that government foolishly ignored.
What is the lesson to be learned from the loss of 90 million? This: people who have no track record of managing money successfully in the private sector should not be managing public money. Do you know where you can lose 20 – 30 million and keep your job? This is both absurd and ridiculous: these people should be terminated immediately and then each member of the Springfield School Board Fire should resign. [Oregon Dept. of Education (503) 947-5600 - Fax (503) 378-5156]
It is the taxpayer that will be asked to pick up this loss of capital.
© 2012 - Fred Starkey - All Rights Reserved