橘子县破产案例分析（英文） .pptVIP

Orange County Summary In December 1994, Orange County stunned the markets by announcing that its investment pool had suffered a loss of $1.6 billion. This was the largest loss ever recorded by a local government investment pool, and led to the bankruptcy of the county shortly thereafter. This loss was the result of unsupervised investment activity of Bob Citron, the County Treasurer, who was entrusted with an $7.5 billion portfolio belonging to county schools, cities, special districts and the county itself. In times of fiscal restraints, Citron was viewed as a wizard who could painlessly deliver greater returns to investors. Indeed, Citron delivered returns about 2% higher than the comparable State pool. Overview of the investment strategy Citron was able to increase returns on the pool by investing in derivatives securities and leveraging the portfolio. The pool was in such demand due to its track record that Citron had to turn down investments by agencies outside Orange County. Some local school districts and cities even issued short-term taxable notes to reinvest in the pool (thereby increasing their leverage even further). This was in spite of repeated public warnings, notably by John Moorlach, who ran for Treasurer in 1994, that the pool was too risky. Unfortunately, he was widely ignored and Bob Citron was re-elected. The investment strategy worked excellently until 1994, when the Fed started a series of interest rate hikes that caused severe losses to the pool. Initially, this was announced as a ``paper loss. Shortly thereafter, the county declared bankruptcy and decided to liquidate the portfolio, thereby realizing the paper loss. Interest rates in 1994 Interest rates in 1994 The leverage in the portfolio In fact, Bob Citron was implementing a big bet that interest rates would fall or stay low. The $7.5 billion of investor equity was leveraged into a $20.5 billion portfolio. Through reverse repurchase agreements (REPOs), Citron pledged his securities