Back in 2006, the West Allis-West Milwaukee school district blew away $20 million in a scam.
...West Allis-West Milwaukee can trace its slide to 2006 when it agreed to invest $20 million — half of it borrowed — in high-risk financial instruments known as CDOs, or synthetic collateralized debt obligations, as a way to fund health care and other benefits promised to retirees. The investment tanked in the financial meltdown of 2008, and the district lost it all....
Well, it's back, in England!! This time, Larry Fink is pushing the heroin.
... BlackRock, a swindler of LDI fund products, and a bank that was effectively bailed out by the BOE last week, has attempted to clarify what LDI is and, in its own words, “set the record straight”:
“The amount [public pension] retirement plans are expected to pay out to their members in the future are also known as liabilities, and so-called ‘liability-driven investing’, or LDI strategies, aim to match the value and time horizon of their current assets to those future liabilities.
“One way retirement plans to minimise possible shortfalls is by using some of a given fund’s assets to borrow capital, so that the scheme can invest further to grow the value of their current investments for the benefit of future retirees....
What brought on this situation?
...The recent collapse of the United Kingdom (UK) gilt market’s long maturities, which required Bank of England (BOE) purchases of tens of billions of pounds of long gilts to stem a Lehman moment, shined a spotlight on something called liability driven investing (LDI)....
A "gilt" is a British Treasury bond. The gilt market collapsed because various UK pension funds levered their investments in LDI's up to 7X....But:
... as happened in the UK, with over £1 trillion outstanding, levered to the extreme through BlackRock’s LDI funds, rising interest rates forced a doom-loop of selling to meet margin calls. Billions of pounds in pension funds faced immediate collateral risks. Thus, pension funds were forced to sell off various assets to raise cash to cover their bets.
Those sales were crashing the value of all those other assets like a fire sale. The demand for collateral was large enough to crash the entire bond market in another twenty-four hours if the BOE didn’t step in as the new emergency buyer of first resort....
Whoopsie!
The moral of the story never changed: if it is too good to be true, it IS too good to be true. Larry Fink was selling pixie-dust "gold". Now we know how he got to the top of the world of Big Finance, eh?
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