• Create BookmarkCreate Bookmark
  • Create Note or TagCreate Note or Tag
  • PrintPrint

A Rescue?

The month before, the county hired Capital Market Risk Advisors (CMRA) to examine the portfolio. CMRA identified Citron's big gamble on interest rates and knew the portfolio well. CMRA, along with a bond firm specializing in exotic securities, TSA Capital Management, tried to engineer a rescue for the county. Robert Citron was not involved with this effort because he had been asked to resign, and he did. The county needed to get out of the investment positions without causing a fire sale that would cause additional losses. The best solution was to sell the entire portfolio to one or more of the major investment banks that were doing business with the county. Negotiations ensued on December 3 with JPMorgan, Goldman, Salomon, and Swiss Bank.

JPMorgan offered to purchase those Treasury bonds that the county owned, but that were not being used as collateral in a repo arrangement. The firm offered $4.4 billion for the bonds. This cash would have allowed Orange County to make the collateral payments and survive long enough to unwind the rest of the investment positions. The county would still have lost nearly $2 billion, but it would survive the crisis. The offer was made on December 4, two days before the collateral payments were due.


PREVIEW

                                                                          

Not a subscriber?

Start A Free Trial


  
  • Creative Edge
  • Create BookmarkCreate Bookmark
  • Create Note or TagCreate Note or Tag
  • PrintPrint