December 5, 2007 (LPAC) – State and local governments lost millions, and in some cases billions, in 1994 when the derivatives they had been suckered into buying by their bankers blew up, thereby blowing holes in retirement plans and forcing cutbacks in government services. Now its happening again with CDOs, SIVs and other instruments that qualify as financial WMDs.

Take Orange County, California, for example. Orange County, then the richest county in the country, actually had to file for bankruptcy over the $1.6 billion in losses it took on its derivatives bets. Now its happening again, with its Extended Fund caught with $460 million, or 20% of the fund's total $2.3 billion, in the toxic waste dumps known as Structured Investment Vehicles, or SIVs. Beyond this fund, the County has an additional $837 million in SIV "investments." Said County Supervisor John Moorlach, himself the county's former treasurer, "We'll find out real quick, if we have a problem." No doubt they will.

Orange County is not alone in its suckerhood:

**The Dec. 5 Boston Globe, in an article "Volatile Holdings Part of State Fund", reported that the Massachusetts Municipal Depository Trust, which holds total assets of $5.6 billion, had invested $134 million "in volatile 'structured investment vehicles.'" The MMDT fund is an investment pool meant as a place for state and municipal entities to place their monies until they need it to pay bills.

**The Dec 5 The Day, published in Connecticut, reports that officials overseeing Connecticut's $5 billion Short-Term Investment Fund (STIF), "might soon have to dip into their reserves for the first time in the fund's 35-year history to keep cities and towns from losing their money." The STIF had invested $100 million in the London-headquartered Cheyne SIV (pronounced Che-ney), which has gone spectacularly bust.

**In Florida, indispensable services are on the verge of being closed. As reported, the state's Local Government Investment Pool had invested billions of dollars into SIVs, and the fund had been frozen since last Thursday, after it suffered a run on its funds that cut the $27 billion pool almost in half, to $14 billion. The Dec. 5 Wall Street Journal reported the chief financial officer for the Jefferson County school district, which has $4.1 million in the state's frozen fund, said that he had to stop payment on checks of $500,000 to vendors last week so that teachers could be paid.

A whopping 95% of the Clay County Utility Authority's cash is invested in the Florida-run investment fund. "We're very concerned about the possibility of defaulting on some contracts that are already in place," said the chief operating officer. This could cause curtailment of electricity supply.