Stockton, CA CalPERS – The Next Cyprus-like Haircut?

STOCKTON-BANKRUPTCYSTOCKTON, CA – BANKRUPT!

If you don’t think the Wall Street corruption and securities fraud, including mortgage-backed securities, isn’t affecting everyone – think again. Stockton, California has succumbed to bankruptcy due in large part to bad securities investments.

Look out California public employee retirees for the next Cyprus-like haircuts.

Given the most recent rulings protecting the banks, Stockton is just one of many municipalities headed for the bottomless boat of bankruptcy. “A federal judge ruled Monday that Stockton is eligible for bankruptcy protection, despite the objection of creditors who argued the city could come up with more money,” writes Diane Marcum of the LA Times.

“A city of nearly 300,000 in California’s Central Valley, Stockton filed for bankruptcy last year, becoming the biggest U.S. city to declare bankruptcy,” posts Jim Christie of Reuters.

“Bond insurers Assured Guaranty Corp, Assured Guaranty Municipal Corp and National Public Finance Guarantee Corp have been joined by Wells Fargo Bank, the Franklin California High Yield Municipal Fund and Franklin High Yield Tax-Free Income Fund in contesting Stockton’s bid for bankruptcy eligibility.

pension scrabbleThe insurers have more than $300 million of exposure to the city’s debt and have said that Stockton’s decision to keep making payments to its largest creditor, the California Public Employees’ Retirement System (CalPERS), showed lack of good faith during the initial stages of the city’s bankruptcy plan.

The $254 billion pension fund manages pension accounts for Stockton’s current and retired employees.

A lawyer for the capital markets creditors during the trial’s closing arguments said Stockton officials gave the creditors a “take-it-or-leave-it” offer instead of negotiating in good faith, adding that the city’s decision to exempt CalPERS from impairment was “tainted” because city officials involved in the decision had a conflict of interest due to having retirement accounts with the pension fund.”

“The process was hopelessly flawed,” attorney Matthew Walsh told Klein.”

Pension-cartoonWhat neither of these articles tell you is that Stockton and CalPERS got caught up in the Wall Street Sucker Punch created by the purchase of rotten, worthless securities. As discussed by DeadlyClear in The Sucker Punch – The Elite’s Attack on Pension and Retirement Funds posted on September 16, 2011:

“You may have family or friends that are teachers, policemen, firemen, or work in government jobs that risk their lives and work for less pay on the average than the private sector or even your county & city council members (council members who generally couldn’t fight a fire or stop a robbery… or even teach your kids). These are the folks whose pensions were risked in the Wall Street securitization Ponzi scheme that collapsed the nation’s economy and put us all into a tail spin.

The administrators of these funds and their government bosses should be held accountable.

However, instead of investigating the administrators – there are underground movements that convince the public that these retirement and pension funds must be ended.  In reality, it’s because the politicians and public officials know the amount of money they lost can never be replaced. This doesn’t stop the carelessness and barely curbs the enthusiasm of state and county financial managers from repeating the same dirty deed.

Look-Out America – This Too Could Be Your Pension Fund”

CalPERS had quite a few lawsuits against Wall Street, like many other municipalities that had their pension funds swiped in the world’s largest Ponzi scheme. You’ll see on the DeadlyClear Sucker Punch that these lawsuits are quite sad and make you wonder who gave the orders and who didn’t do their due diligence?!

CalPERS Complaint pageIt is well-known and thoroughly discussed in nearly every exposé on the Wall Street crash that credit stopped moving for the banks by January 2007.  Why then did CalPERS buy securities in June 2007 – September 2008, a little over a month before Lehman Brothers’ bankruptcy demise?  See the CalPERS COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS (click the light blue link for the complaint):

 “INTRODUCTION

The California Public Employees’ Retirement System (“CaIPERS”) brings this action
to recover losses suffered due to its purchases or the common stock and bonds of Lehman Brothers Holdings Inc. (“Lehman” or the “Company”)] between June 12, 2007 and September 15, 2008, inclusive (the “Relevant Period”), including certain bonds purchased pursuant and/or traceable to the Company’s false and misleading registration statement and prospectus, dated May 30, 2006, and filed with the Securities and Exchange Commission (“SEC”) on Form S-3 (the “Registration Statement”), issued in connection with the Company’s shelf registration or continuous offering process, seeking to pursue remedies under the Securities Act of 1933 (“1933 Act) and the Securities Exchange Act of 1934 (“1934 Act).” [DC Ed: color and emphasis added]

C’mon – June 2007 – September 2008, really? CalPERS bought Lehman securities when everyone in the business knew that the market credit had stopped moving? WHY?! The average Stockton citizen wants to know…not to mention the CalPERS employees.

The CalPERS Complaint above even supplies a chart acknowledging the Lehman DOWNWARD trending. So, really – who didn’t do the due diligence for CalPERS? I mean there needs to be a spotlight on the Finance Director until he either admits he didn’t do his due diligence or was instructed by someone else to buy these securities from Lehman. And Lehman probably isn’t the only bad investment made with public employee retirement funds.

Lehman trending down

Arnold Schwarzenegger was the California’s Republican Governor in 2007 and his pal former Florida Governor Jed Bush “left Tallahassee for Miami in January 2007, having served two terms. He incorporated Jeb Bush & Co., and in June was hired as a consultant with Lehman Brothers, the Wall Street investment banking firm” [From an article in Counterpunch, 12/20/07]. Coincidence? 

The CalPERS Complaint notes: “Between 2006 and 2008, Lehman and its bankers raised billions of dollars in several offerings of investment~grade rated notes by means of the false and defective Registration Statement, including offering the bonds acquired by CaIPERS. And look at the consultant that was helping them…

Can’t you just hear the conversation? The following is a spoof:

pension consultantJED:   “Heya Arnold, how y’all doin’ overth’re? I’m up c’here in New York with my boys at Lehman and they need to git some cash flow goin’. Y’all got some pension investment funds y’all can throw our way?”

Seriously, as the Complaint states there was a lot of money involved at a time when the market was failing: “Plaintiff CalPERS is the largest public employee retirement system in the United 26 States, with assets of approximately $218 billion and nearly 1.6 million beneficiaries, including active and retired public employees. CalPERS purchased Lehman securities as described below and was damaged thereby. CalPERS purchased the following Lehman common stock and notes (the “Lehman Notes”) during the Relevant Period:” (See COMPLAINT, Pg. 9)

CALPERS LEHMAN PURCHASE

Once Lehman was rendered bankruptcy the stock purchase was basically worthless and although the Complaint doesn’t spell out the value paid for the stock – the value of Lehman stock according to www.investopedia.com was $86.18 making the 3,893,586 shares cost at about $335,549,241 (yes, million) for an overall CalPERS investment/purchase from Lehman of $1,038,939,241 (yes, billion). Remember these purchases were made all the way up to a month before the Lehman bankruptcy. How could they NOT know?!

Per Investopedia, “[I]n February 2007, the stock reached a record $86.18, giving Lehman a market capitalization of close to $60 billion. However, by the first quarter of 2007, cracks in the U.S. housing market were already becoming apparent as defaults on subprime mortgages rose to a seven-year high. On March 14, 2007, a day after the stock had its biggest one-day drop in five years on concerns that rising defaults would affect Lehman’s profitability, the firm reported record revenues and profit for its fiscal first quarter.”

Stockton BKReuters continues, “Norman Hile, a lawyer for Stockton, characterized the capital markets creditors as resisting negotiations, adding that most of the city’s creditors have already agreed to concessions.

Hile added that CalPERS should be viewed as a trustee for Stockton’s employees and retirees rather than as a creditor, adding that the city has met the requirements in federal law for eligibility for bankruptcy court protection.

Guy Neal, another lawyer for the capital markets creditors, said Stockton’s financial future is bleak unless it tackles its pension obligations and brings the state pension fund into negotiations.” Read more on Reuters – click here.

Sounds like some bankruptcy Adversary Proceedings and 2004 Examinations ought to be taking place to get to the truth about how and why these and other securities investment were made in the first place, doesn’t it?

4 thoughts on “Stockton, CA CalPERS – The Next Cyprus-like Haircut?

  1. And they call us conspiracy theorist. Wake up America I am going to find the link again to look up judges and politicians champagne funds this week. My business is picking up and a lot going on. I will attempt to get to this next.

  2. Pingback: Weekend Reading: The Property Illusion | Deadly Clear

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