October 25, 2007 (LPAC)--London-based Fitch Ratings has placed the unlimited tax and limited tax general obligation bonds of King County, the largest county in Washington State, onto a "Rating Watch Negative" basis, as the asset-backed commercial paper (ABCP) and SIV aspects of the world financial crisis spill over into ruining county and state finances. Rating Watch Negative indicates a potential credit downgrade.

King County had invested some of its local government investment pool (LGIP) into SIVs, three of which are deeply troubled: the London-based Barclays Bank-created and -run Mainsail II SIV; the London-based Cheyne Capital-created and -run Cheyne Finance; and the IKB Deutsche Industriebank-created and -run Rhinebridge Plc.

Of King County's LGIP's $4.1 billion in total assets, $156 million are invested into these three infamous SIVS, and another $223 million are invested in ABCP. All told, $379 million--or 9%--of King County's LGIP fund is invested directly or indirectly (through SIVs) in ABCP.

Ken Guy, King County's finance director, rationalizing the investment, said, "If you look historically at commercial paper, it's always been considered a safe investment. This was an area where you might be able to earn a little bit more within safe parameters."

Undoubtedly, other of America's 3,080 counties' finance directors also purchased "safe" ABCP paper, which is currently defaulting.