The Real OC


Ok so we aren’t talking about Mischa, Adam Brody, or Rachel Bilson. Nor are we talking about LC, Kristen, Jason, etc. (btw we are embarrased that we even know who these people are). What we are talking about this time is Orange County or more specifically the treasurer of Orange County.

For a brief background on that job Here is a good summary. but the short version is that in 1994 Bob Citron was the Treasurer of Orange County and he blew up. Ok not Jack Bauer blew up but he got into some great derivatives that lost tons of money for the County and in the process forced them to declare bankruptcy. He bought “sophisticated derivatives” that he thought would go up and then added a ton of leverage compounding (in his mind anyways) his gains but in reality it made the losses a lot larger than they had to be.

Anyways fast forward to today and they have a similar although probably not as bad of a problem. Here is a link to Bloomberg that explains the current Orange County Debacle. Here is a hint……they hold a lot of SIV’s. In fairness so far there is no proof that they have lost all their money or anything. They hold about 20% of their money in SIV’s and so far have not written any of them down. And luckily as opposed to Citron it doesn’t look like they used any leverage or anything so their overall risk is a lot less.

Still it is pretty amazing that the OC got into anything even remotely esoteric considering their history with financial derivatives.

-Trade Macro-

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