The Orange County treasurer managed the pools, which totaled approximately $7.6 billion. The treasurer used reverse repurchase agreements, a type of derivative. The deposits were leveraged to more than $20 billion. Orange County declared bankruptcy in December 1994. (U.S. Senate testimony)1
(September 2012) The Arkansas State Treasurer has no written policy regarding financial derivatives, according to the office’s response to a Freedom of Information Act request filed Sept. 24 by the Policy Foundation.
The Treasurer’s office did provide a copy of the ‘State Treasury Investment policy,’ a 15-page public record.
State Officials Ignore Problem for More Than a Decade
The Arkansas Teachers Retirement System was named a lead plaintiff last month in a group lawsuit in New York federal court alleging pension funds lost as much as $52 million in derivatives trades by J.P. Morgan & Chase.2
The Foundation, starting in 20013 recommended state officials require transparency of derivatives positions to protect Arkansas taxpayers. Foundation research has been published in international peer-reviewed journals.4 The latest Foundation plea for transparency occurred in June.5
State officials have invited a financial disaster by ignoring the problem for more than a decade. They can solve the problem by creating transparency for any Arkansas government unit with potential exposure to derivatives.
–Greg Kaza
1 U.S. Senate Committee on Agriculture, Nutrition and Forestry, December 1998
2 “Public Pension Funds Named To Lead ‘London Whale’ Lawsuit.” August 22, 2012. Bloomberg News
3 “Derivatives and the Financial Transparency of Government Retirement Systems.” 2001. Policy Foundation research memo
4 “A review of state statutes regulating financial derivatives in the USA.” April 2004. Pensions: An International Journal. London: Palgrave Macmillan. http://www.palgrave-journals.com/pm/index.html
“Regulation of financial derivatives in the US code.” February 2006. Derivatives Use, Trading & Regulation. London: Palgrave Macmillan
5 “State Can Lead Way.” June 4, 2012. Arkansas Democrat-Gazette
